Question About Time & Sales

[smwinc 20]

Hi smwinc

 

Just to clarify (I hope) as it appears you and brookwood are talking about two different things here. Brookwood is looking at the amount of volume being dealt at the ask price (I.e. offers being lifted) compared to volume being dealt at the bid price (i.e. bids being given). So when he (or she) says "negative volume delta" it means the volume dealing at the bid (bids being given) is greater than the volume being dealt at the ask (offers being lifted), not that volume is decreasing at a slower rate.

 

Brookwood - if it is I who am mistaken please let me know.

 

Thanks mate. Sorry, yes I was mistaken.

[mister ed 10]

I'm struggling a little to describe this in a forum typing

 

One of those things that is much easier to explain visually. I'll give it a try...

 

 

Wow - smw, this is a huge effort and must have taken you a long time to do - thanks v much.

[BlowFish 10]

Brookwood. Be aware also that in futures markets there is always a buyer and seller for every tansaction. Thinking in terms of more buyers than sellers is likely to confuse your thinking.

 

Delta measures volume @ bid against volume @ ask. Agressive buying selling against agressive selling if you like, nothing more. (essentialy which side are using the most market orders) There are many misconceptions about how the 'big player / smart money / whatever you want to call them" move there inventory. It is my contention they do not buy buy/sell aggresively most of the time. Certainly not all the time.

 

If you had 20,000 YM to accumulate would you keep hitting the ask as price advanced or wait paitently on the bid when price pulled back?

[BlowFish 10]

Smwinc- Thanks for taking the time tor try and explain. To be frank I still struggling to get my head around it but I'll stick with it.

 

Over the years I have spent hours and hours watching T&S and the DOM. To be honest I have never really got it. I have a rough idea of what I think I should be looking for but it never seems to completely click. Sometimes I seem to manage to get into the flow often not.

 

For example sometimes a level will be supported with the bid being replenished and price will eventually lift. Other times, on what appears to be similar action (to my untrained eyes), price will appeart to be supported and then bang the bids disapear either eaten up or pulled and price falls.

 

It's still a skill I'm keen on adding to my repotoire.

[OAC 10]

 

I don't like talking about specifics, but this myth about needing complex tools to earn good money is just complete bullshit. Maybe people assume that successful traders "out there" all use hi-tech tools. All of the people in my office who earn 6 -7 figures a year have the most simple trading setup you could imagine, just using a price ladder & basic charts with no indicators. Just bars/candles and volume.

 

It is my guess that traders from your office don't really trade the heavy-volume instruments, whether in stocks or futures. It is my opinion that if you trade an index futures market such as the ES like many of us do, you would need a little more than a T&S and a simple chart. In this market, we have a multitudes of program tradings, arbitrage activities, and automated black box systems that would automatically read the T%S data and execute at blinding speed.

Tell me if Im wrong.

[strtedat22 10]

I'm struggling a little to describe this in a forum typing

 

One of those things that is much easier to explain visually. I'll give it a try.

 

20A

20A

20A

20A

20A (1)

 

10B (2)

10B (3)

10B

10B

10B

 

(1) is our last traded price (LTP).

 

(2) If someone wants to sell, they have to hit at level (2). That would be a TWO down ticks (notice the 'gap', this our spread).

 

(3) Let's imagine you want to sell 15 - motivated seller at market. You will take the 10 at the bid, and 5 from the next price level. We will down tick 3 times.

 

20A

20A

20A

20A

20A Prior LTP

<-- original spread.

<-- notice we have a new gap. Spread is temporarily 2 ticks.

5A <-- LTP

10B

10B

10B

 

Depth would now look like this.

----------------------------

Then, imagine this happens:

 

20A

20A

20A

20A

30A First Trade

40A <--new motivated sellers have come in, offering to sell larger quantites.

30A <-- more sellers

5A <-- LTP

50A <-- The 10Bid has been pulled, and replaced with 50A (50 offered)

1B <-- Someone else pulled orders, leaving only 1B here.

10B

5B

5B

 

Sellers are trying to Jam buyers here. We want to cause pain to whoever is caught long. Buyers are pulling their bids, and the price is trying to be forced lower.

 

Even if we were to BUY in this situation, we have to hit the 50 offered, which is still a downtick from the LTP 1 tick above (where the 5A is).

----------------------------

Next trade:

 

20A

20A

20A

20A

30A First Trade

40A

30A

5A <-- Prior LTP

47A <-- Someone hits the 50A and buys 3. (new LTP)

1B

5B <-- Someone else pulled another 5 bids.

80B <-- Longs are trying to stack the bids, to make it look strong. Probably Bullshit.

50B <-- again, more spoofing of the bid.

 

Price is still downticked, even though someone "paid up" to hit the offer.

----------------------------

Next trade:

 

 

20A

20A

20A

20A

30A First Trade

40A

30A

5A <-- Prior LTP

47A <-- Someone hits the 50A and buys 3. (new LTP)

4A <-- Someone tries to sell 5 at this price, taking the 1B sending it 4A.

<-- Someone else pulled another 5 bids. We have a spread.

8B <-- "Spoof" depth was pulled. He doesn't want to keep it there incase it's hit, now that he's the front of the bid.

50B <-- happy to keep the spoofing there, because he can hide behind the 8B.

 

Price is down ticked by hitting a bid (normal situation). However, we took out the price level, and sent it from being 1B to 4A. Now, if someone wants to sell at market, they will downtick TWICE (because we have a spread) to hit the 8B. If someone inserts an offer ("A") in our spread, a market order will hit that, creating a downtick even though they hit the offer.

 

This pattern can continue indefinitely.

 

When prices are pulled, no trade occurs. If a bid is pulled, and someone inserts an offer, then someone buying at market will still result in a downtick on the T&S.

 

If you think about it, this is how gaps occur on your chart. Prices are pulled, and someone hits market to cross the spread.

 

MANY traders make their money from just mastering this practice, generally locals, because of their speed.

 

E.g.

 

Look at the depth below. Weak sellers up above, and strong bids.

 

2A

2A

2A

2A

 

80B

50B

10B

-----------

2A

2A

2A

2A

5B <- You insert 5 to buy, "leaning" on the 80 B below you (strength).

80B

50B

10B

 

Uh oh. But meanwhile, I'm actually waiting for an idiot like you to do this.

 

2A

2A

2A

2A

5B <- You insert 5 to buy, "leaning" on the 80 B below you (strength).

80B <-- This is MY 78 on top of a "2B"

50B <-- Also MY 45 on top of a "5B"

10B

-----------------

Now you're in trouble. You reason for taking the trade disapeared.

 

2A

2A

2A

2A

45A <--- Sold 50 at this price, taking your 5B and sending it 45A.

2B <-- Pulled my bids

5B <-- Pulled my bids

10B

 

More sellers then come in to Jam any guys who are stuck long. Simultaneously Bids are pulled, sending the market down quickly. The goal is to try and create a wide spread, even for a split second. Hopefully Long Stops go off, sending "sell at market" orders into the market, which cross the spread for us, hitting the bids. Generally, those bids will be our "take profit" bids. Then we can reverse long, and try and kill some shorts who sold because we were selling.

 

Does this answer the question?

 

It looks better in real time. unfortunately this situation takes place in a matter or seconds

 

strtedat22

[smwinc 20]

It looks better in real time. unfortunately this situation takes place in a matter or seconds

 

strtedat22

 

Yes, exactly. This is just one small example. Like you said, it happens in a few seconds, and it doesn't always work out that way of course.

 

It's hard to explain in a forum.

[smwinc 20]

It is my guess that traders from your office don't really trade the heavy-volume instruments, whether in stocks or futures. It is my opinion that if you trade an index futures market such as the ES like many of us do, you would need a little more than a T&S and a simple chart. In this market, we have a multitudes of program tradings, arbitrage activities, and automated black box systems that would automatically read the T%S data and execute at blinding speed.

Tell me if Im wrong.

 

Most of us trade heavy volume instruments - ES, T-Bonds, Bund, Eurostoxx, etc.

 

I'm sure there are complex automated systems out there, but they are the minority. Most automated systems are a) working order ques b) working pre-defined spreads c) arbing. Quite of a few us use auto-trading spreaders. Pretty simple stuff.

 

Things do happen at blinding speed, but you can still anticipate.

 

Think of the DAX / ESTX50 automated trading. Last I heard it was something like a 2 millisecond lag between a tick in ESTX50 to a 2 tick move in the DAX.

 

You can't take advantage of that - but you can still watch the depth in EXTX50 and see HOW it it starting to rally / fall. Is it likely to KEEP upticking, or did it uptick on a 5 lot? Did we just take out 150 offer, to run into 2,500 offered? Are we likely to get through that? What is the Bund doing? How about the ES? The Euro? How MUCH did the DAX react? Over enough to start a short? How many people do you think just got long - is there a squeeze opportunity?

 

The problem with the ES is that it is filled with NON directional players now, who are fading every move as they spread it off to something else.

 

(In my opinion, I don't get why so many private traders are attracted to the ES. Big traders like it because they can squeeze a point on an insanely large trade. But if we don't care about huge liquidity, the volatility isn't actually that good.)

 

Everyone still has pressure points, and spreaders get ripped bigger than anyone else. You just have to understand your market, and how the traders within it operate.

 

In my opinion, you can "scalp" off the price depth all day, but the BETTER trades are to sit there and understand what is going on today, to understand how to trade a news event later the day or week.

[beeker1121 10]

Well after a couple of good demo trading days that have really brought up my confidence, I would like to see if someone could confirm my beliefs.

 

Since reading up on and spending a lot of time watching the tape live, and also going over previous days via camtasia, I feel like I may be just starting to get the general idea of it. I said in a previous post that I've been reading a book by Jesse Livermore entitled Reminiscences of a Stock Operator. This book has completely changed my way of thinking about the tape.

 

This might help Brookwood, and it's my understanding of the tape, but please someone correct me if it's wrong because no one has told me out rightthat this is how it works.

 

Say for instance say you see a green order go through on the tape on the ES at 1419.50 for 100 contracts. This means that there was both a buyer AND a seller at 1419.50, which was the Ask (because of the green color on the tape) at the time of the transaction.

 

Brookwood asked:

 

How is price going up if the "tape" shows only selling by any objective measure?What else moves price besides hitting the bid or ask?

 

And this is the answer I have come to based on this whole discussion, and other things I have read. Please, do not consider this fact; if someone could please confirm this to be true, I'd appreciate it greatly.

 

I thought the same way, that if I saw an order in red go through on the tape, this meant someone was selling, right? Vice versa for green orders. However, as stated above, this is not the case. On the ES (and this is much easier to see in MarketDelta although I don't like the program itself) you may see price approaching a previous high with 300, then 400, then 600, then 800 orders hitting the Ask with absolutely no one hitting the Bid, and think to yourself this is bound to break upwards, only to see it fall off a few points. Why did this happen? If so many orders were going through on the Ask, why didn't it break the high?

 

We know that for every order we see go through, there is an equal buyer and a seller. If you see tons of orders going through on the Ask, with price making no impact upwards, then there must be some underlying supply at those higher prices that outweighs the demand. Otherwise, what would stop price from making new highs? And until that supply is taken out of the market and the imbalance switches to where the demand is greater than the supply, price is not going to make new highs. Eventually, if there are no more buyers and the supply is still there, the imbalance will stay the same where the supply is greater than the demand and the market will move down to lower prices seeking to attract buyers.

 

What I have been paying attention to is not so much the number of orders going through, but what impact do the orders have on price.

 

If I see price approaching a support or resistance level from the tape, I start to pay attention. Does price, when approaching resistance, break above? If it does, how does price react after this break? For price to continue, I would look for the market to be moving up easily with orders hitting the Ask and having a tough time moving down with orders on the Bid. If I see price moving up steadily even though orders are hitting the Bid, this is another indication. If price, however, approaches the high and some big orders go through without price struggling to make new highs and eventually coming back through the resistance level, then I would not look to trade that.

 

I believe in a principle that Mr. Livermore stated, and it's that price will move in the path of least resistance. For a long time I would be focusing on trying to make something work for the market, but now I believe the right thing to do is let the market work for you. By that I mean have an extremely open mind when reading the tape, and don't try force anything with the market, just watch what it does, how it works, when this happens then this will usually happen, etc. The key is to look for patterns in price, and the best way I have been able to do this so far is look for short term S/R levels. If I see price hit 1419.00 on the way up, then it retraces a little bit and bounces off that level or near it again, I consider that a resistance point. I would then take note at what price does at this levels. The same for the down side.

 

I feel kind of like the blind leading the blind here, so please everyone keep in mind that these are just my observations of the tape and how I think the market works. I would love for someone to confirm that this is accurate, and since no one has yet this is not set in stone for me! PHEW, ok I'm done.

[BlowFish 10]

Beeker,

 

Thats a really great book. Its the only trading book that I must have read a dozen or more times. It sounds like it has given you a great grounding. There are really solid principles behind the anecdotes.

 

btw I can confirm it is a fact (for futures markets at least) for every sell order there must always be one buy order. A buyer and seller trade to form a single contract. That is how it is 'by definition'.

 

 

Personally my difficulties are not with the 'theory' its with recognising the gyration twists and turns of the live tape as they happen. Thing happen pretty quickly at that level and it is sometime difficult to remain right side up.

 

Currently I use a very fast tick chart instead of the tape which is a bit more visual. It also has the advantage that you dn have to remember the levels as you have a graphic representation. I would still love to be able to read the tape consistently though. Of course rolling the DoM in gives a complete new layer of information.

 

EDIT: Smwinc been through your example a couple a couple of times and am now with the program both of the types of behaviour you mentioned their are certainly recognisable. However there are all sorts of other similar but different behaviours to confuse the confusable. As you mention this all happens in seconds often enough. Anyway thanks again for going to the trouble to map it all out.

Edited May 7, 2008 by BlowFish

[Guest forsearch]

Here's a link to a free download of that book:

 

Jesse Livermore - Reminiscences of a Stock Operator

 

-fs

[DbPhoenix 42]

I would love for someone to confirm that this is accurate, and since no one has yet this is not set in stone for me! PHEW, ok I'm done.

 

Yes, this is accurate, as far as it goes. Many people consider Time and Sales to be "tape reading", just as many people consider DOM to be "tape reading", but neither have much to do with tape reading. Tape reading entails focusing on completed transactions, not intentions.

[Guest forsearch]

I would love for someone to confirm that this is accurate, and since no one has yet this is not set in stone for me! PHEW, ok I'm done.

 

You mean tape reading, right?

 

Back in Jesse Livermore's day what did the tape consist of?

 

Was there even a DOM back in the day?

 

Remember, the DOM has nothing to do with pure tape reading as any resting orders (i.e. bids and offers) can be cancelled without being executed at any time.

 

The only info that matters is what is actually transacted by those who hit the bid or lift the offer. And that's what tape reading is all about.

 

Doesn't matter whether it's electronic T&S or an old-fashioned paper ticker, the info is the same.

 

Forget the DOM and concentrate on the Time and Sales and you'll be alright.

 

-fs

[beeker1121 10]

Forsearch, I agree with you completely. I do not use the DOM due to the fact that it's not concrete; orders can be added and pulled of the book in an instant.

 

Thank you DbPhoenix and BlowFish for confirming!

[DbPhoenix 42]

 

Thank you DbPhoenix and BlowFish for confirming!

 

No problem. You should understand, however, that Wyckoff and Livermore did not just keep all this in their heads. While they were sensitive to pace and share size, they also used a kind of P&F shorthand to keep track of support and resistance levels. Therefore, there is no inconsistency between "tape reading" and using a tick -- or close to it -- chart to do so.

[strtedat22 10]

Most of us trade heavy volume instruments - ES, T-Bonds, Bund, Eurostoxx, etc.

 

I'm sure there are complex automated systems out there, but they are the minority. Most automated systems are a) working order ques b) working pre-defined spreads c) arbing. Quite of a few us use auto-trading spreaders. Pretty simple stuff.

 

Things do happen at blinding speed, but you can still anticipate.

 

Think of the DAX / ESTX50 automated trading. Last I heard it was something like a 2 millisecond lag between a tick in ESTX50 to a 2 tick move in the DAX.

 

You can't take advantage of that - but you can still watch the depth in EXTX50 and see HOW it it starting to rally / fall. Is it likely to KEEP upticking, or did it uptick on a 5 lot? Did we just take out 150 offer, to run into 2,500 offered? Are we likely to get through that? What is the Bund doing? How about the ES? The Euro? How MUCH did the DAX react? Over enough to start a short? How many people do you think just got long - is there a squeeze opportunity?

 

The problem with the ES is that it is filled with NON directional players now, who are fading every move as they spread it off to something else.

 

(In my opinion, I don't get why so many private traders are attracted to the ES. Big traders like it because they can squeeze a point on an insanely large trade. But if we don't care about huge liquidity, the volatility isn't actually that good.)

 

Everyone still has pressure points, and spreaders get ripped bigger than anyone else. You just have to understand your market, and how the traders within it operate.

 

In my opinion, you can "scalp" off the price depth all day, but the BETTER trades are to sit there and understand what is going on today, to understand how to trade a news event later the day or week.

 

How can someone front run large contracts when theres no level 2 for the YM? or is there one?

[BlowFish 10]

Yes, this is accurate, as far as it goes. Many people consider Time and Sales to be "tape reading", just as many people consider DOM to be "tape reading", but neither have much to do with tape reading. Tape reading entails focusing on completed transactions, not intentions.

 

Time and sales is a record of 'completed transactions' and pretty much akin to the tape of yore. I guess you meant that the DoM has little to do with tape reading. This is of course true in the strictest sense though many consider 'stock levels' (DoM) along with 'completed transactions' (T&S).

 

Smwinc - I hope you mind me asking do you trade in a prop shop? Just curious.

[DbPhoenix 42]

Time and sales is a record of 'completed transactions' and pretty much akin to the tape of yore.

 

That depends on what one includes in the window. In any case, processing a digital display is not quite the same as processing an analog display. I suppose the kids might get used to it, but I imagine it would make for a long day.

[BlowFish 10]

As I say, I use a tick chart as a 'proxy' so am perhaps not best qualified to comment. But I will anyway. I think one of the big difficulties (at least I found it challenging) is the sheer volume crossing the 'tape' which is pretty massive compared to the days of Humphrey Neil & 'Rollo Tape', (or Livermore for that matter) wrote about the tape. That's why a proxy works for me. I would like to master o reading the raw data but as I get older and slower I guess that's less likely. I also switched to zenfire data feed recently man that has a lot of ticks (compared to some).

[BlowFish 10]

Couple of interesting threads from *cough* another forum

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=42947&perpage=40&pagenumber=1

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=62411

 

And a longer one so higerh signal to noise ratio

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=26299

[smwinc 20]

Smwinc - I hope you mind me asking do you trade in a prop shop? Just curious.

 

Yep, Correct.

[smwinc 20]

Couple of interesting threads from *cough* another forum

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=42947&perpage=40&pagenumber=1

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=62411

 

And a longer one so higerh signal to noise ratio

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=26299

 

 

You will find at the VAST majority of prop shops, trading firms, or any institutional trading environment where their are intraday traders, there will be a majority of traders trading with the methods discussed there.

 

Trading at a very high frequency is like trying to standing under a shower of really hot water. You can't stand "still" or you burn - so you're constantly moving around, shifting in and out of the water.

 

You need to know what style is best suited to your trading environment.

 

To trade in the way these guys do (and the same as most people in a prop. environment) you need the right commission structure & technology to trade in that way.

 

As most people on the forum are independent traders, it's best to focus on what is best suited to your situation.

 

Even if you are too slow, or it's not worth the cost (commission / slippage) to try and nick a tick on every opportunity, you can still learn to read the depth and games to perfect your own entries, run your trades longer, and have a better understanding of how many events will play out that day.

 

Local traders test everything out by 'feeling'. Let them do it for you - you don't have to be the person making ticks from looking for stops, testing where demand & supply is, etc. But you SHOULD be trying to gain the same information they are gaining.

 

On a major event day, they are doing it to learn what the big boys are planning on doing when the news comes out. The profit they make / loss they incur is secondary.

[BlowFish 10]

 

___snip___

 

Even if you are too slow, or it's not worth the cost (commission / slippage) to try and nick a tick on every opportunity, you can still learn to read the depth and games to perfect your own entries, run your trades longer, and have a better understanding of how many events will play out that day.

 

___snip___

 

 

As a timing tool it probably can't be beat. I would like to say that the reasons you give above are my chief motivation but it is actually more fundamental. Its simply a skill I would love to become proficient at. (I guess I shouldn't say 'master'). Nowadays I do find it physically difficult (especially on something like the ES) to actually take in the info. Last couple of months I have been watching the FTSE and every now and then pull up the T&S or the DoM and watch for an hour. After bumping the font size I can at least see whats going on its just a question of interpreting it!

 

Guess I am way to old to go and trade in a prop shop but I guess thats would be the place to really learn.

 

As an aside I used to use the DoM to enter trades but often found that I would be 'sucked in'. I found it hard not to scalp as your focus gets drawn into the wiggles and jiggles.

[Jleon 10]

As a timing tool it probably can't be beat. I would like to say that the reasons you give above are my chief motivation but it is actually more fundamental. Its simply a skill I would love to become proficient at. (I guess I shouldn't say 'master'). Nowadays I do find it physically difficult (especially on something like the ES) to actually take in the info. Last couple of months I have been watching the FTSE and every now and then pull up the T&S or the DoM and watch for an hour. After bumping the font size I can at least see whats going on its just a question of interpreting it!

 

Guess I am way to old to go and trade in a prop shop but I guess thats would be the place to really learn.

 

As an aside I used to use the DoM to enter trades but often found that I would be 'sucked in'. I found it hard not to scalp as your focus gets drawn into the wiggles and jiggles.

 

It takes about a year to get over being sucked in. After this you can really learn how to manage yourself and trade responsably at the Supply/Demand set ups that you start seeing. Good luck....

 

Here is a set up for ya to help ya out on this video. [ame=http://www.youtube.com/watch?v=rFQN4rSievs&feature=related]Profitably Scalping with the Tape - YouTube[/ame]

 

Good luck!

[youngamerican 10]

Watching that video I can see the advantage of using MD Trader as that moving ladder is hard on the eyes. Is your methodology a hybrid of tape and chart?