Tape reading

tapereading - 1900
In the early 1900's tapereading meant observing the ticker-tape.
The ticker-tape comprised time-and-sales only. No quotes. No market-depth. No order-book.

tapereading - 1990
In the late 1990's Level 1 quotes became available.
Tapereading expands to embrace time-and-sales and bid-price, bid-size and ask-price, ask-size.

tapereading - 2005
In the early 2000's Level II quotes became available. Full market-depth.
Tapereading now means the observation of time-and-sales plus multiple levels of market-depth.

components of tape-reading
Tape Reading is a composite term defining a group of activities, involving observation of three separate, parallel universes, each of which changes continuously, and independently of one another.
    • bid queue (order-book)
    • ask queue (order-book)
    • course of sales
Order-Flow is the transition from the order-book to transacted course-of-sales.

Of significance can be
    • any one single event, or
    • the sum of the events
    activity (or absence of activity) in any of the universes
    • number of transactions
    • speed
    • price
    • volume or size
    • direction
    • subsequent reaction to any one of the above

the foundation of tape-reading is based on
    •   screen time (ie the amount of time you're prepared to sit in front of a screen), and
    •   understanding and identifying who the hitters and sitters are

There are two groups of traders. Naturals and the Market-Maker. Each behave differently.
Each uses different methods and different tools. see market maker section.

alan farley on tape-reading
The best commentator on tape reading.
alan farley - tape reading - 2002
alan farley - tape reading - 2008

Since Farley's 2002 article was written, wholesale changes have occurred in electronic-markets.
The 2008 article contains excellent observations on the changes, and how to handle them.

(a) Prime-Broking and the use of electronic-trading platforms.
(b) Consolidation and globalization. An explosion in the use of algorithm trading systems.
(c) ECN's using dark-pools, dark-depth, invisible depth, icebergs, and fragmentation.
(d) market-making robots

(a) reading the market - 2002
In 2002 we wrote
Searched the web long and hard for articles on Tape Reading. Found a few. Not many. They don't leap out. It's an obscure corner of the US market. Most articles refer to it indirectly without getting into the mechanics. Most explain what it is, (by indirect reference to the original ticker tape), and what it achieved, but none got into specifics, how it works, with examples. Or how it's used, the decision making processes that flow from it. Most explain the original ticker tape, and how the scrolling CNBC ticker was different, and not what they were referring to. Nearly half were references to books, published containing detailed explanations. Had to buy the book. Accompanying book reviews were invariably critical, indicating nearly 70% of the content of each book dealt with the authors trading experiences, and the motivational aspects of their trading. The usual psycho-babble. A common complaint - it's like reading the same book over again. Read one, you've read them all. None of the books delved into the main subject. A lot of research to discover the American market refers to "course of sales" as "time and sales". Only one site identified "time and sales" as being equivalent to the "tape"

Now there is an avalanche of articles on Tape-Reading
This entire Camron site sets out, item by item, the components of tape-reading.

(b) hitters and sitters - 2003
2003 we published hitting and sitting - how to read the tape

Understanding the behaviour of players in The Game begins here.
It is here, where the many decisions, made remotely, are played out electronically.
Understanding the electronic market depends on understanding the following matrix.
The "trade classification" feature is developed from this section.
There are 4 on-field game positions. Players can occupy any one position at any time.
Many rotate through each position during the course of the game.
Some prefer being sitters. Others prefer being hitters.
    • a Long Sitter - a buyer who sits in the bid queue
    • a Long Hitter - a seller who hits long sitters
    • a Short Sitter - a seller who sits in the offer queue
    • a Short Hitter - a buyer who hits short sitters
It's a binary state 4-element matrix.
Binary in that a player can either hit or be hit. OR. hit or sit.

behaviour characteristics
• An order sitting in the queue is a limit order. A sitter
• An "at market" order (hit) is never seen in the queue.
• Large limit orders are rarely seen sitting either side of the market.
• Be put on enquiry if you see it. Wont last long.
• A large order will not be placed in the queue where everyone can see it.
• An "at market" order (hit) of 500 could sweep price up/down many points, depending on depth.
• Large orders are broken into smaller lots as iceberg orders.
• Institutions use up to 3 brokers to spread large orders. 1 iceberg spawns 3 icebergs.
• Sitters tend to be exits.
• Hitters tend to be either entries, or, exits under pressure (pain barrier), or stops.
• Pressure does not come from sitters. It comes from hitters.
• Collective pressure arises where sitters congregate on a boundary. All can see it.

(d) market-maker is the sitter
Aristolian Logic
Market Depth represents sitters only
The market-maker is the sitter, naturals are the hitters.
Therefore the market-maker is the market-depth.
Therefore understanding market depth requires understanding the market-maker

2008 we published market-making in which we conclude the market-maker is 90% of both sides of the order-book (i.e. the main sitter) and responsible for a great deal of the action under the zero-profit rule, reducing the value of the course of sales.

In this article we comment on the thin-ness of the order-book, due to icebergs.

sweep-orders can move price 5 to 10 points in less than a second. Once a sweep order starts it can't stop until it has completed. Stop-orders touched in the midst of a sweep can only be filled at the point the sweep-order completes, which can be some distance from where the stop-orders were touched. Tight stops can/will produce instantaneous fill and exit.

Computer processing is sequential. If three substantial "at market" orders are released (almost) simultaneously, they are accepted in time sequence. They all become sweep orders. Each will be processed in sequence. If the first sweep order triggers a stop, that stop-order is not executed until the 3rd sweep-order has been processed. It will be executed 4th in sequence.

summary - (a)
Fluency in tapereading requires an understanding of the significance of course of sales and market-depth.
Understanding market-depth requires an understanding of the role of the market-maker.

summary- (b)
Farley's 2008 commentary states Lone-Traders won't survive unless they adapt to the electronic market. Phantom Pricing, Dummy Orders, Icebergs. Relentless computer programs, micro-second bursts, lightning-speed algorithms have made DOM, market-depth or order-book, nearly useless for analysis of short-term supply and demand.

We don't entirely subscribe to those views. Algorithms have their own characteristics. Put them together and you will have some idea what you are dealing with. Once you have that understanding you will be more able to identify them.

Here's a clue.

Large icebergs have their own characteristics.
There are two main groups of players. Naturals and the market-maker. One group are the icebergs and the other group are the icebreakers. The icebreaker won't try and smash through in one hit. It's a game of cat-'n'-mouse. It's to do with the speed of the icebreaker and the reaction when it hits an iceberg. An iceberg is short-term resistance. It will be broken down. Eventually. Larger icebergs, or longer term resistance will be found at each controlzone or what we call train stations, which are equi-distant from one-another.

Icebergs release their calves as either (a) "limit orders" at the same level which present one set of characteristics, or (b) "at market orders" which present a different set of characteristics. If you watch the bid, offer, and course of sales, and know what you're looking for, they become fairly evident.

Under conditions (a) and (b) there are many of them. The icebreaker doesn't have to keep smashing away. It can back off and wait for the calves to stop releasing, and then have another gentle go.

You see, an icebreaker doesn't need to smack head-on into an iceberg to get a response. It only needs to nudge the iceberg then back off and wait and see what happens. How many calves are released?, what speed they're released at?, whether they're "at-market" or "limit".


down-under - SPI200 = S&P500 futures
The US and AU futures markets, are the only two in the world, that are open (almost) continuously.
The SFE SPI200 (Sydney Futures Exchange Share Price Index) futures contract is similar to the Chicago Mercantile Exchange (CME) S&P 500 contract and UK LIFFE FTSE 100 (FT100) contract. The principles are the same for all contracts. The SPI200 is based on the underlying physical S&P-ASX200 Index, the benchmark indicator of the Australian Stock Exchange. Users of SPI200 include major International and Australian banks, Fund Managers and other large investment institutions.

dow futures - observations from down under
It's often easier for outsiders to see what's happening.
The trading concepts outlined in this site are applicable to complex index futures. Developed over 15 years. First published 2003. An integral part of the development was the simultaneous observation of the DOW + DJII + S&P500 indexes. If you want to know what is going to happen to the DOW and S&P500, watch what happens with the SPI200 in the last hour of each day. Its "happy hour". If the SPI200 squirts in either direction, in the last hour, one trader we know, immediately goes long or short the DOW futures accordingly. No guess work required.

insider trading instruction manual
US and SEC regulatory controls on insider trading, in the US, do not apply in Australia.
Most large trading houses in Australia are branches of major US trading houses.

Australian regulatory controls on insider trading do not apply to futures trading. At all.
See regulatory insider trading controls in the Australian market

Regulatory conditions are conducive to the following
The Australian market tracks the S&P500 index point for point overnight (Australian time), and responds to any moves in the Dow during the opening session the following day (Australian time).

If a major US institution was aware of an/any event that could have an affect on the DOW, which cannot be taken advantage of in the US, it is possible to take positions in the Australian futures market, one day, and exit the following day, on the open.

mispricing - three dominos - knock-on effect
3 markets London, New York and Sydney open at different times. London does not have a night market. During daylight saving London opens and closes 6 hours ahead of New York, thus does not see late New York moves. Sydney opens 2 hours after New york closes, thus a knock-on effect will occur during Sydney's opening session. London opens 2 hours into Sydney night session. Because London has not seen the late New York move, it's open will strongly reflect the unseen NY move. If London over-reacts that will have an immediate, further knock-on effect, on the Sydney night session. Double-whammy.

don't blink - you might miss it
If you don't look - you wont see it. Just look in the right place.

It is said the SPI200 index future is the most difficult index in the world to trade.
Many traders have claimed it is easier to trade the US and Euro markets than the SPI

So, success with SPI200 index future, must mean probable success in any other market.

The fabric of Australian society is woven around a culture of speculation.
If you wish to learn how to speculate you have come to the right place.
If you wish to learn how to be relieved of your money try trading the SPI200 index.

Additional information