How often do you use depth of market in trading?

Do you use Depth of market while trading? what features do you need in it?

I started interested in trading stocks. I watched how other traders perform trading without looking on the chart,only using market depth. Trading stocks without market depth is impossible. could you advise me any good platforms with convenient depth of market panel? and why do you consider it convenient?
thanks for answering

P/S.I created such therad in trading disscussion section. But there one member advised me to ask this question here.

If you are specifically referring to level 2 quotes for the exchange you trade on, then all dom displays should contain the same information.

May be there are some peculiar features for trading which you like in DOM?

Don't you trade Fx.? I mean currencies?

I trade fx. But now i also got interested in stocks. that's why i need help of experienced traders.

This gives some info towards the end http://www.londonstockexchange.com/p...evel2guide.pdf

My advice would be to try to use the information included in the dom to effectively trade events, like news releases or the close/open.

Hi,

I traded using market depth for years. Trading solely on market depth is an extinct art especially after high frequency trading gained popularity. Looking at market depth these days is similar to looking at noise, you have to know exactly why your looking at it for it to be of any use.

It is almost impossible to trade without a price chart, when I use it, I watch market depth at:

 

1. Key S/R levels to validate a move (e.g if I notice that price broke out above my key level and offers were being hit aggressively but price didn't appreciate then I would be inclined to believe that the break out could be fake).
   
2. Levels with round numbers (e.g. 10, 20, 30, 50, 100...)
   
3. Yesterdays high and low
   
4. During a fundamental catalyst like earnings, restructuring, guidance..etc. You can identify the nature of the buying and selling taking place by looking at market depth because in such situations the HFT guys usually turn their systems off due to the high volatility giving market depth readers clearer readings.
   
5. During the open and around the close of the market.

I also used level 2 to route my orders to gain rebates through the various exchanges by either being passive and bidding through limit orders on rebate giving exchanges or through being aggressive by buying through or hitting the offer on other exchanges solely for the purpose of reducing commissions (which are at historic lows, the last time I checked it cost me $1 to aggressively buy or sell 100 shares of all listed stocks).

I would recommend that you pay attention to market depth only as a secondary indicator in a scalping or day trading system and at key reference points like the ones mentioned above. I would advice against trading on market depth as a primary indicator due to the HFT noise present in current markets, you need to have your setups before hand and only use market depth as a supplementary confirmation or non confirmation tool no stocks you are familiar with, it is important to remember that different stocks act differently.

Split

Hi SpliT

Thanks for a valuable feedback! I appreciate your help. I hope it will help me in learing market depth.


Soory for my ignorance, but why are you interested in levels with round numbers?

Its alright we all found it weird when we started, when you pay attention to key support or resistance levels you notice that they usually occur at round numbers. This happens in stocks more often than in other instruments like fx due to the fact that people notice those numbers making them psychologically relevant. Look at any significant level where a new high or low was made and you will notice that most of the time it occurred where?... At round numbers.

Hi Split_unit,
I too use market depth during opening to get an idea of the strength of buyers and sellers to get an idea of future price direction.

I have a query and would like to have your opinion on it. The earnings season has started and there was a gap up (10 %) in the stock that i planned to trade(open price - 2781). There was some more buying and it went to supply zone ( around 2900), then pullback and a slower attempt of 2900 . All this happened within 1 minute of opening and was visible in 1-tick line chart. After failure to cross 2900 there was a big fall. I could not trade this as i didn't have any plan for this.
My question is, how you would have traded this ? what preparation you would have made and how you would have planned entry, stop loss and target ? how you would have traded this using market depth ?

Regards