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Can tape reading be replaced by algos?
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Can tape reading be replaced by algos?

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Can tape reading be replaced by algos?

I am a fan of tape reading and think it is an indispensable tool for daytrading but with the advancement in technology I begin to wonder if tape reading can be totally replaced by some algos, if so, what chance have we mortal tape readers any chance against the bots? There will be no edge for tape readers right?

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YJ78 View Post
I am a fan of tape reading and think it is an indispensable tool for daytrading but with the advancement in technology I begin to wonder if tape reading can be totally replaced by some algos, if so, what chance have we mortal tape readers any chance against the bots? There will be no edge for tape readers right?

@YJ78

Don't worry about the future ... high frequency traders are already spoofing your tape reading with their phantom orders today....

High-speed trades make up fifth of Canada market - Chicago Tribune

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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YJ78 View Post
I am a fan of tape reading and think it is an indispensable tool for daytrading but with the advancement in technology I begin to wonder if tape reading can be totally replaced by some algos, if so, what chance have we mortal tape readers any chance against the bots? There will be no edge for tape readers right?

The thought about HFT or algos being your worst nightmare is crazy . They dont try to spoof you , at highest they will try to ruin another algo/HFT machines chance by quote stuffing ... but this is done in miliseconds .. Most of the algo behavior is MM or stat arb fighting for cents .

This kind of thinking is usually inspired by failing traders looking for a cop out . . Instead keep doing what works for you and stop stressing about it .

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Kingpin View Post
The thought about HFT or algos being your worst nightmare is crazy . They dont try to spoof you , at highest they will try to ruin another algo/HFT machines chance by quote stuffing ... but this is done in miliseconds .. Most of the algo behavior is MM or stat arb fighting for cents .

This kind of thinking is usually inspired by failing traders looking for a cop out . . Instead keep doing what works for you and stop stressing about it .

@Kingpin

But what if a cop out and worrying is what works for you....

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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Answer
This post has been selected as an answer to the original posters question Answer

Hi,

With respect to tape reading, I am a rookie, so take the following with big reservations.
What algo are doing can sometimes be seen in the tape.
For instance, a cascade of successive 1-1-2-1-1-1-3-2-1-1- at the same price could be the footprint of an algo eating the liquidity but willing to hide its intention by breaking down its order.
According to the context, this assumption could be used. For instance, by entering the market as the algo.

With respect to DOM reading, I have recently read the opinion of "no bullshit" John Grady, who is a 100% DOM Trader. For the sake of clarity, he is also a vendor. (Red added by me.)


Quoting 
Here are my thoughts on programs, algos and HFT. They have most definitely impacted the markets and changed the game. This is not in dispute. However, I don't think most people understand how they have changed the game. The reason there is so much uproar over HFT programs has nothing to do with them never losing money. They lose just like real traders. The problem is the speed at which they function and the fact that they only execute about 20% of the orders they place. They make the markets look more liquid than they are and they are able to place an order and cancel it before you can click your mouse once. These things are not trying to make huge winning trades. They are iterally scalping machines. They attempt to make no-risk trades meaning they are always trying to be the first in the queue so they can immediately break-even if they want to exit. This is what scalpers have been doing since the inception of trading. So in this regard, they have taken that edge from short-term traders. You can no longer try to hit an order as it's leaving and hope to get that immediate break-even trade. Guys complain that they hit an order and it's not there. This is why. The computers have already taken everything that was there and they are first in line now.

There was a time when humans could trade like this but those days are gone. In addition, the days of massive runs on no news are also gone. It is rare for markets to go one way for any length of time without a substantial pullback. The computers are the reason for this. They are constantly in and out which is why you see more chop and tighter ranges. This is why, more now than ever, a day trader has to be abe to make the short-term plays. It's great if you happen to catch a move that goes fifteen ticks in one direction. That is rare. More likely, you will see the market move six ticks, retrace three, move four, retrace 2, move three, retrace three, and then settle into a five tick range. I've talked to so many people who continually let four to six tick winners come back to break-even because they wanted more and the more simply wasn't there to be had. So while computers have changed the game, I don't think they've changed it in a way which should make a day trader try to focus on capturing larger winners and taking more risk. If anything, it's the opposite.

Everyone seems to forget that programs are programmed by programmers. Programmers define risk parameters. Computers do make losing trades. When one computer sells to get short and another computer sells to exit a long and both of these computers execute those trades at the same time, those trades will create a downward move. You don't need to know if a computer took out the bid or if a person took out the bid. All you need to know is that the bids are getting hit and the market is weak.

Source : NO BS DAY TRADING - Video samples

Nicolas

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I don't know...

will watching television replace reading books?

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ThatManFromTexas View Post
@YJ78

Don't worry about the future ... high frequency traders are already spoofing your tape reading with their phantom orders today....

High-speed trades make up fifth of Canada market - Chicago Tribune

I'm asking the question to assess whether I understand the point you are making: "tape reading" refers to trades that have 'printed', i.e. trades that have taken place already, and I assume by "phantom orders" you are talking about the spoofing that goes on in the order book, i.e. 'intent'. So why would you want to combine the two?

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They already do. Tape reading is simply trying to figure out short term flow via activity and all serious algo's who aren't based off derivative price indicators already do that.

This is how that flash crash came about, that fella in his basement spoofed a massive sell order and all the algo's who are essentially automated tape/DOM reading machines freaked out and sold thinking someone was trying to legitimately get out.

It's very simple to figure out if something will be (if not already) automated, there require only 2 ingredients:
1. Profit
2. Repetition

Since tape reading has both, it has already happened. You may argue tape reading is an art and it's different every time but it's not - you are still looking for patterns in order flow, something a computer can replicate.

However, in my opinion there will always be an edge because there will always be OTF traders who need size to get in or out and they can collectively move the market in one direction irrationally, hence there will always be momentum and there will always be an inefficiency.

In terms of extremely short term tape reading, that is the realm of the algo. If your edge is trading the small daily ranges and fluctuations then you gotta be pretty good at it and have close to nil execution costs because you'd be playing against algo's specifically built to take money from your collective pocket. You have a massive speed, cost and information disadvantage at that level. IMO it's far easier to profit from inefficiencies caused by OTF traders and use order flow as a point of entry for a longer term outlook.

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embracing new technology


I trade with the Jigsaw doms up and feel like my eyes are shut without them, but in the now, today and tomorrow there are more effective ways to read, analyses and act on this information. You dont even need to be able to code to map out patterns in your chosen market. OFA have just put together their new 'OFA Algo' software that lets you do just that. I dont use OFA at this time (its expensive..but good value)but it is definately a great option for anyone looking to map and execute or just add the weight of orderflow on your side to trade decisions. Your research should start there.

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