can tape reading be applied to futures?

Discussion in 'Strategy Development' started by seesound, Jan 18, 2006.

  1. seesound


    Hi, I am not very sure about the circumstances where tape reading techniques can be used.

    outcry? fully electronic (emini)? outcry and electronic combined(bonds futures)? or others I miss

    Another question:
    when, for example, bonds futures are being traded both outcry and electronic, the tick appearing via the trading software (for example IB TWS) is the tick executed only outcry or only electronic or outcry plus electronic. In other words, is the tape I am watching the tape really happening?

    what if fully electronic traded futures.......

  2. stfreak


    Tapereading can be used in any market, floor, electronic, no difference...

    tapereading is about reading the flow of volumes, which is the only driver of the market. no volume, no movement...or have one ever seen a tick without a trade???

    when asking about a market, that is tradet both ways, floor and electronic (as the fixed income markets and major indices do..), you have to select the tape of the market you are trading in. When trading the mini - S&P don´t watch the ticker of the spoos, but of the mini. to have better results, use the floor tape to compare.

    I wonder, why everybody´s only talking about the tape, when it comes to trading stocks. tapereading is reading orderflow. to give you a brief example, consider the following matches:


    so...what is this?? right: a downtrend. heavy volume is on downticks, where 113.12 has been resistance, because there was no follow through after the 500@the bid. no need to go long until u spot strengh.and guess what: it´s the same pattern in stocks as well as in futures.

    next lesson:


    this is resistance: heavy volume on the bid, but it seems there is a big buyer sucking up all the volume. a trade is initiated long @99.50 stop @99.47. idea is, that the buyer is still there buyin now agressively the bid (that is good for you...) or providing further support @99.48 (thats also good). check out the book too: how fast are the offers fading? how fast are bid refills?

    learning that setup can propell u into major market reversals with minimum risk!!! On a chart, those situations are the "spikes" or "reversal bars" trading on heavy volume. now consider to have entered the trade not 1 tick above/below those reversal bars, but e.g. 2 ticks above the low of a long reversal bar....

    also watch the tape closely, after breaks. if the situation above happens after a breakdown and you are short, you better reverse or at least cover. odds are high, that you shorted a fakeout

    One thing to mention: when trading with the tape, your style is usually very short to short term. I´m doing this on NQ and the average trade is 2-3 ticks till the move is over. the good thing is: when u spot a major reversal or breakout (bit harder...come to that later), you stay until the move is over...and that can be 20-40 ticks in strong momentum conditions.

    second thing, that is very important!! choose the right market. forget about YM or ER2. Those are not liquid enough and you will spot mostly singles on tape. but what is more significant?

    in the dow, or


    in NQ? clearly the later, because in illiquid markets even singles can cause a downtick.

    the opposite are very liquid markets, like ES, Bund (lol impossible to read even levels...those guys ain´t only faking the book but even the tape...)you can also forget them.

    volume is rocking back and forth between bid and ask, no follow through on clear impulses. those markets move in phases, seldom OB/OS situations there. best market in my opinion are those with average daily volume between 100K and 500K and an average booksize between 50 and 300 NQ has.

    Be also sure, that the chosen market doesn´t have to many ticks per level, so you can spot the development of setups. it´s nearly impossible to trade e.g. bund with the tape because you see sometimes more than 50 ticks@ one price. so you have to have either fontsize 3 or a screen 3meters high to see the ticks of the levels before.

    also check out, if there are players who paint the tape: this sometimes happens in the interest rates or other markets with very high competition. somebody is working a large e.g. 100lot order in singles, that means that he/she hits the buy/sell 1Lot button 100times :D
    the only thing you can see after that is a tape spammed with sinlges and you have no chance to read the levels anymore

    errr...i wanted to cover the breakout pattern above, here it is. (for long, short exactly the opposite)

    spot situations, where market is heading to resistance and heavy volume is trading on the downside( players want to press market down, but fail) but bids are sucking up everything. when upticks happen on light volume and market is trading @resistance you already should be in...and wait for the fat fingers to cover :D
    100 is resistance:


    remember: when heavy volume is on the downside and market is going up, there is a big buyer in the game and big sellers are trapped: explosive upside potential...for short the opposite of course.

    that´s it folks. hope it helps.

    P.S.: tapereading needs alot of practise. be sure to watch the market for at least 3 month then paper a while, then start small. read the daytraders bible by wyckoff to understand basic need to be fast, you better have the best order entry tool and use hotkeys, you need to be F***ing fast!!!
  3. seesound


    stfreak, Thanks so much for your highly informative reply!
  4. stfreak


    no problem.

    tapereading can be helpful no matter what market you are trading in.
    Understandig volume not only by watching cumulative volume per period, as most traders do, but watching volume matching history on the tape can be a huge advantage for any trading style.

    although pure tapereading is rather a scalping style one can, for example, filter out chart signals by the tape.

    the entry in trending markets is mostly based on break over/under certain price levels given by a chart signal.

    with tapereading, you can wait until you spot a resistance point within a correction and enter on that. you certainly will have a better entry with a better risk to reward ratio.

    just be sure you watch the market and the tape very closely and for a rather long time to get a good feeling about the volume signals and the size, that is usually moving the market ( check out, how NQ reacts on blocks greater than 80 Contracts. If you spot 2 or three of them in the same direction in a short period of time, and the market isn´t moving into that direction, a good entrypoint is reached)

    it won´t be easy, but the longer you sit and watch, the better your understanding will be