In a stock exchange where there is low volume overall , can a trading strategy based on the order book be effective ? Given that you have all the executions and the best five bids and asks. Any recommendations for a book on this subject


I would not be trading anything with low volume. You will find it hard to get the price you want to buy and to sell. There would usually be large price gaps and it is a sure way to lose money on every trade.

You are better off trading instruments with as high volume as possible - better chance of buying and selling at price you want and less change of price gaps.

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  • You're totally right, but my question is , how effective can an order book based stategy be ,to anticipate trends or say for example accumulation by a big fund – halim Apr 22 '17 at 23:49
  • Order books are continually changing - new orders coming in, orders being cancelled, and then there are hidden orders. So I wouldn't base my whole strategy on the order book, especially with illiquid stocks. – Victor Apr 23 '17 at 0:03
  • What do you suggest ? – halim Apr 23 '17 at 0:04
  • Suggestions for what? A trading strategy? That could take a book to answer, there are many strategies. A quick one, wait for an inside bar after a low bar and enter a long trade the next day above the high of the inside bar. – Victor Apr 23 '17 at 1:12

There is an edge in low liquidity instruments simply because the biggest, most skilled traders in the marketplace might avoid these due to lack of liquidity. For a retail trader with a small account, the price movement is easier to read as the rate of price change is low. Many traders are only focusing on low liquidity instruments and do very well trading these while knowing they cannot compound their account significantly.

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    Are you making lots of money in these, because I have only heard of people lossing money - simply because of the large gaps in price and not being able tovget the price they want when trying to sell, that if they are able to sell at all. – Victor Apr 24 '17 at 0:03
  • I don't trade using these methods as I don't look at the order book at all. But I do focus on edges that are size constrained, areas which big funds would overlook. The most liquid instruments are also the most competitive because the biggest funds with the best traders will focus on them. – misantroop Apr 24 '17 at 9:46
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    There is no edge with low volumes at all. If you are looking to buy something you want volume in the opposite direction so you can get the price you want. The same when you are selling. If there is no volume you won't be able to buy or sell at the price you are after. I want to trade the most competitive instruments I can with the biggest funds with the biggest traders, because then I can easily buy and sell and not move the market with my tinny order. – Victor Apr 25 '17 at 11:00
  • You're missing the obvious. A trader that trades big size in a small market can push the price to the direction he needs it to go. As I said, the biggest markets also attract the smartest players and in trading, you never want to go head to head with the best, there is no profit in that. – misantroop Apr 25 '17 at 14:15
  • No you are missing the point - there is no money to be made in illiquid stocks. If you trade big size in a small market you will push up the price before you have fully buy your order so you would end up buying at a higher price than you wanted, and then you will push the price down when trying to sell getting a much lower price than you wanted. If you have a tested and proven trading system you don't care who you trade against all you should care about is if there is liquidity in the opposite direction so you can get the price you want without moving the market. – Victor Apr 25 '17 at 20:49

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