Follow the Depth - Trading Drill

In the video below, we introduce the "Follow the Depth" trading drill. A drill that is performed on a live market with a demo/sim trading account.There's 2 goals of this drill...

  • Get a real appreciation of the relationship between short term price moves and market depth
  • Learn a skill that helps improve trade timing/trade management

The goal is not to be good from the moment you start. The best possible scenario for any trader trying this trading drill is that they perform badly the first time they try it. That means you have something to learn from it.

You should quickly improve though.

You can be selective with this trading drill - look for something where you are expecting a pop by all means BUT you can ONLY use the market depth to trigger the trade. It's not like other trading drills looking for maximum engagement with the market.

After a while, you'll notice there's times when you can see, just from this data point when trade in one direction is fading away. Then later interest comes from the other side.

Of course, there is a "chicken and egg" dilemma here... Is market depth increasing because market ticked up or did market depth anticipate the tick up? Well, one thing is for sure and that if there was anything that ALWAYS pre-empted a move in the market, it would be arbed out of existence fairly quickly. That's why you can use correlated markets, yet not expect any one market to always be the leader.

It's the same here. You will see a relationship but if you are looking for a consistent leader, that's unrealistic. That doesn't mean it's not extremely useful. Good relationships help reinforce decisions. If a move up is usually accompanied with "factor x" - what does it say when the market moves up without it? Maybe it's not such a reliable move...

Enjoy the trading drill!

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