Trading F&O by Time and Sales

[rocky9281 10]

Quotes lagging (quotes are not nearly as robustly updated as trade are) or simple 'bad ticks'.

 

Hello Blowfish,

 

Thanks man.

 

Can these same reasons be used to describe (1)trades below the bid and (2)trades inside the bid-ask spread?

[$5DAW 10]

@ rocky9281

 

First and foremost, you misquoted me, you omitted the word hypothetically in your #1 quote. Your assessment of Q1-Q6 is dead on, it is impossible to trade outside the bid/ask spread.

The exchange will always match the closest bid/ask and execute at that price, end of subject...... and expand and contract the spread if/when needed.

 

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?

 

 

If you're a small retail trader (like me) and are not connected to one of the exchanges co-location servers, we are forced to trade against an approximation of the only true order book which exists on the exchanges computers. That's the sad fact

 

Data transfer or latency is one of the demons in the T&S closet, this is where the trades outside/inside the bid/ask are spawn. These trades are only outside/inside the latest bid/ask spread as it is sitting on our computers not the exchanges "Master Order Book." Even the exchange will footnote their T&S data with "fast market conditions" remember we're talking in 1000ths of a second (milliseconds) here, a lot of trading can happen in a few seconds when the "bots come alive." So no trade is left behind, the order book at the exchange is always cleared and is always right, it is our DOM and T&S data that is slow to print.

[BlowFish 10]

Hello Blowfish,

 

Thanks man.

 

Can these same reasons be used to describe (1)trades below the bid and (2)trades inside the bid-ask spread?

 

Yes, though inside there are possible other reasons too. e.g. off the top of my head two limits being placed 'at the same time' (in theory there is no at he same time) at the same time between BB & BA, one to sell, one to buy. Or a limit buy and a stop sell inside should be matched (I think) depending on the precise details of the matching algorithm. They occur a bit more often (inside) though are still pretty rare.

[rocky9281 10]

e.g. off the top of my head two limits being placed 'at the same time' (in theory there is no at he same time) at the same time between BB & BA, one to sell, one to buy.

 

Hello Blowfish,

 

The way you described about inside trading,it appears to me that these kinds of orders are placed because the buyer wants to buy from ONLY a particular seller and vice versa. They have planned that no third party can take part in that trade. So the buyer and seller have pre-planned about the price, size and time of the trade and accordingly, they "meet secretly with each other and run away after the trade is complete".

 

This is what I am feeling about inside trades.

1. Please correct me if I am wrong.

2. Is this inside-the-spread trading made by the pros? or normal retail traders?

[BlowFish 10]

Can be either it is more a function of the type of order and how orders are matched by the exchanges matching algorithm.

 

Edit: By inside I mean inside the best bid/ask rather than some sort of market insider.

Edited May 9, 2011 by BlowFish

[rocky9281 10]

Last group of questions:

 

1.What can be inferred if we see trades going on (1)"above the ask/below the bid" AND (2)"inside-the-spread"?

 

2. What can be the future impact on the price due to trades going on (1)"above the ask/below the bid" AND (2)"inside-the-spread"?

[BlowFish 10]

Last group of questions:

 

1.What can be inferred if we see trades going on (1)"above the ask/below the bid" AND (2)"inside-the-spread"?

 

2. What can be the future impact on the price due to trades going on (1)"above the ask/below the bid" AND (2)"inside-the-spread"?

 

Outside not much, bad prints, implied trades....ignore. Inside similar however there are papers that I have seen (that seem pretty plausible) that this often happens when volatility becomes high round the open, news, closes etc. Anyway I would focus on what is quantifiable.

[rocky9281 10]

When transactions occur at the ask price, there are two kinds of forces that play simultaneously.They are:

 

1. The LIMIT sell orders (consisting of the best ask), and

2. The MARKET buy orders (consisting of those orders that does all the buying from the best ask as mentioned in previous point).

 

Please tell me whether I am correct up to here.

 

At this stage,we interpret the transactions as the professional players are buying. What is the reason to think that the pros are buying here and not selling? In other words, what is the reason to think that the pros are the people who are owners of the market buy orders (point #2 mentioned above), instead of thinking that the pros are the owners of the limit sell orders (point #1 mentioned above)?

[BlowFish 10]

When transactions occur at the ask price, there are two kinds of forces that play simultaneously.They are:

 

1. The LIMIT sell orders (consisting of the best ask), and

2. The MARKET buy orders (consisting of those orders that does all the buying from the best ask as mentioned in previous point).

 

Please tell me whether I am correct up to here.

 

At this stage,we interpret the transactions as the professional players are buying. What is the reason to think that the pros are buying here and not selling? In other words, what is the reason to think that the pros are the people who are owners of the market buy orders (point #2 mentioned above), instead of thinking that the pros are the owners of the limit sell orders (point #1 mentioned above)?

 

You got it it on 1 & 2. Have you looked at market delta/ cumulative delta? These types of studies simply plot volume@bid and volume@ask rather than get into the intricacies of reading the tape print by print. Reading the tape print by print is a lot more art, pace of transactions, how orders are refreshed (or pulled), how one sided the book is etc.

 

The basis for how these indicators are viewed by many is indeed that the 'important' orders are the market orders. Those that use market orders are often refereed to as 'aggressive buyers' or 'anxious buyers', they are prepared to pay up (pay the spread) for immediacy. They need a fill now.

 

Did you check out the books I mentioned? Also check early threads by a trader called Futurestrader71 (not at this site). There is a little ebook called NoBSTrading that details a few specific DOM/trade patterns.

 

If markedelta/cumulative delta thing appeals I can suggest a few places to check out too though google will get you there.

[rocky9281 10]

You got it it on 1 & 2. Have you looked at market delta/ cumulative delta? These types of studies simply plot volume@bid and volume@ask rather than get into the intricacies of reading the tape print by print. Reading the tape print by print is a lot more art, pace of transactions, how orders are refreshed (or pulled), how one sided the book is etc.

 

The basis for how these indicators are viewed by many is indeed that the 'important' orders are the market orders. Those that use market orders are often refereed to as 'aggressive buyers' or 'anxious buyers', they are prepared to pay up (pay the spread) for immediacy. They need a fill now.

 

Did you check out the books I mentioned? Also check early threads by a trader called Futurestrader71 (not at this site). There is a little ebook called NoBSTrading that details a few specific DOM/trade patterns.

 

If markedelta/cumulative delta thing appeals I can suggest a few places to check out too though google will get you there.

 

Hello BlowFish,

 

I am very much new to tape reading. Don't know what to study and what not to study. Please guide me to the following as you mentioned:

1. Market delta/ cumulative delta (I am confused whether you are favoring or against it. If you are against, I don't want to study that)

 

2. Please give me the Link to threads by a trader called Futurestrader71

 

3. Where can I download NoBSTrading?

[BlowFish 10]

I recommended a couple of inexpensive books in post 9. You can google the other stuff I mentioned. If you get stuck let me know. There seems to be a change of policy on links so I am a bit more apprehensive about posting them.

[$5DAW 10]

rocky,

 

I'll add to the book list. This book cleared up many of the misconceptions I had about computerized trading and offered valuable insight as to just how elaborate the orders can be inside professional algorithmic trading systems. I believe you have a good grasp on the T&S strip and combining that with "what works for you" will serve you in good stead.

 

Amazon.com: Algorithmic Trading and DMA: An introduction to direct access trading strategies (9780956399205): Barry Johnson: Books

[rocky9281 10]

Thanks to BlowFish and $5DAW.

 

Just a couple of queries.

 

1. While buying and selling, do the pros use market buy and sell orders instead of limit orders?

 

2.Blowfish, I have gone thru Tape Reading And Market Tactics & Studies in tape reading.But neither of them has concepts like-pace of transactions, how orders are refreshed (or pulled), how one sided the book is etc. (or did I miss them?). So I think I should start with the other resources directly. Your comments please.

[rocky9281 10]

Is this book good?

 

Daytrading University Trading Course.pdf - 4shared.com - document sharing - download

 

especially the second module (pg86-pg157)

 

Please let me know your thoughts about this book

[BlowFish 10]

Thanks to BlowFish and $5DAW.

 

Just a couple of queries.

 

1. While buying and selling, do the pros use market buy and sell orders instead of limit orders?

 

2.Blowfish, I have gone thru Tape Reading And Market Tactics & Studies in tape reading.But neither of them has concepts like-pace of transactions, how orders are refreshed (or pulled), how one sided the book is etc. (or did I miss them?). So I think I should start with the other resources directly. Your comments please.

 

There are many sorts of market participant with different agendas and different ways of doing business. As I said before what you can say is that anyone that uses a market order demands immediacy.

 

I can't recall if they talk about 'pace', I seem to recall it's hinted at.

 

Don't think I know the book (though may have just forgot).

[rocky9281 10]

Don't think I know the book (though may have just forgot).

 

Ok,Thanks.

 

Please do me another favor, please don't forget to tell me your thoughts about the teachings on this book, after you have gone thru it.Its in module 2 (pg86-pg157). I will wait for your reply.

[BlowFish 10]

Ok,Thanks.

 

Please do me another favor, please don't forget to tell me your thoughts about the teachings on this book, after you have gone thru it.Its in module 2 (pg86-pg157). I will wait for your reply.

 

To be honest I don't plan on going through it.

[rocky9281 10]

I am attaching 2 screenshots. The first one is in black text.But actually they were all in red-every trade executed at bid-in a single price level.

 

The second one all green -every trade at ask-in a single price level.

 

Please tell me-does the first one tells to short immediately and the next one buy immediately?

[rocky9281 10]

Hello,

 

Can you please explain the following sentence:

 

"When there is more depth on the same side of the market, limit orders are relatively more expensive than market orders because of (1)an increase in the execution risk and (2) competition from the existing limit orders."

 

1.What is meant by "execution risk" here?

 

2.does "competition from the existing limit orders" mean that other limit orders may get filled before my limit orders ?

[BlowFish 10]

Competing with other limit orders is a form of execution risk. Basically execution risk is the risk that a transaction will not execute completely within the price limit you have set.

 

2) yes, limit orders on most excahnges work on a FIFO (first in first out) basis.

[rocky9281 10]

This is described in NoBsTrading.

 

"The market is sitting at 05 bid/06 offer.The person bidding 1,500 at 05 pulls his bid. As soon as the market goes 05 offer, he buys whatever is offer and puts his bid back up."

 

Please clarify the following things:

 

1.What does it implies when we see bids getting pulled in the trading screen? Bearishness?

 

2. How did the market go 06 offer to 05 offer? Does this has something to do with bids getting pulled? Please explain .

 

3.Why did he put his bid back up again?

 

4. Is this guy buying with both market(at ask) and limit orders(at bid)? How do we distinguish and identify this person in T&S?

[rocky9281 10]

Will tape reading work with the equities of Indian stock market? Or is there any reason that it will not work? The exchange is called NSE-National Stock Exchange Of India.

[BlowFish 10]

Do they report un filtered, un coalesced data? Do they report bid/ask info? If so there should be no reason why not.

[rocky9281 10]

Do they report un filtered, un coalesced data? Do they report bid/ask info? If so there should be no reason why not.

 

I am attaching a T&S screenshot of the exchange under consideration.

 

It seems they are reporting bid/ask info aren't they?

 

Regarding reporting of un filtered, un coalesced data, how to know whether they report them or not? Does this T&S shows these are reported?(I don't know what is meant by un filtered, un coalesced data )

 

If not, please tell me how to find out whether the concerned exchange reports these.

[BlowFish 10]

Thats a question for the exchange...or maybe your broker.