The private trader develops a similar skill by understanding the depth of market information now available on his screen. This is modern 'tape reading'. It differs in some important ways from the methods used by Jesse Livermore and other great tape readers of the pre-electronic age. The silent march of depth of market information does scream for attention; it does murmur quietly in slow markets and race to a crescendo of activity as frenzied trends develop. Listening to this market doesn't involve your ears so understanding the numbers gives you an important edge.

Depth of market tells the trader what is happening in the market. This screen information has three levels, not all of which may be available in your specific market. By understanding the potential offered by each level traders can make better use of the market information available to them. The three levels include current bid and offer, spread and consolidated order stream, and full depth of market. We can collect this via a live screen, updated in real time, or via a snapshot screen. This delivers the information when requested, but is not updated until you refresh the screen with another snapshot.

Although vital for day trading, the information also enables position traders to more effectively implement trading decisions based on end of day data, but which are actioned in the next days market.

This electronic tape lets us step from trading strategies into trading tactics. It also delivers a hint of future intentions by permitting us to verify conclusions based on our chart analysis. It is a link with market reality and its uses extend beyond just fine tuning the best price available on the day. Each level offers different opportunities.

This is now an ubiquitous screen display showing the price at which the last trade was completed and the current bid and offer, or ask, above and below the traded price. The bid is the amount the current buyer is prepared to pay. The offer or ask, is the amount the seller is asking for his stock. A trade takes place when the buyer and the seller agree on price.

Reading the bid and offer information is basic to understanding the current state of the market for the security you are trading. It is available from many Internet providers and also from your broker. It is very useful because it gives us immediate clues about the enthusiasm of the market.

Sample current bid and offer screens like CPUN shown in figure 1 show an active market. The buyer's bid is the same as the last traded price, and the ask is only a few cents above it. Six buyers chase a single seller. Already prices are up $1.10 on yesterdays close as the buying pressure builds. If we were to chart this activity, it would look like the single bar shown on the left of the illustration.

Contrast this with PTPD, figure 2, where five sellers are offering stock at the same price as the last trade, but the single buyer will only pay $2.00 below the last traded price. The spread between the bid and ask is two dollars on a stock that has already fallen five dollars from the previous close. Selling pressure will drive this stock down. The sample bar for this price activity is on the left.

This basic reading of the first level screen delivers information that can change our trading tactics for the day. If we hold stock it is a good day to sell CPUN as prices move towards our sell point. As a buyer we can wait for PTPD because with so many sellers the price will continue to fall. On the other side of the transaction, if we want CPUN stock then we should consider getting ahead of the crowd and paying $16.30. As a seller of PTPD we need to meet the bid to protect a stop loss position.

This is a snapshot of the emotional balance of the market at this single point in time. It can be misleading as the battle between those closest to the last traded price might not necessarily be representative of the overall campaign.

What is particularly useful is not just the number of buyers and sellers at the level nearest to the last traded price, but the number of buyers and sellers and levels below and above the last traded price.

These two examples tell us more than just how much we would have to pay to trade either of these stocks. We could meet the offer in each example, but the consequences would be different. From a trading perspective this helps us to fine tune our entry, or exit positions. When volume and spread information is available, we have an even more powerful tactical weapon.

In many markets the second level information is limited by exchange regulation. Order volume data is consolidated, and the displayed spread may be limited to just a few ticks above and below the last traded price. This helps to verify our trading strategy as well as suggesting specific trading tactics appropriate for the day.

Using this information, shown in figure 3, poses three challenges for the trader chasing the best possible entry and exit prices. The first of these is a spread limit placed on orders above and below the close of the previous session. Although this gives a glimpse of market depth, we are still in the shallows. Traders must monitor the close of the previous session and only if their intended entry or exit price falls within the permitted spread, can they place the order.

The second limitation in some markets is the requirement that most unexecuted orders be re-keyed into the system at the end of each trading session. The exceptions to this is are usually Good Until Done, or Day, orders. To make the best use of this screen information, the trader must monitor the market carefully to catch stocks as they fall to desired levels or to sell as they approach profit targets.

The third limitation makes private and institutional trading much more difficult. Total order lots are combined at each bid-and-ask level and this makes it difficult to see where your order is within the order line. This is made more complex when orders are randomised at the beginning of each trading session, such as in Malaysia. Orders entered before the beginning of trade are randomised as soon as trading opens. Your order may finish at the front of the line or at the very end of the line. You cannot tell, and this makes it difficult to decide if you should hang out for your buy or sell price, or if the bid should be changed to meet the current traded price.

Even within these limitations, figure 3 is particularly useful, giving more information than the summary of the same stock shown in figure 2.

First we see the consolidated depth of buying or selling at these levels. This confirms the downward selling pressure as 152,500 shares are being offered, but buyers only want 49,000, and even then at very low prices. We cannot tell if the orders at each level are a single order, multiple orders, or a mass of very small orders.

But we can make some inferences. First, as a seller, we know that buyers can afford to wait . With 152,500 on offer who needs to bid up to get stock? If we were considering selling at 27 we do know that our order goes at the end of the 64,000 already in place. In a falling market we are unlikely to be filled.

By placing a sell order at 26, 25 or 24 we can assure our place at the head of the order line. If a buyer is enticed to bid higher, then our order is filled first. Although we know from the first level of market information just how many orders are in the line at each level, we do not know the size of each order. Had the 64,000 shares on offer at 27 been an average of 12,800 spread over five sellers, then we may have been happy to tack our sell order on the end of the line at 27. If the head of the line was dominated by a single sell order of 60,000, with four smaller orders of 1,000, then our approach would be different.

Even with consolidated order information, our strategic exit can take advantage of this tactical information in a way that is not possible with a bid and offer screen.

By placing an order after the open of trade the trader can infer his positioning in the line. As soon as trade opens, he places his order immediately behind the existing orders for 64,000. This way he knows that as soon as 64,000 are traded, that his order is the next to be filled. This is the only way a Limit Order can be tracked on this type of trading screen. Traders must remember that some orders may be withdrawn before they are filled, so his order may be filled sooner than he expects.

This consolidated order stream can be used to validate chart analysis. We look at this below, using full depth of market information, but the methods are also applicable to more limited screens.

In some markets, such as the Australian Stock Exchange Automated Trading System (SEATS), traders have access to full depth of market information. This is the third level. Here the spread is not limited by an arbitrary number above and below the last traded price and additionally, the details of individual orders are available. This includes both order size, and position in the order line. This delivers some very important advantages and even though it may not be available in your market and understanding of how to read the full tape will improve your ability to read tapes with less information.

These tactics improve position trading because although bid information about PTPD is useful, but what is below and above the current bid and ask? Are these orders a temporary phenomena, or are they indicative of a wider selling campaign? Full depth of market information prevents us buying at $25 when the next buyer is at $23 or less. Now we fine tune our trading - and also to occasionally outsmart ourselves.

The full depth of market information is shown for CPUN in figure 4. It is provided by some Internet services on a snapshot, or real time basis. Some brokerages provide clients with this access in real time updated screens or they will read the details to you over the phone.

Depth of market information lists the number, the size and position of orders in line at each level. The buy orders closest to the Buy column are the first orders in line at each level and will be executed in this exact sequence. Orders remain in place until filled or withdrawn. Sell orders closest to the sell column are the first executed.

This information represents only the potential for price action because not all these orders will be filled during the day. As prices move in one direction or another, the gaps in price levels, such as $15.70 may be filled with new orders. During the day the number of orders at any level may swell as people join the rush. They also fall away as traders cancel their market orders, placing them at new levels, or leave the market entirely.

This is a snapshot from a live screen so what you see here is not what you will see in one hour's time, or in two day's time. But these figures provide a remarkably useful guide for trading activity, and they support chart analysis in some very interesting ways.

Many traders and investors use standing, or good till cancelled, orders and this gives a specific characteristic to markets where these data is available. Orders at specific price levels are lodged early and remain in place for extended periods. Unless instructed otherwise, many brokers leave orders in place for three days before they automatically expire. These semi-permanent orders provide an outline of the structure of the .

Already we know the tactical value of details of the buyers and sellers and later the consolidated order volume. When we can see individual orders at an increased depth then full tactical trading is available.

Traders looking to buy CPUN draw seven conclusions from figure 5.3.

a) There are consistently large orders at every level below $16.20 down to $15.56.

b) Some of these buyers are certain to become fearful and move their bid prices up towards the last traded price. This will swell the buying orders at higher levels.

c) Only a few price slots - $15.70, $15.60 and $15.30 - do not have buy orders. An order placed in either of these gaps would be first in line and first filled if prices fell to this level.

d) Placing a new order at $16.10, or $15.90, puts us second in line. This is only useful should prices fall to this level.

e) To get to the front of any line we need to meet the ask at $16.30.

f) If we want more than 3,000 shares then we may have to bid to $16.40 or higher to get our entire order filled.

g) The selling activity at $17.20 comes from many small orders. This suggests small traders rather than institutions. The larger order size on the buying side suggests large traders and experienced market participants. This conclusion is based on the assumption that size tends to equal experience.

Let's take a closer look at how this works to give traders an advantage. Assume the first buyer in line at $16.20 desperately wants 250,000 shares. Perhaps 250,000 rounds out his existing portfolio, or it may represent a dollar value he is prepared to commit to the market. If this is the case then the size of his order, 250,000 shares, will decrease as the price increases.

To fill his order in this market on current figures he must pay at least $16.40. hoping new sellers will be attracted by the higher bid. A more likely outcome is he will take out the existing sell orders between $16.30 and $16.80, including some orders at $17.10 to ensure he gets the number of shares he wants. His alternative is to wait until more sellers come into the market at $16.00. An unlikely event in a rising market.

What will this buyer do? He must bid up or run the risk of missing out entirely. When we compare today's depth of market information with yesterday's it is quite common to see the same orders move up the bidding scale over several days.

Sellers and potential sellers watch this action and use it to fine tune their tactics.

Traders chasing this stock and looking to enter a new buy order will meet the ask at $16.30 knowing three things:

a) The large buying orders at $16.20 provide a floor for prices, making his purchase safer.

b) By meeting the ask he goes straight to the head of the line and gets a position in the stock.

c) Prices have already risen by $1.10 (Figure 1), and the large orders, if they are to be filled, will push the bidding higher.

If every other analytical charting tool screams buy at $16.10 this depth of market information tells us it is unlikely we will get stock at this price. We need to chase the price perhaps as far as $16.50. Good money management will tell us if we can afford to do this.

Traders looking to sell existing CPUN stock have the opportunity to get a better exit. As prices move up sellers back away, lifting their asking prices a few ticks above the current trade. A simple spread and consolidated order screen gives this information, but the full depth screen shows how the order flow blocks further price rises at $17.20. A sell order at $17.15 is first in line and this screen allows the trader to place this order early to ensure his place and enhance the probability of being filled.

Depth of market information allows the position trader to see how best to implement his trading decision on the day. Adventurous traders can ‘surf’ buying or selling pressure. This is not day trading as the intention is to make best use of the information available on the day to execute a trading decision based on end of day chart analysis. In many cases, this depth of market, or even the consolidated order flow, verifies chart analysis.

Depth of market information provides valuable tactical intelligence, but just as importantly, it provides a way to validate chart analysis. The core of our stop loss strategy is that the stops ought to co-incide with logical chart support levels. These are validated using actual buy and sell order behaviour.

Validation is a three step process, starting with basic chart analysis. The chart of extract of market figures for CPUN (Figure 6 below) shows two clear features: Good support at $16.00 and substantial resistance at $17.20. In setting potential profit targets and stop loss points, we invariably return to support and resistance levels in one form or another.

The second step in validating this chart analysis is to look at the depth of market. This comes with some fine print which we consider later. This validation is possible where unexecuted orders remain in place across multiple trading sessions.

Order flow is unevenly distributed as shown in figure 4 and confirmed by the histogram in figure 6. Some price levels have more individual orders, or order volume than others. These order bulges tend to co-incide with the support levels identified on the CPUN chart. The first major buying bulge in the depth of market buy figures is at $16.00 - exactly where we see support on the bar chart. A large wave of selling orders is in place at $17.20, again, co-inciding with the resistance level on the chart. This validates our chart understanding, and the placement of the support lines on the bar chart.

This example has been chosen for its clarity, but it is quite typical of the relationship that consistently exists between chart points and order data. It is a correlation repeated frequently across the market and it consistently provides the trader with important confirming evidence.

Some data providers provide a histogram of orders, and figure 6 shows how this makes it easy to identify the support and resistance levels. This style of information shows consolidated orders at each level. For those with access to information limited by a spread limit, this still helps to identify and validate major chart points.

For the trader who had already taken a position in CPUN and based his stop loss on the support level at $16.00, this depth of market information confirms his risk control strategy. If prices do fall to this level, then the number of buyers gives the trader a better chance of making an exit at his preferred stop loss level. This is as close to safety in the market as the trader gets.

The information delivered by the depth of market screen thins out on the upper side. We do see the resistance level confirmed by a rash of sell orders, but these are less permanent than buy orders. When people become sellers rather than buyers they take a different approach to value. What we buy today for $16.00 we will not sell tomorrow for $16.00. We buy in expectation of profit so we add a margin for this to the future resale price. This is reasonable, but we become unreasonable as the price increases, holding out for a higher price.

This means the resistance levels indicated on the depth of market information are much more fluid than the support levels. Greed keeps moving the bar upwards, and although we can say that resistance is a real force in the market, it is not always as easily verified by market action based on advance sell orders. It is verified by many sell orders placed on the day. Position traders unwinding positions should take the time to read market depth to improve their exit tactics.

Every screen, even live screens, represents a snapshot of market emotions at a particular point in time. Markets change, and sometimes they change rapidly. Orders can be withdrawn, or re-entered at higher or lower prices. This is the dynamic of the market, jumping onto the bull and off the bear. Intra-day traders use real-time depth of market information to initiate the trading process.

Position traders are less active in the market, making their initial trading decision after the market closes and after the end of day data has been collected. Position traders turn to depth of market information to confirm chart analysis, or to fine tune an entry or exit. When we use this information it is at the end of the process.

From all this daily, hourly and by-the-minute froth and bubble in the market, certain points of ongoing stability emerge. Frequently they coincide with major points established by chart analysis. When depth of market information does so, it acts as additional confirmation. When it does not support chart analysis, then the charts may need to be re-examined. In the trading world, the market rules. When depth of market is used as a confirming indicator it provides a valuable adjunct to trading decisions.

Just as learning to read a bar chart is a most valuable skill, learning to read depth of market information pays trading dividends. Depth of market gives us a glimpse of future intentions so we have the opportunity to match financial targets with market reality.

Having access to depth of market information at any of these levels does not make you a better trader. It delivers a new set of tools which give you the potential to improve the execution of your trading strategies at a tactical level. They are tools which match the reality of the market with the lines plotted on chart action. These are fine tools for position traders and essential tools for day traders. Learning to read the detailed tape, not just the course of trades, takes the trader many steps beyond Jesse Livermore and into the world of modern trading. When we learn to listen to the screen and use the information available we improve our tactical trading decisions.

Isn’t all this information a disadvantage? Some traders unfamiliar with full depth of market information see it as a disadvantage because they fear others will be able to see their intentions in the market. Accustomed to trading with one hand tied behind their back, they answer ‘yes’.

The better answer is an emphatic "No". Access to depth of market information ensures a transparency in the market. This is a powerful antidote to market manipulation and inside trading as the veil of secrecy is removed.

Few traders are big enough to dominate the market. While others may be able to ‘see’ their intentions, everyone has the same opportunity to adapt their tactics to suit the market conditions on the day. For the private trader it helps to avoid being squashed or squeezed when institutional trading activity overwhelms a market. Victory goes to those who combine this information with superior analysis. As a trader I do not have a problem with this.

Market information removes guesswork. The work done on chart analysis is undone when we cannot validate this with market data. With limited market information, the trader must take aim at his target in the dark. We all shoot more accurately with the lights on.

To suggest that this information should only be available to market makers is to condone a situation where we make trades based on ignorance and incomplete information. It entrenches disadvantage, aids manipulation, and puts us at the mercy of brokers. Just think of the trading practices and irritations that disappear when full depth of market information is available to the trader. These disappearing irritations include:

* Bad fills, even when the NASDAQ screen tells you stock was available at your price.

* Unables - being able to see the order flow lets you know how hard your broker is working for you.

* Slippage is part of trading life, but accurate order placement into a known order line reduces this problem.

* Poor trade execution. Brokers errors happen and you can see them before they cost you money.