Detecting Icebergs

First, an iceberg order is an order that is set to constantly refill on a level in partial allotments. For example, a trader may have 5,000 contracts he wants to sell at at price level but he'll only allocate these in allotments of say 20 or 100. While its impossible to see these order before they're transacted against, it is possible to see these orders as the result of unusually large prints in the PressureVolume​TM  display. For example, unusually large buying prints indicate a refilled offer while unusually large selling prints indicate a refilled bid. It is also possible to see this in the histogram shape on the V.I.T. The reason the volume is able to build on the level is because the other trader is refilling the other side. Always keep that in mind when you see areas of intense buying or selling.

The next question is what is the importance of such patterns? The answer, like most real answers in trading, is that it depends on the context. Generally speaking, strong buying or selling that is unable to drive the market to new highs or lows indicates a reversal is possible. However, during otherwise strong uptrend markets we'll see a seller offering at a certain level, and when this seller is taken out then the market will drive higher. If you're bullish is often best not to execute directly into such a seller in case the order flow reverses but rather to bid off market. The Q-Tracker can be invaluable in showing areas that are good for bids and offers --off market. Another strategy is to go to market when the seller is taken out or "finished".  This strategy can work well. However, if these are large speculators intent on turning the order flow then generally the market won't go too much further before reversing.

One pattern that is quite bearish though is when we see a larger then usual number of buying prints in the Order Flow Monitor that is unable to tick the market higher when overall selling has been higher then usual. Overall selling can be detected using the summary stats on the OrderFlow BarsTM  or the summary stats on the V.I.T. Likewise a bullish reversal pattern often occurs after we've seen significant selling and sell orders start to build but aren't able to tick the market lower. 

These sorts of patterns should not be confused with dominant order flow that is driving the price over multiple price levels. Strong directional order flow will often produce drives to new highs or lows and can produce powerful trends. These are "drive" patterns in the order flow. They can be seen by dominant buying or selling printing over multiple levels in the Order Flow monitor or by tracking correlated order flow in the summary stats of the OrderFlow BarsTM over larger contract volumes.

Thursday, February 28, 2013 1:47:00 AM Categories: education

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