Raw Data & DOM (Depth of Market) Flashcards
(32 cards)
How do we predict the price of an asset?
By using the factors of Supply & Demand
What is Supply?
The market side that has an intent to get the service/product/price
What is Demand?
The market side that has a willingness to make a purchase of a product, service or price.
What is a 2-way market? And what can you comment on Supply/Demand in 2-way markets?
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.
What is Timesales?
It’s an order flow tool which shows actual transactions (aggression) with timestamps.
What’s the difference between Intention & Aggression?
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.
What does the flickering of price without a tick-up or down mean in your broker’s platform?
It means that your broker is figuring out the price to give you as from his liquidity providers.
What are the disadvantages of TS (Timesales)?
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.
What is the disadvantage of the DOM?
Many pending orders (Supply side) are fake, from Algos.
How can we gauge the strength of the DOM?
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)
What makes the price move?
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.
What are the technical terms for price moves?
- Tick up = Market appreciating upwards
- Tick down = Market depreciating downwards
What order flow tools are derived from the Depth of market (DOM)?
The Timesales, Footprint, Volume profile & ultimately the VWAP. (Both through Aggression effect (Market orders)
What are thick markets?
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.
What are thin markets?
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.
What is a volume profile?
A volume statistical analysis tool recording the actual volume of market orders in Price & Quantity transacted (in form of histogram/bars)
What is the DOM (Depth of Market)
An order flow tool which analyzes the Price mechanisms in terms of Pending orders, and Market orders, the actual volume transacted (Through the DOM).
What usually happens after aggression which leads to a tick-up/down of price?
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.
When do Candlesticks (or Heikinashi) have significance?
They do visualize the VWAP well.
What does a very thin, long volume profile on the DOM mean?
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
What should you be weary of every day in the DOM?
Unusual contract sizes, as they might be Spoofers.
What is Spoofing? Is it legal?
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.
What is absorption? Is it legal?
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.
Why do absorptions happen?
They happen when an institution doesn’t want to be front-runned.
