Trading with level II and T&S

[torero]

Does anyone use these to scalp the market, taking 1-2 points? Although I'm new, I've found some interesting stuff but still need time to develop a decent consistent reading of the markets.

What I've found seems to be the opposite of how James view the tape reading skills. I'm waiting for the tape reading book from Neill, but so far it's been an eye-opener.

[darthtrader]

this could be a really interesting discussion. i only got into level II once the idea was there would be so many fake outs that its worthless information, i've read you use to be able to scalp level II direct but the market adjusted. From watching level II, to me it seems traders have over done it as far as this information goes. I really don't see the ratio of block orders to fake outs ever even being close. To me it seems like you use to be able to front run the big boys 10 years ago, they closed that gap but that doesn't mean this market info is useless. The big boys are still going to float limit orders, they are not just going to throw up huge market orders on the tape.
To me thats where volume delta comes in, what is being hit market order wise.

[dalby]

right

the tape is what ACTUALLY is happening. it cannot lie. it is what it is.

level II is simply (to a large extent) what market makers and institutions WANT you to think is happening.

you are correct about the market adjusting. there WAS an edge to level II watching (a relatively obvious one) so of course the market adapted.

heck, there was a big edge with the SOES bandits. needless to say that got taken care of

[torero]

I only watch the market depth from the TS matrix along with T&S table next to it. While watching the depth, you can see traders putting orders on then taking them off. At times, the big orders stay at one level but don't disappear. The interesting thing when that happens, is a another big market order taking out the limit order and push the market beyond the trading range, causing a breakout. It's true you can't tell if the breakout will continue, but it does give a good indication that it's possible. This is the part you don't see in level II but on T&S. Without it I would have thought the order was removed from the market like before.

I think watching them side by side is very informative because just level II might not give a full picture. But the biggest problem is during the opening hour. Moves too fast to see all the orders going by.

[Soultrader]

I think its important to understand fully what market making really is and how market makers function. Otherwise you will be misinterperating what Level 2 is telling you. In regards to tape for markets with no market makers, I find it to be the "truth". Theres a few "truth's" in trading I consider: volume, tape, market profile (the concept), and trader psychology.

I would love to hear about your findings on tape Torero. As you know I am a hardcore tape reader even in the most boring and slowest instruments. Any new insights is fully appreciated.

[torero]

I'll get some screen shots and charts to dissect my findings. Just remember it's my observation only and anyone is allowed to disagree or add comments (in a nice civilized way pls). If I can add some small snippets of video rolling, you may get a clearer idea.

[torero]

Ok folks, here's the first example of what I've found. The video has no audio, so you'll have to read this along with the video so you get an idea. I don't have a mic just yet. I'll get one next week. But here's the gist of it.

From my observation, I've found that the bid and ask matrix provide lots of info particularly if the price will go lower or higher from it's current level, especially in determining breakouts.

If you see the video, 649 6/8 (this is Wheat commodity in case you're wondering) is at VWAP. From there, the prices move down, so we're watching the market going down and see how it does it before it happens. When the current stays red (the right panel with price and volume columns), there is still buyers support that price. When that same price turns to green, support is about to give, buyers have either abandoned that order or the sellers have stepped down to absorb that price level. Usually expect the price to move down. 648 6/8 was day's low (support), when it turned green, it was ready to go down. Keep watching as I annotate the price levels on matrix and T&S on the way down.

The second part is watching that same level being taken out with the vol on T&S matching the orders shown at that price level on the matrix. This is to verify that the orders were NOT being canceled but were taken out by a sell order (this is to determine if the buyer is fooling by showing large orders only to pull them, T&S helps filter that).

This is the first example and first segment of my observation. Any comments/opinions welcome (including bad video taping... pls be gentle... I'm a virgin... with presenting with the vid cam).

http://www.traderslaboratory.com/for...1&d=1185822576

[Soultrader]

Hey T,

Thanks for the video. I just added this thread to my favorites list so will come back to it once I free up from work and send you some feedbacks.

[Trvlwanderer]

Has this thread completely disolved? I searched to no avail.

[Soultrader]

Hi Trv,

Were you able to view the swf file? If not, try download a simple program called Irfanview which will allow you to view pics as well as .swf file.