[keymoo]

I have a question for you on the tape. Let us assume that the guy selling the top of the rally goes in with a market order. This will show up as a red 10 on tape. Got me so far? If he placed his order as an ask then who knows how his sale would appear on tape?

I am wondering whether the guy that shorted at the top with his 10 lot at the market would use a market order to cover? I would say that he would most likely scale out with bids at say 5 and 5 or some other combination. It would, in my opinion be highly unlikely you would see a 10 lot as a market order to buy. Therefore it would be very difficult to see the actions of one trader.

You see this on ES a lot. You will see an order to buy 1500 ES contracts, but you never see the same lot on the same day to liquidate that purchase because the liquidation would have been done using limit orders at different prices by scaling out.

I personally believe a lot of the orders you see on tape are by people that are eager to get out of a position (stop hits). So if you see lots of sell market orders on a decline they are people getting stopped out from buying the high. People taking profit are more likely, in my opinion, to use limit orders.

I know this depends on the style of trading and a lot of traders will take profit on a market order, but I am proposing to you that most don't.

What are your thoughts on this and how does it affect your thinking (if at all)?

Another thing to bear in mind is that people that want to take a large position will often scale in to their position with limit orders and you will find this hard to see on the tape as we all know the tape only shows market orders. You can see this in the pit very often that a bank that wants to take a large position will do so at its leisure by sitting on the bid (or ask) and not going in at the market.