how dom can help you determine the true meaning of market...

• What is depth of market?

• What does the data mean?

• What do changes in the data mean?

• How DOM can help you find support and resistance

• How DOM can help you get better fills for entry and exit

• How I use DOM to predict extremely short-term swings

• How DOM can help you determine the true meaning of market reactions to news

• How DOM can tell you ahead of time whether there is accumulation of distribution

• How DOM can trick you into erroneous conclusions

• Tips, tricks, and techniques for using DOM

• Detailed methods I have developed for daytrading with DOM

2/24/2014 ©2014 JAKE BERNSTEIN/NETWORK PRESS INC.

A trading information retrospective

Pre 1900: basic charts, fundamentals, rumors, news and insider

trading, manipulation

1925-1940’s charts, pools, bull and bear raids, insider trading,

Livermore; charts kept manually

1950’s – late 1960’s; Edwards & Magee, Graham and Dodd, tech

analysis grows. Charting gains popularity. Richard Donchian.

Wyckoff volume. Granville OBV. “If we could only use computers”.

1970’s Computerized trading analysis grows as does tech analysis.

Multiple Ma’s Victoria Feed 4, 9, 28 Van Nice absconds. If we could

only enter orders and get all data by computers

1980s to early 1990’s Market profile, AI, electronic order entry. If we

could only do this faster and bypass those blood sucking brokers and

those crooked floor brokers and get lower commissions and faster

data

2000’s we got it all – but can we find out where all the orders are?

HFT, order book, DOM, ladder, volume at each tick: what’s next?

2/24/2014 ©2014 JAKE BERNSTEIN/NETWORK PRESS INC. 2

DOM: good news / bad news


OMG!!!

Standard definitions • Definition of 'Depth of Market (DOM)

A measure of the number of open buy and sell orders for a security or currency at different prices. The depth of market measure provides an indication of the liquidity and depth for that security or currency. The higher the number of buy and sell orders at each price, the higher the depth of the market. Depth of market data is also known as the order book, since it shows pending orders for a security or currency. This data is available from most exchanges for a fee.

• Investopedia explains 'Depth of Market (DOM)'

Depth of market also refers to the number of shares which can be bought of a particular corporation without causing price appreciation. If the stock is extremely liquid and has a large number of buyers and sellers, purchasing a bulk of shares typically will not result in noticeable stock price movements.


Depth of Market – Order Book

• Review of data and meaning of data

• What it tells us

• How to use it

• Cautions

• REQUIRES some interpretation – method as opposed to system

• LIMITS of application

• MY discoveries and applications

• Dynamic vs static

• Applicable to all futures

• Applicable to stocks (level 2)

• My best uses: day trade and 2 – 5 days


How I Use DOM

Not in order of importance

• Support and resistance

• Accumulation of positions

• Distribution of positions

• Optimum entry and exit prices

• Prior to major reports

• Assessment of market reaction to news

• My version of HFT day trades

• Short term trades

• Determine anomalies in balance of buy / sell intentions

• Changing stops and targets dynamically based on conditions in DOM

• More applications being developed

• FOCUS ON PROCESS and UNDERSTANDING


Market Generated Information (MGI)

• What is MGI?

• Pit traders and MGI – the edge – Tom Baldwin

• Buying the bid selling the offer

• The million widget dilemma

• Now that the floor broker is an anachronism

• What else is there?

• Levels of MGI

• How we DISTORT MGI and why

• Why MGI is the highest level of info

• HFT the ultimate application of MGI

• We can’t compete with HFT BUT we can get the edge…

• Warren Buffett acts to prevent early info access by HFTs

• DSI and HFT requests

• WAYS TO TRADE: CONSIDER THIS FIRST! It’s critical to define your space and

develop that space with powerful tools

• KNOW WHAT YOU CAN DO and maximize it

• DOM can be used by ALL TRADERS – I will show you how

• But remember DOM is a method not a system at this point


Levels of market information • 2 main categories

1) External market related information (examples)

2) Market generated information MGI (examples)

• Levels of MGI

---- lowest level charts

---- one level up charts + indicators

---- volume and open interest (futures)

---- depth of market and order flow

---- Liquidity Data Bank – LDB (example next slide) and Market Profile

(Steidlmayer)

http://www.elitetrader.com/vb/attachment.php?postid=921848

http://www.abebooks.com/servlet/BookDetailsPL?bi=11628615487&searchurl=

ds%3D30%26isbn%3D9780471621157%26sortby%3D13

---- Resting orders info from exchanges (HFT)

8

http://www.elitetrader.com/vb/attachment.php?postid=921848

http://www.abebooks.com/servlet/BookDetailsPL?bi=11628615487&searchurl=ds=30&isbn=9780471621157&sortby=13

http://www.abebooks.com/servlet/BookDetailsPL?bi=11628615487&searchurl=ds=30&isbn=9780471621157&sortby=13

Markets as an auction process

• The concept

• The application

• Facilitation of trade (FT) is critical

• How to evaluate facilitation of trade

• How momentum can reveal FT

• How depth of market (DOM) reveals FT

• FT can be evaluated in any time frame

• A DOM study step by step (10 deep)

• Caveat: rule based vs analysis

9

640AM Mon 2 Dec

• Note orders

below LOD

vs sell orders

above last

trade – now

look at the

daily chart

18

Let’s look at a trade with DOM – my steps

• I determine current trend*** BEFORE start of US day session using my trend and timing tools. For THIS purpose I find MAC best

• Why? Because it gives me trend, mac support and mac resistance but I can also use divergence mom trigger / trend if there is no MAC trigger. I NEED TIME TO OBSERVE

• If trend is up I want to assess buying power and orders below current price so I look at dom 10 deep if possible below market and COMPARE 10 deep to sell above. Example next slides

• TIME frame for initial step depends of the market and size of market moves. How much does the given market or stock move in a given time frame? Is the move worthwhile in $$$? Can you make money in the time frame chosen given size of move? Do you want small move and large position? Can you make money on 2-3 ticks in sugar? Do you want to trade only 2 units to get started? Can you make money in soybean oil on 3 ticks x 2 contracts? In what time frame is that do-able? YOU HAVE TO MAKE THAT DECISION YOURSELF! Does the market move too fast in that time frame? How fast is fast? Is your time frame too slow? How will you know?


643AM

• The support and

buying pressure

continue…approx

4:1 ratio over

sellers confirming

to me that the

trend as of now is

likely to continue

up. I want to BUY

BUT WHERE?

22

649AM

• Support and

buying support

continue and

increase as

sellers decrease

– I want to be

long – where?

23

659AM

• The demand

continues let’s

look at the chart

up close…the

auction process

shows large

demand in the

418 ½ to 420 ¼

range…look at

what’s happening

on the chart…see

how momentum

is ramping up!

24

706AM

• Accumulation and

buying interest

continue from 418

¾ - 421 with only

3 large sell

batches above

market – buyers

in control – this

market is going I

will go long if not

already long?

Very fast target

(arrows) – risk

below here

26

712AM

• Look at this!

If I am not

already long I

need to do

so by hitting

the offer

27

715AM

• And this! So…I need to be long corn since the buyers are in clear control and an upmove is almost imminent!

28

724AM

• Demand and

support

continue –

the market is

talking to me

29

728AM

• Buyers take

a rest but are

still in control

30

738AM

• Balance returns which means the big buyers are giving the sellers a chance to show their power or intentions – the auction has reached a stalemate but the slight bias remains on buy side

31

744AM

• Big buyers

step back in

to the game

since sellers

couldn’t take

control

32

804AM

• Support

continues to

be stable at

and under

LOD

33

848AM

• Price begins

to move up

and buyers

still support

higher prices

34

929AM

• Market

coming into

balance but

buyers still in

control

35

957AM

• Prices

rallying and

balance

returning

36

1005AM

• As prices rise

large sell

order

appears at

high of day

but support

still stable

37

1010AM

• Large sell orders

begin to show

near high of day

but buyers still

plentiful – price

now 6 cents

above levels at

which strong

buying developed

38

FYI this is what happened after many days of large buy orders below

market 3 to 1 ratio or more the market is “screaming “ ‘buy me’


Also FYI here is where support developed in jan before $1500+ move


1043AM

• Burden of

proof is on

longs as

large sell

orders

develop at

high of day

42

1054AM

• Same

process

continues

43

1120AM

• Buyers fade away and there is doubt that prices can remain at this level...take profits on day trades or sell on stops or use PMAX

44

544am Dec 5

• DX on left

• ZCH on right

45

603am

• What do you

see in DX or

ZC

46

631am

47

636am

48

649am

49

723am

50

836am

51

Corn 21 Jan 6:44am


Its happening again! Look!

Corn 21 Jan 6:58am


30 jan 741am what to do? Why?


30 jan 741am


30 jan 837am


30 jan 954am


Today 641AM


DOM 641AM CZ


645am today DX ES


Today ES up 14.00+ DOM


ES chart at same time


Back to CZ 712am


Assess a low volume market


Coffee: DOM wont help me


Sugar today – assessment?


Sugar chart at same time: follow rally?


I bought corn: now what? Look at chart and dom 728am



Zc 744am

751am


753am Sugar backs off from high


819 corn


Es 831am


Revisit corn: 842AM


ES makes new high: resistance level and

place to take profits or raise stop?


Es 944am conclusion? Is the market facilitating trade?


Buy corn again or pass?


• SSTT sessions are recorded

• I can be reached at 800-678-5253 or

831-430-0600

• Email me if you have questions:

– [email protected]

• Mentoring appointment interview

– http://www.comtrade1.com/letter/

Best of trading

Jake Bernstein

• Upcoming Webinars & Events


mailto:[email protected]



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how dom can help you determine the true meaning of market...

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