Tape Reading Questions

[dougr 10]

i have been studying the tape for sometime and this is basically how i trade. i mostly look at YM but i don't think it matters what you are trading. that is one of the reasons i like the tape. anyway, i have noticed things that happen during the day and cannot figure out why they happen. it would sure be nice to understand. i have come to the conclusion that all cannot be understood but just trade it anyway. i plot the tape on a chart and I highlight trades that occur above or below the ask. I believe these are big trades that occur all at once either a big buyer or seller or stops getting hit.

 

i have included some examples of what i see in my charts. i see a big buy price will go up a littel bit and then reverse. i see this over and over. big buys at the top and big sells near the bottom. i do not think they are stops but an thinking they are manipulation. the reason i do not think they are stops or panic is because the price direction has already changed by the time this happens. i am thinking that a big buyer will start selling to drive the price down. i also if wonder is these big guys buy on one index and then sell another to manipulate the price.

 

one problem with all of this is determining when they are really buying or if it is a fakeout.

 

the last chart u will see is a 5 tick chart on the NQ, there were three huge sells and the market stoops and goes up, why does this happen?

 

the other charts are single tick charts that show if trade uis at ask or bid and highlights those above i use this for identifying panic aggresive buying, speed and influence.

 

any help would be appreciated.

[Soultrader 12]

Hi dougr,

 

The first thing that popped in my head is that you are using a bid/ask indicator. A spike at the bid may indicate selling on the indicator... but this could simply mean that a big player was accumulating a huge line on the way down as people were panicking and hitting the bid. I personally read the tape through the time & sales and an order ticker available on my platform.

 

I would like to see if possible the actual T&S at this levels you mention. How big are the lots? How did price and tape react once these lots appeared? It could of been a ton of small lots hitting the bid (small traders panicking) while a big player was holding the bid.

 

Below is an example of my tape. (filtered out to 20 lots or more)

 

[dougr 10]

what my charts show are only the volume of the actual trade, hence the time and sales, they are not on my chart as I have made the scale to be plus or minus 30 for the YM. I just know this, when a larger trade occurs then it will show up as a number. i have included another example from the NQ. As you can see there was one huge sell at the top here, i make comments in the file title to describe what happened after this point. there are actual times and sales. the same scale here is plus or minus 30 in the bottom window. If the volume was greater than 30 i have a print of the actual volume. the small red and green lines were the actual bid and ask price at that trade, if the volume is red the trade occurred at the bid, if green at the ask. if the trades are highlighted brown or blue this was above the bid or ask.

 

your chart is very interesting, i do not even look at bid and ask numbers, that is way to much information. i have trouble just keeping up with the time and sales. i am going to study what u sent though and see if it would work with my trading. is that your own prgram that gives you that information?

[Soultrader 12]

Hi dougr,

 

I must say I am not familiar with your bid/ask indicator. I have interpreting the information generated from it. I would prefer to see the actual T&S during that particular time to understand what the tape is telling me. My apologies on this.

 

Also keep in mind that big traders are not always right. They lose some and win some. I talk to many institutional traders and there are days when they buy tops and sell bottoms. Its just part of the game.

 

The program I am using is called Order Ticker and available from CQG. Its more of an institutional software.

[dougr 10]

thanks for your help, i knew this would not be easy to explain. i do not have the actual time and sales prints but the chart i have posted is actually the time and sales just in a graphical form.

[Soultrader 12]

One more snapshot of the tape.... good scalpers tool.

 

 

Another one at the end of the morning session:

 

Edited November 10, 2008 by Soultrader

[dougr 10]

thanks again for the posts, they are very interesting, however i guess this information is not really accessible to me because I do not have CQG. I understand what you are showing though. I have looked at the bid and ask in the past but it was way too much information for me to keep track of like your are showing. I really just look at the trades. That is all I need to get in on a trade.

 

Just curious, I looked at CQG website and found your tool. What does that software cost?

[Soultrader 12]

thanks again for the posts, they are very interesting, however i guess this information is not really accessible to me because I do not have CQG. I understand what you are showing though. I have looked at the bid and ask in the past but it was way too much information for me to keep track of like your are showing. I really just look at the trades. That is all I need to get in on a trade.

 

Just curious, I looked at CQG website and found your tool. What does that software cost?

 

pretty steep... over $1,000 per month. Best to have a firm pay for the fees.

[playafh69 10]

so basically your saying its kind of like capitulation. WHen you see a huge spike in volume price usually moves the other way, is that correct dougr?

[dougr 10]

i think it is sometimes but at other times it seems to unnatural, it also has already hit a high by a couple points and then comes back, then you will see a big buy all at once, then it will go down. I also see it when the price is looking up there will be a big sell, i have included an example. It really makes no sense, the only explanation I can try to give it is people just give up all at one time and buy or they think it is going up more and buy right at the top. The other thing I have wondered if big traders will buy(or sell) and then sell(or buy) back causing the market to turn or helping it to move. I also see this happen a lot where you will see big buys near a top the market goes up a little more and then reverses, that seems to be the most prevalent pattern. This also happens a lot in teh afternoon but really occurs all day.

 

i have given two examples of this from YM tape, in the second pic u see 2 clumps of bars highlighted, these are all trades that occurred below the bid price, therefore they occurred all at once. I also have examples from NQ and ES.

 

first of all this is a graphical representation of time and sales, each trade and volume, the volume is at the bottom but the scales is -30 to 30, if i get a contract higher than 30 it will print the number. in the price section above you can see small thin lines red or gren, this is the ask or bid price.

[stevio 10]

Dougr, I am glad you brought this up because I have been thinking the exact same thing. I watch the T&S on my sierra charting s/w with a data feed from Interactive Brokers.

 

But, let me back up a second here. I have been a member of the lab forum for while now, but have kept my mouth shut because I am wannabe trader. However, having seen you mention this, I realize that this phenomena is not just a mis-interpretation because I am inexperienced.

 

I trade the premarket ES and the EUR between 7-9 Eastern everyday before I start my office job. And I noticed this pattern too. Where you would see big block trades on the ask, and the price would go down (and the other way to when big hits on bid).

 

So, after losing money a few times trying to follow what I believed were the big boys, I just simply started ignoring the big trades.

 

However, that hasn't stopped me from trying to learn to read tape to support my entries/exits.

 

My main style is looking for confluence of MP, Pivot points, Fibs, and Dynamic Trendlines, but I'm trying to use the Tape as a means of supporting my decission to avoid the fake-outs.

 

- Steve

[Soultrader 12]

Hi Steve, thanks for sharing. It would be valuable if one of you guys can record this sometime and post it here for others to watch. Though I do see this happen once in a while it is usually not the case so would like to see it on the markets you guys currently trade.

 

Ive seen 500+ lot traders come into the Nikkei and try to push it around just to have it reverse on them. I can see them liquidating right away but that is still a $150k - $200k loss in matter of seconds. Its probably bank traders... at the previous firm I traded for we would come in with 500 lots into the close to create artificial momentum and then get out at +2 ticks. So this behavior is quite common.

[darthtrader2.0 10]

i have included some examples of what i see in my charts. i see a big buy price will go up a littel bit and then reverse. i see this over and over. big buys at the top and big sells near the bottom.

 

its actually interesting too if you look at a market delta chart, because on almost all moves all the time the top of the move is met with very strong positive delta and very negative delta near the bottom...this somewhat negates the usefullness of the market delta chart but thats a tangent.

One thing to keep in mind is that I'm not sure how much importance should be given to above or below the bid/offer. I kind of wonder if that is simply our software/datafeeds not keeping up with the millisecond execution speed of the algo arbitrage guys. I say that because usually when I see that on the tape its at the break of a critical level when you see the "flood" on the tape.

For me, I didn't get much from the tape until I started to ignore the individual tick volume size and view the tape more in spirts of trades going off at the bid, trades going off at the offer and how that is moving price. Thats why I don't understand putting a filter on the tape. All your seeing then is the large discretionary guys like what James was doing at the bank but your losing all the algo guys with insanely fast execution who can print 50 1 lots with a fragmention algorithm in a few seconds instead of printing a 50 lot trade.

I'm still pretty new as far as the tape not looking like noise but a few patterns I look for are:

a. the poor sap who got sold the bottom/bought the top print of a move..depending on how fast the tape is moving this print is usually put up sequentially if its more than one print, bang bang bang. You can even see this sometimes on SPY(SPY to me is great to practice on because its so insanely fast, which I assume is because its such an arbitraged instrument)

If you see that, then what I'm looking for is I don't want to see the opposite side of the bounce bid/offer wise being hit with a stream of prints but not moving price very far away from the "sap" prints. To me that says that although there are participants that want to do business not far away from the "sap", they may very well be the next level down of "fools" if they can't move price much and are just causing a distribution instead of an accumulation that actually moves price away from the "sap".

b. rejection of the breakout, pullback, the same kind of distribution as in A on the opposite side of the bid/offer with price stalling. Currently, if I see that I'm going to take it and front run the breakout, if that is a good idea or not I can't really say yet without more trades. So then if price moves back to the breakout level, what I'm looking for on the tape is for a breach of the prior "sap" print, how it is transacted doesn't matter in my current thinking.

Usually, from my experience when that happens if your clicking a mouse you won't have time to do much before you get the "blast" of prints on the tape and probly a price move..Thats usually when I see prints above/below the bid/offer..Since if I'm in at this point I've already front ran the breakout, I'm gone at this point. I'm sure in time I'll hone some patterns on the tape as far as what to look for to probly add to my position but I haven't a clue there.

To me what is interesting about that pattern is someone who is using buy/sell stops to play a breakout is buying/selling the otherside of my trade

[darthtrader2.0 10]

One more snapshot of the tape.... good scalpers tool.

 

 

Another one at the end of the morning session:

 

 

any chance you could do a video of this thing and show it moving in real time?

I remember running across the picture on CQG website awhile back, but I kind of assume static pictures don't quite do it justice. Its basically the tape with a book level component right?

 

Also,you ever mess around with these delta kind of charts?

 

Also note the above chart is what I ment at the start of that last post as far as postive/negative delta on the opposite side of the move. Maybe a move is a bad word but that chart would almost be more usefull of the deltas were flipped.

Why that is...I haven't a clue besides for the fact that trading is a damn hard.

[Soultrader 12]

Sure Ill make one tonight if I have time on the ES. Nikkei is preferred but cant record during Tokyo hours as I do not work from home. The delta chart is known as Tradeflow.... separating the percentage at the bid vs ask per bar. It can be plotted as a tick chart or minute chart. Imo... its the same as market delta but a visual version. I requested it here on TL for Tradestation and Blu-Ray once again created it. This is located here.

 

I use it personally in combination with regaular volume histograms. I tend to look for high volume at resistance in combination with tradeflow to see more contracts at the bid. (or vice versa at support) See snapshot below:

 

[stevio 10]

OK James, I don't know if this is a good enough example. But this is just the kind of example that I used to fall for all the time when I first started incorporating tape reading into my trades.

 

This is chart of the ESZ8 at about 8:30 EST. See how at 8:28:56 there was a splash of large-lot trades hitting the bid? Well, in the past, I would have shorted that with a market order and sat back to dream of the profits soon to come my way. But, after having those not work out several times, obviously I dont' do that anymore.

 

Now, notice on my 30min chart (yes, I read 30mins - I'm weird that way), that price just kinda sat there? infact what you don't see is that later the price just kept going up (to 907 as I write at 8:44)

 

OK, maybe this is not the best example, but like Doug, I do see this phenomena occur often enough to not want to try to tag-along.

 

- Steve

[Soultrader 12]

Was in a rush to make this as its creeping past midnight here and need to get some sleep.

 

11minute video on tape: CLICK HERE TO VIEW VIDEO

Edited November 12, 2008 by Soultrader

[BlowFish 10]

Pretty fascinating. I like how they match changes to show bids being moved down. I wonder if there matching algorithm has tolerances on size to link. Looks like a great scalping tool. The only thing is you don't really get a feel for price changes without looking at the numbers (or chart).

 

I guess the little triangles might be something to do with that?

 

I still think a graphical display perhaps similar to the old paddle game breakout showing orders being chewed or pulled might be a good way of assimilating this type of data.

 

Do you think pulled limits are more significant than hit limits in determining short term price movement?

[Soultrader 12]

Hi Blowfish,

 

Yes, the green up arrows are indicating the bid/ask moving up a level while the red arrows are indicating the bid/ask moving down a level. Ive only recently started using this tool so will need to observe a bit more... but so far useful information includes big lots being canceled or shifted downwards/upwards.

 

Do you think pulled limits are more significant than hit limits in determining short term price movement?

 

I think the pulled limits are quite fascinating to watch... sometimes they are bots trying to manipulate the markets. Happens often premarket when the markets are still thin. However, I think both information are equally important if you are a tape reader. Traditional tape only get you information of hit limits... with this tool one can see order adjustment which imo is quite powerful.

 

The fact is that even the biggest trader will always end up taking some heat. Whats interesting on the tape on a rally for example; is to watch for big traders add some selling pressure then lots dry up as price lifts. Alot of these bank traders tend to use extremely wide stops so they can handle a bit of heat.

[darthtrader2.0 10]

Was in a rush to make this as its creeping past midnight here and need to get some sleep.

 

that is ingenius..only a sucker would trade off time and sales after watching that.

[Soultrader 12]

that is ingenius..only a sucker would trade off time and sales after watching that.

 

You need to watch for levels you trade off in order to trade with the tape. I have seen some insane scalpers trade strictly off the tape and nothing else... (this guy was drinking 20 red bulls a day!! and literally shaking while trading. And yes, he was very profitable)

 

so it is possible but not for everyone. I personally would not trade off the time and sales alone... I cant scalp, tried it and was never that good at it. But in thick markets like the Nikkei, the ability to read the tape is extremely helpful in spotting when institutional are likely to jump in. Especially around psych levels of 00.. usually you can spot big lots appearing a tick or 2 above these 00 levels. what happens is that the suckers think there is a breakout and they buy as soon as price breaks the 00 levels upwards... just to have a few 300+ lots pound the bid. Its quite fascinating to watch imo.

 

So one strategy I have is to watch for rejection at levels like 8210 - 8220, 8310 - 8320, 8410 - 8420. (big lots hitting the bid) Just by tape you can grab 3-5 ticks off the Nikkei doing this.

 

I also know a trader who makes a living taking 1 tick off the Nikkei everyday using a similar strategy. Trades in 20 lots... roughly $2k daily. His winning percentage is around 90%.

[davla 10]

I would like to discuss tape reading and automated identification with anyone who is intersted in collaborating on development of particular algorithms outside of the traditional realm of exsiitng trade analytic environments.

 

The anticpated signals can then be imported into any environemnt you choose.

 

Tape reading and market making techniques do work, however to create an all inclusive method, one is best served to support these requiremnts within a properly designed historical databse & incorporate real time data comparisons.

 

Currently if you or anyone is interested in collaborating on creating such database or at least to provide sufficient tick data and workilable with the design of the backtesting, I am available to participate in such designs with which I can definitely contribute as much time as it takes. I look forward to hearing form anyone / anytime

Rgds

Davla

[RobinHood 10]

That Order ticker looks like a smart way to visualize your order flow.

 

I'm wondering whether it is possible to have access to the order book composure? so if there is 5000 bid sitting @ 1st or 2nd level, I would like to know if that 5000 lot is composed of 10 separate orders, 50, or if its just one person.

 

Anyone know?

[hjwtrader 10]

Can someone please let me know where I can access more information on the tecniques of tape reading. I have looked around and can't find much information. Thank you!

[O-3 10]

Was in a rush to make this as its creeping past midnight here and need to get some sleep.

 

11minute video on tape: CLICK HERE TO VIEW VIDEO

 

This tool is great, thanks for posting this video SoulTrader.

 

Looking forward to the next one.

 

cheers