DOM

What is the DOM? The DOM is the "active trader" or the Depth of Market. This is a price ladder that offers traders many tools.

On the Active Trader (or the DOM) we have a volume profile and we can see the resting orders for buyers (below the current price) and for sellers (above the current price).

The DOM also offers markers for "on price" indicators such as VWAP, Moving Averages, and Bollinger Bands. This is useful to keep our charts "clean" and avoid overcrowding.

Trade Entries DOM

With the DOM - trade entries are easier; we can build out bracket orders, adjust our entry levels, easily move our positions and stops, and we can visually see when supply or demand is fading / increasing.

The DOM can also assist with "bid ask spreads" and help us to identify when the market is trading AA (Above the Ask) or BB (Below the Bid) - which happens when traders get aggressive and want to "jump to the front" of the line for order fills.

The DOM is also a great assist with recognizing Trade Imbalance which often leads to supply and demand imbalance.

Trade Proficiency DOM

Using the DOM is important to effective trading and managing positions while still keeping an eye on price; it is important to have familiarity and comfort with this tool and understand all the different colors, settings, and adjustments that we can make to use it effectively.

Some brokers have a more advanced DOM than others & for an even more complex DOM there are tools such as BookMap or JigSaw. These two tools offer complex and advanced order flow tools such as flow reconstruction and algo modeling of sweeps & blocks.

Sell Orders

In the picture below we have TOS broker "Active Trader" which is also called the DOM. In the picture we have the sell orders in red above the current market price.

Typically the DOM will show you 10 ticks above & 10 ticks below the current price. The "ask" is the sell side and in the picture we can see a ceiling of orders above the current market price.

While we can see that these are sell orders - we can not see if these are "sell to open" (STO) or if these are "sell to close" (STC) orders. When a buyer gets aggressive or impatient they can jump the current asking price and go "above the ask" (AA).

If we look closer at the upper right portion of the picture we can see the current asking price is 3993.25 but there are no sellers left. In the next moment - the new asking price would become 3993.50 and buyers would have to "reach up" to that tick for a fill.

Selling (continued)

Let's continue to look at the picture above for a little longer. How many sell orders are resting above the current price (less than 2,000) and is this a lot" for this market or is this just a normal level of selling (normal for this time of day)?

This question - is critically important to understanding the trading day. This is why we want to get familiar with the market we trade and learn what a "normal" trading day looks like.

As you begin your trading career - consider the time of day, the type of day and the "average liquidity" for the market you trade. Learn to recognize if the trading liquidity is light or heavy and if the liquidity is increasing or decreasing.

Generally

Generally the markets are

• thinner during globex and thicker in the RTH;

• thicker on the S&P and thinner on the NASDAQ

• thicker on the micro S&P and thinner on the mini S&P

There are so many markets we can trade beyond just the stock indexes; we can trade commodities such as oil and gold and many more things beyond that. Each of these markets have their own unique open & close times, their own tick size and their own liquidity average.

Before we start trading a new product - it's important to learn as much about that market as we can. We need to know the margin requirements and the contract expiration date as well.

Sellers (continued)

Let's revisit that picture again (I posted it again below to make it easier to see it). So far we have talked about a buyer reaching up to a seller but let's consider an impatient seller reaching down to a buyer. I caught the picture before the numbers could change - but in the upper right portion of the picture we can see that the bid is 3993.

An aggressive seller could decide to jump the line and sell below the current bid; depending on the size of that aggressive seller it could cause the market to move.

Just like we discussed above - there are "sell to open" orders and there are "sell to close" orders; there are also "buy to open" and "buy to close" orders.

Know Your Market

By building a watchlist of the markets you trade - you can begin to understand them better; you will want to look at their volume levels at the start of your trading day and the volume through-out the day.

Look at the Mini & the Micro contracts. Look at the next contract in time. Look at the trading chart and compare that volume with the current volume.

Ask questions - such as "what is the 5-min average volume (per bar) for this market? (or ... what ever timeframe you trade on). What is "above average" volume (per bar) on a 5-min chart? What is "below average" volume (per bar) on a 5-min chart?

By recognizing "low volume" or "high volume" or even "normal volume" you will have more information than so many traders around you who do not know the answers.

Look at the "% change" also. How far have we already moved? Is that common? What about other markets? Are all the markets generally up (or down) about the same - or is one market leading? Is there a laggard?