Watching for relationships between price and order flow can be more useful then watching either price or order flow alone. We've shared the idea of context and how context will help to determine the meaning of the order flow. One trader recently wrote to me and asked, "What is a strong bid?"
First, it will help to understand that the large speculators often "drive" the market by sitting off market with large limit orders. A strong bid is when selling is unable to tick the market lower. A strong bid indicates that limit order buyers are stepping up and refilling the bid such that the market is unable to tick lower. A strong bid is a sign of demand. Likewise, a weak bid occurs when even minimal selling is able to drive the market down several ticks. Weak bids are often warnings that the market may be getting ready to turn and drive lower.
A high volatility on the bids and offer in general may indicate a higher level of risk and higher volatility.
Thursday, February 28, 2013 2:16:00 AM