Tom
Scollon
Chief Editor |
If used correctly Market Depth can help you fine-tune your entry or exit. Simply it is a summary of buyers and sellers and it shows you the balance between the two.
Below are tables showing the market depth for MOF and CRS - snapshots I took last Wednesday.
|
Market Depth MOF
|
Buy Bid
|
Sell Offer
|
|
Count
|
Undisclosed
|
Qty
|
Price
|
Price
|
Qty
|
Undisclosed
|
Count
|
|
5
|
|
113,604
|
$1.22
|
$1.23
|
155,652
|
|
7
|
|
14
|
Yes
|
979,301
|
$1.21
|
$1.24
|
104,456
|
|
8
|
|
29
|
|
885,425
|
$1.20
|
$1.25
|
168,232
|
|
12
|
|
24
|
|
811,516
|
$1.19
|
$1.26
|
32,000
|
|
2
|
|
19
|
|
418,541
|
$1.18
|
$1.27
|
142,134
|
|
5
|
|
5
|
|
294,560
|
$1.17
|
$1.28
|
91,271
|
|
3
|
|
3
|
|
32,800
|
$1.16
|
$1.29
|
1,653
|
|
1
|
|
15
|
|
375,837
|
$1.15
|
$1.30
|
37,125
|
|
2
|
|
7
|
|
248,100
|
$1.14
|
|
|
|
|
|
2
|
|
15,000
|
$1.13
|
|
|
|
|
|
2
|
|
28,000
|
$1.12
|
|
|
|
|
|
1
|
|
4,000
|
$1.10
|
|
|
|
|
|
1
|
|
1,905
|
$1.05
|
|
|
|
|
Market Depth CRS
|
Buy / Bid
|
Sell / Offer
|
|
Count
|
Undisclosed
|
Qty
|
Price
|
Price
|
Qty
|
Undisclosed
|
Count
|
|
12
|
|
188,038
|
$0.57
|
$0.58
|
15,000
|
|
1
|
|
11
|
|
278,902
|
$0.56
|
$0.59
|
258,309
|
|
4
|
|
14
|
|
178,516
|
$0.55
|
$0.60
|
368,000
|
|
14
|
|
14
|
|
192,642
|
$0.54
|
$0.61
|
451,294
|
|
10
|
|
14
|
|
231,990
|
$0.53
|
$0.62
|
419,846
|
|
21
|
|
5
|
|
118,000
|
$0.52
|
$0.63
|
301,757
|
|
14
|
|
11
|
|
137,900
|
$0.51
|
$0.64
|
293,438
|
|
11
|
|
11
|
|
99,350
|
$0.50
|
$0.65
|
142,700
|
|
12
|
|
1
|
|
4,000
|
$0.495
|
$0.66
|
235,500
|
|
11
|
|
6
|
|
85,000
|
$0.49
|
$0.67
|
121,035
|
|
8
|
|
1
|
|
10,300
|
$0.48
|
$0.68
|
55,748
|
|
7
|
|
1
|
|
1,650
|
$0.47
|
$0.69
|
237,985
|
|
9
|
|
1
|
|
10,000
|
$0.45
|
$0.70
|
248,800
|
|
8
|
|
1
|
|
4,000
|
$0.30
|
$0.71
|
186,935
|
|
6
|
|
|
|
|
|
$0.72
|
25,350
|
|
4
|
|
|
|
|
|
$0.73
|
20,000
|
|
1
|
|
|
|
|
|
$0.74
|
60,000
|
|
4
|
|
|
|
|
|
$0.75
|
227,833
|
|
5
|
|
|
|
|
|
$0.76
|
15,000
|
|
1
|
|
|
|
|
|
$0.79
|
117,197
|
|
4
|
On the left hand side we have the buyers/bidders with the first column showing the total quantity at the various buy prices. It also shows the number of buyers that make up the total for that price. In the MOF example there is one “undisclosed” buyer at $1.21. Where a broker is buying or selling stock in excess of $200,000 they are not obligated to divulge the quantity.
You will note that the sell/offer side that is on the right hand side of the table is a mirror image of the left side.
Have a look at a daily chart for both of these stocks and you will see that MOF has been rising very strongly and it is not surprising given the very strong buying illustrated in market depth. I bought MOF last week and at that time it was showing an equally strong market depth.
Contrast MOF with CRS where the strength is on the sell side and if you look at the chart for CRS you will see that is confirmed. Whilst that imbalance prevails it will be difficult for CRS to reverse the slide.
What I have illustrated is a simple version of a market depth but very adequate for most investors. Such information is available on most broker web sites.
Because market depth is generally a very short term view of the balance between buyers and sellers it can only be of value in helping you make the right decision if you have already identified the “bigger” picture of the market generally, the sector and that particular stock. Only under these circumstances should market depth be used.
Once you have identified the macro view for stocks in which you have an interest, the use of range trading indicators such as RSI, stochastic can also be useful to assist in timing. They are best combined with market depth.
If a stock has had a good run, market depth can give you an indication as to whether this momentum can be sustained. If the buy side is “thin” then this can mean some level of retreat is likely. Thus you might hold back and keep an eye on market depth and wait till the buy side strengthens.
Issues to be aware of:
It is easy to “play” with market depth of small cap companies and it is especially easy to do so with so called “penny dreadfuls”. That is, some professionals sit watching the screen for stocks where they have large holdings and they are placing bids and offers with great skill. This happens at a pace where it is very difficult for the average investor to keep up with and can be a trap for the inexperienced.
Thus market depth can vary quickly – one day strong buying, next day very little buying so beware and make sure that you are fundamentally happy with the overall major movement of the stock.
Just another tool to add to your arsenal!
Good trading
Tom Scollon
Editor
|