Dow 10/11

Dow Market Profile chart 11-Oct-2006

yes daytrader is correct but lets just take an exact example.
5 tics up a total of 5000 contracts offered as resting limits 1000 at each price. and lets say that you have a stop order at level 3 for 1 lot. a regular stop order becomes a market order as soon as the price is triggered. So let's back up first 5k on the offeres levels 1 thru 5. a market order comes in from a 3rd party to buy 5000 contracts. This order takes precendent over anything else at that given moment for it is a market order. so the 5 levels are tripped and your 1 lot at level 3 is behind the 5k buy order. and so you will be filled at the level 6 however lets assume that between level 6 and level 9 there are no resting limit sells then you 1 lot will be filled at the price at level 10 assuming that there are say 2 lots offered at level 10. The example given assumes no other orders are active at the same moment nor that there are any other stops but for example if someone had a stop at level 2 then their order would take precendence over yours which was level 3 and they would be filled at the level 10 first then your order would fill next

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Originally posted by alleyb

...lets say that you have a stop order at level 3 for 1 lot. a regular stop order becomes a market order as soon as the price is triggered...but for example if someone had a stop at level 2 then their order would take precendence over yours which was level 3 and they would be filled at the level 10 first then your order would fill next

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Good example alleyb. I have quoted part of what you said and would just add that the stops that you are talking about in the quoted part (inasmuch as the precedent of stops) assumes that the stops are held at the exchange and not on the trader's computer or broker's server.

If the stops are being held away from the exchange then it is possible that your level 3 stop will get into the queue before the level 2 stop if you have a faster system and connection to the exchange than the trader with a stop at level 2.

Let me know if that makes sense...

Okay! This is all starting to make more sense to me now.

alleyb: I was reading through some of the threads on the forum and see all of the discussion about the pit and the electronic exchanges and the relationship to the "Liquidity Mirage".

From my current understanding the same principals would apply to a large order that was placed in the pit at market. Is this correct? If there were no floor traders in the pit at each level then the fills would be the same as in the electronic market?

EliteTrader: ah but the difference is that there is always on the floor someone willing to take the opposite side. There was a couple of years ago an infamous day in the bond markets where the electronic traded 5 big figures but the floor ONLY traded 3.5 . the reason was because the floor was in that respect of price discovery more efficient.
Steidlmayer wrote that if the pit thins out step out of your position and return when the pit fills out again and go with the new emerging market direction.
DayTrader: Yes I guess you are right and thats all about bandwidth. Your brokers bandwidth as much as anyones

Do you think I should try and get information about how thin/full the pit is before I trade? Do you know if anybody has used that information (if it is available) to help build a trading rule?

For example: Buy the VAL if the pit is full otherwise stand aside.

I would be absolutely amazed if that information is available and even more amazed if anybody has built it into a pricing or trading or back testing system.

However, having said that, I would imagine that you could fairly accurately predict when the pit will have many and few people in it. For example, during the lunch hour it would usually be thin and the day before holidays would be thin.

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DayTrader: Yes I guess you are right and thats all about bandwidth. Your brokers bandwidth as much as anyones

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It's not so much about the bandwidth but more about the quality of the connection. The amount of bandwidth required to transmit a market order is pathetically small, just a few bytes, so the determining factor is the quality of the connection and the latency in the transmission.

For example, someone trading over a satellite connection may have a 1GB connection but a latency of 3 seconds. Someone trading over a 56KB connection using a dial-up modem will get their order in before the satellite connection because of the latency in the satellite connection. This assumes that they both hit the market order button at the same time and all other factors are the same.

activity tells you about whether the pit is full. ie participation leads to facilitation of trade. look for the obvious clue which is the width of the value area apart from volume and price activity

So the "fullness" of the pit is not really important then because we can read it off the chart?

exactly Elite. Its always actually in the chart. The activity, the who buying and selling and the levels and the volume for that is the very essence of Market Profile

Thanks alleyb!!

Actually Elite it is available if you read the MP as it unfolds in terms of what used to be referred to resposnive and initiative activity. It does require a degree of subjectivity due to the fact that you cannot be 100% certain but it is good enough for the purpose of establishing the dominant trader and their influence on the value.
In other words the footprint is there you just have to understand what it looks like in terms of the patterns that unfold.
As to why they don't make such information available its because the commercials have no interest in disclosing in fact they would far rather remain these days hidden from view in reality they would for the volume not to be disclosed let alone the open interest. The exchanges still to this day actually report open interest one day in arrears. It used to be for the fact that it took time to collate the info. These days the excuse is possibly because all too frequently trades are missallocated and remain in limbo at the execution broker before being transferred to the clearing broker.
Rather than worrying what should be provided in the way of info it is better to just work with the tools available and be grateful that at least we have that amount of info available to us