MARKET DEPTH (or as i like to call it the BUY/ SELL RATIO)
RELIABILITY - how reliable is the information shown in the market depth with regard the extent of shares wanted to be sold compared with the extent of shares wanted for purchase ? ... not very in my opinion, for a number of reasons -
1. those wanting to buy in large quantities will not wish to show their hand, they will prefer to pluck shares from the market at the sell price, and likewise others wishing to download large quantities will sell down at the buy price for the same reason.
2. then there are those wishing to manipulate the share price by stacking either the buy or sell side possibly giving a false impression of the genuine "open interest".
3. and now we have got the micro traders with their faster than the speed of light computers who read the intentions of slower computers and beat them to the bid.
if you were holding LONG POSITIONS you would expect the market depth to contain a greater number of buyers to sellers - and yet with five UPWARD TRENDING STOCKS i am currently holding that is not the case.....three stocks are have almost twice as many sellers as buyers while the other two stocks fit what would be expected, with both having a very much larger percentage of buyers.
HOW BEST TO USE THE MARKET DEPTH in my view the buy/ sell ratio can still be used as a guide as to which direction the price may move but certainly not to be relied upon.... what i am starting to do now is to record the buy sell ratio for each stock that i am interested in or am holding every morning before the market opens..... a comparison of any change in the ratio from the previous days would probably a much better indicator of the direction of any price change - and an early indicator as well........it would be good if there was some charting available on the open interest on a daily basis .
IRESS have a market depth panel where it is shown graphically in bar format, but i can't get into my bonus account at the moment, to check it out furthe,r due to some software problems..... and you can flick it backwards in time to check previous days, but that does not show the history at a glance.
likewise with my market analyst charting program if you subscribe to live data, then the market depth will come out in horizontal bars from the price scale on the right hand side different colours for each of the buy and sell bids .
do others have thoughts on the market depth, and also as to whether there is actually a chart available on its fluctuations from day to day ??
