Hi All!
I learn about market microstructure these days and some question* came to my mind !
* about the technical aspect how the market works(and not strategy)
1.
price is at 1.0652 and heading down . Despite the 1.0000 level was very strong all the time held the lvl several time.
So my (and other's) thinking was that there must be demand there. So i made a note(line, rectangle for ppz..etc) on my chart.
But yesterday i started to think: I have read that market orders moves the market because they accept the liquidity provider's price.
So if we need huge demand once the price drop to the 1.000 zone we NEED a lot of market orders.
But those who aware of this zone before the price hit it ,so those will place limit buy orders. not? so if the majority of traders think the 1.000 will hold they place LIMIT ORDER.
So in my view the zone will definitly hold because monster quantity of limit buy orders are hard to absorb by market sell orders BUT in the same view its hard to push price up from the level 1.000 because who will market buy? The buyers have limit buys.
2.
despite the price is between 1.2010 and 1.2040 for the last X hours and all of sudden it pushes up to 1,2130 in one bar.
Am I right if I think the following? ->
The move happened because one of these 3 things:
1. lot of buy market order came in so limit sell got absorbed easily.
2. just a small pack of market order came in but there was only a very few limit sell order
3. the next limit sell was exactly at 1.2130 so buyers needed to buy those (but in this case it would be a gap bar i think)
3.
In a very illiquid market it shouldnt be easier to catch bigger moves?
Here is what I mean: We have a market with very low volume. This means that the orders are rare. And if the orders are rare then no-one will fill again the limit orders gap once they get cleard so the price has more chance for a big move
example:
price is at 13.50$
order book:
limit sells are at 13.60$, 13.80$, 13.90$, 14.00$
limit buys are at 13.40$, 13.20$, 13.10$, 13.00$
market buys came in and pushed the price to 13.80$ (limit sells at13.6 and 13.8 got filled).
the book right now:
limit sells are at 13.90$, 14.00$
limit buys are at 13.40$, 13.20$, 13.10$, 13.00$
so we have a limit order gap between 13.40$ and 13.90$. And because the market is illiquid it wouldnt be filled soon with buy limits.
The price is right now 13.80$. Could this means that shorters have way higher rewards than longer?
4.
The core of any trading strategy must be the question? : where will the market orders come in and are there out the sufficient limit orders to fill these orders or not? am i right?
Thanks
I learn about market microstructure these days and some question* came to my mind !
* about the technical aspect how the market works(and not strategy)
1.
price is at 1.0652 and heading down . Despite the 1.0000 level was very strong all the time held the lvl several time.
So my (and other's) thinking was that there must be demand there. So i made a note(line, rectangle for ppz..etc) on my chart.
But yesterday i started to think: I have read that market orders moves the market because they accept the liquidity provider's price.
So if we need huge demand once the price drop to the 1.000 zone we NEED a lot of market orders.
But those who aware of this zone before the price hit it ,so those will place limit buy orders. not? so if the majority of traders think the 1.000 will hold they place LIMIT ORDER.
So in my view the zone will definitly hold because monster quantity of limit buy orders are hard to absorb by market sell orders BUT in the same view its hard to push price up from the level 1.000 because who will market buy? The buyers have limit buys.
2.
despite the price is between 1.2010 and 1.2040 for the last X hours and all of sudden it pushes up to 1,2130 in one bar.
Am I right if I think the following? ->
The move happened because one of these 3 things:
1. lot of buy market order came in so limit sell got absorbed easily.
2. just a small pack of market order came in but there was only a very few limit sell order
3. the next limit sell was exactly at 1.2130 so buyers needed to buy those (but in this case it would be a gap bar i think)
3.
In a very illiquid market it shouldnt be easier to catch bigger moves?
Here is what I mean: We have a market with very low volume. This means that the orders are rare. And if the orders are rare then no-one will fill again the limit orders gap once they get cleard so the price has more chance for a big move
example:
price is at 13.50$
order book:
limit sells are at 13.60$, 13.80$, 13.90$, 14.00$
limit buys are at 13.40$, 13.20$, 13.10$, 13.00$
market buys came in and pushed the price to 13.80$ (limit sells at13.6 and 13.8 got filled).
the book right now:
limit sells are at 13.90$, 14.00$
limit buys are at 13.40$, 13.20$, 13.10$, 13.00$
so we have a limit order gap between 13.40$ and 13.90$. And because the market is illiquid it wouldnt be filled soon with buy limits.
The price is right now 13.80$. Could this means that shorters have way higher rewards than longer?
4.
The core of any trading strategy must be the question? : where will the market orders come in and are there out the sufficient limit orders to fill these orders or not? am i right?
Thanks