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What does it suggest if the market has been falling and the spread starts to widen? A widening spread suggests that the market is slowing down. The sellers are clearly less aggressive and often the spread will widen at turning points. It is like an over stretched elastic band that has to snap back. What does it suggest if the market has been going up and the spread starts to widen? Again it suggest that the buyers are less aggressive, the higher the market goes on a move the less attractive it becomes to buyers, so the less aggressive they become and the more attractive the price becomes for sellers. What does it suggest if the spread starts to narrow? A narrow spread suggests a balance point, where buyers and sellers are as keen and aggressive as each other, so wait to see who wins this struggle. What does it imply if most of the trading is at the offer price? Aggressive buying. What does it suggest if most of the trading is at the bid price? Aggressive selling. 73 Reading the Depth of Market First let me explain the DOM, to those of you who are not totally familiar with it. If you look at the picture (figure 42) of a DOM window, you will see it is divided into bid data on the left in blue and offers on the right in red. For each bid price there is the bid quantity and similarly for each offer price there is an offer quantity. The current best bid and offer are at the top of their respective lists. So the best bid is 5231 for 3 lots and the best offer is 1 lot at 5232 (in the trading pit when a trader bids the market he says the price then the quantity and when he offers the market he says the quantity then the price). As you move down the lists, the bids and offers represent the next best bid and offer. This particular example shows the DOM 10 levels deep. Figure 42 |
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