Well after a couple of good demo trading days that have really brought up my confidence, I would like to see if someone could confirm my beliefs.
Since reading up on and spending a lot of time watching the tape live, and also going over previous days via camtasia, I feel like I may be just starting to get the general idea of it. I said in a previous post that I've been reading a book by
Jesse Livermore entitled
Reminiscences of a Stock Operator. This book has completely changed my way of thinking about the tape.
This might help Brookwood, and it's my understanding of the tape, but please someone correct me if it's wrong because no one has told me out rightthat this is how it works.
Say for instance say you see a green order go through on the tape on the ES at 1419.50 for 100 contracts. This means that there was both a buyer AND a seller at 1419.50, which was the Ask (because of the green color on the tape) at the time of the transaction.
Brookwood asked:
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How is price going up if the "tape" shows only selling by any objective measure?What else moves price besides hitting the bid or ask? |
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And this is the answer I have come to based on this whole discussion, and other things I have read. Please, do not consider this fact; if someone could please confirm this to be true, I'd appreciate it greatly.
I thought the same way, that if I saw an order in red go through on the tape, this meant someone was selling, right? Vice versa for green orders. However, as stated above, this is not the case. On the ES (and this is much easier to see in MarketDelta although I don't like the program itself) you may see price approaching a previous high with 300, then 400, then 600, then 800 orders hitting the Ask with absolutely no one hitting the Bid, and think to yourself this is bound to break upwards, only to see it fall off a few points. Why did this happen? If so many orders were going through on the Ask, why didn't it break the high?
We know that for every order we see go through, there is an equal buyer and a seller. If you see tons of orders going through on the Ask, with price making no impact upwards, then there must be some underlying supply at those higher prices that outweighs the demand. Otherwise, what would stop price from making new highs? And until that supply is taken out of the market and the imbalance switches to where the demand is greater than the supply, price is not going to make new highs. Eventually, if there are no more buyers and the supply is still there, the imbalance will stay the same where the supply is greater than the demand and the market will move down to lower prices seeking to attract buyers.
What I have been paying attention to is not so much the number of orders going through, but what impact do the orders have on price.
If I see price approaching a support or resistance level from the tape, I start to pay attention. Does price, when approaching resistance, break above? If it does, how does price react after this break? For price to continue, I would look for the market to be moving up easily with orders hitting the Ask and having a tough time moving down with orders on the Bid. If I see price moving up steadily even though orders are hitting the Bid, this is another indication. If price, however, approaches the high and some big orders go through without price struggling to make new highs and eventually coming back through the resistance level, then I would not look to trade that.
I believe in a principle that Mr. Livermore stated, and it's that price will move in the path of least resistance. For a long time I would be focusing on trying to make something work for the market, but now I believe the right thing to do is let the market work for you. By that I mean have an extremely open mind when reading the tape, and don't try force anything with the market, just watch what it does, how it works, when this happens then this will usually happen, etc. The key is to look for patterns in price, and the best way I have been able to do this so far is look for short term S/R levels. If I see price hit 1419.00 on the way up, then it retraces a little bit and bounces off that level or near it again, I consider that a resistance point. I would then take note at what price does at this levels. The same for the down side.
I feel kind of like the blind leading the blind here, so please everyone keep in mind that these are just my observations of the tape and how I think the market works. I would love for someone to confirm that this is accurate, and since no one has yet this is not set in stone for me! PHEW, ok I'm done.
