Trading with level II and T&S

[torero 10]

Does anyone use these to scalp the market, taking 1-2 points? Although I'm new, I've found some interesting stuff but still need time to develop a decent consistent reading of the markets.

 

What I've found seems to be the opposite of how James view the tape reading skills. I'm waiting for the tape reading book from Neill, but so far it's been an eye-opener.

[darthtrader 10]

this could be a really interesting discussion. i only got into level II once the idea was there would be so many fake outs that its worthless information, i've read you use to be able to scalp level II direct but the market adjusted. From watching level II, to me it seems traders have over done it as far as this information goes. I really don't see the ratio of block orders to fake outs ever even being close. To me it seems like you use to be able to front run the big boys 10 years ago, they closed that gap but that doesn't mean this market info is useless. The big boys are still going to float limit orders, they are not just going to throw up huge market orders on the tape.

To me thats where volume delta comes in, what is being hit market order wise.

[dalby 10]

right

 

the tape is what ACTUALLY is happening. it cannot lie. it is what it is.

 

level II is simply (to a large extent) what market makers and institutions WANT you to think is happening.

 

you are correct about the market adjusting. there WAS an edge to level II watching (a relatively obvious one) so of course the market adapted.

 

heck, there was a big edge with the SOES bandits. needless to say that got taken care of

[torero 10]

I only watch the market depth from the TS matrix along with T&S table next to it. While watching the depth, you can see traders putting orders on then taking them off. At times, the big orders stay at one level but don't disappear. The interesting thing when that happens, is a another big market order taking out the limit order and push the market beyond the trading range, causing a breakout. It's true you can't tell if the breakout will continue, but it does give a good indication that it's possible. This is the part you don't see in level II but on T&S. Without it I would have thought the order was removed from the market like before.

 

I think watching them side by side is very informative because just level II might not give a full picture. But the biggest problem is during the opening hour. Moves too fast to see all the orders going by.

[Soultrader 12]

I think its important to understand fully what market making really is and how market makers function. Otherwise you will be misinterperating what Level 2 is telling you. In regards to tape for markets with no market makers, I find it to be the "truth". Theres a few "truth's" in trading I consider: volume, tape, market profile (the concept), and trader psychology.

 

I would love to hear about your findings on tape Torero. As you know I am a hardcore tape reader even in the most boring and slowest instruments. Any new insights is fully appreciated.

[torero 10]

I'll get some screen shots and charts to dissect my findings. Just remember it's my observation only and anyone is allowed to disagree or add comments (in a nice civilized way pls). If I can add some small snippets of video rolling, you may get a clearer idea.

[torero 10]

Ok folks, here's the first example of what I've found. The video has no audio, so you'll have to read this along with the video so you get an idea. I don't have a mic just yet. I'll get one next week. But here's the gist of it.

 

From my observation, I've found that the bid and ask matrix provide lots of info particularly if the price will go lower or higher from it's current level, especially in determining breakouts.

 

If you see the video, 649 6/8 (this is Wheat commodity in case you're wondering) is at VWAP. From there, the prices move down, so we're watching the market going down and see how it does it before it happens. When the current stays red (the right panel with price and volume columns), there is still buyers support that price. When that same price turns to green, support is about to give, buyers have either abandoned that order or the sellers have stepped down to absorb that price level. Usually expect the price to move down. 648 6/8 was day's low (support), when it turned green, it was ready to go down. Keep watching as I annotate the price levels on matrix and T&S on the way down.

 

The second part is watching that same level being taken out with the vol on T&S matching the orders shown at that price level on the matrix. This is to verify that the orders were NOT being canceled but were taken out by a sell order (this is to determine if the buyer is fooling by showing large orders only to pull them, T&S helps filter that).

 

This is the first example and first segment of my observation. Any comments/opinions welcome (including bad video taping... pls be gentle... I'm a virgin... with presenting with the vid cam).

 

http://www.traderslaboratory.com/forums/attachment.php?attachmentid=2109&stc=1&d=1185822576

bid-ask-matrix-tape-reading-market-falling.swf

[Soultrader 12]

Hey T,

 

Thanks for the video. I just added this thread to my favorites list so will come back to it once I free up from work and send you some feedbacks.

[Trvlwanderer 10]

Has this thread completely disolved? I searched to no avail.

[Soultrader 12]

Hi Trv,

 

Were you able to view the swf file? If not, try download a simple program called Irfanview which will allow you to view pics as well as .swf file.

[Tasuki 10]

Turns out that an SWF file is a "Seattle Film Works" file. I downloaded Irfanview, but it didn't recognize the *.swf file, even though I made sure to check SWF during the download as one of the file types I wanted Irfanview to recognize. When I tried to manually open the file, I got the following error message: Can't load PlugIn: FLASH.DLL!

Please install or update PlugIns from IrfanView homepage!

 

Frankly, this is turning into a nightmare. Maybe the creator could recreate the file as something "normal" like an MPG file?

 

...edit: OK, finally got the PlugIns downloaded and installed, and SOMETHING is happening on the Irfanview window---there's a live shot of a Time and Sales and what looks like a matrix or something, and somebody's writing on it, BUT THERE'S NO SOUND!!!!!!!!!! Was there supposed to be sound? Because without it, the file is pretty much incomprehensible.

[torero 10]

.swf is the most compact format, .mov and .avi are large files, it may take a toll on the server and the streamer. Check with James on this.

 

P.S. in my post, I said I didn´t add sound because I didn´t have a mic at the time. I´ll add it in the next time I record it. Apologies.

[Tasuki 10]

Torero, I didn't know about SWF's compact format. That's cool, and it's OK, since we can just download the viewer (and its required plugins) for free. So, I guess that's not a problem.

 

My problem is that I know next to nothing about reading tape (except what I've picked up from Hubert Senters on Tradethemarkets.com), and absolutely nothing about comparing the matrix to the T&S, which sounds extremely interesting. You've obviously got some great insights here, but I'll be damned if I can figure them out. As the tape rolls, I can see you putting a box around green prices on the T&S (I presume you've got the colors set so that this means that the contracts were sold on the offer (default color is green for offer, red for bid, but you can change them in Tradestation). Then, I see you drawing an arrow going down, and indeed the price goes down. Now, forgive me for my utter ignorance, but usually if I see somebody or somebodies selling on the offer, the price usually goes up, not down. In your remarks on permalink #7, you actually describe this action as follows:

 

"When that same price turns to green, support is about to give, buyers have either abandoned that order or the sellers have stepped down to absorb that price level. Usually expect the price to move down."

 

Frankly, this is completely counterintuitive to me. Obviously, it worked, but I can't understand why--why would support give way when the price turns green. I don't know about how wheat trades, but on the ES, if you start seeing green, at least green with some size attached, price is in the process of going up, not down. Is the reverse action some peculiarity of the way wheat trades?

 

Does anybody else understand my confusion?

 

Torero, if you can explain this, please do. I think we'll all benefit. You've obviously got something really valuable here, but without an audio, I just can't figure it out.

 

...and Moses spake and he said, Thou shalt gird thy loins and travel to distant lands to purchase thyself a microphone, and there shall be rejoicing in the land of TradersLab.