Lesson 4: Advanced use of Time & Sale
Graphical charts (i.e. bar and candlestick charts) are the most popular method of
watching and analyzing a market. Graphical charts provide a variety of trading
information (e.g. recent highs, recent lows, the last traded price, etc.), and are
perfect for providing an overview of a market. However, some trading styles (notably
some forms of scalping) require more detailed information about a market, and this is
where the time and sales become useful.
A real-time data feed of trade orders for security. Time and sales, or T&S, shows
volume, price, direction, and date/time for each trade.
Definition of the Time and Sales
The time and sales are the most detailed display of a market's trading information.
The time and sales show every trade that occurs, in real time, and provides a variety
of information about each trade (e.g. the exact time, the direction, the number of
contracts that were traded, etc.). Where graphical charts are used to provide an
overview of a market's price movement, the time and sales are used to view every
detail of a market's price movement, and therefore the two methods are often
complementary to each other.
Explanation of the Time and Sales
The time and sales include every trade that occurs for a market, and provides a
variety of information about each trade:
Date and Time - The date and exact time that the trade occurred
Direction - Whether the trade was a buying trade or a selling trade
Price - The price at which the trade occurred
Volume or Size - The number of contracts (or shares, etc.) that were traded
Some time and sales displays also include additional information such as the current
bid and ask prices, the order book (or level two information), the cumulative volume,
etc., but this additional information is not technically part of the time and sales.
Understanding the Direction of a Trade
The direction element of the time and sales are often the cause of much confusion
for new traders.
The reason for this confusion is that every trade must consist of both a buyer and a
seller (otherwise there would not be a trade), and if there are both a buyer and a
seller, how can a trade be classified as either buying or selling?
The answer is that the direction of a trade is decided based on how it affects the
current market price. If a trade helps the market price to move up, then the trade is
classified as a buying trade. Conversely, if a trade helps the market price to move
down, then the trade is classified as a selling trade.
Trading Using the Time and Sales
The time and sales can be used by traders of any time frame, but it is primarily used
by very short-term traders, such as some scalpers. Some traders use the time and
sales on its own (i.e. all of their trading decisions are made using only the time and
sales), while other traders use the time and sales in combination with graphical
charts, or the depth of market (i.e. level two market data).
Investors follow a number of different strategies and tools when deciding which
stocks to buy and sell. Those using fundamental analysis attempt to determine the
intrinsic value of a share by examining a company’s financials, while investors using
technical analysis attempt to forecast prices by plugging price movements and
trading volume into statistical models. One technical analysis technique used by
investors is analyzing time and sales data.
Time and sales is a detailed account of trading activity for a particular security. For a
historical perspective, time and sales is akin to reading ticker tape for an individual
stock. It is a real-time display of the share volume, price, direction, and date/time for
each trade, and is used in technical analysis. For example, time and sales data
would indicate that a buy order for 76 shares of XYZ stock was made on the
NASDAQ at 12:31:54 for $65.84.
Using time and sales data is a different technique, but often complementary, to using
charts and graphs to estimate share price movement. For example, bar charts and
candlestick charts show trading ranges for a given period of time in aggregate, and
are used to see handle, double bottom, and Hikkake patterns. This provides a broad
view of price and volume trends. When coupled with the more granular trade
information from time and sales, the investor is able to create a more detailed picture
of what is happening.
Time and sales data is most frequently accessed via a trading platform and is
displayed in the time and sales window. The window displays a running tally of
trades for shares of a particular stock in a table format. Each of the primary
components of time and sales – date/time, price, volume, direction – are arrayed in
columns. The rows of data are often color-coded in order to indicate whether the
trade occurred on, in, or outside the bid or ask. Many trading platforms allow
investors to customize the way time and sales data is displayed, for example, adding
volume or price filters.
Investors can use time and sales data to determine whether to execute a trade of
their own. Because data is in real-time, the number of data updates can catch novice
investors off guard. One initial strategy is to watch the direction, volume, and price
for a short period of time in order to get a feel for things. At this point the investor can
look for several different cues, including spikes in volume or a significant change in
the number of trades. Using a time and sales data approach is likely to be the most
successful with stocks that have strong volume.