Over a Brew with Stella Ong: Course of Sales and Market Depth
Welcome to Over a Brew, a short series that explores the advanced features that sharpen your trading when you unlock Stake Black, our premium membership. We’ll be asking the experts in our own ranks how they deploy these tools in their personal investing. These insights are best enjoyed with your own cup of Opening Bell.
We begin with Stella Ong, a markets writer at Stake. Her day-to-day encompasses markets and company analyses, content creation across all our socials and blog as well as writing guest posts for other websites. With almost a decade of experience investing in international stock markets, Stella describes herself as “both a swing trader and a long-term investor” who used to “dabble in day trading for over a year”.
In this chat over a dirty chai – her favourite, a coffee and tea mix that matches her “Australian mindset and Chinese heritage” – Stella explains Course of Sales and Market Depth, two Stake Black features that may be useful for investors looking to gain a deeper understanding of the stock market.
Can you explain what 'Course of Sales' and 'Market Depth' are?
Sure. Course of Sales is a record of trades that have been executed for a particular stock throughout the trading day. Starting with more recent trades, it shows the price, quantity, and time of each trade. Market Depth is a step before: it shows unfulfilled buy and sell orders at different price levels, and the quantity of shares being offered or demanded at each level. It’s a measure of the supply and demand for a stock at different prices.
What do these two tools help an investor understand about a certain stock?
By revealing the trading activity of a particular stock, Course of Sales helps investors understand whether a stock is experiencing high or low demand, and whether there is a trend of buying or selling. As for Market Depth, it helps investors sense the level of support or resistance for a stock at different price levels. It can help investors identify areas of high demand or supply, and make more informed decisions about when to buy or sell a stock. Personally, I always checked it to make sure I’d stay away from stocks with low order levels. When day trading, I wanted to make sure there was enough liquidity to enter and exit a stock at the prices I wanted.
How can a beginner start using Course of Sales? What about Market Depth?
For Course of Sales, beginners can just watch the trading activity for a stock of interest, looking for patterns and trends. Try to understand what’s driving the buying or selling. For Market Depth, look at the bid and ask prices for a stock, and the number of shares being offered or demanded at each level. [for more, see this Stake article]. This can help you understand the level of support or resistance for a stock. You might even spot flags like one seller trying to offload an unusually large amount of stock, or whether there is only a single buyer on the market – things that might make you wonder why.
You’ve mentioned support and resistance a couple of times; can you unpack these concepts for us?
Support levels are price levels at which demand for a stock would be strong enough to prevent the price from falling further. It's like a floor for the price. When a stock reaches it, buyers tend to step in and purchase shares; this increased demand should drive the price up. Support levels can be identified by looking at the bid prices in Market Depth. Resistance levels are the opposite: a ceiling at which sellers tend to step in and offer shares, which increases the supply of the stock, pushing the price downward. The ask prices in the order book are what can indicate resistance levels.
How can someone use Course of Sales data to support different trading strategies?
Course of Sales can be used to support trading strategies such as trend following, momentum trading or swing trading. By understanding the trading activity for a particular stock, investors can identify trends and momentum, and make trades accordingly. For example, if there’s a trend of buying for a particular stock, an investor might look to enter a long position to take advantage of the upward momentum.
Anything to watch out for when interpreting Course of Sales or Market Depth?
One risk to be aware of with Course of Sales is the potential for misleading signals. For example, a large trade might skew the volume and price data, giving a false impression of the trading activity for a stock. With Market Depth, the order book may not accurately reflect the true supply and demand for a stock, as orders can be cancelled or modified at any time.
Can you give an example of when Course of Sales or Market Depth revealed something useful to you?
When day trading, I used Course of Sales every day to check whether a stock’s trading prices were close to my buy/sell prices, or if I needed to adjust my expectations. About a month ago I was looking at the Course of Sales data for a particular stock and noticed a sudden increase in trading volume. I did some digging and discovered that the company had just released positive earnings results, which was driving the buying activity. This helped me make a decision to enter a long position in the stock, which turned out to be profitable.
Market Depth and Course of Sales are available on Stake Black AUS, including complete ASX market coverage. A full-depth electronic order book, plus market trade data, straight from the source, on all 2,000+ ASX stocks and ETFs.