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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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.)
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?
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:
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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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.