ES Tape Reading 101

nononsense · Oct 19, 2003

Quote from TriPack:

In your view....

Which is more a important side of the order that gets filled:

- the part of the equation that posts a bid or an offer (wants to get filled, but only at a given price),

- or the side of the order that enters giving up the bid or offer, the one who is committed to getting filled and willing to give up the spread for a fill?
More...

TriPack,

You certainly started an interesting thread but I admit that I am at a complete loss in trying to come up with even the start of a theory. As was already clear from the previous thread many different opinions abound, ignoring the obviously absurd stuff.

Would it be fair to advance that we really do not know much about this? As has also been pointed out, things at this bid/ask level happen at too low a level to make sense of it in a straightforward manner - not unlike molecular kinetics perhaps.

Did anybody hear already about analyzing multilevel bid/ask data? Could it be worthwile to look into this?

I will keep on reading. Thanks to all.

nononsense

Ditch · Oct 20, 2003

Would anybody know what would be the ordersize, that meets the 80-20 rule (20% of the orders that make for 80% of the total volume). I've been trying to download TS-data from Ensign in Excel to figure this out, but i can't get it downloaded till yet. Thx in advance.

traderkay · Oct 20, 2003

good question Ditch. Tripack obviously it matters most whether bulls or bears are more willing to hit each other (hit the other side with nice fat orders). Trades move the price, not the people sitting on best bid/offer. Sounds simple like duh but actually it's something to be realized. Another thing I noticed is... actually what you noticed too:

When there's a state of equilibrium but gradually the price gets to a level where's there's a huge imbalance like say we got got 38.25x38.50. equal size on say 120x200. Now say it does a downtick 38x38.25. but now there's 1200bid x 120offer. What tends to happen is.. the bid gets crushed. then there's successive huge bids that get crushed, while there's small size on the offer. this can go on for 3-4 ticks easy (ie a 1point move). Usually when I get into a trade and I see that I just hit the "huge size" I know I'm good in the very near term.

daveb351 · Oct 20, 2003

I use a tick chart showing each trade(graphed as equivolume) and the bid & ask levels. Many times all the trades will be at one price level, yet the bid & ask will fluctuate above and below that price every other second. To me it has the feel of a large order being worked. Not that it's alternating buying & selling every other second. Can anyone elucidate?

Another anomaly,usually at a V bottom. Price will pivot on low volume with trade at bid. Then next 3 or 4 uptick trades will also be at bid, and low volume. Finally traders realize price is moving higher an start hitting the ask. An engineered pivot?

I've been trying to analyze T&S data with QuantStudio(smartquant.com).

TriPack · Oct 20, 2003

Quote from daveb351:

I use a tick chart showing each trade(graphed as equivolume) and the bid & ask levels. Many times all the trades will be at one price level, yet the bid & ask will fluctuate above and below that price every other second. To me it has the feel of a large order being worked. Not that it's alternating buying & selling every other second. Can anyone elucidate?
More...

My view is that it often happens when the bid and ask move on the Mini but they don't on the big contract, so it gets arbed back. It may be a large order in the big contract that is being worked that prevents the Mini from staying at that level. It might just be the normal action of price discovery before the S&P confirms the change in spread levels. Also, the size going through could just be the result of arbitrage. No way to know for sure...

TriPack · Oct 20, 2003

Quote from TriPack:

In your view....

Which is more a important side of the order that gets filled:

- the part of the equation that posts a bid or an offer (wants to get filled, but only at a given price),

- or the side of the order that enters giving up the bid or offer, the one who is committed to getting filled and willing to give up the spread for a fill?
More...

I guess I really asked the wrong question. Important is kind of vague. The question should have been, which side of the order is most influential in moving prices from level to level. And as traderkay mentions, it has to be the ones who are hitting the bids or offers, rather than the ones who are hoping to get hit.

My guess is that over 80% of the bids/offers are done by arbs. I would also guess that if you took the max # of contracts on each bid/ask level before it changed, that only a small percentage (20-30%) of the bid/ask size that got eaten, actually had orders filled. Maybe I'm way off on this #. In other words, the vast majority of bids/offers are pulled before they can be executed. And I'd say that most of the pulling is done by arbs.

Arbs are in the game to capture the spread - 1 or at most a few ticks. When they go for more than that they get into directional trading. IIRC, metooxx said that they scratch on about 40-50% of their trades. Which means that they get a fill, and either the spread moves against them or the size on their side of the spread starts to evaporate, and they hit whoever is still left.

Now the interesting part is that when the bid/ask level moves, the arbs are responsible for helping to set the new level, in conjunction with the directional players who are both placing orders to set the spread as well as hitting orders on the other side. The arbs decide when they have a chance to make the spread without the bid/ask moving back to the prior level. When they feel they can safely do this, they start putting up some limit orders, which help to solidify the change in spread level.

Without that group of orders that comes into a new bid/ask level to hold the bid in (in an upmove) or hold the ask in (in a downmove), the market orders going through won't succeed in making a lasting change. So it seems to be a type of co-dependency going on, a give and take a tug of war as it moves up and down through the various bid/ask levels.

That's my view anyway.

traderkay · Oct 21, 2003

i noticed ES trading is VERY orderly. Meaning very little faking on bids/offers. If you see 1000 cars bid then the price upticks and the downticks back to that bid, you almost always see the same 1000 cars there +/-. Same with offers at resistance: they actually have to get obliterated with buy orders on the T&S, ONLY THEN will they lift. OK maybe 50% have to be hit and the other 50% will cancel. Seeing GLOBEX in action is an amazing sight. It's free market in purest form.

Torge · Apr 20, 2004

Hi,just read your tapereading thread.(ES Tapereading 101)

You wrote that the pros try to confuse the "normal trader" with hiding their intentions.
But why do you use Tapereading then....?

2. You wrote ,most of the proÂ´s use market orders.
You as a volume scalper,do you use them too?

Thank you for answering

Grob109 · Apr 21, 2004

Quote from Torge:

Hi,just read your tapereading thread.(ES Tapereading 101)

You wrote that the pros try to confuse the "normal trader" with hiding their intentions.
But why do you use Tapereading then....?

It is very true that 4 or five activities are conducted by those who "add" and "delete" orders on the the ES Bbid and Bask. This is also true to a lesser extend on on other levels as shown on The Depth of Market on TWS for instance.

Tri pack has a very good suggestion for watching the progression of the market.

All things considered, when you get acquainted with the DOM, you will find that it is very calming for making money. Tri pack points out that the Bbid/Bask follows a pattern as trends unfold. I refer to the sucession he points out as"translation" during trends.

One person here "sees" all positions filled with four digit numbers. She is observing the orders placed for "protection" mostly. There also happen to be three digit groups usually surounding the current price activity. If you see three of these, commonly you will see a three tick bar forming on the chart (5 min for me.).

I use "tape reading for the express reason tripack suggests in 4. In intraday trading there are usually 4 trends a day (2 am and 2 pm). As scientist points out, these trends are traversed and each travrse is many ~6 to 7 ticks say for the trend progression, and maybe less during the left to right travrse before the next trend progression of money making.

Tripak "sees" that at the ends of traverses, the Bbid/Bask does a "dance". 2 pairs of values flip flop for a while. First the "extreme" one, then the less extreme one. Finally the flip flopping ends as the opposite traverse of the trend takes over in the opposite direction. When I see this, I use it to reverse or sideline. It is extremely useful these days. We are having a lot of high volatility bars (5 min). You can glance at charts and see how bars alternate in color as a rough measure.

All the traders using all their strategies to arb, "add" and "delete" and others just showing some of their "hands" and those who use stops for protection, all work marvellously in the representations of the .7sec "snapshots that repeat on DOM of TWS. Our minds "loop" data 18 times a sec habitually. we get 12 "looks" at each snapshot. This is what scientist means when he says people are 80% better than mechanical.

I judge the duration of each par. I judge which is dominant. I judge how the "extreme pair begins to "fade" out of the picture. I snese when it is not going to make it back. at that time I reverse at "market". Always I am unable to get the extreme value. I do, often, get the reverse on either the next or the third tick. I refer to the third tick value as the "spike" value. When that tick is at play on the BBid/Bask then the traverse has happened. After that all the guys who "show"and do what they do, participate in the subsequent "translation" that traverses the particular intraday trend that is in play.

If you monitor volume, you can then plan for the duration of these traverses that have "spikes" at each end. people commented here that they watch the tape or DOM for determining market pace. Either way, knowing maket pace, tells you when to look for the tripak 4. The tripack 4. is what I term as a "spike" for reversing. Fast market paces are easiest for making money because they are "orderly".

If a person wanted to double returns on any mechanical edge system, they should add the tripak 4. to their system especially as an exit.

Imagine you are a beginner and only want to make money under low risk. Well you can use tripak 4. to do that about 8 times a day. This is a slow motion type trade. Plenty of time to do the steps. where do you find, during the day the tripak 4. in slow motion? Where else but on 2 two tick 5 min bar. the two pairs of BBid/Bask have a common middle value. You find these 8 each day by looking for volume at it's lowest. This is well under 2500 contracts per 5 minutes. Right after this bar. you sit and enter as the price goes beyond the two tick bar end. Volume will be "bursting out" or surging" for this. I call it pinwheeling.

You stay in for a bar or so ( 5min or so). You will see a "spike to end the run of profits. Do this 8 times a day. for a good return per contract each day of the week. If there are fewer two tick bars, use three tick bars. In any case each trade get to be longer if there are fewer very short bars.

2. You wrote ,most of the proÂ´s use market orders.
You as a volume scalper,do you use them too?

You are in for a very big discovery. All those people you see doing that wide variety of things that "show" are the people whose trades are NOT being made. If you put the T&S function of qcharts or whatever right next to the DOM of TWS, you get to "see" "market" trades going through on T&S and you see that DOM is not changing in a corresponding manner. what changes DOM is people "adding" and "deleting" almost exclusively.

Thank you for answering
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FWIW. All futures markets "follow" their respective "cash" counterparts. This pair of values is "offset". It turns out that their is a slight twist to this "following". The DOM shows how cash is operating. even more fortunate for us all is that you can watch the "smart money" "follow" the cash. The small distinct group of really skilled and excellent traders "show".

This means that you can pick off the tripak 4. just before it comes to pass. By having this, you can do the "spiking" of the tripak 4. most easily because you see it coming.

If you monitor with indicators as well, usually, you can best know when a traverse is also and end of one of the four trends of the day. If a day starts down (it will be a traverse where the ends of each bar forms the traverse from right to left.) Each bar will end in a "spike" of a high volatility bar. That known, oyou are prepared for a "W" day; if up at the beginning, then it will be an "M" day. You can use tripak's 4. to do about 4 or five traverses per trend. This is about 20 plus trades a day give or take.