I know most scalpers use the price ladder to assist them in trading decisions, and in most videos (And trading setups) that I've seen, their ladders will usually have 10-depth data (top 10 bid and ask levels) and sometimes even 20-depth.
The issue is that in my country, the maximum data that is available for retail traders is up to 5 depth ( i.e limit order data will be shown for only the best 5 bid and ask levels in the ladder)

So I was wondering if I can still use the ladder in this condition to effectively aid my scalping decisions or do depths higher than 5 provide a significant advantage?
Sorry if this question seems obvious, I'm new to orderflow

bavan666 

I know most scalpers use the price ladder to assist them in trading decisions, and in most videos (And trading setups) that I've seen, their ladders will usually have 10-depth data (top 10 bid and ask levels) and sometimes even 20-depth. The issue is that in my country, the maximum data that is available for retail traders is up to 5 depths ( i.e limit order data will be shown for only the best 5 bid and ask levels in the ladder) So I was wondering if I can still use the ladder in this condition to effectively aid my scalping decisions or do depths higher than 5 provide a significant advantage? Sorry if this question seems obvious, I'm new to orderflow

I will recommend you to use all the levels available, you can lose the short-term picture easily if you use only a few levels...see the image attached if you trade the ES:


2022-10-03_19h19_44

Depends on the product I'd say. I scalp treasuries using only DOM and really don't look beyond a few price levels up and down. So 5 would be fine. Other products that move a bit, probably more useful if you had more depth levels.

ignacio90 

I will recommend you to use all the levels available, you can lose the short-term picture easily if you use only a few levels...see the image attached if you trade the ES: 2022-10-03_19h19_44

Ahh I see, I guess I'll just have to wait until more levels are made available to retail traders over here, gonna stick to footprint charts till then, thank you!

cdnftrstdr 

Depends on the product I'd say. I scalp treasuries using only DOM and really don't look beyond a few price levels up and down. So 5 would be fine. Other products that move a bit, probably more useful if you had more depth levels.

I primarily want to trade Nifty futures (Which is like the ES emini for India), so I think only 5 levels won't be very useful here, I'll just stick to footprint charts until more levels get made available (hopefully) in the future, thank you for your answer!

I think at this point, there is too much focus on the DOM levels.

If you think about it - there's a few types of players on the DOM showing size:

- spreaders - who have no directional bias after the trader
- spoofers - who will pull as we get closer
- actual size - who might just need their orders filled and are happy to display them - like Kellogs hedging corn for Corn Flakes (as a made up example)
- people that want to hold the market and are willing to show their size

I would put that latter group at less than 10% - but we are being educated that DOM Size is all important. What's more important is what's trading, whether other traders front-run big orders but overall the idea that you can see size on the DOM and fade it - that's a net losing strategy. It always has been.

At best, it's a heads up - but 100 levels away doesn't help you much. Then again on NQ only 5 levels would be useless because of the speed of it. I'd say that if you are looking out 100 levels up above for some large order and seeing it - then waiting to hit it so you can go short, you got it all wrong. What you should have done is go long as it went there, if trading was one-sided and healthy but not overly fast (blow off).

The focus on the large bids/offers offers traders a "1 rule trading strategy" - see depth, fade it. Like all 1 rule trading strategies, it's a losing one. It is part of the picture - a "heads up" - but there needs to be context.

As for 5 levels, on the 2 year note it's plenty. On Crude it's not sufficient. But more than 20 - you are probably going to miss out on a lot of opportunities chasing big orders so far out, especially when it could just be a big order from someone that is purely hedging/spreading and doesn't care what happens next.

I "probably" wouldn't use DOM in Indian markets at all.

Data required is not there, latency is also not there. You will have much more difficult time if you consider this to be key in your strategy.


Just my personal opinion, but in market like India, you will have much more scope using simpler things like vwap. I personally favor vwap and POC levels of MP over anything DOM can give me. Some do use it as form of having some kind of bias, but again when data itself is not pure or having enough depth to gauge that market bias, it would be rather futile to depend on it for forming your own.

Just my personal opinion. Other people may have different. And I'm not technically versed with DOM as I don't use it, so take my opinion with grain of salt.

AllSeeker 

I "probably" wouldn't use DOM in Indian markets at all. Data required is not there, latency is also not there. You will have much more difficult time if you consider this to be key in your strategy. Just my personal opinion, but in market like India, you will have much more scope using simpler things like vwap. I personally favor vwap and POC levels of MP over anything DOM can give me. Some do use it as form of having some kind of bias, but again when data itself is not pure or having enough depth to gauge that market bias, it would be rather futile to depend on it for forming your own. Just my personal opinion. Other people may have different. And I'm not technically versed with DOM as I don't use it, so take my opinion with grain of salt.

Sadly I think you're right, Indian markets are pretty underdeveloped in terms of data access, which is surprising considering it is one of the most heavily traded markets in the world, but recently truedata (a data vendor) has collaborated with Bookmap and rumors are that they plan to make level 2 data available to retailers in the next few months (which means it will be out in the next few years ) but still excited to become one of the early adopters whenever it comes around, sticking to footprint charts for now.

Jigsaw Trading 

I think at this point, there is too much focus on the DOM levels. If you think about it - there's a few types of players on the DOM showing size: - spreaders - who have no directional bias after the trader - spoofers - who will pull as we get closer - actual size - who might just need their orders filled and are happy to display them - like Kellogs hedging corn for Corn Flakes (as a made up example) - people that want to hold the market and are willing to show their size I would put that latter group at less than 10% - but we are being educated that DOM Size is all important. What's more important is what's trading, whether other traders front-run big orders but overall the idea that you can see size on the DOM and fade it - that's a net losing strategy. It always has been. At best, it's a heads up - but 100 levels away doesn't help you much. Then again on NQ only 5 levels would be useless because of the speed of it. I'd say that if you are looking out 100 levels up above for some large order and seeing it - then waiting to hit it so you can go short, you got it all wrong. What you should have done is go long as it went there, if trading was one-sided and healthy but not overly fast (blow off). The focus on the large bids/offers offers traders a "1 rule trading strategy" - see depth, fade it. Like all 1 rule trading strategies, it's a losing one. It is part of the picture - a "heads up" - but there needs to be context. As for 5 levels, on the 2 year note it's plenty. On Crude it's not sufficient. But more than 20 - you are probably going to miss out on a lot of opportunities chasing big orders so far out, especially when it could just be a big order from someone that is purely hedging/spreading and doesn't care what happens next.

Thank you so much for the info, it makes a lot of sense now, I had an unrelated question I wanted to ask, how do DOM traders deal with spoofing and HFT scalping algos? The markets are probably filled with thousands of algorithms trying to outsmart each other at the order book level, so how do scalpers deal with that? and was scalping more profitable/easier before HFT algorithms?

bavan666 

Thank you so much for the info, it makes a lot of sense now, I had an unrelated question I wanted to ask, how do DOM traders deal with spoofing and HFT scalping algos? The markets are probably filled with thousands of algorithms trying to outsmart each other at the order book level, so how do scalpers deal with that? and was scalping more profitable/easier before HFT algorithms?

HFT isn't quite what you think - the overwhelming majority is in equities markets, where they buy order flow to execute and then they have an information advantage. IMO Companies like this for example Virtu Financial are a decent longer term trade because they profit from volatility, their share prices shouldn't get hit so hard by a crash because that's where they (theoretically) make decent money.

The DOM has never been about the limit order levels, it's always been about 10% the levels and 90% what's trading at them. When you have consistent high volume (TT shows this with LTQ) and movement and a "cause" - that's what the DOM is used for.

Of course, you can see people bumping the market around but in Futures, I wouldn't worry much about "HFT Scalping Algos" - that's an equities game and even then it's somewhat illegal to trade the info you have. So an HFT can't see a bunch of buy orders come in and then just buy before executing them, but they could pull their sell orders. It's very complex but Futures does not give them the opportunities the stock markets do.

Plus DOM traders aren't there for a tick, they should be going for bigger prizes, following the trading with some other reason to enter a trade. At that point HFT becomes largely irrelevant. Looking at the DOM yesterday (note I am 12 hours ahead of Chicago so this was most of the morning...




In the middle of that, the DOM wouldn't have been much use to you because not much would - it was horrible action. Sure - you'd have found some opportunities bouncing up off the extremes with high volume traded but it's a game of catch the rabbit and likely you'd have found just as many losers with a pure DOM focus because yes there were peaks in volume, but very brief and you would end up jumping at shadows/looking for a trade when really the market was largely directionless.