The electronic book of each security occasionally exhibits the situations when either the buying or selling activity temporarily “saturate” the book creating a temporary “bottleneck” when the orders have to be cleared first from either Bid or Ask side of the book before any new orders could be accepted on the book. Although those situations are not very frequent they create very lucrative opportunities to “harvest” those apparent market inefficiencies.
Generally, the Headroom Gauge is a “preventive” gauge that suggests that a trader should NOT implement his/her decisions when the timing of those decisions is not very optimal from the stand point of the order book dynamics.
When the needle of the Headroom Gauge is in the top portion of its scale (above the red line) Buy orders should not be placed and the placement of Sell orders is advisable. Conversely, if the needle of the Headroom Gauge is in the bottom portion of its scale (below the blue line) it is advisable to hold any Sell orders, but Buy orders could be safely placed on the order book.