Trading is an art form The market maker strategy is definitely scientific Although 99.9% of people don't even need this thing But once you understand a bit, you can pretend to be tough 1/The order book is the most authentic battlefield of supply and demand in the market Every time a limit order is placed, modified, cancelled, or executed, it leaves a quantifiable trace Real time processing of massive updates (tens of thousands per second) through ultra-low latency systems, extracting short-term prediction signals (typically effective within 100 milliseconds) These small advantages (only 0.5-1 basis point bps per transaction) have been accumulated into stable profits through extremely high frequency (tens of thousands of transactions per day) and strict risk control Not predicting the future, capturing statistical imbalances in order flow 2/Structure and Dynamics of Limit Order Books (LOBs) The post provides a classic definition: Spread=Best Ask - Best Bid 
 Example: $100.05- $100.02=$0.03 Mid price=(Best Ask+Best Bid)/2 Example: ($100.05+$100.02)/2=$100.035 Depth=Cumulative number of pending orders at each price point dwMTd“LARGE” Detailed explanation: Green (Bid): The highest price and corresponding quantity that the buyer is willing to offer (decreasing from right to left) Red (Ask): The lowest price and corresponding quantity that the seller is willing to accept (increasing from left to right) Price difference is the cost of immediate trading - the narrower the price difference, the better the market liquidity and the lower the trading cost; The wider the price difference, the greater the volatility or poor liquidity Mid price is an instantaneous estimate of fair market price, often used as a reference benchmark Practical significance: price difference changes+depth imbalance, as these can reveal short-term buying and selling pressure in advance 3/Core microstructure signal Common and effective methods include: Order Book Imbalance: The ratio of buyer depth to seller depth. Buyers far outnumber sellers → Short term bullish probability higher Order Flow Imbalance (OFI): Recent directed cumulative changes in order flow (net buy/sell pressure from pending orders, modifications, and cancellations) VPIN (Volume Synchronized Probability of Informed Trading): measures toxic order flow (informed traders vs noisy traders), commonly used for risk warning Other: Multi layer depth imbalance, price difference dynamics, cancellation rate, trade sign, order book resilience, etc These signals alone typically have a win rate/prediction accuracy of only 52-58% (modem edge), but when used in combination, they can significantly improve 4/Signal verification: What is truly effective? A single signal is easily overwhelmed by noise The true generation of Alpha is achieved through multi signal fusion and dynamic position management (adjusting the size based on the current volatility regime) For example, placing aggressive bets under low volatility regime, and being conservative or pausing during high volatility regime This conforms to the classic principle of quantitative trading: small margin+high frequency+strict risk control=compound interest 5/Signal pipeline Typical pipeline: Data intake → Feature engineering (calculating OBI, OFI, VPIN, etc.) → Prediction/scoring models → Risk control and execution → Feedback optimization Key points of the actual process: Real time processing of massive order book updates Features must be computed with low latency The final output is to buy/sell/wait and see now+confidence level 6/The harsh reality of infrastructure The production environment must use: Feed handlers: C++/Rust (sub microsecond parsing) Signal engines: FPGA (Simple Signal) or C++(Complex) Order gateways: Colocation in the exchange room, round-trip latency<5 microseconds Risk control inspection: FPGA hardware implementation,<1 microsecond Delay comparison: Slow system ≈ 50 microseconds Top tier system<5 microseconds Python has a minimum additional latency of 100-1000 microseconds (completely insufficient) The signal itself is not difficult, the real barrier is infrastructure+regulation+capital 7/Bottom line and practical value Value to different groups of people: Pure market maker player: core business model. Medium to Long Term Systematic Funds/Quantitative Funds: Optimizing Execution Timing with LOB Signals - Deciding whether to Cross Spread Transactions Now or Wait for Liquidity to Come to You, Saving 1-2 basis points per transaction, Very Significant after Scaling Up Ordinary trader: Understanding these concepts can better assess market liquidity and short-term pressure