Lesson 5 – DOM Basics | The BEST Entry Trigger

Understanding the Depth of Market (DOM)

Introduction to DOM

• The lesson focuses on the Depth of Market (DOM) as an entry trigger for trading, building upon previous lessons about volume profiles and TPO.

What is the DOM?

• The DOM displays buyers and sellers at each price point, indicating market dynamics with blue representing buyers and red representing sellers.

• It shows limit orders, including ask prices (sell limits), market buys/sells, and buy limits. Volume data for the current 24 hours is also displayed.

Market Forces: Aggressive vs. Passive

• There are two types of market participants: aggressive buyers/sellers (market orders) that move markets, and passive buyers/sellers (limit orders).

• When buy orders hit the ask price, they execute against existing sell limits; this interaction defines market movement.

Understanding Delta

• Delta is calculated as bid minus ask; a positive delta indicates more buying pressure while a negative delta suggests selling pressure.

• Examples illustrate how delta values fluctuate at different price points, providing insights into buyer-seller interactions.

Analyzing Buyer-Seller Interactions

Price Movement Dynamics

• Observations show that when there are more aggressive buyers than sellers, prices tend to rise; however, cancellations can affect execution.

• A tug-of-war dynamic between buyers and sellers influences price direction; significant shifts in order volume indicate potential reversals.

Refreshing the DOM

• It's crucial to refresh the DOM when prices approach key levels identified by volume profiles to assess current buyer-seller interactions.

Imbalance and Balance Concepts

• Price movements towards imbalances often revert back to previous balance levels due to seller resistance observed in the DOM data.

Trading Strategy Based on DOM Insights

Entering Trades

• Traders should look for signs of aggressive selling after a rapid price increase; entering short positions during these moments can be advantageous.

Recognizing Exhaustion Patterns

• Price exhaustion occurs when buying momentum slows down before being overtaken by sellers; recognizing this pattern helps in making informed trading decisions.

Understanding the DOM: Key Concepts and Techniques

Negative Delta and Selling Pressure

• The presence of a negative delta indicates significant selling pressure in a specific area, suggesting that sellers are dominating the market at that moment.

Introduction to Absorption

• Absorption is introduced as a concept related to the DOM (Depth of Market), which traders can utilize when price approaches their designated levels for potential entry points.

Advanced Concepts on the DOM

• Future videos will cover additional concepts such as pulling and stacking, which serve as entry triggers beyond just analyzing buyer-seller relationships and delta values.

Practical Application of DOM Concepts

• Traders are encouraged to practice on demo accounts to observe how the DOM reacts at various levels, confirming imbalances or balances using AMT (Auction Market Theory) logic.

Upcoming Content on Absorption Techniques

• A notion page with basic information about the DOM will be available below the video. The next video will delve deeper into absorption techniques, focusing on identifying exhaustion points for better trading decisions.