When the bid is thin and the offer is thick

[Fairman]

When the bid is thin and the offer is thick

A market can be lopsided. On one side, the book has depth, with large sizes at several levels. On the other, it's sparse.

In such a market, an order on the thin side moves the price more than an equal order on the thick side. A sell into a thin bid pushes the price down fast, while a buy into a thick offer barely nudges it.

Retail traders can't see the full book, but price behavior provides clues. If price moves up in small steps and drops in large jumps, the bid is thin. If it falls slowly and rallies in leaps, the offer is thin.

The asymmetry often arises ahead of an event, when providers pull one side, or after a stretch of one-way flow, when inventory has built up.

Knowing which side is thin helps with stop placement. A long position in a market with a thin bid faces gap risk on the downside. A short in a market with a thin offer faces the opposite.

It also explains why identical-looking setups produce different slippage in the long and short direction.

Is the slippage in the trade logs different for buys and sells on the same pair?

[Amanhasnoname]

I checked this in my own logs after reading your post, and there is a difference on GBPUSD, though it's small most days. Over the last few months my sell market orders slipped a little more often than my buys, especially in the twenty minutes before the US data releases, which fits the idea of liquidity providers pulling one side ahead of an event.

The price behaviour clue you mention is something I've noticed without having a name for it. On some mornings cable climbs in neat little steps and then drops ten pips in one candle. Those are the days my stops on longs fill worse than expected, so I've started keeping longs smaller when the chart moves like that.

For stop placement, I now give a bit more room on the side that looks thin rather than using one fixed distance for both directions. It's not scientific, but my slippage on stops has come down since I began doing it.