I have no idea and no real insight. In general, regardless of method (PA, TA, FA, etcA), be careful of bias. This happens when you look for an event and try to figure out the pattern that preceded the event. The bias is if you don't look for all the cases of the pattern, then you may miss the times the pattern was not followed by the event. They do this in science -- first look for something, find something, then figure some way to test it out. If it's real, you should see a frequency or relationship that is consistent or better than random. Quite often I've seen something, then figure out some way to code it so the computer searches for it, then the pattern-event relationship goes to 50% to 0% -- eg, it was not real, or it was random, and I saved myself a lot of trouble by discarding it.
The human brain is excellent at finding patterns -- even when those patterns are entirely random and therefore produce no positive expected return (i.e., consistent profit). I think it will be a waste of time, but no one can say for sure.
A much more efficient and systematic way would be to obtain historical order book data for the past 1 year, and analyze it.
looking into getting historical data, 20 market depth perhaps, but it costs a bomb. Good suggestion though, I'll think on that
applejuice, I think you are 10 years too late in thinking that staring at the orderbook would be a good investment. The truth is, that especially if you are looking at retail software, such as TT, staring at the book you will miss the bulk of the trading. I'm not talking about block trades, though that is a problem, the "wonderful" thing about HFTs is that they hide what they do so staring at a screen, you will miss most of the action. & how can you expect to use orderflow as a basis to understanding the market when you can't see most of the big trades? Best of luck to you applejuice -if you are that determined then I am sure you will find a way to suceed -but in my opinion, this is a dead end.
Is tape reading valuable? I find it valuable. However, I didn't develop tape reading JUST by staring at the screen. That is not screen time!!! You have to engage in a feedback loop. For me that was predicting the market.. it might be for you risking some money or paper trading. Just staring at the order book would probably be a complete waste of time. Also, if you are a serious trader: nothing should be set in stone. What you are trying to do with the order book is a form of technical analysis. Technical analysis could be considered the analysis of any market generated data for the purposes of trading. So what you are asking, is basically the same as "would placing random trades for a year help me". Of course not! You need to ask the right question, would paper trading under the exact conditions I'd be operating under in the live market with a focus on working on specific goals help me? That could very well. But, let me also add your mind isn't right for success. Your goal should be understanding the market in whatever form it comes. You are starting with a closed mind approach. It is unlikely that without a broader Foundation that you would be able to develop a really strong consistent trading style using that one technique. Please see the answer I replied to in this thread for more information: http://www.elitetrader.com/vb/showthread.php?s=&threadid=222261&perpage=6&pagenumber=3 PS: Not saying such strategies don't exist but something that simple is best programmed and automated.
Let me add one more tip, if you know what the big traders are looking at and if you anticipate how they will trade then guess what? You can front run them before they even place a trade! Think about that. Now imagine you know sorta what they are looking at and how they perceive the market and can also read the order flow. Now that might be something you could combine together.
So you're all giving him advice on what he should do about it, but none of you have actually done it yourself. Go figure. I have done it, best thing I ever did. You should do it. Make sure you record everything, try everything and make as many trades as you can(if you're on sim) to gain as much experience as you can, sure it takes a long time but eventually you will start to see people and not just numbers. One very common theme amongst the pro traders and the truly successful profitable traders that I have noticed is that most of them watch the order book, nearly all of them have one up. I only refer to charts for important turning points, then I don't really look at them again, I just watch the order book, I don't care what anyone says, I can see whats happening and I can see trades, it improves my timing and execution dramatically too, can pick within 1 or 2 ticks of the turning point. The fact that hardly anyone knows about it was a hugely motivating factor for me, if the stupid over-said statement that "90-95% of all traders fail" then why would I want to do what they're doing? Look around, most "traders" are doing the same thing(charts, indicators, systems blah blah blah). The less people know about something you want to learn the better in my eyes. But that's just me. I think it's a waste of time asking on the internet, especially other traders what you think they should do, in fact I would stay away from forums all together, but its up to you. I'm glad I did it and I know what I see, so it doesn't really bother me what others might think or say, because 99% of them have no idea what they're looking at and/or cannot be bothered learning and putting in the time. Good luck
Interesting response 'booked'. First and only post. It's a dangerous thing for me to be influence by forums I agree - I have given thought to never looking at one again unless I have a specific question relating to software etc, rather than philosophy. In August my bosses inform me I will be out of a job. Big decisions to be made. I had almost fully removed trading from my mind but I can be so easily pulled back in by more optimistic posts such as yours hehe. Dangerous.