DislikedWhat methods do you guys have to see or "know" what is leading the price? Esp. if you're trading intraday?Ignored
However the only practical way to trade with level 2 data is to based your trade decisions around important price levels then follow strong delta away from levels.
Here is an example of how a bullish trend starts.
On a DOM, count the amount of Asks above price in the first 10 levels and then the amount of Bids below price in the first 10 levels. Using ES (US500), there may be 1700 Asks above price and say 1600 Bids below price. There is no real imbalance here so we keep watching. Suddenly around an important level, Asks will start to increase to 2000+ whilst the Bids start to drop off to under 1400 contracts. We are now seeing an imbalance in the Asks / Bids that could create a trend. We now watch closely looking for type 2 Algo’s to turn on to attack the excessive Asks above price. If you were watching Delta data only, you would see a sudden leaping of positive buying volume in strong numbers. The long trend starts when the Algorithm long trading bots are “turned on” to attack Asks above price which are just Sellers Limit orders sitting there and growing second by second.
Delta will now run from around 0 to 400+ in around 10 seconds and may hit 1000+ soon after on a strong breakout.
We just place a market long position and watch.
Here is the good part now.
Above important levels lay stops which if hit, create cascading stop events which may move up price 10 ticks instantly and quicker than the eye can register.
So now on ES trading 1 contract, profit is around $500 approx.
Here is the bad pet now.
Price that’s hit stops will have created a gap which may collapse the trend or stall its movement forward so we need to exit the trade if there is no strong Ask numbers.
Botton line, if there is no Ask / Bid imbalance, there is never a trend that’s visible at its start.
A sweep with a large order is untradable, the trend it creates may expand further or collapse, it’s a flip of a coin.
Bottom line, trade only when you see the Buying or Selling bots operating on a DOM around important levels, or when you see the Delta numbers growing strongly around important levels.
Cheers
Trading thin liquidity at the boundary of the charts
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