Why the Best Intraday Traders Barely Look at Chartseric

This is part one of the ASX order book series. We start with the idea that surprised me most when I read through several Australian intraday traders' public journals: the profitable ones barely talk about charts.

They post charts, sure. But when they explain why they took a trade, the explanation is almost never "it broke the trendline" or "RSI was oversold." It's things like: there was a big bid sitting underneath, nothing on the offer, the stock gapped on one seller, the surplus flipped in the last few seconds. Every one of those is an order book observation.

Three layers of market information

It helps to separate what you can see on a screen into three layers.

A chart is a receipt. It is a compressed record of transactions that have already been completed. By the time a candle closes, the people who caused it have already acted.

The tape tells you who is forcing right now. When a buyer crosses the spread and lifts the offer, they are paying up for urgency. A run of aggressive prints at the offer is a buyer who wants in more than the sellers want out.

Depth tells you who is waiting. Resting orders are intentions: "I will buy 200,000 at 1.45 if you come to me." They can be cancelled, and some are fake (that gets its own post), but in aggregate they describe the terrain that price has to travel across.

Intraday traders who live on short holding periods care about the next few ticks. For the next few ticks, the present and the future intent matter far more than the past.

Why the ASX is especially readable

The ASX is a relatively small, concentrated market. For many small and mid caps the order book is thin enough that a single participant's intentions are visible. That cuts both ways: thin books are dangerous, but they are also legible in a way that a deep US mega-cap book is not.

The ASX tick size schedule matters here too, because it controls how many orders pile up at each price level.

A 20 cent stock with a half-cent tick moves 2.5% per tick. That means huge queues build at each price, and when a queue gets eaten the price jumps. Many of the setups in this series are really just about predicting when a queue will hold and when it will be eaten.

(Always check the current ASX operating rules. Market structure details change over time.)

What the depth readers were actually looking at

Across the journals, the same few depth features kept coming up.

Size relative to normal. A 100,000 share bid means nothing on its own. In a stock that trades 50 million shares a day, it is a speck. In a stock that trades 300,000 shares a day, it is a wall.

Stacking. Several levels of large orders piled on one side. Stacked offers act like a ceiling, stacked bids like a floor.

Absence. Often the most important feature is what is not there. A stock gapping up with no fresh bids underneath and plenty of offers above it has nothing holding it up.

Refresh behaviour. An order that keeps reappearing at the same price after being hit suggests a much bigger participant than the visible size. A wall that vanishes the moment price approaches was probably never real.

Aggression on the tape. Is the size printing at the bid or at the offer? Is the visible wall actually being eaten, or just sitting there?

A small illustration

Here is a synthetic snapshot of a hypothetical 50 cent stock shortly after the open.

A chart of this stock might show nothing special: a small green candle. The depth shows a very large bid two ticks below the market and a thin offer side all the way up. If that 900,000 bid is genuine, a buyer at 0.500 has a clearly defined risk: if 0.485 starts getting eaten, they are wrong and they leave. The reward side has very little standing in the way.

That is the kind of reasoning these traders apply, in a few seconds, dozens of times a day. Notice it says nothing about the trend, the moving averages, or the pattern.

So are charts useless?

No, and none of the traders said they were. Charts showed up in three supporting roles:

• Context: where are the obvious daily levels, prior highs, the last capital raise price? Those are places where resting orders tend to cluster.
• VWAP: a common reference for whether the day's buyers or sellers are in control, and a natural place for stops.
• Review: after the trade, a chart with your fills marked on it is the best way to see whether you entered and exited well.

The pattern I saw was that charts frame the question and depth answers it. Beginners do it the other way round: they decide from the chart and then are surprised when the order book walks all over their entry.

The practical takeaway

If you want to start thinking like a depth reader:

That last idea, a clearly defined place to be wrong, is what these traders called protection. It's the subject of the next post, and it's the most repeated idea in every journal I read.