An answer to one of the questions here in TradingQnA mentioned Order Flow Trading. Can we get some meaningful information from the dual depth window to determine Order Flow? I’ve tried to use it in past but stopped using with the hypothesis that price reflects everything. How do you guys use it?
Hmm… Personally I don’t believe that looking at the bid/ask volumes in the snap quote really works, especially if you are trying to do this manually and not really without a strategy that is backtested. In the many years I have been trading the market, this is actually the most popular way a retail trader decides to get in and out, if total bids are more than ask buy and if not sell.
What needs to be kept in mind while seeing this is that firstly it won’t capture any market orders that will be placed, and secondly most of these bids/asks could be at prices which are way before or ahead of the current market price, making those quantities insignificant.
Popular notion is that if - Total Bid Quantity (TBQ) > Total Ask Quantity (TAQ) Then Buy Popular Considered notion is that; Total sold quantity is more hence a oversold situation arises, this will create a demand situation and thus more people want to buy it, this will drive stock price higher. Hence BUY. Apart from this it helps to understand what decision other traders are taking, kind of crowd psychology at that give price point on chart. Which in turn help you to take the right decision. I hope Nithin will throw some more light on this.