How to interpret an order book by DOM snapshots
Nowadays the order book is one of the few instruments that provide a trader with truly useful information, which greatly facilitates making trading decisions.
In contrast to various indicators, which are generally meaningless, the order book displays absolutely valid data on trading positions and open orders of traders.
DOM snapshots tool
In comparison with the original order book tool, the DOM snapshots has additional functions that help to analyze data. For example, we added a ratio bar for orders and positions, a profit ratio and some labels showing helpful information.
Below you will find basic order book patterns. But now we would like to tell you about special signals from the DOM snapshots tool.
The main thing you should do with the help of the order book is to look for the market crowd mistakes. If you see that lots of traders buy a currency at certain trade levels, it might be a signal for opening a short trade.
As for labels, they show us a target, a support or a reversal signal.
For example, a “Gravity” label shows us the biggest accumulation of stop-loss orders placed by the crowd, while a “SR” label shows accumulation of limit orders.
An “MV” label stands for a half-volume point.
“Overbought” and “Oversold” labels mean that 80% of buyers and sellers respectively are in profit. So, it might be a reversal signal.
Order book’s patterns cheat sheet
While the DOM snapshots tool shows us synthetic signals generated based on a mathematical formula, there are also primary signals (patterns).
These are the order book’s basic patterns for a buy signal:
These are the order book’s patterns for a sell signal:
Each of these patterns can generate signals separately. However, the more patterns are formed at the same time, the more effective is trading