Raw Data & DOM (Depth of Market)

Question 1

How do we predict the price of an asset?

Answer 1

By using the factors of Supply & Demand

Question 2

What is Supply?

Answer 2

The market side that has an intent to get the service/product/price

Question 3

What is Demand?

Answer 3

The market side that has a willingness to make a purchase of a product, service or price.

Question 4

What is a 2-way market? And what can you comment on Supply/Demand in 2-way markets?

Answer 4

2-way markets (open-ended) are markets in which there can be both buying & selling of an asset or service. Examples; Retail, forex markets etc. The opposite is a 1-way market like a hair salon.

• Supply & Demand in a 2-way market is non-directional.

Question 5

What is Timesales?

Answer 5

It’s an order flow tool which shows actual transactions (aggression) with timestamps.

Question 6

What’s the difference between Intention & Aggression?

Answer 6

Intention - It’s the side of the market who are willing to transact but has not yet taken the action. They have a supply of the service/product.

Aggression - It’s the side of the market which has actually taken action & acquired the service/product.

Question 7

What does the flickering of price without a tick-up or down mean in your broker’s platform?

Answer 7

It means that your broker is figuring out the price to give you as from his liquidity providers.

Question 8

What are the disadvantages of TS (Timesales)?

Answer 8

The market is so dynamic & moves in an instant. Given that Timesales records every transaction, it then becomes a difficult tool for us to focus on, with orders recently executed by Algos.

With the order numbers, it’s hard to know how many participants are in that market.

Question 9

What is the disadvantage of the DOM?

Answer 9

Many pending orders (Supply side) are fake, from Algos.

Question 10

How can we gauge the strength of the DOM?

Answer 10

By gauging these two things on either side (Buyers or Sellers):
- Increase in aggression orders
- Increase in Supply orders (Of the same side as aggression)

Question 11

What makes the price move?

Answer 11

When there is enough aggression (Market orders) to wipe out the consecutive Supply (Pending orders/Intent) completely, then that’s when the Price will move.

Question 12

What are the technical terms for price moves?

Answer 12

• Tick up = Market appreciating upwards
• Tick down = Market depreciating downwards

Question 13

What order flow tools are derived from the Depth of market (DOM)?

Answer 13

The Timesales, Footprint, Volume profile & ultimately the VWAP. (Both through Aggression effect (Market orders)

Question 14

What are thick markets?

Answer 14

These are very liquid markets, meaning they have many market participants & hence are also, not volatile. Example: US10Year Treasury note, SXP500 & Crude Oil.

Thick markets have a lot of contracts that are traded daily.

Question 15

What are thin markets?

Answer 15

These are very illiquid markets, meaning they have few market participants & hence are also very volatile. Example: GBPNZD, GBPCAD etc.

Thick markets have few contracts that are traded daily.

Question 16

What is a volume profile?

Answer 16

A volume statistical analysis tool recording the actual volume of market orders in Price & Quantity transacted (in form of histogram/bars)

Question 17

What is the DOM (Depth of Market)

Answer 17

An order flow tool which analyzes the Price mechanisms in terms of Pending orders, and Market orders, the actual volume transacted (Through the DOM).

Question 18

What usually happens after aggression which leads to a tick-up/down of price?

Answer 18

The Supply which had their prices far will start to move them towards the direction of the action, so they can get the piece of the move.

Question 19

When do Candlesticks (or Heikinashi) have significance?

Answer 19

They do visualize the VWAP well.

Question 20

What does a very thin, long volume profile on the DOM mean?

Answer 20

It means that there are a few market participants. And, it might be caused by either:
- An expiring contract
- Illiquid asset
- Market participants are having trouble settling the price
- Economic recession times
- hard market times

Question 21

What should you be weary of every day in the DOM?

Answer 21

Unusual contract sizes, as they might be Spoofers.

Question 22

What is Spoofing? Is it legal?

Answer 22

Spoofing is an act whereby there is an unusual order which gets pulled out as the price approaches it. Spoofing has fake orders.

Spoofing is illegal & it’s usually done by Algos in Institutions.

Question 23

What is absorption? Is it legal?

Answer 23

Absorptions happen when there are a lot of market orders being made at a certain price level, but the supply isn’t wiped out, in fact, it might be just flickering & even decreasing, but not disappearing.

Usually, the market is heavily going to crash on the Aggressors, as it’s skewed against them. Absorption is legal since orders are actually executed.

Question 24

Why do absorptions happen?

Answer 24

They happen when an institution doesn’t want to be front-runned.

Question 25

Why does spoofing happen?

Answer 25

It happens when an institution wants to create a false sense as if to fade the move, but actually supporting it.

Question 26

What is front-running?

Answer 26

It’s an act where as price leaves before market player (s) getting all their orders filled.

Question 27

How do you easily spot spoofing?

Answer 27

When the market orders at that particular price level are few, & the wiped contracts in the supply side are way too many.

Question 28

What are the key features of absorptions?

Answer 28

The orders ar static, they pile up in equal increments, the supply side is way smaller, the no tick up/down.

Question 29

What key clue do absorptions tell us?

Answer 29

The market orders (aggressors) are trapped, & soon it shall fall upon them.

Question 30

How does absorption happen in thinner markets?

Answer 30

In thinner markets, absorptions happen in a range of prices., like GBPUSD. While in thicker markets, it happens in specific areas of action.

Question 31

Time & anticipation direction, what can you comment on this?

Answer 31

The longer it takes the traders to move in a direction, the more nervous they become.

Question 32

Time & anticipation direction, what can you comment on this?

Answer 32

The longer it takes the traders to move in a direction, the more nervous they are becoming.