Tape Reading continued.

F

fatrat

I reviewed Maverick74's posts in a conversation about tape reading last night with Shortseller and tried some of his ideas today while trading. I did not have much success, and had my worst losing day ever. ;-) Not Maverick's fault. I just was experimenting and had a tough time making money. Today wasn't a great day though, so I am not sure how conclusive my results are, but here we go:

I agree with Maverick's ideas because I've seen them in action myself. However, taking advantage of every play is difficult. I have some observations that I'd like to discuss with some more experienced people on ET.

What I got confused with this morning was this:

Sometimes there is "cross-talk". There could be a buyer AND a seller in a sort of noisy range. There'll be size of sorts on both sides. So, there could be a run up, for example, with the bid stepping up. The bid steps up to a point where there is a stale offer.

Now, here's what I don't understand:

If the offer is stale while the bid is stepping up, sometimes sellers do start to jump in front of the size, and then start stepping down the offer. I'm kind of wondering just when to take these stale offers or bids seriously. Do I never take them seriously?

Or, I guess, when I see these bids stepping up to a stale offer where people start selling, do I flag this as a sort of "key level" and a resistance point?

Do I wait for the actual momentum to shift before entering? Do I only trade when I see actual momentum? Because it does seem like somewhat of an artform to be pre-emptive on taking shares. In some cases, by the time momentum has been identified, the shares will have evaporated.

Maverick74, I don't know if you're reading this, but I've been reviewing the tape and I am kind of wondering how you ever got the point where you knew exactly how many shares the seller had to offload. If you've got a moment, take a look at DNA on 11/03/05 at the morning spike on the way up and down. I had a pretty tough time that day trying to figure out when the seller was done. He just seemed to magically pop in over and over while grinding the price all the way down to $92.40.

When the seller showed size on the offer, and the offer was lifted, he'd let the price run up a little further and then start the process all over again while stepping down the bid. This wasn't the first time I've been caught off guard by this. But I'm not sure how I would've identified just how many shares the seller had to offload. If I had that kind of insight, I imagine I would have done much better on that day.

On a mid-volume day, it's usually safe to assume that size on the offer getting lifted means the price will go up.
 
I guess a good example is roughly around 10:08:39 on 11/03/05, where there's a high volume on the tick-charts spike typically associated with a bottom, since the size gets "lifted." Except, in this case, size was lifted and the guy kept driving down. I guess he was super aggressive, but it was damn hard to tell.
 


I'll try to do my best to address these issues here.

What I got confused with this morning was this:

Sometimes there is "cross-talk". There could be a buyer AND a seller in a sort of noisy range. There'll be size of sorts on both sides. So, there could be a run up, for example, with the bid stepping up. The bid steps up to a point where there is a stale offer.

OK, first off, the key in tape reading is to trade news. I can't emphasize this enough. You can't read the tape if there is no tape to read. We are looking for size buyers and sellers here. We are not looking for the occasional size bid or offer. If you look for stocks that are reporting earnings, have earnings revisions, upgrades/downgrades (only when based on fundamental news, not valuation), and any kind of event that will dramatically effect earnings. This is where your focus should be. Not on your favorite stock or stocks that are just volatile. I cannot stress this enough. The reason you are seeing this noise is because there are no real buyers or sellers in the stock.

Now, here's what I don't understand:

If the offer is stale while the bid is stepping up, sometimes sellers do start to jump in front of the size, and then start stepping down the offer. I'm kind of wondering just when to take these stale offers or bids seriously. Do I never take them seriously?

Stale bids and offers should be ignored. That offer might have been on the books for 3 weeks. You don't know. The reason he is a stale offer is because he doesn't care if he gets filled or not. If he did care, he would go after bids and step down. Ignore offers that step down in front of stale offers. They mean nothing. It's probably the guy sitting to your left in your prop office.

Or, I guess, when I see these bids stepping up to a stale offer where people start selling, do I flag this as a sort of "key level" and a resistance point?

No, these levels are meaningless. You are looking for a real buyer or seller in a stock. Not just "a" buyer. You are looking for someone that has 500k, 1 mil, or 10 mil shares to buy. Not 25k.

Do I wait for the actual momentum to shift before entering? Do I only trade when I see actual momentum? Because it does seem like somewhat of an artform to be pre-emptive on taking shares. In some cases, by the time momentum has been identified, the shares will have evaporated.

No, again you are not seeing the main idea here. We are not trading momentum. We are trading ahead of large buyers and sellers. It's your job to identify that there is a buyer in the stock and then find where he wants to buy stock at. That's it.

Maverick74, I don't know if you're reading this, but I've been reviewing the tape and I am kind of wondering how you ever got the point where you knew exactly how many shares the seller had to offload.

It's all patterns. You want to know a trick? When a buyer is accumulating stock, he will usually bid in even amounts, you will see 500 or 300 on the bid. Keep in mind, this is a trick, he has far more then 300 shares to buy. But what you will see are the prints, 5k goes off, 10k goes off, 25k goes off, so on. When he is done, he will show you his bid. And this bid will usually be an odd number. When you see a size bid show up for 13,600 shares. Hit that f*cking bid as fast as you can. He's done! Now if you see him come back for 300 shares because he has been bidding 300 all day. You might want to get back in. Also, other things to look for are uptick bids. If you are still seeing uptick bids, he is still there. The key here is pattern recognition. You have to identify the patterns. It's very much like a game of chess. He will telegraph his moves. You just have to catch them.


If you've got a moment, take a look at DNA on 11/03/05 at the morning spike on the way up and down. I had a pretty tough time that day trying to figure out when the seller was done. He just seemed to magically pop in over and over while grinding the price all the way down to $92.40.

I don't have access to the T&S from that day but my guess is you are trading this stock because it's volatile, not because it had news.

When the seller showed size on the offer, and the offer was lifted, he'd let the price run up a little further and then start the process all over again while stepping down the bid. This wasn't the first time I've been caught off guard by this. But I'm not sure how I would've identified just how many shares the seller had to offload. If I had that kind of insight, I imagine I would have done much better on that day.

All this is is chop. No real buyers or sellers here. DNA is simply a volatile stock. Don't mistake volatility for real buyers and sellers. They are not the same thing.

On a mid-volume day, it's usually safe to assume that size on the offer getting lifted means the price will go up.

No, it's only going higher if there is a legit buyer in the stock. That offer might have been lifted by a short. Shorts don't like to show their bids when they cover because they are afraid of scaring the stock up. So they wait patiently for a size offer to come in and then they lift it. However, that is all the stock they have, that is why there is no follow through when the offer gets lifted.

I hope this helps. Good luck.

Mav
More...
 
Mav,
I like it.

Theres a certain statement you repeat that has such a profoundly important idea behind it.
I hope the up and coming will pick it up :)
 
Got it. I'll review the tape and videos I've made to see if I can spot what you are talking about.

On the other hand, do you have any valuable observations for trading volatile stocks and not news stocks?
 
Quote from fatrat:

Got it. I'll review the tape and videos I've made to see if I can spot what you are talking about.

On the other hand, do you have any valuable observations for trading volatile stocks and not news stocks?
More...

I avoided trading volatile stocks for volatility's sake like the plague. Surest way to find yourself on the fast track at being a swing manager at a Taco Bell.

You need to remember, you are doing this to make a living. Remove the urge to trade the sexy stocks. Everyone at the beginning wants to trade the sexy stocks. But then they wise up.

I did use to have what we called pocket stocks. These were stocks we always kept in our pocket to trade everyday, if the news stocks we were following weren't moving. We chose these stocks because they were decent movers and we knew the specialist like the back of our hand. You would discover your pocket stocks over time. I had several back in the the day. Some of them were BBY, IGT, and WSM. Not too sexy, but I traded them everyday.

The problem with trading volatile stocks is there is too much noise. It's all daytraders in there. You see size bids and offers going off and that's probably the guy down the row from you. Trust me, we had guys in my firm that would lift 50k offers. So don't think those were institutions. Also, because the specialist knows they have a sexy stock, he likes to make you his bitch. LOL. The shit I have seen these guys do, you do not want to be a part of.

Pick some nice stocks, that have nice movement, where you and the specialist can be friends. They are out there. The key is to find stocks no one else is trading. I use to get so pissed when guys would see what stocks I was trading and see I was raking it in and then they would start trading it. When a lot of daytraders are in a stock, it gets really messy. For example, morons who would bid into a minus tick offer. FREAKING MORONS!!! You never do that. And it ruin the move for everyone involved.

So to sum up, I would avoid DNA like the plague. If you like biotech stocks, find a smaller one that nobody talks about and get to know it. You'll be much happier.
 
Just some quick thoughts from the peanut gallery...(hopefully helpful ones) one of the order Types mentioned earlier on in the thread was and "ICE BURG" (or at least that's an ez way to describe it) and this is extremely EZ to spot. Think about a ice burg with just 5 percent of its size showing above water, with the mass 95 percent under the water..

I.E. the tape shows 100 as size and does not change .. as its printing .1k 500 2k 300 etc...GE does these all day.. This is by far one of the easiest things to spot when watching price movement. The opposite side might EVEN FLASH large size only to have it vanish without ever printing.or disappear only having ticked off a few shares. And like Mav has already explained When the size moves to an actual number (other then the 100 that has been sitting there and not being taken out) its the tail end of that order and we are ready to move past him.

After reading over some of the original conversations with MAV and really focusing on some of the things I see.

I would like to make one point. Things with the tape seem to be (or at least to me are) an added nuance to trading. When I originally started the tread most of the responses were (and very correctly so) Not enough information, as and answer to my question. Don't Put 100 percent of your entry Based "only" on one of the concepts that have been discussed as far as tape reading. The point is when you see many of these things lining up you "step on the GAS" so to speak. IE what are the spoo's Doing, is it strong stock, strong sector, strong market, R we at support /resistance, pivot points. If that added anything to the discussion I don't know just though I would comment.

R.D.
 
If the offer is stale while the bid is stepping up, sometimes sellers do start to jump in front of the size, and then start stepping down the offer. I'm kind of wondering just when to take these stale offers or bids seriously. Do I never take them seriously?

Stale bids and offers should be ignored. That offer might have been on the books for 3 weeks. You don't know. The reason he is a stale offer is because he doesn't care if he gets filled or not. If he did care, he would go after bids and step down. Ignore offers that step down in front of stale offers. They mean nothing. It's probably the guy sitting to your left in your prop office.


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One Question regarding this ... Are you suggesting ALL stale offers are meaning less???????? Because I would argue that there are some key support and resistance levels that do matter very much .. Take for example XYZ Stock ..when it was under 35 and moving up .. gets to the point.. (I don't know because that might be a strike price for options traders or if the stock just likes whole numbers. but when we finally move up there is like 105 K sitting there to sell .. (who knows for how long) but its only shown for about a second and you can see smaller day traders stepping in front of it moving it down. (this phenomena may not be considered "Tape Reading" ) but is also something that I have noticed - Are conditions like this just simply discounted as nothing? ( Sorry I hope I am not adding confusion to this discussion) thanks again in advance.

R.D.
 
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