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.