Tape Reading: May 2008 Archives

The  most  basic premise of TLA  (Transaction Level Analysis) is three-fold:

1.    Changes in price are predicated on a change in Supply and/or Demand.
2.    Buy Programs usurp Supply while Sell Programs create supply.
3.    Since program trades are executed in an electronic marketplace, software can be        developed to monitor this action in real-time.

Does this make sense?

A classic application of this is activity when a market is close to stops.  Ever see a market inch up and up and up and then, bammo!  All of a sudden it shoots up an oodle of ticks in seconds?

Why is this?

Most likely, some Buy Programs came on because price was getting close to an area in the market that was easy for the Black Box Trading Shops to program trading strategies around.

There entry into the market, usurped up the local inventory....once these contracts (or shares) were chewed through, price could do nothing but run up to satiate the new demand.

Back to basics...Supply & Demand...an inescapable law.

Happy Trading

Say What?

Front-Running legal?

Well, not exactly.  As a market outsider, I wouldn't know if Front-Running was still possible in this electronic day and age...But I can speculate that the greed in the heart's of men, and market makers, is quite possibly still there.

What I do know, as a Tape Reader, is that in today's electronic markets you needn't be a market maker or specialist to gain from similar profit opportunities available to those who run a book.

If, in today's electronic markets, the theorem that 'Buy Programs usurp supply and Sell Programs create supply' is true, then if you could monitor these programs in real time, you could extrapolate their effect on price (at least in the short-run) and play a similar game to a Front-Runner by knowing that enough Buy Programs were just run, that price, well gosh, it done just gotta go up a smidgen or better.

Thus, as a Front-Runner is illegally profiting from fore-knowledge 1/100 of a second before a trade, today's Tape Readers, can make similar trades, only 1/100 of a second after the trade is complete...

Kinda compelling, huh?

Happy Trading.