Find and read what Maverick said about tape reading. It's true. Sadly there are no secrets. I have been watching two news stocks for 1 week now, and they still have 5 weeks to go. Then I get a break, might have head explode.
I will give a couple examples of tape reading skills. I am a futures trader and all these examples are based on the MD Trader window on a TT workstation. The market is ER2 at the CME. The order book is 5 deep on bid ask. 1. ER2 is 2 ticks from the highs of the day. ES just made new highs 2 minutes ago and is 5 ticks below there highs. A large bid of 200 becomes best bid in ER2. ER2 makes new high by one tick then someone sweeps 3 price levels of bids for a total of 75 contracts. Then the 200 lot bid is cancelled. If I saw this setup I would be asking myself the following questions. In the last hour has ER2 been weaker than the S&P? Is the 200 lot a local looking to get out of his long position? Is the 200 lot a trader who wants us to keep trading up? If I want to get long can I lean on the 200 lot? If I want to get short should I do it now before the market goes down or should I put a limit order above the high of the day? Even if a big local wants to get out of his longs how much up momentum do I think could be produced if we make new highs? There are probably thousands of more questions that would go through my head.
Scalper21, I am lost on your abbreviations. TT Workstation? MD Trader Window? Is that perhaps like the Book Trader in IB's TWS? Thanks again, Esteban
Scalper21, I guess tape reading is tape reading is tape reading... duh. In your last example about bids stepping in behind trades that take out offers or prints that happen when large(r) bids step in (and in reverse) is exactly what I trade off of on the NYSE issues. And, as you do I make many small trades a day, never letting any loss go beyond a nickel or a dime most of the time a few pennies. However, that said, I have a feeling that it's easier to get used to trading the Russel or mini-dows or eminis since you focus in on one thing. I use charts to help me get to a setup and then trade the tape, though, I've also just read pure tape by watching bid x ask size vs prints and spreads. However, I tend to get too myopic when I just trade the tape ( I lose sense of where I am -LOL). It's interesting though, and of course it has to be true, that tape reading is tape reading is tape reading, without regard to markets. Agora
I think this chart is somewhat interesting, and illustrates a fundamental behavior of the DOM in SIFs. It is todays KOSPI futures taken from IB data feed with bars 75 ticks wide (IB ticks - not necessarily trades). Main chart has a volume profile overlay. The first subchart is built from the DOM and shows the ratio of number of contracts at ask to total number of contracts in the DOM assembled into an OHLC series. The lower subchart shows a smoothed representation of this ratio. The correlation with price is very obvious and very important.