Once upon a time I watched the bid and ask – both for price value and size. But I do not watch the size very much these days. However, the bid and ask spread is still very important – you do not want to trade when the spread is large. Fortunately the spread is usually small in most of the markets that I trade these days.

What I like to watch for potential movement is the price the last trade – to determine if is it going at the bid or the ask. While the bid and ask size can easily be manipulated by the high frequency trading computers, the actual trade price – at least so far – can’t be manipulated.

If the trade price is repeatedly at the bid for a considerable time it is bearish. Conversely, if the trade price is repeatedly at the ask price for a considerable time it is bullish. I like to watch this carefully just before entry or exit in most of the futures markets that I trade. It can often help me “cover” the spread very quickly when entering a market. That is important, because the spread can be considered as a cost risk in trading because you must cover the spread before you move into profit territory.

 

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