The skinny on tape reading and trading

Discussion in 'Trading' started by Big Game Hunter, Sep 26, 2008.

  1. Ive decided to become the traders best friend and tell all on these pages right here today.

    Now I anticipate that this will cause a few elements in society to discredit me but this information IS PUBLIC DOMAIN and cant be construed in any way as a hostile act.

    First tape reading....

    Price is the only important constituent in trading. All other indicators dont work...

    Tape reading explains price action thusly:

    " A series of higher lows and lower highs."

    What does this mean...

    Well its a little difficult to demonstrate but as im sick of all the BS about trading on these pagesIll try and elaborate.

    Lets take 1 minute euro in the spot not fuutres market as an example. This to me is one of the very best markets for scalping because it trends so well even on a one minute time frame.

    To see what im talking about you should become familiar with this link :

    By clicking this link and selecting one minute time frame you can use the zoom function to zero in on individual trades and see how the tape functions. Ill elaborate more on how to use theis information to tape read the price but for now Ill tell you that a cover story for what tape reading ISNT would be to say that you sit and watch the time and sales and try to get in front of big orders or some crap like that. This is wrong.
  2. So Ive switched the time frame and am using zoom to look at small segments of the days trading in more detail : now what?

    Firstly remember that all the tape is a series of higher lows when the market is going up and a series of lower lows when the market is going down. This means that we can automate a strategy based on this assumption. Is it true. Try for yourself...

    My day starts at 6AM UK time. At 6AM my auto trading system starts working from its remote location deep in a colocation centre in parts unknown.

    First it reads the 6am to 6:01 time frame since Ive decided to trade 1 minute time frame for my scalping. Lets say that it reads the bar thusly : (ie these are the measurements it takes on Friday SEP 26 at 6am london time GMT)

    Open: 4669
    High : 4669
    Low : 4664

    It begins sending orders at 6:01AM precisely by placing 2 orders.
    Now at this point I should say that I dont use fxcm or daily fx or whatever and would NEVER trade with them as the spreads are 2 wide and for many other reasons. I recommend Interactive brokers Ideal forex which has tick sizes of a halp pip instead of a full pip and is much more efficient at squezzing money out of the machine.
  3. So the 2 orders are for 1 tick above the high and 1 tick below the low. One is a buy at (in this case since its a crappy bucket like fxcm) 4670 1 tick or 1 pip above the high from the last 6am to 6:01am bar reading. At IB this would at 4669.5 since the tick size is only half a pip. A sell order is placed one tick below the low of 4664 at 4663. These orders are known as STOP orders. They reside on IB or whoever your usings servers as buy and sell stops orders. This means that when that price trades the order becomes 'LIVE' and is instantly executed as a MARTKET order.
  4. In this case the 6:01 AM to 6:02AM bar read the information for this segment as follows:


    Although the buy didnt execute the sell stop was hit and we are now short. If you reading this right now you may still be able to see this for yourself by selecting VIEW, PERIODS and inputting 1000 instead of the default 300. This will allow you to look further back in time.
  5. Having gotten us short now we only switch to long when the buy stop is hit. This buy stop is constanly updating every minute according to the last bars HIGH reading. This means that at preciesly 6:02 AM the original buy level of 4670 is cancelled by the ATS and is removed from the server as a result. In its place an updated buy stop is put in its place.
  6. I am reading what you wrote with interest. However until now you are presenting strategy or better automated tactic, but not any skill considered to the tape reading itself.
  7. The 6:01 to 6:02 bar reads the the bar information for this period as having a High of 4666 and a low of 4662 so now the new buy stop level is 1 tick above the 4666 level at 4667 and the system stays short. Now if your looking at the right chart youll see that this selloff continued until 6:13 AM at which point the 6:13 to 6:14 bar read as

    HIGH: 4636
    LOW: 4634

    A buy stop was thus updated from the previous bars level of 4639 (4638 + 1 tick) to now read 4637 (4636 + 1 tick). Remember that at an ECN such as IB this would actually be 4636.5 instead since IB trades in half as well as wholes which is one of the reasons that there so good for scalping.

    This 4637 buy stop WAS hit and now the system switches to a buy or LONG hold instead. This means that the system has switched at this point from short to long. ( if it was short 100k it executed 200k buy in order to be net long 100k thus switching direction.

    Now it watches the lows in the same way as it was watching the highs when the market was going down. Exactly the same logic but now in reverse with sell stops updating once a minute as the new lows are updated bar by bar. Do this all day with 100k and now you are Swinging or scalping the market. Beteween 6am and 5 pm this system executes around 200 trades all round trips and is either long or short all day. Its never out of the market and is simply buying and selling all day in synchronisation with the tape.
  8. A big trader in say London will then do the following...

    Hell like ECN's only because they are transparent meaning that banks are literally offering liquidity to be clicked off of rather than requesting a quote from said banks. Dont worry too much as to what this means just remeber not to stray into shitty buckets like fxcm or whatever:

    Then hell take 7 feeds he likes a lot:

    hotspot fxi
    hotspot retail
    autobahn fx
    ib's ideal pro

    This is for a rich guy not some yutz...

    But its intersting anyway...

    Than he'll use some proprietary software whos name I wont mention to combine all those separate feeds each of which is comprised itself of several different banks in order to produce a level 2 montage similar to what you get with stock where each ECN is listed and only the best bid and offers are used to get liquidity.

    This is because when your doing 200 round turns per day ( 200 times buy and sells) its unbelievably lucrative to cut fat out of the overhead.

    Imagine your trading 10 dollars a point. If you can cut 0.5 pips out of each round trip itll save you 5 dollars per round trip times 200 equals 1000 dollars extra per day because of the amalgamtion of all liquidity into one monster level 2 entity.

    He'll put up 300k ignoring for now how much it cost to open an account (250k for hotspot HSI alone) and leverage 100k into 10 million with just 200 pips buffer protecting him from form blowout. Since he paper traded this exotic 1000 US per pip combination for months beforehand he knows what sort of perfomance he can expect and can make at least 10000 pips per year giving him 10 million at least from his 300k investment.
  9. Then he'll rent 27 servers for 20 USD dollars per month each. This is 540/month for those What aRE really good at maths and hell use those to paper trade the same sort of thing on USD/CHF, USD/EUR, and USD/GBP for EACH time frame using the most accurate possible paper trader to simulate the fills. He'll test 5 minute,10,15,30,60,2 hour, 4 hour, 8 hour, and daily for each of these symbols for about a year and then hell have enough data to expand into these time frames accross multiple products in the same way.
  10. jprad


    Here's the equity curve for your system over the past year of trading:

    Trade size: 1
    Commisson: $2.50/trade ($5.00 RT)
    #10     Sep 26, 2008