We've re-invented and re-invigorated tape reading with our specialized tape reading and order flow analysis AlphaReveal software. And, a large part reading the tape is understanding the dominant market Players and their order flow and price patterns.
The dominant Players are listed below.
Primary Liquidity Providers
Primary Liquidity Providers quote both sides of the market and help to ensure an orderly market. They always trade against order flow and attempt to capture the spread as many times as possible. Their edge is primarily a function of risk taken and vertical edges that are unavailable to retail traders. An example of a vertical edge is having cheaper trading commissions or large amounts of capital to execute stock trades against futures positions. Active every day.
Passive HFT trade in a way that is similar to primary liquidity provision except they pull their orders when the market becomes risky. This has the effect of liquidity disappearing just when it is needed. They dominate in narrow range markets. Active every day.
Aggressive Futures HFT
Aggressive HFT predict and execute market orders in front of slower moving day traders. Aggressive HFT in the futures space has a primarily negative effect on other day traders because it makes it more difficult to get fills. Aggressive HFT will monitor order book and other data to execute in front of slower moving day traders. Active every day.
Day Traders & Leveraged Equity Programs
Leveraged equity participants are likely a combination of HFT and proprietary day traders. These traders use primarily momentum trading programs that push the market out of balance. Active most days.
Large Value Traders / Secondary Liquidity Providers (Off market)
These are some of the largest participants in the futures space. They tend to rest orders off the market and take advantage of the prices that leveraged momentum programs offer them. These traders typically create the high of day, low of day, and the major intraday swing pivots. They control enough size to exhaust the momentum trade and hold trades long enough to create intraday trends. Active most days.
Significant Price Drivers (Fundamental, institutions, macro economic)
These are primarily large trend traders. They aren't active in the market every single day. But, when they are active watch out! They can create both powerful intraday and even multiple day trends. Active selectively.
We see the market activity not as retail traders versus professional traders but rather as an aggregate function of all the market players. Future posts will share how to make practical use of this information.
Wednesday, June 12, 2013 8:44:00 PM