joshdance

Though I agree with most of what you said VTK, I disagree slightly here. Orders are filled of course, but new orders can be placed. Potential buyers may in fact see a level holding and become more convinced that it will continue to hold, and put more orders in, so that the price level becomes more solid. More visits to a price area really only objectively indicate one thing--interest in that area. The future probability of an area to either hold or break could be statistically measured, and I would give some weight to this, but conceptually, it's a toss-up. All levels will eventually be broken, yes, but the argument that a level which is touched once, which is not as important, is more likely to hold than a level that has proven multiple times to be important, is not a sound argument, unless it is backed up with some data. Visually on my chart I see many "peaks" which are simply ignored the next time they are visited. Yet, I see many bases, or proven areas, which continue to provide that support. Visual testing as this is pretty useless, but I would like to see some actual statistical data that would give weight to the concept.

I see, miscommunication-- I meant that you can have a quick visual and see whether the transaction occurred at the bid or the offer.

You should consider the context of the chart you posted, it can shed a lot of light on what is going on. Sunday's globex session opened and buyers asserted themselves, taking the price higher. From Sunday night all the way until Monday's RTH open, price was in a 4 point range. Immediately at the pit open on Monday, buyers took the price higher. It then consolidated and retraced, and was up from there for the rest of the day. So, the breakout from consolidation at the Monday open is what made that first area special. On the chart I've attached, I've also included the profile for the move up. You will notice that the activity is concentrated around 88.50 to .75 -- this is the area where there was the most volume, the most participation, the most interest in trading. Also, it is the value area low for the day. On Tuesday morning, after a slow and steady retrace overnight, traders go in search of value, and find it at the low of the value area for the prior day. Not that this is part of Seiden's method, but it shows that this area is significant, compared to the rest of the trading day. Now--could price have gone lower, even to the consolidation area, or could it have found more buyers willing to buy in the middle of the day's range instead of near the low? Yes, but anything can happen.

"The tape" is time and sales, it is not the DOM. The DOM represents orders, which can be changed. Time and sales are the tape, they are transactions that have occurred. "Reading the tape" does not rely on a depth of market, though I do use a DOM to try to get a clearer picture. Don't know if it's been mentioned by the way, but if you use IB for data, their time and sales data is not accurate at all. Their ticks are filtered, and you need a more accurate, unfiltered data feed such as IQFeed if you want the actual transactions. IB will combine transactions, for example.

You should use the 5 minute or hourly time frame then, not a monthly chart.

I am not familiar with this--if it's traded on an exchange and there's no volume information available,I would not trade it. At least with interbank currencies there are the futures equivalents which have volume, and can serve as a good proxy (for example, EURUSD = 6E at the CME), but if there's no volume information available I would not trade it.

Care to share testimonials? Several months back before I knew any better, I went through your blog and was surprised to find only references to "Flo," and trades you took, and it was basically a blog on how you were doing. Sorry if you meant to provide useful information--there simply wasn't much to actually use or even build off of IMO. This in itself is neutral and doesn't matter to me, but please don't claim to have "comprehensive teaching" when you do no such thing. If you can provide just one or two blog posts where you provide what you consider comprehensive teaching, it might convince readers here otherwise; I just looked at your site now but still could find nothing that would really fit into that category. Fortunately for me I began to watch my own charts, and formulate my own ideas about how the market moves, and stopped searching for the answers in blog posts, forums (though I do like to ask questions here of knowledgeable traders), and $$$ seminars.

The smaller time frame or period the chart, the more information you will see, and with a small tick or volume chart, yes, you will see a closer picture to what the tape will show. I keep a tick chart open for this reason, to have a very quick look at the "historical tape" for the last minute or so (as the time and sales will only show about 80 transactions on a typical screen). However, time and sales will give you an immediate visual of bid/ask to go along with that, and for that reason I keep it open. I don't quite understand the question. If you mean the "volume" column to see the number of shares/contracts traded in the time and sales window, then, it's not useless without it, but I see no reason to not display the volume.

This is not tape reading--what he's doing can be accomplished by using a breakout of a bar. He used a 20 second range. Why not just use 20 second bars, and buy/sell a break of the high/low? Tape reading is about more than bracketing highs and lows--if you can see it in a bar chart, then you don't need the tape for it. What watching the tape will tell you that a bar chart will not, is how many transactions are being executed (though volume will tell you this as well), whether they are buy or sell orders (which delta will tell you), and roughly how fast the orders are being executed. For example, without a time and sales window, you cannot see that buyers are buying 86.00, yet 86.00 does not go bid. You simply see price stalling at 86.00. With a volume histogram and delta, you can see basically what's happening with the T&S, but having the tape open makes for an easy visual reference. I would recommend to not just watch the tape by itself, but rather use it at areas you identify on your chart as areas of interest. I'm sure some people can do it, but why use it by itself, when you can use it simply as confirmation? For example, if you see support at 85.50, when price dips to there, notice what happens--do sellers aggressively short at this area? Are there heavy bids on the DOM that are clearly not spoofing, buyers who genuinely want to buy? Does price barely budge even though the volume is heavy? Do they try to sell it off twice, and then the second time the momentum of the tape is slower, volume is generally lower, and more buyers are buying the offer? These things are IMO how tape reading can be beneficial.

Not sure what that has to do with tape reading, but it's off subject anyway, I'll stick to the topic at hand.

There are many resources on delta -- I don't use TOS so I don't know if it has this capability or not. I recommend a search on TL for various resources. Volume delta is simply the number of contracts traded at the bid subtracted from the number of contracts traded at the offer--this measure can be taken per bar, or per price. How you choose to use it is up to you...

Unfortunately it's too late to get the free data, but at this link: E-mini Dow ($5) You can see all transactions. Reference this next time (day after the trading) to verify the activity.

What do you mean "small spread" dt? If you can combine a good trade location with a good read on order flow happening at that location, then you have more than if you have just either one by itself--I may see a prior support level, but if I see that the sellers are overwhelming the buyers at that level, then it's better to either join the sellers, or pass on the trade, regardless of how much demand their was previously at that level. Conversely, just buying or selling based on the tape alone is not particularly a good plan because of all the waves and back-and-forths in the market. But combining the two can yield a good low-risk high probability trade opportunity.

I do catch your drift, and you're right, it is a ridiculous analogy. Your analogy can be executed and programmed in 10 lines of code, by a machine. We're not machines. Incidentally, you're right that anyone would be pretty much foolish to press anything but reds, except maybe when the yellows form a very repeatable pattern in terms of payouts, and you can calculate that it would be more advantageous to follow this pattern in the absence of enough red signals. If a setup is 100% definable, if can be programmed and is not subject to discretion in execution. Give me an example of a 100% definable setup that cannot be programmed (just make one up, I don't need anyone's), please, I would love to see it. Out of curiosity, what market(s) do you trade? And you say you've been on trading forums before--when, and under what user names if I may ask? Perhaps I can read some of your old posts and see if I can glean some wisdom on how you improved, as it was happening.

If a system is 100% programmable and mechanical, then of course the possibility of overtrading doesn't exist, because there is no discretion involved. However, once human choices come into play, then taking trades that are not "good" trades per one's definition of "good" becomes a possibility. That's not a good thing, but it's life, it's human, it's reality. It's not the ideal scenario we'd all like to achieve (which perhaps you have achieved already)--that we always do exactly as we should. Losing money and seeking revenge by forcing trades, or making a lot of money and becoming careless, are realities in trading. Even with a well-defined setup, if it's not programmable, then it leaves room for interpretation, and one becomes susceptible to taking trades that one would normally, in an ideal situation, not take. This is what I mean by "overtrading." It's not good at all. But it's the reality in trading, I suppose until one reaches that 10,000 hour mark and after years of consistent profitability where you are so disciplined that it's a non-issue. If you say you've never forced trades with a discretionary method, then I'd very seriously doubt that you are being forthcoming. What you said before is the perfect picture, and the kind of stuff we read in books--it may be true, but that really doesn't in itself mean anything. It's like telling someone to always think before they speak. Great advice--but not much practical to actually implement. If you have some advice on HOW this is done, I would love to learn. I suspect that like anything else, however, it just takes the time, and development of discipline, to be successful in the long run. I have seen huge strides in my own trading over the last few months just by putting in the time. I can't say I've heard too many traders who are successful claim to do so by taking shortcuts.

Do you actually trade, or did you just read this from a book? I'm not trying to be facetious, I'm honestly asking. If you do, can you give an example of the type of "system" you are currently trading, and how long you have been trading it?

Cool--I ask because I have found it much easier to get into the rhythm of a single market. A while back I was watching CL and ES at the same time, and it proved too tiresome for me to try to focus on more than one at a time. My reason behind this is that for you gauge the current market's mood, you really need to be focused, and you really need to know the character of the market you're trading. I think all markets are essentially equally hard to trade; however, each one has its own personality, and the better you know it, then the better position you are in to be able to determine the probability of the move going in your favor. Basically, what do you see happen over and over? If you've watched a single market day in and day out, 6+ hours a day, 5 days a week, for a year, then you should have some good idea of what it likes to do, particularly how it likes to behave on average around certain times of the day. For example, in a CL market which has had some good activity in the morning and has slowed down around 11:30 or noon, I will take a trade and hope to get 20 or 30 out of it, not much more; if I decide to hold longer, I can be pretty sure that I will be holding for 2 hours to get a larger target, and will be guaranteed to sit through some back-and-forth, and may even find a 50 tick gain completely erased. That's just typical behavior for that market. I know that, and so it allows me to put the current low volume activity in context, and base the target off of that. Conversely, if it's pre-market, say 8:30am, and price has based, and I get good signals from price and volume that we have consolidated and are ready for a move up, then I can expect that if we do break north out of the basing range, that we will revisit the VWAP, or perhaps the daily pivot, or perhaps the overnight high, or some other measure of value, so if I take the risk to get in near the bottom, then when we break north, and IF (this is a big if) the mood of the market gains some momentum in my favor, then I may be more likely to hold the trade longer for the target. Or more likely, I will take the trade off at +40 or so, and put a limit near the top of the consolidation to buy back, and so on. Learn how the market you're in likes to behave, and develop some basic plan of action. Base your target on some area where you have observed that other traders are likely to counter your direction, and trade accordingly.

Base your target on the current volatility -- like, what are you seeing today so far, in the last 10 minutes even? I think there's no easy answer to your question. How many markets do you trade, and what hours do you trade them?

I have found that in order to set up an initial workable trade idea, I need to have at least some idea of a target. I fought this for some time as I wanted to capture the huge moves. However, an initial target determines feasibility of a good R:R for starters, and gives you at least a plan. Then, if you discover that the movement gains momentum, you can move your target further away, and if price gets to your initial target location, place your stop pretty close behind and give it a chance to push through. If it pushes, you have at least guaranteed close to your initial target while giving yourself the opportunity to make more. If it doesn't, then with a close stop you can still capture the bulk of what you would have captured anyway.

I would define "overtrading" as taking trades that are not well planned. Doing this may yield profits sometimes, but in the long run I think it's bad because it demonstrates a lack of discipline, which is never rewarded in the market. It's kind of like lying--you can do it a few times and not get caught, but that can only encourage you to lie more, and soon enough a liar WILL get caught, probably in a much bigger lie than he ever dreamed he'd tell, and things will come crashing down. Undertrading is not good, but it's not as bad as overtrading. You cannot lose money by not taking trades. This is a far better place to be in than being in trades you shouldn't be in, and actually losing money because of bad decisions. Sure, undertrading costs you potential money, and I think it's detrimental to the profit, but at least you walk away with your account still intact. The danger here would be compensating by then forcing trades which are not well planned because of fear of continuing to miss out--but again, this would be overtrading, resulting from undertrading.

For a completely mechanical "system," this is true. But when discretion comes into play, as it does for almost all traders, the lines between what is a "good" signal and forcing things becomes unclear. For example, when the mind enters the picture after a few losses, wanting to get the money back, one can easily be tempted to interpret what he sees as a good potential trade, even if it's not. This can lead to overtrading. The type of "system" you are talking about sounds like the ones you buy for $395. If this is your trading experience, your above logic would make sense to you--but unfortunately does not work in the long term in the real world, and you are in for some eye opening.

Another factor is risk tolerance. A 10m chart may provide a view in which a stop will need to be larger than if you were to use a 3m chart. Also, the more volatile the market, the more you may need a faster chart. I trade CL, and find a 1m chart provides a nice entry view, if one is patient enough and does not get caught up in the excitement. My "base" chart is a 5m. I also have up a 15m for intraday structure, a 60m for an intraweek view, and daily for longer term views. I use a 25 tick for a more logical structure when things are slow, and for seeing within the 1m bars when things are very fast. Finally, I use volume charts for weekly and monthly profiles, where I do not need to see volume information. It's all about what works for you.

Thanks MM, good stuff, and from what you have explained to me before, yes it is familiar, only I have a better understanding of it now that I have seen more and more of it!

(not so) small semantic correction -- supply previously exceeded demand at the level, and vice versa. It's a different market, different traders, different economic environment (particularly in a monthly view)--we have no idea until we observe how traders behave at this price level whether supply or demand is in excess.

If you want to see a great example of how the DOM can be used to make trading decisions, download some market replay for Wednesday, August 31, for the October CL contract, and watch things around 7:30am to 8:30am. Notice the heavy bids on the DOM on the lows, and notice how despite the best efforts from the sellers in several different tries, how the sellers keep hitting the bids at the low, and simply can't take it lower. I bought .80 (IIRC), low was .67 I think. This is an example of REAL bids, getting eaten up, not spoofing. The sellers were simply relentless, and the bids kept holding. Low risk, good trade location (which is most important IMO). One of the things I have found useful is to watch the tape and DOM after a price reversal at a potential turning point, say after a nice move up at a previous day's high--after sellers have held the prior day's high, and taken it down a bit, buyers will of course (99% of the time) buy back to try one more time after a small retrace. When this happens, sometimes you will see orders at the offer going off very quickly, yet price does not move up. Say the high was 89.10, we've retraced down to 88.90, and buyers buy back up to 89.00. At 89.00, if there are heavy buy orders going at the offer at 89.00, yet 89.00 cannot even go bid, then what you may be seeing is a good confirmation that sellers are convinced that a reversal is in play, and they are wanting to get in before a nice reversal.