Getting your head wrapped around Time & Sales

[DionysusToast]

All

This is going to be torture, so my advice is to not follow this advice which was passed on to me by someone far smarter.

If you want to learn how to use Time & Sales and to get a feel for the order flow - try the following exercise.

You will need :
NASDAQ Level 1 quote screen (bid, ask, vol, qty @ bid, qty @ ask, last price)
Time and Sales
Pen and paper

Pick a fairly liquid stock but not something like AIG which moves too fast. Try something a little slower like IBM. Basically - if it's whizzing by at 100 mph it's too fast, if you are getting 1 trade every 5 seconds it's too slow.

For 5 days do the following:
Open up the L1 & Time & Sales
Close all other windows, screens, web sites, etc.
NO CHARTS ALLOWED
Watch the time & sales and keep an eye on the L1 info
Look in particular for :
- Changes in size
- Changes in speed
- T&S suddenly becoming very erratic
- inside bid & ask
- color changes

When you think the market will reverse, write a note, the time & the price as well as where you think the market will go to before it comes back.

You should see gradual improvement as you go through the week.

 

[Jaydee]

Ahhh, the ancient art of tape reading. Good idea for a thread - there is very little on this type of perspective of the market. I'll try and add some of my own thoughts on this in due course but I need to hit the sack right now. One thing I will say just before I do is:

I don't have the concentration to watch the orderflow constantly, all day long - it is a very tiring exercise. So, I normally use charts to highlight areas that may be of interest - points where the price direction may change and dramatically at that (typically, S&R levels, trend bounces, etc). I then use the orderflow to confirm that these points of interest are actual areas where everyone else is interested - I know if this is the case as the orderbook churns quickly between a few significant price levels as traders fight to establish direction. It then just a case of getting onboard the side you think is correct.

I know a lot of traders are religious about just charts but I honestly believe that using orderflow in conjunction with them is even more effective. The exercise DionysusToast mentions above is a good way to start getting your head around the fast moving numbers.

Good night

JD

 

[AlexisD]

Well ,there are actually some problems:

- computers analyse it much quicker than humans do, most large-scale trading rooms do it.

- Most importantly, the orderflow can only help you on genuine scalping (capturing the smallest increment). but, with the routing provided to individuals at home, you can't actually profit from it.

thx,

Alex

 

[Jaydee]

- Most importantly, the orderflow can only help you on genuine scalping (capturing the smallest increment). but, with the routing provided to individuals at home, you can't actually profit from it.

You don't have to use it for pure scalping for the reason that it can give you a better idea towards which way levels will break or hold. I think it benefits any short-term trader who wishes to finesse their entries and exits at specific price points.

 

[DionysusToast]

Jaydee is right.

Alex - before you pull up all the usual interweb reasons that this doesn't help at all - why not try it?

Like any skill, it needs to be applied properly in order to use it. I don't scalp pennies, yet I stil use time & sales.

 

[AlexisD]

Hi again,

I certainly don't want to offend anyone or sound like an arrogant a**. It's of course useful to try as many strategies as possible, and yes, book reading can be effective in some context.

However, it TRULY IS a different beast when you don't have lightnight-fast order routing + top of the range data feed (CQG only for individuals). I have 2 colleagues who scalp all day long. They're the only one who have to change their approach when they want to trade from home...

 

[AlexisD]

full disclosure: I trade eurex futures, I never personally studied Nasdaq equities orderflow.

Thx,

Alex

 

[Jaydee]

Alex, I see that you are saying that you can't scalp using market flow from home, which I think is a very fair point. However, we aren't saying use the MD and T&S for scalping - we suggest that it should be used for defining an area and direction where the market could make a longer term move from - say 30-40 ticks.

 

[DionysusToast]

I agree with JD.

T&S is a tool you can use with your trading. To incorporate it, you need to learn it.

To learn it,I had no luck until I turned all of the other stuff off and just focused on T&S alone.

Of course, you can turn all of the other stuff back on again later.

 

[GladiatorX]

I agree with JD.

T&S is a tool you can use with your trading. To incorporate it, you need to learn it.

To learn it,I had no luck until I turned all of the other stuff off and just focused on T&S alone.

Of course, you can turn all of the other stuff back on again later.

You mainly trade Nasdaq stocks then ?
Many via level 2 + Time/sales ?

 

[DionysusToast]

You mainly trade Nasdaq stocks then ?
Many via level 2 + Time/sales ?

That was the original plan and it turned out that this gave me plenty of time to also look for swing trades because there's not a great deal of work to do when the markets are closed.

When day trading, you need a list to monitor during the day. I was using earnings and news stocks. For earnings, it turns out that it was the guidance that moved the price a lot more than an earnings suprise.

For swing trading, I use a scanner and then filter out stocks based on their fundamentals.

For day trades, one of the issues is that the news-based move is often done before the market opens. For swing trades, one of the issues is that the stock often goes right through your entry price at the open. You can choose to slip 20-30c, therefore upping the risk of the trade OR you can wait for it to come back to your entry point.

So - this lead me to a couple of revelations. First off - don't enter your swing trade order until the market has properly opened - 3 to 5 mins in. Doing this led me to the conclusion that a lot of those swing entries had enough momentum to day trade. So - that's a stock with zero news, probably had a pullback and probably now resuming.

So - now I just look for moves without worrying too much about which is the most suitable way to trade the.

Then I started (and still am) to look at what it is that makes these moves. Often, you casn find scenarios where if you figure out who's going to benefit, you can find scenarios for longer term trade were, for instance, company insiders are setting themselves up for a nice little earner.

So - in summary - what I now do is look for things that may move the price but don't worry too much about whether they will be swings/day trades/longer term. I just can't tell from the outset what I will find but almost all of it involves looking at the fundamentals...

Sorry to give such a long winded answer...

 

[AlexisD]

ok guys, I'm clearly dealing with reasonable people having reasonable expectations about the tool they use here, so my warning might have been useless.

however, always make sure that the tools you choose give you an actual edge, and not a hidden 50/50 as so many indicators do...

Good trades to you!

Alex

 

[dcraig1]

I just can't tell from the outset what I will find but almost all of it involves looking at the fundamentals...

Which fundamentals?