https://abs.twimg.com/emoji/v2/... draggable="false" alt="📕" title="Closed book" aria-label="Emoji: Closed book"> HOW MARKET DEPTH WORKS:

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> A lot of traders (especially intraday) look at a stock’s market depth table to determine the upcoming moves and accordingly take their buy / sell decisions.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Here& #39;s how market depth data can sometimes be misleading and lead to losses.

(1/6) https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Down pointing backhand index" aria-label="Emoji: Down pointing backhand index">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond">Here& #39;s how most traders read the market depth:

https://abs.twimg.com/emoji/v2/... draggable="false" alt="✅" title="White heavy check mark" aria-label="Emoji: White heavy check mark"> If there are higher number of buyers (bids) means the stock is in demand and will go up.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="✅" title="White heavy check mark" aria-label="Emoji: White heavy check mark"> If there are higher number of sellers (offers) means the stock is in supply and will go down.

But that is not how it works.

(2/6) https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Down pointing backhand index" aria-label="Emoji: Down pointing backhand index">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Let’s say, for a given stock the market depth shows as below (1 qty):

- Total Buyers: 50000
- Total Sellers: 2000

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Many will interpret this as a high demand stock & expect it to go up.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> But still sometimes the stock rapidly goes down despite more buyers.

(3/6) https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Down pointing backhand index" aria-label="Emoji: Down pointing backhand index">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> This is because, it takes just a single big SELL order (from big players like institutions, HNIs, etc.) that can absorb the buying pressure.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> In above case, if a big player puts in a 100000 sell order at market rate, all the buying pressure gets absorbed in one go.

(4/6)https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Down pointing backhand index" aria-label="Emoji: Down pointing backhand index">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> And now suddenly you see a drastic change in the market depth. Suddenly, buyers are very less and sellers are many more.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Retailers who had put in small BUY orders got their orders eaten up and the stock starts to fall down further.

(5/6) https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Down pointing backhand index" aria-label="Emoji: Down pointing backhand index">

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> So, never ever rely on just the market depth data to take your buy / sell decision.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Most important of all, always think from the high level perspective.

https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔸" title="Small orange diamond" aria-label="Emoji: Small orange diamond"> Try to think of how the big players in the market would think. It will give you a much clearer picture.

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