Buyer for Every Seller?

[BlowFish 10]

Hey ES, Reminiscences is a fantastic book, it is no exaggeration to say that I have read it a dozen times or more over the years. I like it on many different levels if I could only choose one trading book it would be a strong candidate.

 

I think we have got as far as we are going to get on stops and such. I am sure people must be getting bored by now Having said that I just wanted to clarify that the interest is not in stops at all. it is in whether an order is a limit order vs. everything else. A limit order provides liquidity pretty much everything else takes liquidity. A participant using a limit order is passive/patient they may get a fill they may not they certainly do not demand immediacy. Market orders (however they have arrived at the market) are from aggressive/impatient participants, they demand a fill come what may.

 

Anyway glad that you have found what resonates with you, I'd agree tape reading is a pretty 'pure' in so far as you are as close to the market as you can be. I wish people talked more about the practicalities of it. I guess it is such a dynamic thing that it does not really lend itself to static media. Still if you ever did a thread I'd be right there.

[MightyMouse 12]

Absolutely perhaps probably How much time and effort have you devoted to tape reading? I'm asking because I'd like to know what qualifies you to make such a statement. 'Heck of a lot more' is quite an assertion.

 

We have information we can derive from price, time, and volume.

 

If you limit your sensory input, from p, t, and v, you limit your potential. Similarly, a cheetah stalking a baby gazelle in the Serengeti, can still succeed if it were wearing ear plugs and using only sight and smell; however, there are times where sound would give it the extra edge.

 

If when you say you don't use charts, you mean that you don't trade chart patterns, then that is a different story. A chart is a nice and simple record of where price has been and It's an easy way to see where other traders may act. Why not use it?

[estrader 10]

We have information we can derive from price, time, and volume.

 

If you limit your sensory input, from p, t, and v, you limit your potential. Similarly, a cheetah stalking a baby gazelle in the Serengeti, can still succeed if it were wearing ear plugs and using only sight and smell; however, there are times where sound would give it the extra edge.

 

 

Well, you didn’t really answer my question. How much time and effort have you devoted to the art of tape reading?

 

You have manipulated your analogy to suit your argument because I would say that the Cheetah already has everything it needs to catch its prey. You are talking about removing a sense, its hearing, and then giving it back and claiming you have added something to give it an extra edge in catching prey. That would be like taking price information away from time & sales and then giving it back and saying you have now added an extra edge.

 

If when you say you don't use charts, you mean that you don't trade chart patterns, then that is a different story. A chart is a nice and simple record of where price has been and It's an easy way to see where other traders may act. Why not use it?

 

I suppose I can infer by the fact that you ask me why I don’t use a chart that you haven’t devoted anywhere near the time and effort that I have into practicing tape-reading. It reminds me of something someone once said, if you have to ask, then no answer will suffice.

 

What would a chart tell me that time and sales doesn’t? How many people ‘use’ charts in their trading and still lose money?

[MightyMouse 12]

Well, you didn’t really answer my question. How much time and effort have you devoted to the art of tape reading?

 

You have manipulated your analogy to suit your argument because I would say that the Cheetah already has everything it needs to catch its prey. You are talking about removing a sense, its hearing, and then giving it back and claiming you have added something to give it an extra edge in catching prey. That would be like taking price information away from time & sales and then giving it back and saying you have now added an extra edge.

 

 

 

I suppose I can infer by the fact that you ask me why I don’t use a chart that you haven’t devoted anywhere near the time and effort that I have into practicing tape-reading. It reminds me of something someone once said, if you have to ask, then no answer will suffice.

 

What would a chart tell me that time and sales doesn’t? How many people ‘use’ charts in their trading and still lose money?

 

A cheetah does have everything it needs to catch prey. However, a deaf cheetah can still catch prey, but he is at a disadvantage to the cheetah who has all his senses. Since a deaf cheetah is at a disadvantage, then it would be disadvantageous for a non-deaf cheetah to deliberately plug his ears when he is hunting for prey. I hope that is clearer for you. I didn't think the original version was so easy to misinterpret. My mistake, i suppose.

 

You have lots more information available to you than just time and sales. A trader who uses only time and sales can, probably, still make money, but he is at a disadvantage to traders who do not limit themselves to time and sales when there are many more tools available.

 

I have put lots of time into reading order flow and use time and sales when I trade. However, I will not limit myself to only using time and sales when I trade.

 

If you want me to believe that you are superman and can gather all the time, price, and volume information available from t&s that other traders can using a multitude of tools, I won't.

 

Tape reading is helpful and can still be done in certain markets, but it is antiquated with the vast amount of technology we have today.

[estrader 10]

A cheetah does have everything it needs to catch prey. However, a deaf cheetah can still catch prey, but he is at a disadvantage to the cheetah who has all his senses. Since a deaf cheetah is at a disadvantage, then it would be disadvantageous for a non-deaf cheetah to deliberately plug his ears when he is hunting for prey. I hope that is clearer for you. I didn't think the original version was so easy to misinterpret. My mistake, i suppose.

 

I didn’t misunderstand your analogy. Taking away the Cheetah’s hearing is the equivalent to taking something away from time & sales that is needed, like price. You claim giving back the Cheetah’s hearing is giving it something extra that it wasn’t born with thereby giving it some sort of extra edge.

 

You have lots more information available to you than just time and sales. A trader who uses only time and sales can, probably, still make money, but he is at a disadvantage to traders who do not limit themselves to time and sales when there are many more tools available.

 

You have absolutely no proof of this at all. How can you possibly say that I am at a disadvantage to another trader? On what basis do you make this claim? How do you know how much money tape-readers out there make? You are trying to assert your opinion as if it is fact.

 

 

If you want me to believe that you are superman and can gather all the time, price, and volume information available from t&s that other traders can using a multitude of tools, I won't.

 

And there is the crux of your argument, you can’t do it so you don’t believe anyone else can either. Like I said earlier, if you had to ask, no answer would suffice. With the multitude of tools out there everyone should be a great carpenter, do you agree?

 

I doubt a person is profitable if they feel they need lot’s of ‘bells and whistles’ to assist in the decision making process. If you really want to know, I do add something to time & sales which gives me an extra edge, but it isn’t something you will find in your trading platform. What is that extra something? Experience! Hard earned experience that gives me what you could call a 6th sense. I know that you will find it hard to believe, you want something tangible. Ok, I use a pencil and paper and make notes. So, I suppose I wasn’t completely honest, there are some things I add, experience and pencil and paper.

[MightyMouse 12]

I didn’t misunderstand your analogy. Taking away the Cheetah’s hearing is the equivalent to taking something away from time & sales that is needed, like price. You claim giving back the Cheetah’s hearing is giving it something extra that it wasn’t born with thereby giving it some sort of extra edge.

 

 

 

You have absolutely no proof of this at all. How can you possibly say that I am at a disadvantage to another trader? On what basis do you make this claim? How do you know how much money tape-readers out there make? You are trying to assert your opinion as if it is fact.

 

 

 

 

And there is the crux of your argument, you can’t do it so you don’t believe anyone else can either. Like I said earlier, if you had to ask, no answer would suffice. With the multitude of tools out there everyone should be a great carpenter, do you agree?

 

I doubt a person is profitable if they feel they need lot’s of ‘bells and whistles’ to assist in the decision making process. If you really want to know, I do add something to time & sales which gives me an extra edge, but it isn’t something you will find in your trading platform. What is that extra something? Experience! Hard earned experience that gives me what you could call a 6th sense. I know that you will find it hard to believe, you want something tangible. Ok, I use a pencil and paper and make notes. So, I suppose I wasn’t completely honest, there are some things I add, experience and pencil and paper.

 

I should have known you have a sixth sense. You want us to believe that you are Superman. Can you bend steel with your mind too? Bullshitting on line is fun for you isn't it?

[estrader 10]

I should have known you have a sixth sense. You want us to believe that you are Superman. Can you bend steel with your mind too? Bullshitting on line is fun for you isn't it?

 

I don't know what your problem is Mighty Mouse. You are not a tape-reader, you couldn't figure it out, you failed at it and as a result you think anyone who practices it is just talking bullshit. Whatever helps you sleep at night.

[MightyMouse 12]

I don't know what your problem is Mighty Mouse. You are not a tape-reader, you couldn't figure it out, you failed at it and as a result you think anyone who practices it is just talking bullshit. Whatever helps you sleep at night.

 

I do not think that anyone who practices it is bullshitting, just you.

[estrader 10]

I do not think that anyone who practices it is bullshitting, just you.

 

Fine. This comment, like the rest of your 'argument' has been based on nothing but your ill-considered, ill-informed, ignorant opinion. No facts, just bluster. I'm not interested in what you have to say anymore. You can have the last word because it's clear to me that is the sort of "person" you are.

[jim380 10]

A typical T&S would look something like

 

date, time, volume, price and the colour for bid/ask

 

10/12/2010, 10:30:00, 10, 1231.50

 

Using GREEN to represent BID, all you can say from the above is that 10 orders were traded at the BID price of 1231.50 on 10th Dec at 10.30. They could have been 10 stops that were hit from 10 individuals or 1 stop from a larger trader or 10 limit orders from individual traders, or 10 limit orders from 1 larger trader. Were they orders to Open a position or close a position? All this is something that you have to judge yourself, the Time and sales doesn't give you this information and nobody else can either.

 

Can I verify the above is correct? I had all along thought that if T&S shows

 

10/12/2010, 10:30:00, 10, 1231.50

 

They can only be a 10 stop order from a single trader or a 10 limit orders from a single trader. It is not be a consolidation of 10 separated individual orders.

[MightyMouse 12]

Can I verify the above is correct? I had all along thought that if T&S shows

 

10/12/2010, 10:30:00, 10, 1231.50

 

They can only be a 10 stop order from a single trader or a 10 limit orders from a single trader. It is not be a consolidation of 10 separated individual orders.

 

if you see 10 going off at the bid, then you are seeing a match of 10 market to 10 limit buy or 10 market sell partially filling a larger limit buy order. If the order was smaller than 10, you would see the individual smaller orders summing to 10. If you see a trade going off at the bid, it is because someone does not feel like waiting for price to sell, they are selling lower now.

[gregn 10]

if you see 10 going off at the bid, then you are seeing a match of 10 market to 10 limit buy or 10 market sell partially filling a larger limit buy order. If the order was smaller than 10, you would see the individual smaller orders summing to 10. If you see a trade going off at the bid, it is because someone does not feel like waiting for price to sell, they are selling lower now.

 

Mighty Mouse, just to check -- the order contained in the message that you were responding to would have been at the ask, not bid -- correct?

 

I have began to rethink about the mechanics of this as I am currently writing a market simulator in C# with automated participants -- just to gain a greater understanding of the mechanics (and also grow a huge appreciation for the genius involved in the softwares that manage our stock exchanges).

 

What is really interesting me is that during a breakout, someone has to be selling at every single tick that is traded at during the breakout. So really, a breakout fails (or any upmove) not just when you run out of buyers, but also can happen when you run out of people selling higher than the current price. For instance, if the price is 1000 and there are 10 contracts for sale 1001, 10 for sale at 1001.25 and 10 for sale at 500. I buy at the market 10, knock out the asks at 1001 -- price is at 1001. Buy 10 more at market, knock out the 10 at 1001.25 then buy 10 more at market -- I hit 10 asks at 500, price is now 500.

 

 

Edit: Another scenario to think about: if we are trading at 1000, Bill puts a sell order of 10 at 900, 10 at 800 and 10 at 700 --- then Bob buys market 10, price drops to 900, buys 10, price drops to 800, buys 10, market is now at 700 from market -- or 'aggressive' buys.

 

Another edit: When reading the tape many people say to filter by large orders to see the 'big boys'. As mighty mouse pointed out, this just means that an order of 500 market buy was matched to a limit sell of 500 -- there are big boys on both sides of the trade here, just one was a bit more patient for the trade. What you really want to see is a ton of 1's and 2's happen almost immediately -- this would indicate to me that a large market order was matched with a bunch of smaller orders from weaker hands.

Edited July 13, 2011 by gregn

[Predictor 11]

You guys are making this way more complicated then it needs to be.

 

What you need to understand is that there is a sell for every buy order but as point out a large buy/seller may offset to several smaller participants. So then what moves price?

 

Supply and demand.

 

But lets look at this, there are 2 prices for everyone market, bid & ask

 

Example:

 

1325.50

1325.25

 

Imagine 2 market participants, 1 wants to sell at 1325.50 and the other wants to buy at 1325.25. The orders wont cross and the price wont move. Real simple.

 

What happens if the sell at 1325.50 gets nervous (or he is really confident price will go down). He will cross the order on 1325.25 and the market, the last price printed will be 1325.25.

 

If he's the only seller willing to cross then the actual "market" will still be 1325.50/1325.25

 

When we talk about supply/demand then you need to understand there is a supply/demand curve. Buyers are willing to buy more at lower prices and sellers are willing to sell more at higher prices generally speaking. For example, there is no inventory for sell under the market.

 

The market is only slightly different in that there are many speculators who are forecasting price. Inventory is not unlimited. Most shares are held by long term investors who do not participate in either sells or buys.

 

Sometimes a market going up leads to more buying (when expectations of future price change) and sometimes it leads to more selling and reversals.

 

This can be understood by an example on EBAY. You see the price of a widget going up in price over time, maybe Christmas is coming up. You decide to step in and buy some inventory based on the trend. If you are right then you may resell the item you bought for a profit. If wrong then you may take a loss.

[gregn 10]

You guys are making this way more complicated then it needs to be.

 

What you need to understand is that there is a sell for every buy order but as point out a large buy/seller may offset to several smaller participants. So then what moves price?

 

Supply and demand.

 

But lets look at this, there are 2 prices for everyone market, bid & ask

 

Example:

 

1325.50

1325.25

 

Imagine 2 market participants, 1 wants to sell at 1325.50 and the other wants to buy at 1325.25. The orders wont cross and the price wont move. Real simple.

 

What happens if the sell at 1325.50 gets nervous (or he is really confident price will go down). He will cross the order on 1325.25 and the market, the last price printed will be 1325.25.

 

If he's the only seller willing to cross then the actual "market" will still be 1325.50/1325.25

 

When we talk about supply/demand then you need to understand there is a supply/demand curve. Buyers are willing to buy more at lower prices and sellers are willing to sell more at higher prices generally speaking. For example, there is no inventory for sell under the market.

 

The market is only slightly different in that there are many speculators who are forecasting price. Inventory is not unlimited. Most shares are held by long term investors who do not participate in either sells or buys.

 

Sometimes a market going up leads to more buying (when expectations of future price change) and sometimes it leads to more selling and reversals.

 

This can be understood by an example on EBAY. You see the price of a widget going up in price over time, maybe Christmas is coming up. You decide to step in and buy some inventory based on the trend. If you are right then you may resell the item you bought for a profit. If wrong then you may take a loss.

 

 

This has been established - can you comment on the scenarios that I gave.

[Predictor 11]

greg.. just scanned your posts. Not sure what scenario you are referring too but remember there are always 2 prices for any market, "the price" is really just the price last traded. If you go to market, you will be filled at the best price offered.

 

>What is really interesting me is that during a breakout, someone has >to be selling at every single tick that is traded at during the breakout.

 

No, this is false. Not every price must be traded. If you go to market, you get the best price offered. It is possible that a "tick" is slipped, this is slippage

 

>So really, a breakout fails (or any upmove) not just when you run out >of buyers, but also can happen when you run out of people selling >higher than the current price. For instance, if the price is 1000 and

 

No, this is false. Makes no sense. There are always limit orders in the book. The "price" is the price last traded. If sellers pull their orders then price will move up more rapidly because there won't be as much supply at lower prices.

 

You misunderstand the last price traded and the available price. The available price is whatever is best the bid/ask. The last price traded was just what was shown. If there is no one willing to cross then you don't have a trade. Someone will always sell/buy at some price though.

 

What causes the market to move is very simple, supply & demand

 

Example, I want to fill 1000 orders. I anticipate the market to go higher. I put them in as a limit order and take out 100. I have 900 to fill. Another trader jumps in front of me and offers a better offer (if possible) or else he will join the queue. Orders start to pile up at a level. Speculators become confident and jump in and cross market. Sellers see that price is rising and sell less which creates less supply.

I see that price is rising. I become more aggressive and go to market. I take 2-3 levels of sellers and get an average price of the 3 levels. If I was the only buyer then the speculators will sell out.. etc market goes back to where it was, likely.

 

It is very simple. There are limit orders on the book all the way up and down. i.e demand to buy AAPL is infinite at zero (provided aapl is not zero) and supply is infinite at infinity.

 

The spread represents the liquidity and uncertainty in the market. A small stock that is very volatile may have a wide bid/ask spread whereas a highly liquid etf may only have a penny or less spread. Futures spreads are fixed.

 

The one thing that makes stock different then most other items is that demand can increase even as price goes up. We have some items such as oil where demand is higher when prices are higher. The explanation is that expectations of future price are better. Also supply can increase as the market goes down for any number of reasons. One of which is that traders have stop loss orders which triggers temporary over supply to the market. Likewise, when prices moves fast to downside then buyers may step back and leave the market.. ie flash crash

Edited July 13, 2011 by Predictor

[gregn 10]

I cannot read your whole post right now --- I just read a bit. My scenarios were completely hypothetical. The orders that were mentioned were the only orders in the 'market'. In that case, a market buy can drop the price if the only limit sells were lower. You will get the best price, which in this case is lower than the last trade price.

[Predictor 11]

Seller can not drop the price below the bid. So, no I don't think it makes sense.

 

I cannot read your whole post right now --- I just read a bit. My scenarios were completely hypothetical. The orders that were mentioned were the only orders in the 'market'. In that case, a market buy can drop the price if the only limit sells were lower. You will get the best price, which in this case is lower than the last trade price.

[gregn 10]

Seller can not drop the price below the bid. So, no I don't think it makes sense.

 

I think you are not understanding something... the seller creates the bid. The only bid in my scenario are lower than the last trade price.

[szgy74 10]

just to make things more interesting: what about the ECN level 2 prices?

there are different volumes available for buy/osell at different prices.

here is an example.

[joshdance 10]

Edit: Another scenario to think about: if we are trading at 1000, Bill puts a sell order of 10 at 900, 10 at 800 and 10 at 700 --- then Bob buys market 10, price drops to 900, buys 10, price drops to 800, buys 10, market is now at 700 from market -- or 'aggressive' buys.

 

I'm not sure you're clear on how orders work. A buy market can not cause price to move down.

 

I think you are not understanding something... the seller creates the bid. The only bid in my scenario are lower than the last trade price.

 

A bid is a resting limit order to buy. A seller places a market sell order, and this is matched to a resting bid. Either you're very confused, or your terminology is incorrect.

[gregn 10]

I'm not sure you're clear on how orders work. A buy market can not cause price to move down.

 

 

 

A bid is a resting limit order to buy. A seller places a market sell order, and this is matched to a resting bid. Either you're very confused, or your terminology is incorrect.

 

Let's just say the last traded price was 1000 there are resting asks follows: 10 at 900, 10 at 800.

I do a market buy of 20, I would buy 10 at 900 and 10 at 800.

 

I am not talking about going out and trying this on /ES. This is completely hypothetical. I see no way for this scenario to not be correct as a market order means that you get filled at the best price. Which would be 10 contracts at 900 and 10 contracts at 800.

 

 

Edit: i accidently put bid, not ask

Edited July 14, 2011 by gregn

[joshdance 10]

Several people seem to be making this more complicated than it needs to be.

 

Bids are orders to buy at or lower than a specific price. Offers are orders to sell at or lower than a specific price.

 

A market buy is an order to buy at the best available (lowest price) offer. Thus, a market buy (created when you click "Buy market" or when you use a "stop market" order) is matched to the lowest offer in the order book, specifically the first order in the queue at that price. If there are more offers at that price, then they are each filled as market buy orders are placed. If enough market buy orders are executed so that the offers at that price are filled, OR if the offers are that price are removed, such that there are no more offers at that level, then the best offer will be at some higher price level, usually one tick higher. As soon as someone places a buy market now, then price will "tick" higher. This is the "last" traded price, and is usually the price you see as "the price" on your chart. This is how prices move. Reverse the process for how prices move down.

 

So, only market orders, or marketable limit orders (buy limits at or above the best offer, and vice versa), can "move" price or create a transaction. Bids and offers in and of themselves do nothing but wait to be filled by market orders.

 

Open a time and sales window and a DOM on a slow moving instrument during off hours, like ES, and just watch how it works.

[joshdance 10]

Let's just say the last traded price was 1000 there are resting asks follows: 10 at 900, 10 at 800.

I do a market buy of 20, I would buy 10 at 900 and 10 at 800.

 

I am not talking about going out and trying this on /ES. This is completely hypothetical. I see no way for this scenario to not be correct as a market order means that you get filled at the best price. Which would be 10 contracts at 900 and 10 contracts at 800.

 

 

Edit: i accidently put bid, not ask

 

Okay, so last traded price was 1000, resting offers are 10 at 900, 10 at 800. You do a buy market of 20, you get filled 10 at 800 first, then 10 at 900, so you're long 20 contracts at an average price of 850. Last price will now be 900.

[gregn 10]

Okay, so last traded price was 1000, resting offers are 10 at 900, 10 at 800. You do a buy market of 20, you get filled 10 at 800 first, then 10 at 900, so you're long 20 contracts at an average price of 850. Last price will now be 900.

 

I don't think that's correct. Pretty sure 'best price' means the best price closest to the last traded price. If we were trading on the /ES and there were was a stop limit sell order at $1 and the current price was $1423 -- if i hit a market order, but your logic, I should get filled at $1.

[joshdance 10]

I don't think that's correct. Pretty sure 'best price' means the best price closest to the last traded price.

 

No, "best price" for a buy market is the lowest offer. Why would "best price" mean anything other than the "lowest price"?

 

If we were trading on the /ES and there were was a stop limit sell order at $1 and the current price was $1423 -- if i hit a market order, but your logic, I should get filled at $1.

 

I can not follow your examples. Perhaps something a little more realistic and clear would help. If I understand what you're trying to say, if the best offer is $1, and you bought market, then yes you'd get filled at $1. If the best bid is $1 and you sold market, you'd get filled at $1.