Chapter 5-3 Recognizing Crowd

What is a crowd buyer or crowd seller?

The answer of what a crowd buyer/seller is has changed since the dawn of the hybrid market.  In this age, crowd is simply anyone that is larger than is appearing on the time and sales.  Crowd can now appear on ECNs (such as ARCA, NASD, ADFN, etc.) as well as the typical NYSE limit book.  Just like with all buyers and sellers, a crowd buyer always appears on the bid and a crowd seller always appears on the offer.

How do you know where there is crowd?

When the time and sales (also known as the tape) is showing and/or printing more size than is present on the limit book and/or ECNs found in the Level 2 window.

How do you know when it is gone?

When the stock moves to a new price above/below the price where the crowd was previously present and prints occur at the new price without signs of crowd at the new price.

Example: Crowd seller is at $30.39 for 1,000 shares and after many shares are sold $30.39 the stock prints $30.40.

Different ways crowd can appear on the tape:

  • Crowd can show a “1″ on the bid or ask and continuously print size on the bid or ask (whichever it is on) while the price remains the same.
  • Crowd can show any size, such as a “17” (indicating 1,700 shares) and continuously print size on the bid or ask (whichever it is on) while the price and size remains the same.
  • Crowd can also show very large size, such as a “500” (indicating 50,000 shares).  However, be weary of larger sized crowd because it is common for large size to disappear.  Remember, the whole point of hiding your whole order is to not scare price activity away from your order.  Therefore, if you are willing showing a large crowd order you are most likely bluffing in an attempt to scare price activity away.

In all cases you must be careful when trading against or with crowd, because you do not know how big the crowd actually is and therefore do not know exactly when it will be gone.

You will typically find crowd at key prices, such as at support and resistance levels, moving averages, and/or trendlines.