Spread Tape: all you need to know

Let’s assume that you watch the Tape and see above average Ask volumes (5th column). See example in the picture below:

At this very moment, the price tests the support level once again (marked with the red line):

Upon that, the Ask volume is significantly higher than average and higher than the Bid volumes. This tells us that there is an obvious interest in holding the support level. In such a situation, the probability of the price bouncing from the level is very high.

Let’s assume that you see higher than average volumes in the Bid/Ask Tape and they are approximately equal. Such a situation may arise in significant price sectors and often is accompanied with flat price behaviour. You may have a feeling that there is a fight for a significant price level when you observe the Tape in such sectors. In this case, you may notice false breakdowns of the support level with subsequent returns and backward retracement.

That is why, if you notice fight traces on the Bid/Ask Tape and the price conducts backward and forward action, analyse the general context.

In our case, the price behaved as if trying to break the support level. It tested the level many times, conducted several false breakdowns and the general trend spoke in favour of moving down, but the level was inaccessible.

Watching the Bid/Ask Tape trades, you could have noticed a certain absurdity of the developing situation: first, the big Bid volumes reduced the price then similarly big Ask volumes brought it back. The nature of influencing the price by indirect signs told us that there was no focused impact on the support level with the aim to break it.

Perhaps, the following has happened. There are market makers and correlators (the market participants who align the futures and underlying asset quotations) on the RTS futures. Such players may hold the price within certain boundaries since they have significant money assets and special algorithms.

It could be assumed that, in this situation, major market participants tried to convince traders in irreversibility of the further price reduction. However, the Bid/Ask Tape monitoring suggested that the situation couldn’t be interpreted unambiguously in favour of reduction. If you have such doubts, we recommend you to hold back from trading or reduce risks at the expense of the open position size.

If you haven’t used the Bid/Ask Tape before, it would be difficult for you to understand from the start what takes place in the market. You might need additional time to study how one or another situation leads to certain consequences.

Using the Bid/Ask Tape is especially useful for scalping trades (what scalping is), since the duration of influence of some volumes could be very short.

We recommend you to use the Bid/Ask Tape together with the Volume, Delta and Open Interest indicators and also the classical technical analysis indicators and support and resistance levels.

For example, when the testing of the 50th line of the Simple Moving Average (SMA) sends a signal to buy or sell for other trading systems, we will see high Ask volumes in the Bid/Ask Tape. If the Bid volumes do not stick out at this moment, then, most probably, the trade, which was opened along with the big majority, would bring profit.

If the exchange broadcasts the Open Interest value (how MOEX does it), then it would be possible to understand, in a combination with the Bid/Ask Tape, whether new trades are opened or positions are registered.

It would also be useful to watch the Bid/Ask Tape when the price tests the support or resistance level, since the price may face counteraction when moving towards the level, and then the trades, directed against the main movement, should appear in the Bid/Ask Tape. Such a situation confirms that the level is protected by someone. Besides, the counteraction could be either active (with market orders) or passive (with limit orders). A high volume in the latter case could also be on the side of the main direction, but each such market order would be engulfed by a limit one, which are often posted as mini-icebergs. Such an iceberg will take the market order ‘hit’ and, as soon as the market order pressure ends, small market orders would be applied in the opposite direction to move the price a bit away from the significant level.

The Smart Tape shows the general traded volume at a price level, while the Bid/Ask Tape shows what the Bid volume and what the Ask volume were.

Smart Tape includes filters, using which you can watch only big volumes. The Bid/Ask Tape doesn’t have such settings. Moreover, the Smart Tape allows analysing some additional data, such as:

• Open Interest value;
• average Volume;
• number of price levels engulfed by the Volume.

Despite all the functionality the Smart Tape has, we should note one critical advantage of the Bid/Ask Tape – it allows to correctly assess behaviour of the system market participant, such as market makers and correlators.

Let’s draw some conclusions from the above:

• The Bid/Ask Tape is a useful instrument. It can be used by scalpers or for assessing the market behaviour with a high degree of detail and for the search of the entry point.
• The Bid/Ask Tape shows places of special interest on the part of the system market participants.
• It helps to avoid traps, connected with false level breakdowns.

Try to add the Bid/Ask Tape to your working space. You will need to spend some time and effort studying it for being able to notice specific patterns. Conduct experiments on using the Bid/Ask Tape in a combination with other indicators available in the trading and analytical ATAS platform.