This is a very basic question, and I apologize if this is the incorrect space to ask about the subject of mathematics applied to computational output of price for stocks; however, I am wondering how 'depth charts' are meant to be read, and more importantly, how do computers calculate the price of a specific stock at any given time.
The reason I am asking is due to the fact that the time for which a price is updated is quite variable. Now, I know that this is dependent upon the activity of trading - however, it appears that some stocks may have a bidding and asking price in the depth chart (or a ton of these really) on either side - yet there are sometimes stand offs between the two prices that appear to last longer than other trades.
Therefore, I have a hypothesis that the time for the system to accept a bidding or asking price as the new price is dependent upon the difference between these two by some time constant, and the price is labeled as the one with a higher number of volume.
Unfortunately, I have absolutely no idea about economics or finance at all. So, I have no idea how reasonable this idea would be.
Another reason for asking this is based on trying to understand predictions of the stock market. Is this something that is part of the basics of those predictions?
For instance, if it appears by the depth chart that there are a lot more (by integration) buys than sells (with similar absolute values of the derivative of volume wrt price), I would assume this would push the price up over the long term. Yet, if the this derivative was offset, the short term drive would be towards that of a steeper slope?
For instance, here we see a depth chart wherein what I have described would lead to (with no other actors in the system) would shift almost immediately from 15,168 to 15,180 then moving likely back to ~1570 or so although its difficult to do the integration and subtract by looking at it.
I hope this question makes a bit of sense and will be useful to others as a source of information from the answers.
To summarize the main questions are:
1. Given a sea of buy and sell prices and volumes over a stream of time, how is a price determined between the gap of highest buy and sell? what equation?
2. What causes stalling in the time for trades to occur?