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Originally Posted by pvpn Dan, I would be interested if your reconstruction of L2 helps you with explaining some of the price returns you observe and to what %.
My take is that only a small fraction of the orders account for most of the effects on price and I think this fraction might be easily hidden/hard to obtain or distinct from the other orders.
Hence, my approach is that I don't try to discover this "flow" but simply assume it's there from the way price behaves and if confirmed by some models I run on a continuous basis. |
I originally started looking at imbalances in book orders about 4 years ago. I ended up going down many other fruitless tracks since them, but now am back to book orders. A single day of EUR/USD Level II quotes consists of about 850,000 entries. That's a lot of data and very hard to analyze.
I'm trying to take "DATA" and look at the market as a series of events delineated by something other than time. I think time frames are two arbitrary. An event may take 1 minute or one hour. To me that seems to be why most candle based systems work sometimes and fail the rest. So now I'm looking for those events that change the state of a market. Kind of trying to look at the market as a finite state machine. Those small fraction of orders which you think account for price movement, are triggers the transition from one state the market is in to another. Defining the states and transitions is what I hope to figure out.
This thread seems to be pretty close to what I'm thinking.
Dan