Trading F&O by Time and Sales

[rocky9281 10]

It "appears" that the price of a future or option is derived from the price of its underlying. In turn, price of the underlying is determined by supply demand conditions prevailing in it.

 

So, if we can understand supply/demand conditions of the underlying, we will be able to gauge future direction of the future or option.

 

Do we need anything more to understand FnO?

 

Do they have their own supply-demand game?

 

How can Time and Sales of FnO help if FnO is priced according to the respective underlying ONLY, and not because of its own supply-demand conditions?

[Tams 20]

It "appears" that the price of a future or option is derived from the price of its underlying. In turn, price of the underlying is determined by supply demand conditions prevailing in it.

 

So, if we can understand supply/demand conditions of the underlying, we will be able to gauge future direction of the future or option.

 

Do we need anything more to understand FnO?

 

Do they have their own supply-demand game?

 

How can Time and Sales of FnO help if FnO is priced according to the respective underlying ONLY, and not because of its own supply-demand conditions?

 

What "appears" to you is often not what it was...

 

the are many academic papers in this subject... a search in university websites will give you plenty of late night reading material.

[rocky9281 10]

Please tell me whether trading FnO with its own Time and sales is sufficient or not

[Pippovic 10]

With regards to options I don't think it's solely a matter of supply and demand of the underlying. It certainly is a big factor of the pricing model. The AMOUNT of supply/demand (volatility) plays a role, the SPEED of which the underlying changes, including the time decay until expiration and any unforeseen circumstances.

 

S&D would be good indicators for a future direction but how are you going to determine that in advance?

 

As far as I know about futures, I believe that supply/demand plays a bigger role there and you probably can determine future directions a bit more easily because of circumstances (weather conditions, wars, natural disasters etc.). But again, how do you know in advance?

 

So in my opinion Time and Sales alone are not good enough but certainly help.

[rocky9281 10]

Here I am posting a T&S screenshot.Assuming that the transactions are going on live right now,please let me know about what can inferred from this T&S as the current transactions are going.

 

Does this screenshot prompts us to buy immediately, sell immediately or do nothing or something else?

[BlowFish 10]

I'll play

 

Aggressive/impatient/anxious sellers have been prepared to hit the bid to sell/go short. They have traded about 200 contracts. Despite this the inside bid has increased from 150 offered to 800+ offered by patient potential buyers. Several things could happen from here. Impatient buyers could enter the market, Impatient sellers could withdraw or patient buyers could withdraw (cease bidding / pull contracts). Not much can be said about patient sellers from this section of the tape. Of course which combination occurs will determine what happens to price.

[rocky9281 10]

 

They have traded about 200 contracts.

 

 

Hi BlowFish, how did you arrive at this "200" figure?

 

Another thing, can you please direct me to resources (books,ebooks,websites etc.) where I can learn about how to trade with Time and sales ?

[BlowFish 10]

Actually looks like it is more like 240 / 250. I simply looked at the black prints marked trade (and totalled them roughly in my head). They all appear to be at the best bid.

[BlowFish 10]

Just saw the second part of your question. There is not that much written about it to be honest. The couple of things that spring to mind are

 

Amazon.com: Studies in Tape Reading (Fraser Publishing Library) (Fraser Contrary Opinion Library Book) (9780870340642): Rollo Tape: Books

 

and

 

Amazon.com: Tape Reading & Market Tactics (9789650060411): Humphrey B Neill: Books

 

At $15 and $10 respectively they wont break the banks

[rocky9281 10]

 

1. I simply looked at the black prints marked trade .

 

2. They all appear to be at the best bid.

 

Hi BlowFish .Thanks again.

 

1. I have seen three kinds of entries in a T&S. They are "bid" , "ask" and "trade". As far as I know, Bid is trade occurring at best bid,vice versa for ask. But What is "trade"?

 

This time, please enlighten me about the entries marked as "Trade".What does these lines marked as "trade" mean?

 

2. Lastly, how did you know that they occurred at best bid?

[BlowFish 10]

Hi BlowFish .Thanks again.

 

1. I have seen three kinds of entries in a T&S. They are "bid" , "ask" and "trade". As far as I know, Bid is trade occurring at best bid,vice versa for ask. But What is "trade"?

 

This time, please enlighten me about the entries marked as "Trade".What does these lines marked as "trade" mean?

 

2. Lastly, how did you know that they occurred at best bid?

 

Looking at the quantities that is not how it looks like things are being reported. Trade is an actual trade at the price reported. bid is an update to the total number offered at best bid, ask is an update to the total amount offered at best ask. They are not actual trades but updated quotes.

 

If a trade is reported at the same price as the prevailing BB it was 'at the bid'.

 

At least that is how I am reading it

[rocky9281 10]

 

1.Looking at the quantities that is not how it looks like things are being reported. Trade is an actual trade at the price reported. bid is an update to the total number offered at best bid, ask is an update to the total amount offered at best ask. They are not actual trades but updated quotes.

 

2.If a trade is reported at the same price as the prevailing BB it was 'at the bid'.

 

At least that is how I am reading it

 

That was completely new knowledge for me.Thanks so much!!!!

 

1. From the way you describe it, let me analyze the topmost 2 lines of the T&S.

The 2nd line from the top actually means that there are 808 shares to be bought at 1150.20. So this is a part of the limit order book...nothing else. Am I correct?

 

2. The 1st line says that, out of the 808 shares to be bought, 4 were bought (This is an actual trade at 1150.20-bid bcoz the previous line shows 1150.20-bid). Thus, 808-4=804 is the current size of the best bid now.(to be shown when the next line will be added) Am I correct?

 

3. What is "BB"? Is it best bid?

 

4. Why isn't there a single entry about the ask? Is this because there is no order being added or removed from the ask side of the order book?

Edited May 4, 2011 by rocky9281

[BlowFish 10]

That was completely new knowledge for me.Thanks so much!!!!

 

1. From the way you describe it, let me analyze the topmost 2 lines of the T&S.

The 2nd line from the top actually means that there are 808 shares to be bought at 1150.20. So this is a part of the limit order book...nothing else. Am I correct?

 

2. The 1st line says that, out of the 808 shares to be bought, 4 were bought (This is an actual trade at 1150.20-bid bcoz the previous line shows 1150.20-bid). Thus, 808-4=804 is the current size of the best bid now.(to be shown when the next line will be added) Am I correct?

 

3. What is "BB"? Is it best bid?

 

4. Why isn't there a single entry about the ask? Is this because there is no order being added or removed from the ask side of the order book?

 

1-3 that is my understanding (I think it is correct but it would not be the first time I a wrong!)

 

4 I puzzled over too. If you have 20 bid and a trade of 3 at that price you would expect to see 3 traded followed by an updated bid of 17. This does not seem to be happening. I guess that they are either not reporting that or perhaps an 'iceberg' order is keeping the bid refreshed. On some feeds quotes (BB & BA) are sampled rather than every single change reported. It certainly appears that someone is adding limit orders to the book as trades go off. (so supporting that price).

[rocky9281 10]

Hello BlowFish,

 

I am still confused on how to understand whether a particular trade occurred at the bid or the ask. I have attached a new screenshot . Here, there are 8 entries of "trade". I have marked them 1 through 8.

 

Please tell once again how do I classify these trades as "at bid" or "at ask".

Please tell me the logic used to differentiate them.

 

Sorry to irritate you.

[BlowFish 10]

Just read them in sequence 1 occurred at the ask because at 9:15:36 you are told the ask is 5834. Two seconds later (at '1') you get a trade at 5834.

 

Some of the other prints look screwy (trades occuring outside the BB BA). I'd contact your broker and ask what the &^%$ is going on

[rocky9281 10]

Just read them in sequence 1 occurred at the ask because at 9:15:36 you are told the ask is 5834. Two seconds later (at '1') you get a trade at 5834.

 

Some of the other prints look screwy (trades occuring outside the BB BA). I'd contact your broker and ask what the &^%$ is going on

 

But look at trade #2 - it occurred at 5832.5..neither of the bid or the ask PRECEDING the trade showed this value. BUT, the bid that was printed AFTER the trade had this value.

 

Now I am confused whether to concentrate on the bids and asks printed before the trade or after the trade. (Another thing to note, the bids and asks printed after the trades are having same time stamp as the trade itself, whereas the preceding ones are not! )

 

Please guide me

[BlowFish 10]

 

Some of the other prints look screwy (trades occuring outside the BB BA). I'd contact your broker and ask what the &^%$ is going on

 

^^^^^^^^^This^^^^^^^^^

[rocky9281 10]

I want to know a few things about how the orders from the orderbook are executed and how are they printed on the tape.

 

Lets look at the hypothetical orderbook here-

 

 

BidaaaaaaaaaaaaaaaaaaAsk

 

50@99.95aaaaaaaaa80@100.10

50@99.90aaaaaaaaa70@100.15

1900@99.80aaaaaaa300@100.25

1000@99.70aaaaaaa50@100.30

500@99.65aaaaaaaa500@100.35

 

 

 

I wish to have a clear picture of some of the basics of order execution. Please help me by answering the following questions, with yes/no..

 

Q1. Any order to buy shares will invariably be directed to Ask side of 80 @ 100.10.

 

Q2. Until and unless Ask side of 80 @ 100.10 is exhausted, 70 @ 100.15 won't be traded.

 

Q3. Any order to sell shares will invariably be directed to Bid side of 50 @ 99.95.

 

Q4. Until and unless Bid side of 50 @ 99.95 is exhausted, 50 @ 99.90 won't be traded.

 

Q5. The region between Bid 50 @ 99.95 and Ask 80 @ 100.10 is called the inside region.

 

Q6. There is no bid AND/OR ask quote in the inside region.

Edited May 6, 2011 by rocky9281

[BlowFish 10]

That looks about right rocky, seems like you understand pretty well how it hangs together.

[rocky9281 10]

Thanks BlowFish,

 

 

BidaaaaaaaaaaaaaaaaaaAsk

 

50@99.95aaaaaaaaa80@100.10

50@99.90aaaaaaaaa70@100.15

1900@99.80aaaaaaa300@100.25

1000@99.70aaaaaaa50@100.30

500@99.65aaaaaaaa500@100.35

 

Looking at the order book above (within the quoted text), I want to clear few more doubts related to Trades above the ask, below the bid and inside the bid-ask spread.

 

Below, I provide 3 examples to show what do I understand by:

 

Q1.Example of trade below the bid:-Clearing 1900@99.8 (while 50@99.95 is still there) in the bid.Am I correct?

Q2.Example of trade above the ask:-clearing 70@100.15 (while 80@100.10 is still there) in the ask.Am I correct?

Q3.Example of trade inside the bid-ask spread:-Executing trades like 50@100.05 (while 99.95 is best bid and 100.10 is best ask).Am I correct?

 

If one or more of the above examples are incorrect,please explain what is trade below bid,above ask and between bid and ask from the hypothetical order book as above.

[$5DAW 10]

I'll play

 

Me too

 

Hypothetically the single answer to your six questions (Q1-Q6) and three question concerning above, below and inside (Q1-Q3) is yes, that's how it's suppose to work. But be warned, there are demons in the T&S closet. Icebergs, submarines, and child orders are a few of these ghost-like demons. Also latency is a biggie, HFTraders can display IOC (immediate or cancel) orders that appear for a twentieth of a second (50 milliseconds) on another exchange (if available) and then switch sides or remove their order completely just as fast. For perspective, it takes 300 to 400 ms to blink the human eye. At these speeds of execution my "old school" methods based on old school indicators suffer greatly, when trading to close to the flame.

 

IMO, if you are a retail trader and do not have an army of programmers at your disposal you could be chasing your tail for quite some time. If you are a trader worth his salt, you will exhaust all known possibilities (within your/our means) and make little progress. Here is a sentence or two from a resent article I read.

 

It was no accident that Fidelity bought Wealth Labs — a build, design and backtester of systems — allegedly because the company wanted to know what others were doing, so that it could take advantage of them. In other words, perhaps Fidelity wanted to assume the opposite side of the systems on the basis that the vast majority of systems are designed to be trend-followers.

 

There's another great article on this topic in the May 2011 issue of Futures Magazine, "New world but similar headaches," it's worth a read. I'm not bashing HFTraders, in fact I like the liquidity they provide but IMO they do require me (as a day trader) to be a lot more alert and a lot more patient before I enter my orders.

[rocky9281 10]

1.The single answer to your six questions (Q1-Q6) and three question concerning above, below and inside (Q1-Q3) is yes, that's how it's suppose to work.

 

2.Also latency is a biggie, HFTraders can display IOC (immediate or cancel) orders that appear for a twentieth of a second (50 milliseconds) on another exchange (if available) and then switch sides or remove their order completely just as fast.

 

 

Hello $5DAW,

 

I have broken down your reply into 2 parts.

 

For first part, I want to say that, Q2,Q4,Q6 (of post 18) entirely criticizes Q1,Q2,Q3 (of post 20).

 

For example,

Until and unless Ask side of 80 @ 100.10 is exhausted, 70 @ 100.15 won't be traded.(Q2 post18)

clearing 70@100.15 (while 80@100.10 is still there) in the ask.(Q2 post 20).

 

Similar controversies exist with the other 2 pairs.

 

I cant figure out on what basis you are saying all of them are correct. One group completely criticizes the other.

 

For second part,I cannot relate HFtraders/short lived IOC orders with trades below bid, above ask, inside trades etc.

 

Can you explain them with more details please?

 

Thanks

[BlowFish 10]

Thanks BlowFish,

 

 

 

Looking at the order book above (within the quoted text), I want to clear few more doubts related to Trades above the ask, below the bid and inside the bid-ask spread.

 

Below, I provide 3 examples to show what do I understand by:

 

Q1.Example of trade below the bid:-Clearing 1900@99.8 (while 50@99.95 is still there) in the bid.Am I correct?

Q2.Example of trade above the ask:-clearing 70@100.15 (while 80@100.10 is still there) in the ask.Am I correct?

Q3.Example of trade inside the bid-ask spread:-Executing trades like 50@100.05 (while 99.95 is best bid and 100.10 is best ask).Am I correct?

 

If one or more of the above examples are incorrect,please explain what is trade below bid,above ask and between bid and ask from the hypothetical order book as above.

 

Again seems like you have it. Examples of trades 'outside the market' (above and below) and 'inside' the market. Incidentally you should not really see these trades very often with centralised electronic markets.

[rocky9281 10]

Again seems like you have it.

 

:confused:

 

Hello BlowFish,

 

None of the ask quotes,having higher prices than the best ask, can be executed as long as the best ask is there.But still, we can see some trades go off "above the ask".

 

How is that possible? :confused:

[BlowFish 10]

:confused:

 

Hello BlowFish,

 

None of the ask quotes,having higher prices than the best ask, can be executed as long as the best ask is there.But still, we can see some trades go off "above the ask".

 

How is that possible? :confused:

 

In centralised markets it really should not. There are a couple of things that could cause it. Quotes lagging (quotes are not nearly as robustly updated as trade are) or simple 'bad ticks'. Trades conducted off exchange that still need to be reported on the exchange, some exchanges even though 'centralised' have a mechanism to conduct block trades directly between two counter parties. ermm what else implied trades which is way beyond the scope of this thread.

 

Long and short of it is that you really should not be seeing many at all which is why I suggested there might be something screwy with the second T&S image you posted.

 

Your understanding of how things work most of the time is good don't abandon that