Capstone Trading Systems Market Depth Indicators
Market Depth Indicator

The Capstone Market Depth Indicator is an indicator that keeps track of the total bids and offers as well as their ratios. It can be used to find short squeezes in the E-mini S&P and other markets. In the video example we show a live trade from January 29 in the E-mini S&P, going long at 2632.25 and exiting at 2643.00. The turning points based on the bids and offers were very clear. There are additional training videos below.

This indicator is ideal for traders who like to consolidate information in the order book and Super DOM and keep track of the order flow. It provides a trading tool to keep track of the total bids and offers throughout the trading session. This indicator requires Level II data and is ideal for the Tradestation and NinjaTrader platform.

Training Videos for the Market Depth Indicator
NinjaTrader 8 Trade

We take a look at a persistent trend in the evening session on February 19, 2019 in NinjaTrader 8. After the offers lead the bids for an hour, price surged to the upside. We give a detailed analysis on how this trade could have been taken and potential exit strategies.

Tradestation 9.5 Trade

We look at the same trade in Tradestation 9.5 on February 19, 2019. The formatting for the indicator between the two platforms is different but can be easily adjusting when you format the indicator settings. We also discuss "order book bust" in this as can be seen at the end of a trade.

Looking at the order book is more of an "insiders view" as it shows the market participants intentions. Many HFT's use order book information to take trades and in this market environment, there is no greater insider than HFT's. I want to be looking at the same information that the HFT's are looking at.

On February 5, we use the Market Depth Indicator along with the Advance Decline line to detect a possible short signal in the stock index futures. We go over the live trade in stages, 45 minutes into the open and 2 hours later as we disect this short trade. Post video observations are related to the State of the Union address tonight being a potential catalyst for the "bids to take a break" until after the address and for the market to then move higher, if the President says what the market wants him to say, or to move lower if there are any "surprises" that create uncertainty.

Trading Gold at Night

Some of the best trends happen at night. Last nights Gold move on October 31, 2019 was preceded by the blues leading the way with the Market Depth Indicator. 

This indicator allows us to see inflection points in the market that give us the opportunity to place a tight stop and potentially capture a nice trend.

If the market does not trend, you have the opportunity to exit with a small loss, small gain, or breakeven trade, depending on the price action.

This is the only indicator I use when discretionary trading. 

Using Level II to Capture Stealth Trends

Trends are becoming more and more stealth, especially when volatility collapses. The Market Depth Indicators are one of my favorite tools and advantages in this type of market. I mainly like to use this indicator on the E-mini S&P, during the day session, to capture long trades after the market has been down. You can trade other correlated stock index futures with this indicator.

It's better to use the more liquid contract (E-mini S&P) to find those order book inefficiencies though. A thicker order book that is tilting its hand one way is a better signal than a more sporadic illiquid order book such as that of the E-mini Nasdaq. For example, if you spot a long trade based on the E-mini S&P market depth, you could trade the E-mini Nasdaq instead to get more potential "juice" on the trade since the E-mini Nasdaq can make sharp moves once a trend is underway. At the same time, the less liquid order book of the E-mini Nasdaq can give more false signals.

Level II Short Setups on May 13, 2019

On May 13, 2019, stock index futures had the largest down day of 2019. Several of our top strategies including Cobra III E-mini Nasdaq did well shorting the market. The Market Depth Count Indicators were bearish most of the day. The Market Depth Difference and Market Depth Cumulative revealed the downtrend in the order book throughout the day as the market kept hitting the bid.

The insight of the day is to watch the trend of the day with the Market Depth Cumulative Indicator while looking for divergences in the Market Depth Count Indicator. We saw two short signals using this method towards the end of the day. The goal of this methodology is to find turning points so that we can use "tighter stop losses" with the goal of reducing risk.

We prefer to use these indicators on markets with a liquid order book such as the E-mini S&P.

Two Shorts, One Long, May 2, 2019

With the FOMC disappointing Wall Street yesterday by not giving consideration to a rate cut, the overheated ADX and rally back from the December 24, 2018 lows, and the seasonality of the stock market, there are some nice two sided trading opportunities. 

With this market depth indicator, we took two short trades and one long trade on May 2, 2019. While I am not looking for a bear to re-emerge, I see more two sided price action from now and through the summer. The market depth indicator is a great way to see the bias in the market and combine it with other indicators and price patterns such as pivot points and market internals such as the Advance Decline Line and NYSE TICK. Paying attention to the time of day patters is also beneficial as we saw the market begin to recover from the early sell off right at noon EST today.

Order Book and $ADD Short Signal

On March 19, 2019, we highlight a potential short signal based on the divergence between price and the Advance Decline line ($ADD) as well as the Market Depth indicator, which is bearish. Tomorrow is the FOMC at 2 pm EST and there is a tendency for the market to move higher 24 hours before the FOMC statement. The market is very strong and shorting it here would be a contrary trade.

Picking a good entry point and managing this trade with a reasonable stop loss is the best way to take this short trade.

The last couple of weeks the market has been more efficient and there have not been as many trading signals using the order book. The signals started showing up again yesterday and are highlighted in the video below for March 18, 2019.

Order Book Trades Long and Short

The market has been more efficient the last couple of weeks as the bulls and volatility shorts seemed to have regained control of the market. An efficient market can be more difficult to day trade as we have not seen as many order book signals. Today, they started to show up again as the market has been up 6 of the last 7 days.

On March 18, 2019, there were opportunities to short early and go long in the afternoon. The purple pulses represent selling and came in advance of the early dip while the blue pulses represent buying and came in advance of the small afternoon advance.

The video also shows a new and additional indicator which is the Market Depth Cumulative and Market Depth Cumulative Difference. It keeps track of the total bids and offers and the difference based on a closed bar basis.

Order book with $ADD Line Feb 5, 2019

On February 5, we use the Market Depth Indicator along with the Advance Decline line to detect a possible short signal in the stock index futures. We go over the live trade in stages, 45 minutes into the open and 2 hours later as we disect this short trade. Post video observations are related to the State of the Union address tonight being a potential catalyst for the "bids to take a break" until after the address and for the market to then move higher, if the President says what the market wants him to say, or to move lower if there are any "surprises" that reate uncertainty.

Trading Crude Oil with Market Depth

On January 28, we see how Crude Oil was down for the day and shortly after 11:30 am EST, it makes its low for the day. The order book flips strongly to "press" on the offersand the market grinds higher for the rest of the day. The Volume Sum Day Indicator is also shown in the video below to show the net selling and the opportunity to capture a reversal in a mean reversion market.

E-mini S&P Market Depth Trade

On January 24, the order book started to show a sustained press against the offers and there was a slow grinding rally higher as we captured five E-mini S&P points using this setup. We go over the potential short trade that could have also been take as the market trended lower.

Annual Subscription
An annual subscription is the easiest way to get started. We do  not offer monthly subscriptions since strategies can go through multi-month losing streaks. An annual subscription will license you up to 4 contracts per market that you subscribe.
Lifetime License
The lifetime license doesn't limit the number of contracts traded and can be traded on all stock index futures. The code is close and the strategy remains proprietary but the code will never expire. 
Open Code License
The Open Code License gives you access to the code. This is beneficial for traders who want to know how the strategy works and for traders who want to modify the strategy to add their own custom rules to the trading system. The Open Code price is $2,500 and requires a Non-Disclosure Agreement. 
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