Order flow basics - What is the DOM? Why is it useful? What do the numbers mean?

About this Video

• Video Title: Order flow basics - What is the DOM? Why is it useful? What do the numbers mean?
• Channel: No BS Day Trading
• Speakers: One (name not provided in transcript)
• Duration: 01:33:59

Introduction

This video tutorial is designed for newer traders to understand Depth of Market (DOM) platforms. It's divided into three parts: Part 1 explains what's displayed on a DOM platform (limit/market orders, bids, offers, prints, volume profile); Part 2 explains the advantages of using a DOM platform compared to technical analysis; and Part 3 covers the mathematics of avoiding unnecessary bid-ask spread costs.

Key Takeaways

• DOM Explained: The Depth of Market (DOM), also known as the order book, displays limit buy and sell orders, showing the available volume at each price level. The numbers represent the aggregate volume of multiple orders at each price.
• Market Orders vs. Limit Orders: Market orders execute immediately at the best available price, while limit orders only execute if the price reaches the specified level. Market orders are used to initiate trades immediately, while limit orders can help save on the bid-ask spread.
• Order Flow Advantages: Observing order flow provides insights into supply and demand dynamics, giving traders an advantage over those relying solely on charts and indicators. The DOM reveals the true market pressure and helps identify potential trade setups.
• Bid-Ask Spread Management: Understanding the bid-ask spread and utilizing limit orders when appropriate can significantly improve profitability by avoiding unnecessary costs. Even small gains per trade accumulate to substantial yearly savings.
• Multiple Ladder Monitoring: Experienced traders can monitor multiple DOMs simultaneously (e.g., different treasury markets) to identify intermarket relationships and improve trading decisions.