I now realise I am going to do anything BUT write this bloody manual...
TS is very tough to read. DT's product combines both the DOM/TS so its much much better. Seeing a wall of red on the TS would lead you to believe that theres a lot of aggressive sellers hitting the bid, but unless youre are speedreader, theres no way youre gonna know exactly how many. Yes, you can filter the TS and highlight large orders, but many block orders are broken up (ala icebergs). With DT's depth+sales product, I can see exactly how many contracts have hit the bid. Probably sounds like I'm plugging his product, but its just very good for this purpose. Only CQG's dom offers similar, but they only show the traded contracts for the current inside bid/ask. DT's will show a history until you clear it.
Yup - the product is called Depth & Sales for a reason, it is DOM & Time&Sales combined. It makes watching Time & Sales for 'flow' redundant.
I keep a T&S by the side showing large orders only.
This is what I most look for. Either a bid or an offer holding and absorbing most of the market orders. I'm probably biased to this because its what the NO BS guy places a good amount of weight on. So this is easiest for me to see.
Let me explain the problem I'm having with this absorption (kinda relates to the iceberg thing I mentioned earlier in the thread), maybe DT will chime in too.
Say the support level is 69. Price is moving down. Suppose on average it takes 500 contracts to move a price. We move down to 71x72 and 1000 have hit the bid, but its holding. It increases to 1500, bid still holds. Then up to 2000 while the bid holds. (On the TS this would be a wall of red). I start thinking, hrmmm perhaps this is the bottom, some nice absorbtion here, two ticks off the low. Say by the time 500 more trade for a total of 2500, price ticks down to 70x71 and the same thing happens. lots of orders at the bid. Again I start thinking to go long. This time it takes 2000 to move price down to the level. Price is down to 69x70. However, the last two prices have shown some nice absorption, yet price couldn't hold. Suppose I start to see the same at 69, maybe 3000+ are absorbed at the bid. So far it hasn't been reliable that it will hold. And all this usually happens ALONG with plenty of contracts hitting the offer as well. As if the buyers are trying to support the price and push it upward. Its not like 3000 go through at the bid and only 400 at the offer. It might be 3000 and 2000. Sometimes that 3000 that was just absorbed is enough to break 69, and then youll see at least 3-4 ticks go as stops are hit, but sometimes the move continues too.
It's always nice to have more than one reason to enter a trade. Let's say you wanted to build a 10,000 contract position for a short term trade. There's a couple of things you'd want to do:
1 - Not have price move against you too much
2 - Get the best price possible
Now - if you buy all 10,000 in one go - everyone sees it but also, you don't get the best prices. So you buy 2000, then 3000 at the next price, 3000 at the next.
That way, price doesn't run away from you and you are getting in at better prices.
Now - I don't know anyone that trades 10,000 contract so this is my theory only but it makes sense.
So - when you see absorption, you might be reading it right that a reversal is imminent. If you go long on absorption on the bid with a 4 tick stop, then it may well wiggle you out because they may want to add more at better prices.
One thing you can be sure of if someone builds a short term position like this, when they are done, they (and their followers) will start jumping on and this is the reason I keep a T&S of large trades by the D&S - because some signals aren't strong enough on their own. You see the absorption but wait till you see some market buying.
