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I had a question regarding correlation between bid and ask prices and the stock price at a future moment.

Say I have a list of bidders who have bid certain amounts on the stock as follows

Price #Bidders (each buys one stock only)

1.01 13

1.00 16

0.99 22

0.98 30

<0.98 0 (assume)

and the seller chart as follows

Price #Sellers (each sells one stock only)

1.01 12

1.02 16

1.03 45

1.04 80

Greater than 1.04 0 (assume)

At the moment can I predict if the stock price will rise or fall? It looks like a lot of people want to sell. Given the data at hand, would you predict the stock price to fall?

  • "At the moment can I predict if the stock price will rise or fall?" No. – Grade 'Eh' Bacon Jan 8 '18 at 13:42
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There will be 12 transactions at $1.01, if no new participants come into the market or no existing participants with orders reduce their sell order price or increase their buy order price, there will be no further sales.

With more participants and/or volume on the sell side of the market depth, there may be a bigger chance that prices do start moving down rather than up, but this can change in the matter of seconds as more participants come into the market.

I have seen market depths where the price moves against the demand and supply in the market depth as new participants enter the market and see the large volume on the opposite side, so enter a price which will give them a quick transaction at a good price.

You cannot look at market depth by itself to determine what direction the market will move in next, it is just one thing you may decide to look at.

  • Can we say that there is more than 50% chance that the price will fall? From your answer I feel that influx of new participants is a much stronger contributor to the price change than number of participants participating, is that correct? – Krishna Toshniwal Jan 7 '18 at 4:24
  • If volume is low, all it takes is one bigger order in the opposite direction to make prices rise rather than fall. Then there is the case of hidden orders as well. – Victor Jan 7 '18 at 4:30

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