My Tape Reading Software & Techniques

[Predictor 11]

I'm very careful when I execute in the "pocket" or what some call the pull back areas in the market. In these areas, often larger institutional traders will sit with limit orders. It is possible by tracking the aggregate volume in the Volume.Tracking.Accumulator where the "herd" is short or long. They are always going to be long/short near the new highs/lows or near the extent of the distribution in market profile terms.

 

One technique I use is to track the price in relation to these overall imbalances... I will also track how price responds to order flow more precisely.

 

Now when I said I was careful to execute on what some call "breakouts", this isn't always the case. It depends on market context but I do find this method requires larger stops. At times, I have preferred this method.

 

Shorting is even more difficult because the liquidity providers, often sitting "off market", can hold up the market for surprisingly long periods of time. So, we'll see traders trying to get short.. market making a new high and stopping them out. Often by the time the real move gets underway, it starts with the fewest participants. Often these changes will occur at obvious points that block out certain groups of traders.

[Predictor 11]

I want to explain a certain behavior that is evident in the market.

 

This behavior is we will see mostly market sell orders coming in and then the market will jump higher.. all sell orders and then jump higher. And so forth.. This behavior is caused by all the offered inventory being pulled above the market (or below the market). Both the liquidity providers and larger institutions can strongly influence the market by pulling orders above and below the market.

 

So what might be happening? In one explanation, a LQ provider instantly reacts to increase order flow and pulls his bid. He accumulates inventory at this new level and then pulls his offers to unload the newly acquired inventory at a small profit. If he controls most of the inventory close to the market then he can move the market back and to try to maintain net neutral. This is why you'll see in a range market all the buy orders near the highs and the sell orders the lows. The interaction between the LQ provider and the longer term trader is very key.

 

With the HFT, what we tend to being seeing is that the HFT traders are keeping tons of liquidity near the market but there isn't any liquidity off market because the traditional institutions can't/aren't leaving any out. I believe that the spike movements are a combined herding effect of institutions either pulling offers off market (or not having any out) and the HFTs.

Edited January 15, 2013 by Predictor

[Predictor 11]

A lot of algorithms currently in use are primed to only buy on a down tick or sell on an up tick... provides for rather interesting dynamics. This is also why often in a downtrend/uptrend that when a buy/sell program is exhausted that the "trend resumes" because it was just a single or limited buyer....

[Predictor 11]

Very busy week, NinjaTrader has just announced us a partner on their website, and so I feel that now is the right time to share some of the features we haven't shared until now. I just sent this video out where I introduce our Q-Tracker™ which allows us to estimate where our order is within the queue! We found under our testing scenarios that we were around 95% accurate, i.e position within +-5%. Our proprietary algorithm uses both changes in the book and executed orders in determining the estimate. Your results may vary but so far in my live trading its been pretty spot on. We use the same type capabilities for tracking spoof orders. Even better, I've developed new methods for reading the tape based on knowing queue position and pull information. I share that in the video at the bottom.

 

Some of the other new features which are very significant:

 

* We are now highlighting using the foreground color the volume that is currently updating while the current/bid ask is highlighted using the background color. This allows the trader to always know whether the volume is newly printing or was printed previously when using our OrderFlow Monitor and, of course, there is never flicker.

 

* We now have boxing for the HV nodes in our OrderFlow Bars™ and added 10's rounding option.

 

* We've upgraded and updated our Time&Sales Inspector (more on that later) and added pre-defined color themes.

 

The program is finished but we're still testing the ordering process. It will be available within the next several days for those interested.

 

Thanks!

 

Edited January 23, 2013 by Predictor

[Predictor 11]

One thing in the last video, I notice that I don't really need to clear that often in my live trading.. was a bit over eager to show that.

 

As for pulls, typically they lead the market and price will follow. Sometimes though pulls look to be actually resting orders that were sitting too long and are timed to go market.

 

Anyway... you don't have to be glued to screen to tape read using our software.. sometimes yes but not always

[Predictor 11]

Today I detected a pattern that I thought I'd share. I used the Q-Tracker for this with resetting and was watching the order flow imbalances. I called a potential for reversal at around 98 back to 96. We had correlated negative order flow and it looked like the trade would work out immediately but instead the liquidity providers pull all the inventory, market retested slightly higher, and then traded lower.

 

While similar patterns I might interpret differently, in today's context my interpretation of this behavior was that the liquidity providers were net long the short inventory and pulled their offers to dump the long inventory. The buyers would be over eager longs, shorts using tight stops, or shorts who felt the market was trading higher. As soon as they dumped their long inventory, they took advantage of the new information to reset their books lower. An alternate explanation is they pulled the offers to reset long inventory but found no buyers thus pulled their bids to reset to better their average price on remaining inventory.

 

I don't know if the liquidity provider performing resets could be the cause of other "double top" type scenarios but was interesting nonetheless. The double top also formed as large limit order traders exhausted buy programs...

[traderbarry 10]

  Predictor said:

Today I detected a pattern that I thought I'd share. I used the Q-Tracker for this with resetting and was watching the order flow imbalances. I called a potential for reversal at around 98 back to 96. We had correlated negative order flow and it looked like the trade would work out immediately but instead the liquidity providers pull all the inventory, market retested slightly higher, and then traded lower.

 

While similar patterns I might interpret differently, in today's context my interpretation of this behavior was that the liquidity providers were net long the short inventory and pulled their offers to dump the long inventory. The buyers would be over eager longs, shorts using tight stops, or shorts who felt the market was trading higher. As soon as they dumped their long inventory, they took advantage of the new information to reset their books lower. An alternate explanation is they pulled the offers to reset long inventory but found no buyers thus pulled their bids to reset to better their average price on remaining inventory.

 

I don't know if the liquidity provider performing resets could be the cause of other "double top" type scenarios but was interesting nonetheless. The double top also formed as large limit order traders exhausted buy programs...

 

If this is not a clear, concise explanation, I do not know what is.

[Predictor 11]

A big realization has hit me since we released our software. It makes a lot of things make sense to me that didn't before. First, I always had in mind that I would sell to already profitable traders and professionals and that would be my primary market. This is why I didn't understand people trying to question my ability to trade or trying to somehow make me prove my software would make them money because my software was designed for the professional and semi professional trader. In a word: my software was designed for the strong and not the weak.

 

Now since we released the software, I've many requests for training and education. I was discussing this with my partner and he said well which do you want to be an education vendor or a software vendor?

 

In all honesty, it was my only thought that the professional would see we had a superior program and would be happy to subscribe to my product. We do have some professional traders who've came on board and said they yes agree with my assessment. But we've also had a lot of people wanting basic training.

 

But it really hit me.. how people view things differently then I did. And, I think my partner is right that there is way more interest in training and such.On the other hand, if we just support the professionals then there will be less support and more money per unit of work.

[Predictor 11]

In this video, I share more about how I use our Q-Tracker within AlphaReveal to read the tape. Friday, I made some rather precise calls and I used the Q-Tracker to help with that..

 

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http://orderflowdashpro.com

[traderx4 10]

I've tried quite afew Orderfow pieces of software's in the past, but I've got to say this is shaping up to be one of the best softwares for orderflow I've ever used.

 

To all newbies.. read and understand the concepts of orderflow first. There is plenty of info around on the net, before trying to get to grips with this; otherwise not only this one, but all the other sofware's wont make any sense to you either.

 

 

Well done Curtis..

;-)

[Predictor 11]

Thanks for your positive feedback. We appreciate honest feedback from real customers. I've also added more articles over at our blog for those interested in learning about these concepts. My goal going forward is to continue to provide the highest quality instruction on these topics. Most of the new articles right now are only text. My goal is to add some illustrations, videos, and more blog posts going forward.

Thanks again!

Curtis

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