The art of tape reading

here is a very interesting post regarding trading by the order book:

"I wanted to focus this thread specifically on order flow. First lets discuss the level
2. Level 2 can be manipulative. However, one of the biggest clues level 2 shows in
my opinion is the ability to see a heavy buyer or seller. Often you will see a thin
ask but price unable to lift. Then when checking tape, you will see that a lot of
contracts traded at that price. This is short term resistance. What you are seeing is
seller with a heavy line of contracts to sell and will not step off the ask.

A couple of games you might see: tape shows huge line of contracts trade at a
specific price level (lets call this level X for now). On level 2, price appears to have
enough momentum and volume to take out level X. However, someone is
standing firm there not showing his hand entirely and even when price breaks
that level X by one tick, you can see contracts getting dumped taking price back
below X. What is this indicating?

First, lets say you are an institution with 10,000 contracts you need to sell. Are
you going to dump this at the market and cause an artificial sell off? No. You can
get a much better entry by distributing throughout the day whether it be the
entire morning session or in the afternoon. If you're sitting on an order from
several hedge funds to short 10,000 contracts in total... you want to short into the
rallies. So what you are going to do is to hold the ask at a desired level. You
might even by a few contracts to support any decline... but you are going to be
distributing a lot more contracts than the fake support you are creating. So some
games you can play is:

1. Hold the ask and then withdraw the ask causing an impression that the selling
is over.
2. Instead of posting a monster 5,000 lot size at the ask, post 50. When buyers
start buying at the ask, start dumping without exposing your hand on level 2.
(obviously this is visible on tape)
3. Withdraw the ask and then buy 500-1000 lot just to bring price up by a few
ticks. This fuels momentum as traders think resistance is over. Then dump
another 2000-3000 to take price back to the breakout point.

Understanding order flow offers the ability to enter trades early. Do you see
strong order flow coming in that has the potential to take out the high? Does it
show that the pullback is likely to hold? Are you sensing a breakout from a
consolidation with the sudden buying/selling interest you see on tape? Did the
level 2 bid/ask just get thicker? Thinner? What do all these information mean?

In discretionary trading understanding this type of action and actually seeing it

real-time offers a tremendous edge. However, this is just one skill set and there
are many other skills I think is absolutely necessary in being a successful
discretionary trader. Volume, tape, price action, trader psych are just some of it.

For traders, I have a question. When you look at a candlestick chart, what do you
see? Are you able to see human emotion and trader psychology in price action? If
the answer is no... you'll need to gain more experience and practice. For those
that are struggling with trading, once you are able to see the psychology behind
each price bar, you will realize that trading is about people and taking money
from their mistakes. It has nothing to do with numbers, indicators, and news.
How traders react to news is far more important than whether the news was
good or bad. You don't need to be the first one to act... all you have to do is
determine which side is going to win and just hop on board. (at an early point)"