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An interesting take on this subject that has been around for ages is "Tape Reading" by Linda Raschke. What stuck with me at the time was how she saw tape reading as watching price behavior (price action) relative to a pre-determined reference point (HOD, LOD, Pivot, etc.). Simple stuff but for me the term "Tape Reading" was now no longer daunting.
"Market action – the buying and selling of stocks – is recorded on the tape. To the uninitiated eye and brain the tape means little – it is simply a confusion of hieroglyphics and figures. To the student however it offers opportunities commensurate with the skill, judgment, study and self-master employed.
The ticker tape is simply a record of human nature passing in review. It is a record giving us the opinions and hopes of thousands of people. We must dismiss from our minds all other facts. Precious few know, or can hope to know, who is buying or selling. We hear that So-and-So is buying; he may also be selling, through another broker. If he wants us to know that he is buying, we should be chary. So, let us disregard hunches and wild conjectures. If he buys and sells, the record of his transactions will be on the tape. We must make our interpretation from the record. So long as we continue to guess who is doing the buying and selling, we shall remain in a sea of confusion.
Tape interpretation depends upon a consideration of the action of the volume. It is not price action, but volume – the amount of money, the supply and the demand – which best tells the story…"
From one of the best books on tape reading, Tape Reading and Market Tactics. Humphrey B. Neill first published 1931.
Tapereading is usually confused with reading orderflow. But the orderflow is actually more the flow of orders from external parties into the pit. Floortraders watch this flow to determine if there is more buying or more selling and who is doing the buying or selling - commercial or retail (they know which brokers represented which type of customer). With this information they try to frontrun bigger orders in the pit or at least lean on the important ones. In electronic markets reading orderflow usualy means watching the resting limit orders in the orderbook/DOM. But since you canīt watch the orderbook and not watch the tape people who say orderflow mean both skills...
Today we dont have the ticker tape. Instead we have the times & sales and the footprintchart of Market Delta and the great GomiLadder but the principles outlined by Neil still are valid.
And like Sandie pointed out. You watch it especially at pre-determined reference points since this type of trading is very short term. One big order can change the direction of the tape in a second...
There will be a webinar on Gomi's Ladder sometime next month. But this is Gom3.4. A ladder chart. With modifications by Zondor.
The ladder is a priceXbar (where bar can be any type - tick, time, volume, renko, range, etc.)
At each trade the GomRecorder stores the displayed data. So let say someone put in a Sell market order. It would be recorded as a sell on the left side of the ladder box associated with the time and price. A Buy Market order would show up in the right box.
The delta is the difference between buys and sells at each price level of that bar.
Additionally there is a sum of the deltas shown at the bottom of the chart and a Commitment of Traders (COT) in the boxes above and below the bar.
The side ladder boxes show cumulative volume at each price - like market delta, as well as delta and delta difference. These are user selectable.
There is a lot here. Good starting point is Gomi's thread.
But bottom indicators are those being worked on by Zondor with my input and testing, they are just different ways to display the data from the GOMRecordor.
R.I.P. Andy Zektzer (ZTR), 1960-2010.
Please visit this thread for more information.
Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend.Traders come to the marketplace with pre-conceived ideas about how and why the markets move.Tapereading is usually confused with reading orderflow. But the orderflow is actually more the flow of orders from external parties into the pit.
Thank you Ztrade101!
That helps a lot, however let me try to widen the discussion a bit.
It seems that there are 2 distinct types of scalping that both claim to be tapereaders:
1. Like Grady, that mostly watch at the games played at the DOM level;
2. Like Hubert, that scalp volatility (YM ) on purely T&S.
I have found that both can be truly profitable with experience, but it takes a lot of it -- years and years. On the other hand, computer is nothing else than intellectual strength multiplier (that is, versus a tractor that multiplies physical strength). So don't you think that with it's help we can reduce the learning curve?
Even further, why not combine both of the "tapereading methods" in one?
What I envision is an indicator that will show order flow in real time and be able to display the range and sales(as to Hubert) and the pulled orders (as to Grady).
Found that by using 1 1k volume ladder with RealStat on one side I can visualize order flow and price levels of critical areas, so my watching the DOM has evolved. This came about from trying to trade CL and the YM.
There are days when I can concentrate on the DOM and days I can't. So, it is now something done for only very short periods of time. I watch the DOM when trying to determine a good price to place an order, or exit a position when the price reaches some critical point, or my BuySellVolume indicator seem to be detecting a slow down in price vs. number of orders executed (churn). Especially watch it when there is an empty row in the DOM. When this happens after a slow down, it is usually an indecision point. A trade placed in the direction of the fill, especially in an area with a lightly populated side ladder in the direction of the trade, has a higher probability of success.
Buy watching the ladder + RealStats I can see the games being play as to order placement as the RealStats Histogram of DOM population jumps around. This is way easier than looking at numbers. As it is a right brain activity to detect patterns and left to process numbers. So I can see the ladder levels fill up as contracts are consumed (just like a visual of the T&S).
With CL, instead of trying to watch the DOM which can jump 10 pips up and down even without news, I see the ladder levels filled in a way I can process even with frenetic activity. If it gets really crazy I look at my second ladder chart, an 8k volume one and try to discern the patterns that develop. Eventually after spending some time doing this your brain will automatically detect patterns and give you an AhHa moment.
I had one the other day while trading the YM. Intuition said short it and my left overrode it my by screaming it is too much risk, it fell to fast. Next time this happens will know to ignore the left brain's analysis and go with my intuition.
R.I.P. Andy Zektzer (ZTR), 1960-2010.
Please visit this thread for more information.
i am afraid to ask another question, but you were so kind that I will try to:
I have studied the solution that you have offered and I think it can work. In the course of my "research" I have found out that there is a brand new version of RealStats released by the kind author in the end of April. I know that here you guys modified the original so that it can run on NT7 and record the data as well. That is if I understand it correctly...
So the question is have you already incorporated the new version, and if not are you planning to do that anytime soon?
Thanks and sorry to bother you
I am now posting mostly in Elite. But I have been using it all the time.
Here is an example. Use it to gauge close up Resistance. The version in Elite downloads can show +/-10 Rows, except the currency, like 6e, they report only +/- 5 Rows.
Dom_Bands, non-persistent is available in downloads. I have watched the DOM long enough of ES, CL, YM, 6e that I no longer record this information, I know that the numbers mean. Like CL had the fullest DOM I had ever seen the other day when the price was 80.xx, as the DOM lightened it moved up.
ES trades well with a total DOM of less than +/-6000. Once it hits 15,000 it usually slows down and churns. Many days ES would have +/- 20,000 making the brokers happy with lots of commissions and just grinding up traders $$$.
R.I.P. Andy Zektzer (ZTR), 1960-2010.
Please visit this thread for more information.
I read the book of Grady and found that reading the tape was very demanding, but actually gave me good clues on what the market pretended to do, based on big lots participants.
Fortunately, I found recently an indicator named biglots by integrity traders, that I mainly use for my trading. I have found that when price is divergent with the All Trades line of that indicator, it is a good place to enter a very low risk transaction if going with the trend, or a place to take profits if the divergence is against the trend.
I asked the programmer to develop another indicator that plots the big lots transactions on the screen so I see on the screen what is going on in the tape, just like Grady teaches.
That book is really no b.s. but now I donīt need to see the tape but for transactions above 50 lot in ES.
I am posting my charts daily in my blog here, if you want more examples. I have attached today chart as example.
