Reading orderflow with Bookmap
As the trading industry advances with time, the order flow tools which are accessible to traders keep getting more and more sophisticated. While for majority cases the tools keep following a similar path of how they are structured and displayed, there are always some new tools in between doing it a bit more unique way, one of such is Bookmap.
Bookmaps key ingredient is that it visualizes the order-flow and the tape action. It has many advantages over regular Level 2, however it might not be fit for every trader. Some traders lean towards simplicity and prefer clean charts with lines and as little as information as possible to make their trading decision, while others prefer as much information as possible to extract what they need to form an opinion. Bookmap certainly puts an additional strain to trader's eyes and informational input and requires well-established discipline to not over-react on every little clue that Bookmap might or might not signal.
Is additional monitor needed to use the Bookmap?
A quick answer to this question would be no, a more expanded answer might be - it depends. Answer depends whether you are used to multitasking or not.
1. For someone used to multitasking it works well to have your macro setup of chart on single screen, then wait for the price to reach critical potential entry-level and then put full attention towards Bookmap, basically hiding the chart and only zooming into the Bookmap itself, and plotting the Level 2 execution window on top of the Bookmap to have trigger ready for entry. This approach takes a bit of flipping between software and some ALT+Tab clicks and for slower traders, it might be too stressful or un-organized.
2. If you identify yourself more single asset focused trader (non-multitasker), then having an additional monitor to have Bookmap displayed all the time on that external monitor will be a better idea. This especially works if you are trading only single asset, or being fully focused on one particular ticker.
There is no a "must to do" answer when it comes to this, it will depend on each trader, for me doing it all trough single monitor works (due to traveling, flexibility of single monitor, etc), but for majority traders, they prefer having additional monitors just for Bookmap or any other detailed order flow tools. Make sure to play around with your routine and personal approach to figure out what works for you.
Adjustment of coloring scheme in Bookmap, it is all about the context (the basics)
An excellent feature of Bookmap is its adaptivity to display the changes in order-flow instantly with different colors.
Often traders have issues of adapting their view of markets as the order flow or volatility conditions change, basically, many traders keep operating within a fixed static view of markets. What they saw 10 minutes ago, they conclude it by default plays the same role 10 minutes later, which might be true in certain cases, but very often is not especially if market/asset liquidity conditions change frequently on that day. This might especially be true around the market open or around certain key economic or news events.
This is where Bookmap does a decent task of displaying to trader adjustment of liquidity conditions by changing the coloring of the order-flow positioned on the ladder books. For example, if there are not many limit orders positioned above the ask and bellow the bid of the current price, the Bookmap will display as soft colored blue or yellow colors the orders which give trader impression of softer and even positioning of order flow currently. While if there is all of the sudden large order (5 or 10 times bigger than any order currently on price ladders) positioned at that second, that order will be displayed with a dark orange or red color, while all the rest previously displayed orders will change into even softer colors, down to blue color. Basically, all orders that were displayed as yellow before that big order was positioned will now turn into blue color (weaker meaning). This constant adjustment of colors gives trader perception of what orders currently matter the most, and what kind of depth of liquidity is overall present on the market.
Below are two screenshot examples of the same chart, the only difference is that the second screenshot is taken a few seconds later (scrolled more to the right). At that few seconds later all of sudden there is larger order that comes into view of Bookmap and its display, which suddenly changes the coloring display of all of the rest orders displayed from before (even that nothing has happened to those orders, they still sit on the limit).
The first screenshot has the very dynamic coloring of all the order flow because there are no strong extremes of large orders, while on second image there is a large difference once that bigger order comes into view, the whole dynamics of order display changes making them much more even and softer in blue coloring.
This is because Bookmap is trying to tell the trader that this big order is substantially larger than all other orders and is bigger anomaly to keep attention to. Whether that is good or not, right or wrong is irrelevant, this is just to show the basics of how the coloring adjustment works in the software.
Second image, same chart few seconds later (large offer above comes into view):
The issue of color adjusting
There is however one drawback of color adjustments, the way how Bookmap scales the orders in colors and the "importance of red color" leaves many traders to believe that just any added "bigger" order that is suddenly displayed as dark orange or red presents now a major obstacle of potential support or resistance and that it will very likely impact the price behavior. It is very easy for beginner traders of tape reading or order flow tools to fall victim to such thinking. This is why it is always important to keep in mind the average traded liquidity per minute to gauge if currently fresh added "larger" order on Bookmap (colored red) really means a lot in reality or not.
Let's take two examples of different liquidity and positioning for Bookmap to get the point across.
The offers displayed on conceptual example of Bookmaps image below are the same size, 50.000 shares on each. The average amount of liquidity positioned above the ask or bellow the bid in terms of limit orders away from the current price is the same, but the key difference between both cases is the average traded liquidity per minute. In case A (left) average traded liquidity is 5.000 shares per minute, while case B (right) has average liquidity of 100.000 shares per minute traded.
The image example above shows that Bookmap might display both orders with the same red colors as "strong potential offer above" but in reality, it might be completely meaningless if current liquidity traded on the asset is very high and matches order within the seconds. It is important to keep average liquidity in mind, doing some comparing with the traded volume on 1-minute candles of the chart to keep in mind what things to ignore or to re-judge with Bookmap, to not fall prey of thinking that any red or orange colored order on book map is suddenly potential "problem". Context, context, context. Variables.
Personally a micro routine i always do when using Bookmap is to quickly check with moue cursor in software across past 30-50 bubbles to see what volume has traded on average, then also using the 1 minute candle chart volume. Using both of those information helps you build the average traded liquidity value on the asset, which then puts any positioned orders on Bookmap ladder into much better perspective.
Order size and its color to gauge importance: - NO!
Average liquidity versus the order size displayed to gauge importance: - YES.
Using Bookmap with distributions
Micro clues to look for on distribution setups with the use of Bookmap:
-Transactions on the bid have medium/strong size (sell orders)
-Transactions on ask are small (no aggressive bidders)
-Big bidders get slowly eaten up (good variable for floor break)
-Progressive lower highs, no re-freshing of a bid at support. The key is to watch where and how the transactions are made at certain price levels, where the aggression is and where the lack of participation is. Focusing on what side of the spread are transactions being made the most (bid or ask) and at what consistency is important, it is never about just single transactions in most cases. It is about how consistently is market (or single participant) displaying certain behavior as only that will leave the trader with certain clues on which side of market might be stronger at the moment, or at least give trader insight into which areas of price market does not have much of interest in.
Conceptual example below shows lack of participation on ask the higher the price goes (no interest of aggressive buyers at high prices), as well as stronger participation of offers into bid right before the break, using the bubbles the way that the Bookmap would display it.
Example of distribution in progress, using distribution/weakness setup on ticker IBIO:
Bookmap of IBIOs distribution:
The rules above apply to any distribution phase of price, not just a distribution pattern as shown on this blog. This means a distribution of price in a retrace of a bear trend, distribution of price after strong breakdown and weakness, distribution of price at the top of the rally, etc... But there is one thing to keep in mind, it is often very hard to see those processes in real-time under different market conditions, that is why my personal preference and A grade play is always under specific distribution pattern, as the process is much easier to identify under such conditions. To read more about distribution pattern check other pages of the blog.
Accumulation plays with Bookmap (key rotation levels)
Accumulation setups often go well in hand together with the use of Bookmap. Its use mainly is on volume delta in better identifying the accumulation process.
In strong accumulation setup, the volume delta of Bookmap should display at least 60% of all bubbles being red, this means aggressive selling across the structure of accumulation, meanwhile, the price is still neutral or making higher high, which shows overall participation of stronger buyers with limit orders (absorbing).
One misconception that traders tend to make is that they believe that accumulation and distribution setups are all hindsight setups which is not true for all the cases. Yes, it is certainly difficult to spot the right process ongoing for all the cases, there are however cases that exceptions where the right read on order flow tools such as Bookmap will leave a very clear distinctive idea on what is happening.
Example being a large amount of selling bubbles of Bookmap / red delta volume for majority transactions across the structure, while the price is not dropping. The real question is, can trader be patient enough to wait for such clear distinctive example and separate it from the rest of the more confusing ones. Another article on the blog (volume delta) already touches this subject.
Volume delta is displayed as red or green volume under each transactional bubble.
Ticker MAC with accumulation setup on the chart below.
Additional to volume delta, the useful case of Bookmap is to see large order participating at key rotation level just before the break of accumulation setup. In the majority of A-grade plays, there will be large order positioned, which will be removed just before the major push-starts. Keeping eye on this variable is of great value.
On the chart example below it is the same setup of ticker MAC zoomed closer with Bookmap at the critical rotation level of first higher high. Larger offer is removed as well as larger bidder stacks on the bid few cents under as soon as this offer is chewed trough. The area where that key buyer stacked the bid order is important, because it is the key inflection level where accumulation level fails (50% leg distance as explained on previous blog articles) as well as defending key 8,00 whole round level.
The key variables to look inside the structure and transactions taking place of Bookmap are: -high volume taking place on the front side of the move (ahead of structure) where aggressive bidders are removing offers on ask -there is an overall decent balance between sell and buy orders within the structure, or more red delta volume across the structure showing accumulation on bid with buy limits. -at key rotation level with first higher high, there should be large offer sitting that is eventually removed and there is an instant progression of price higher from that large transaction taking place (read the article below for such indication)
Above example shows such variables as seen from the Bookmaps view.
Flat lining against larger order
The point of flat-lining setup against the large order is to time the breakout or the breakdown well, as long as the price keeps leaning into the order (and is eating it slowly) and the actual large order sits at the confluence of some macro setup. The point is not to use the larger order absorption as the only trading point, but to use it as a micro trigger. The order needs to be slowly and evenly chipped that way trader can use the aproximate timing of when the order is likely to be completely eaten away as entry indication ahead (before it is actually eaten completely, to prevent slippage entry).
Large order absorbed might turn into support or resistance after being passed
Large orders on Bookmap are not there just to display potential obstacle for price, trader should focus as well on how the price is reacting after the order is tested or absorbed. Are micro transactions following trough after large order is absorbed or are they not. Often once those large orders are absorbed they might turn into support or resistance once retested back, just like any other high or low on chart often does.
Conceputal example below shows such process in the making.
Video below with ticker NVDA shows example of where large order (on left big bubble) is absorbed and then serves as support level once passed trough. The demand builds on top of that key level, with micro rotation taking place with curl upwards. It is key to note the change of transactions on bid/ask at micro rotational structure between 0:25 and 0:40 of video time) before the major push.
Timing breakdowns or breakups if decent order size is sitting on support or resistance
Another useful feature of Bookmap is that it gives insight ahead if there is participation of larger order defending support or resistance. This is as well visible on Level 2 of course, but Bookmap can prepare trader a bit quicker with minutes ahead before the level is actually tested.
This feature is especially useful for traders who are looking to short into support or resistance to time strong liquidation moves that might result after it (squeeze initiation of short sellers for example). The Bookmap will help to display how much of that large order is still present, how quickly is it getting eaten away as that will help trader to time the entry ahead of major break better without risking the slippage.
Essentially as said the timing process can be just as much seen from normal Level 2, with only exception that Bookmap might display order quicker before its being tested since it displays deeper orderbook above or under the current price.
Example on ticker PLAY where the floor broke down and the Bookmap displayed slowly medium sized bid getting eaten away within span of 10 seconds, giving trader pretty good indication on timing of when the support will give up.
The key aspect to understand here is that price has to be leaning into this medium or larger sized order at support or resistance for a while. This means, price keeps pressing into the level. If this does not happen, it is impossible to use such conditions to time the break downs/ups.
Such example being the video below on Bitcoins major supply breach, as the price kept leaning into medium sized order at nearby smaller resistance (6940), from where the large push upwards was initiated.
Micro rotations with bid/ask transactions to spot potential changes of price directions
If transactions are taken in symmetrical fashion over long period of time (for example consistent aggressive transactions into bid with consistent weak or no transactions into ask) and then there is all of sudden first change with reversal of that (for example first major aggressive transaction into ask with followtrough), then this can often give insight into micro rotations. Those can help trader to place sharper entries of long or short orders, if such behavior does in fact happen.
Such example below:
Generally, when there is a big bid sitting on the ladder and the price trades into this order with the consistent progression of the down move, or a downtrend, the buyers should be displaying aggression on the ask on that move down. If they are not, it means that the whole aggression is lead by sellers and chances are that once those sellers meet the big bid order, they will just chew it trough. For this reason, a trader needs to be observing where the transactions are taking place on the move down towards that big order. The whole point of using such context analysis is to prevent the guessing bias where traders just tend to guess that any randomly "decent" sized order can serve as support or resistance, which is a very lazy and low performant way to analyze potential rotations in the market. However, this analysis might not be practical for every market under every condition, since if the market or ticker is moving very fast it might be very difficult for a trader to spot in real-time the progression of transactions and to implement it into potential entry approach. Or in other words, it will be clear in hindsight but not in realtime, if the asset is moving very fast (fast up or down-ticks on large volume traded constantly).
For big order to have a chance to bounce, the transactions on the bid or ask have to display initiation towards the side. For instance, let's take the example of ticker ZM below as a guide.
The counter argument of example above, on what Bookmap should display for price to have higher chance of bouncing while meeting large bid on ladder:
Micro rotations are perhaps the most frequent observational value that Bookmap might provide, as long as the transactions taking place in the leg are somewhat even and symmetrical.
Bookmap will allow a trader to zoom in as close as possible down to 1 tick action to see those micro clues. And as repeated many times on article already, this does not mean that by default trader now gains a huge scalping component seeing every reversal taking place, it only means that under very specific conditions where transactions are taking place at very clear consistency and the micro rotation of that does take place, that is where a trader might gain valuable insight, and in fact, that might only happen few times per day on a single asset. Trading is all about spotting the anomalies at the right place at the right moment, not trying to have an opinion on order flow every tick of price action. Combine the arsenal of valid micro clues of the playbook to expand that "opinion window" as wide as possible.
Large bid or offer freshly positioned just under/above current price level
If such large order is quickly positioned on the tape it is often easy to miss it, especially if the trader is not paying very close attention to Level 2 action every tick and moment. Bookmap does a slightly better job there as its visual coloring scheme allows less eye strain as that large sudden order will be quickly noticeable with the red color print. It might not be a huge help to the majority of traders, but for those tracking two assets at a once small feature like that can make a bit of a difference. The trader can essentially use those quickly positioned orders under/above current price as potential entry to lean on with his/her position in the expectation that price would rally or drop in expectation of other market order buyers or sellers to initiate in the same direction of that freshly positioned order. It should be noted, that this micro clue is only valuable to the trader if one executes with market order just one tick above the currently freshly positioned larger limit, otherwise trader would just not get filled. Or the big limit order would get eaten by counter flows of market-making the whole micro reasoning obsolete. Such example on the video below on Bitcoin where the fresh bid stacks just under current price one tick under the bid at 0:16 of video time. Price rallies soon after.
Large transactions with follow-trough or no follow-trough
Large transactions taking place at supply or demand levels with instant follow-troughs are usually the breakout indications. Below is an example of when larger order takes place at key supply level and there is the instant follow-up with small transactions taking place above that key larger order. Often good indication for continuation higher.
If large transaction takes place at key supply or demand level but there is no follow-up from smaller transactions instantly in same direction, this often ends with stuffed move and the price rejects the level completely. On healthy breach of major level once large transactions / bubbles take place the smaller micro transactions should follow up instantly. Otherwise chances for rejection increase. There are a few things to note. If large buy transaction take place, but the overall market is not interested to bid higher overall, the reason why this should put a trader into cautious or slightly more bearish view is that those large buyers now might be trapped and might turn into sellers which makes it even more difficult to progress higher.
But also to keep in mind that this is not an exact science, those large buy transactions taking place into offers might as well be large covers with traders exiting the position and not entering, meaning that no one is stuck up there. As always there is a decent amount of speculation and guessing in every tick of price action taking place in live markets, as well as lack of knowledge either from myself as a writer of the article or anyone projecting his/her knowledge on the situation. The conceptual basis of the trapped buyer that might turn into supply, if he sees that market is not interested in bidding anymore:
Due to this concept, it is statistically better for a trader to see the progression of price into the direction of large bubbles very quickly after an initial big transaction takes place if the trader is taking position in the same direction.
Or trader might use this information as counter-confirmation to trade against, for example, if big transactions take place but price instantly fails to print ticks in direction of that large transaction one might bet against it, expecting those big traders to now be trapped and helping to form short term bottom or top.
Using the concept above to trade breakouts with slightly better edge
Large transactions taking place and behavior of smaller orders following them can be very helpful in trading breakthroughs either break-ups or break-downs. It should be noted straight away, that those cases or where it does come useful are not present frequently and it takes a good amount of symmetry in the market to establish for such clean cases to establish (Bookmap+very solid macro chart setup).
Usually when traders bash against trading break-ups or downs is they simply do not understand that trading those methods is all about strong patience and careful selectivity, excluding 90% of cases, and only executing on very few of those opportunities with a clear case. Those anomalies will often be the case where Bookmap will provide an extra micro edge on timing the entry better and using large block orders as risk guide in certain cases.
Below is example of ticker AAL and the wedge established:
Below is Bookmap zoomed in at key particular area of price ladder (red rectangle highlighted on image above) of that same setup on ticker AAL at critical supply level where bigger order was sitting. What happens at or after that transaction is critical for trader to react if one is trading the breakout, using the behavior of transactions as risk guide in case if price was not followed by up ticks after large transaction taking place.
This is perhaps one of the most overlooked concepts of many order flow tools, its that traders do not know really how to use the tools, they follow too much of basic approaches of using those tools as support or resistance guides, instead of using them as behavioral tools to increase edge not just on entries but also on risk management.
Ticker DAL as example of major supply breach and the zoom in of Bookmap to time the entry well as the major offer gets removed with instant follow-trough of micro transactions on ask.
Image below shows the same chart of ticker DAL above - zoomed in at the key micro level (in red rectangle on image above):
Having large offers at key supply from which trader is potentially trading breakout is not a bad sign at all it is better than if those large orders were not present. The reason is that in such a case trader can lean into that big buyer that had to remove the offers, using him as defense line to push the price upwards, and there can be a very clean tight risk level used for a long trader to base this precise transactional area as a risk.
The basic premise is that majority of breakouts that do work - they work straight away. And having a large player positioned at the critical spot is very helpful, rather than no such transactions taking place in which there is no significant order flow for a trader to lean on. This is one of the most under-explained areas when it comes to trading breakouts in general, and a very useful method to keep in mind as those micro clues of order flow can help to manage tight risk for the trader and better selectivity on which break up-downs to take and which not. And Bookmap is not necessarily the key tool to use, as a good tape reader and chartist can do it from there, Bookmap might just help to crystalize such cases better, especially for less-experienced traders.
Example on ticker OSTK:
The key breakout level zoomed in with Bookmap transactions and the behavior of orders instantly as the big offer is eaten. Small orders follow trough with pushing higher as well as decent sized bid stacking at the b/o flipped level instantly to defend it.
Importance of whole round numbers
Very often large orders might be sitting at strong round numbers on different assets, this is where Bookmap comes as a great aid since for trader using only Level 2 might be hard to know if there is order flow positioned ahead on those major levels until the price starts testing them. This is especially true if the price is currently very far away from the key round number level a trader will not be able to see orders on Level 2 display, while Bookmap will be able to display them ahead with deeper insight into the order book.
Two examples of whole round numbers for assets would be: Asset that trades between 0.50 USD and 3.00 USD = (1.00 ; 2.00 ; 3.00) Asset that trades between 500 and 700 USD price =(550.00 ; 600.00 ; 650.00) One mistake traders often do (especially those trading without level 2 or Bookmap) is that they just assume that every whole round level matters, because they have read so in the book, or have been told so. That is a low performant approach, using a tool such a Bookmap can help a lot to clear the assumptions, and for a trader to exclude whole round levels that display no participation of large orders. Not every whole round level has participation of orderflow and it helps a lot to clear it up with the right tools which do and which do not have orderflow present. Two chart examples of Bitcoin and TSLA for whole round numbers with a larger stack of orders.
The key problem that Bookmap solves in such case, is it removes the guessing component for trader if such whole round level is or is not important, and if there is orderflow positioned on it.
However keep in mind, even if Bookmap clearly displays large participation of orders at whole round level, it by no means guarantees for that level to hold. And for anyone who is questioning how much of a "guarantee" it really is, a simple way to find it out is to perform a historical backtest with the use of Bookmap, by collecting many samples of such re-tests of whole round levels, the math itself will tell no lie.
How closely to zoom in or out
Zooming in/out at the right angle/distance into Bookmaps bubbles is rather important. Zooming out too much and there will be no relevant information given to trader on which transactions are aggressive and which not, or at which point of price action there were more transactions on ask versus bid. Zooming in too close however it might leave trader too blind on the bigger picture, strapping the context clean too much.
That is why often it is a good idea to actually flip between zooming in and out of Bookmaps action to keep the bigger and smaller picture constantly in check, and overall having somewhat medium zoom scale ratio at the distance where the spread is clearly visible on the ticker and the bubbles that are taking place on asking and bid side of spread are clearly visible where they took place, that is somewhat the optimal zoom in ratio.
Example of such a "medium" distance:
Zooming out too much, and there essentially is no key information that Bookmap or any other ordertool displays for that matter, since it will just perform the function of a chart. Example of where Bookmap is zoomed out too much and it essentially serves just as chart (but much more confusing than regular candlestick chart):
No time constraint
Bookmap by itself just like many tick order flow tools are not constraint with time, which is a component of how charts in the majority of trading platforms are tied to price activity.
For example, 1 minute of price action will be displayed in the majority of trading software and their charting platform as a single 1-minute candle, and the price activity or volume taking place will be limited to the "space" of that single candle. This has an advantage and disadvantage at the same time.
-The advantage being that it somewhat simplifies the process of how volatility scales overtime on the trading asset, giving trader more robust overview of order flow on the asset over time, it is especially helpful if asset trades in very different volatility scales (for example very strong moves at early stages of trading and then all of the sudden complete consolidation with no movement).
-The disadvantage is however that such a fixed time approach of majority charting software gives trader limited view on how volatility scales on the asset, and how the conditions of assets have changed, as well as how to judge current shortest term moves relative to their previous much stronger moves. This is where Bookmaps transactions and display will come handy in displaying a much more relative short term picture to its current environment. Many other tick trading order flow tools will also perform the same function. Again this is not necessarily a huge advantage for many traders as it makes the price action slightly more confusing compared to regular 1-minute charts.
One of the best order flow micro clues that Bookmap will help displaying is the soaking activity or large persistent absorptions. For beginner traders, it might be confusing to see soaking on Level 2 window, especially if there are hidden buyer and seller present without refilling their limits, which is where Bookmap will come handy, as all transactions will be clearly visible no matter if buyer/seller are hidden or not. Conceptual image below has display of a difference between absorption/soaking (on right) versus regular market activity (on left). The premise is that on the regular activity of order flow each decent-sized sell order contributes to down ticking the price in normal conditions, especially if there is much larger seller participation relative to the buyers over a certain period of time. If there is large sell activity present into the same price level, but the price does not drop any lower, nor is there any presence of strong buy order sitting on the bid, then in such case there is soaking present from the institutional buyer (as shown on right side of frame).
This micro pattern allows very good entry area if the trader has a reason to enter around the price where soaking is taking place since in majority cases once the soaking is complete (with continuation or with failure as result) the move will be significant and the risk to reward by default in such case will be good.
Positioning on higher probability side of soaking activity: There are essentially two sides of position that trader can take when soaking is taking place, either long or short position, in expectation of soaker to absorb all of the order flow of opposite traders and push the price into his direction, or to bet against the soaker that he will fail and the opposite order flow will eventually wave over the soaking activity.
To bet on higher probability scenario, it is critical to watch two clues:
-Soaker is hidden, but there is an opposite huge seller or buyer positioned on the limit just above/below the soaker and is refilling. Basically big player is unloading into hidden soaker, the battle of two large players, in such case the chances for soaker to fail (if he is hidden) is much higher. Not ideally to position on the side of the soaker. Either bet against him or even better just stay away from positioning.
-Soaker is hidden, but there is no major big limit sitting above or below him, and all the orders that are flushing into soaker are just smaller market orders, likely from the retail or general market participants. In such a case, soaker has a higher chance to prevail and eventually absorb the order flow and pushing the price into his direction eventually. Seeing each of those cases with the right observations is the key to be positioned on a better probability side of the soaking activity. Bellow is a conceptual example of both cases, and how it would look on Bookmap or tape:
Below is a video example of a soaking activity where the hidden buyer came into the frame started absorbing the sell orders, and soon after that another larger player positioned above the ask and started to unload into the hidden buyer. This would fit the scenario case number 1 of bid versus big player, in which case it is for trader statistically slightly better if positioned against the hidden buyer. Again this is not per se to have a very high-performance ratio (for example 90% win accuracy), based on gathered examples on my behalf there is enough contrast to extract edge as long as trader cuts the losing trade very quickly.
The video example above placed into conceptual image:
Comparing bull/bear legs one to another, always using the context to judge potential chances of reversal
For easier following on who is in control of current order flow (bulls or bears), it often helps to measure and compare bull legs versus bear legs, in terms of where transactions are taking place and how quickly. An example of the strong micro bear leg:
-where the majority of transactions are into the bid (sell) on stronger volume with fast peace. An example of the weak bull leg:
-the majority of transactions are on the midpoint of spread and the size of transactions is much smaller on average compared to the volume size on bear legs. Additionally to that leg takes much longer to complete the distance, relative to the bear leg, indicating lack of buying participation. Both above examples indicate weakness of buyers and strength of sellers, as shown on the video below:
The point of such analysis is: If reversal or rotation was to take place the bull leg would need to start displaying certain rotational characteristics, which were not present in the case above, the strength of variables for bear leg needs to wind down, and the strength for bull leg variables needs to increase. Also, keep this kind of example only as a rough guide on what to look for but always keep in mind that any single setup of order flow can easily be isolated and cherry-picked and might not present a higher edge than just 55%-45%. This just how Bookmap can be used as a very very rough guide on trend continuation if the flows of legs are in the ratios as explained above for bear trend (or opposite for bull trend).
Avoid tickers that trade with persistent symmetry of behavior
To help to spot rotations efficiently, or potential rejection levels of price - the anomalies should be present. Below is an example of ticker that trades very evenly, no major orders are positioned on the limit ladder, nor are there any anomalies in positioning above the ask or bellow the bid on the majority of ticks. Such tickers without any asymmetry traded are not ideal to focus on when it comes to the reading of order flow with Bookmap. Usually this applies for low volatile tickers that gather no real interest of institutional or retail traders, because they do not move enough in % terms, over the day.
How not to use Bookmap or majority of other orderflow tools:
Not using the bookmap within larger context of setup:
The Bookmap is just like any other order-flow tool in a sense that it provides only a micro clues. Sure it is has nicer and flashy graphics, but overall all the valid micro information that it provides is only going to be useful in the context of the larger traded pattern.
A trader needs to have some external reason why initiating the trade from the information that Bookmap has provided would make sense. While it might be possible to develop as strictly scalping trader who only bases trade executions from the Bookmap on very liquid assets (AMD or ES futures for example) it is not an easy task and the majority will be unable to achieve it. It is therefore much better to use Bookmap just like any other order-flow tool to be the micro on the lead of entry and not the macro.
Falling for a flashy graphic to be a savior and provider of edge on every step
Since order flow is constantly moving across trading assets, buy and sell orders exchanging hands, and tracking too closely each stack of limit orders on the price ladders can very quickly push traders towards tracking irrelevant information or information overload.
Personally from my observations of many different order flow tools and how traders use them, that might be the biggest issue that many traders face, they get confused and excited by the fancy flashy graphics and the "ability" to see all orders on the price ladder many ticks up and down, which makes them think that seeing any of those orders stack somehow makes them see potential "resistance or support".
While the reality is that majority of those orders will eventually sooner or later just get eaten by fresh order flow and will not present any meaningful price inflection or reversal points. That is why it is so important to always have a context in mind, and to judge the current average liquidity and to only pay attention to really large orders stacked, or medium orders if there is a specific behavior of order flow following once those medium-sized orders are eaten up. It is easy to get lost in the vortex of flashy graphics and limit orders visible, thinking that each of those stacks in meaningful and provides a reliable edge. Expecting bounce frequently out of each of those stacks would eventually lead to poor performance.
It is not critical to see where the orders are, it is critical to observe the beavior of transactions once price starts to trade into those limit orders stacked on limit ladder.
Instead of paying attention to each of stack of orders on ladder and plotting potential lines on chart where price might or might not reject, it is better for trader to wait for price to arrive to those levels and then observe what and how transactions are taking place on bid or ask, as well as how those transactions were taking place pushing before those orders were tested.
Searching for clues on Bookmap of every tick of price action, watching every order on price ladders
Personally speaking, the majority of order flow tools that display the limit ladders will be useful in 2 specific occasions, where they do shine and provide the edge to the trader:
-First is where trader already has a pattern that he/she is looking for in the market, and the order flow tool will help to spot the key entry area transactions taking place that are on the right side of what trader is looking for (for example trader is looking for a long entry on the support level, and the Bookmap displays large absorption of orders right at that level, in confluence with patterns exact matching entry-level).
-The second occasion is where a trader will randomly check across the spectrum of assets if there are any order flow anomalies and Bookmap or similar tool might display very large order sitting and absorbing, in such case trader can front-run the big order or bet against it if/once fully chewed trough. Each of those cases is anomaly-based under exact conditions, meaning that if one was to split the time that Bookmap is providing the data on ticker versus the time that trader finds it useful and needs it the ratio would be 99-1 or even less than that, meaning only 1% of actual display time of information on order book is where trader finds that key information to execute with the edge on. As a trader you need to have patterns laid out well ahead, you need to know what you need to see on order flow tool before you even put your eyes on it. An absorption pattern, a large order relative to current flows, hidden buyer or seller it should all be within the context of pre-determined pattern that trader already has in the playbook and the order-flow tool is just to confirm the right action of flows taking at the right place at the right moment. Otherwise it gets very messy, quick.
Which assets to choose for Bookmap?
Certain assets are better to list/use with Bookmap and certain assets are less valuable. Overall it depends on the liquidity of asset, how asymmetric the order flow is (the more the better), is tape moving fast or slow (the faster the transactions are taking place the better)... My personal preferences are equities and crypto-assets that trade on higher liquidity and volume (top 3 crypto and top 50 equities of Nasdaq), or the most active small-cap stock that is in play on the day.
What are the ideal market conditions to use Bookmap
Bookmap provides the most valuable information or micro clues when the asset is highly liquid and volatile.
If assets volatility is too low with liquidity strong, there will be too many orders positioned above the ask and bellow the bid, stacked on both sides without any major clues on Bookmap (for example stock that trades in 3 cent range per every 5 minutes). On another hand if the asset is very volatile but the liquidity is dry then there will be too much of jumping between spreads and the whole fills of orders will be too asymmetric for a trader to find any reliable micro clues. Examples of that are often small-cap stocks with small floats that trade on low liquidity and huge spreads.
Ideally, the liquidity should be as high as possible, with very strong moves / volatility that is where Bookmap or any other order flow tool will likely provide the most value. A good example of that in crypto is after huge washes, the liquidity all of the sudden increases drastically along with volume, the speed of Bookmap transactions increases 5 or 10 fold, which is good. This now provides an ideal environment. Or in large-cap stocks after the release of particular strong news catalyst or the same for FX/futures markets.
Tip on data feed for crypto:
For crypto traders using Binance as a data feed is probably the best option. Equities and futures are not as much impacted by the data quality from different providers on Bookmap order flow reading, but crypto data can be widely different. In certain low liquid crypto exchanges, the data might verge down to be being almost useless from my testing, which will make Bookmap by itself no value as well. Binance allows either default (BN) data feed or the futures data (BNF), from my observations default (BN) data is better, because there are more asymmetric anomalies traded with overall larger volume participation. Mind that Bookmap is the most useful at the very high liquid environment and for that, it is in trader's goal to find the most liquid data sources, which in this case is Binance exchange above most other crypto exchanges.
Tip for Computers hardware specifications:
Bookmap is rather intense on the GPU of the computer and requires decent GPU in the medium range of current gaming requirements. Additionally to that, it requires decent sized HDD especially for traders who track many traded tickers at the same time with 24 hours of historical data enabled on each display. This all very much depends on how many assets is trader tracking, with just one asset actively tracked in Bookmap the requirements, however, are significantly lower.
In the end there are no easy cookie-cutter tools in trading, that solve all problems in trading by displaying as much information as possible. Having more information on hand, such as with the Bookmap tool is not necessarily providing more edge. It surely can, but only if the trader has the patience and know-how on what to look for, and the most important part to know which information to exclude as meaningless, especially if the trader has no valid quantifiable edge on it.
Or with other words, knowing when to put hands in the pocket even when there are stacks of seemingly endless oportunites on board is what determines if trader will extract the value from Bookmap or be eventually just overloaded with information in wrong sense. Bookmap is especially useful to traders who are still in the learning phase on how the bid and ask transactions work, how aggressive versus passive orders work, and how much do they impact the market. It helps to lay out the tape/level 2 action in visual form, sort of "charting the tape" which gives the trader a lot more insight into learning the tape itself since this is much easier than the regular method of recording the videos of Level 2 action and re-watching it back. As a side note, I am by no means associated with Bookmap or promoting it in any sort of a way, this post was meant as honest review, since it is a paid software (slightly under 200 USD monthly fees including the data costs). This article is not really Bookmap specific, as the methods explained above can be used in many other order flow tools or just a basic Level 2 that comes free with many equity brokers, the Bookmap itself is just a visually more adjusted software and helpful for those who prefer visuals/charts over the math. Often a traders ask is Bookmap a valuable tool to use, and the answer is yes if you know what to look for and wait for it. And even with that being the case it will still only provide valuable insight here and there only, no more than that.