For example, if there are a lot of buy orders in the tape, ask yourself the cause. It could be that the company released weak earnings or that the company is making an acquisition. The next important step when your read the tape is to reduce the noise.
- In this course, students will also be exposed to novel tape reading concepts not taught anywhere else!
- These insights can prove extremely helpful when developing modern trading algorithms.
- When we go long a stock, we want to see many orders being executed at ask.
- If you do this, you will find a reason to put on bad trades in the heat of the moment.
Let’s kick things off with a short introduction to what is tape reading, how to read tape trading, and then conclude by teaching you a very useful tape reading trading strategy. Many famous traders made a name for themselves by tape reading, including Jesse Livermore who pioneered momentum trading. Several books were also published about tape reading, including Tape Reading and Market Tactics and Reminiscences of a Stock Operator. Many terms also remain in common use since then, including ticker symbol, stock ticker, and phrases like “don’t fight the tape” (meaning don’t trade against the trend). There is trading high volume, and then there is trading extremely high volume. I try and stay away from stocks that trade, for example, 30 or 40 million shares as the message of their tapes can be a bit confusing at times if you are a beginner.
Mastering Tape Reading
Because most times you will have trouble getting out of a stock with a large spread using limit orders and this can turn a small loss into a big one quite quickly. Secondly, it tells me that there is not that much interest in the stock. If there was, the spreads would narrow, and both sides would come as close as possible. This is probably the most difficult part of the trade for most traders. Tape reading helps me get out of the trade by looking for imbalances. When I see a stock moving sharply in one direction, I will immediately look to the tape to offer clues as to when the brake pads will be applied.
- Tape reading is also known as the “time and sales,” (or Level II) is the oldest trading strategy used to analyze the price and volume of stocks.
- Tape reading day trading is a big part of his decision-making process.
- Reading the tape can be extremely helpful if you are a day trader looking to catch short-term moves.
- This the most important indicator used by the best active traders to trade profitably.
- Investors use it to analyse all types of assets, including stocks, bonds, currencies, and commodities.
Click To TweetWe can view tape reading as one of the most effective indicators for active day traders. At the same time, applying technical analysis will help you to identify key levels. In addition, combining time and sales with other tools like level 2, order flow distribution, and large scale distribution will help you make better decisions. As mentioned above, reading the tape is a relatively old technique that looks at the flow of volume in a specific time of the day. Today, the modern approach involves using a tool that is known as time and sales, which is offered by most brokers like WeBull and Day Trade the World (DTTW). Another tape reading strategy used by Jesse Livermore was to trade stocks that have broken out from a range trading pattern.
Fast Action Bonuses
A written summary is provided on each video highlighting what you will learn and where with each video. However, tape reading was only a part of his overall best trading strategy. Ticker tapes were invented in 1867 by Edward A. Calahan for the Gold and Stock Telegraph Company. Thomas Edison developed the first practical stock ticker in 1871 that helped the market became more efficient.
Tape reading involves both; and if used correctly, dramatically increases the odds of your trading working out. It does so because your goal with tape reading is to follow the money. There is a very high degree of financial risk and loss involved in trading securities. You understand and acknowledge the existence of this risk and also that YOU ALONE ARE RESPONSIBLE FOR YOUR OWN TRADING AND INVESTMENT DECISIONS AND RESULTS. The materials presented and discussed in this online course are for educational purposes only; nothing contained therein should be construed as investment advice.
Your Training as a Tape Reader Will Help You:
If it does not, you may be involved in a trap that was made to get the weak traders out and then take the stock in the opposite direction. The speed of the orders is another key component to the message that the tape is giving you. Typically, when stocks breakout through support or resistance levels, not only will the size of the orders go higher but you will see the tape start to speed up. This gives you an indication that there is an interest in this stock at this level and that the interest is larger than a couple of small traders buying or selling.
One of the biggest mistakes that I see many traders making is that they get attached to their positions. To appease their ego’s, they tend to take a trade and stick with it until they are right. Remember, day trading is an extremely fast game, and if you do not react with speed, you will be left in the dust. When you make a decision based on that tape action and the stock does not go in your favor relatively quickly, the odds are that you are in a bad trade. I am a very big believer that there are two truths in trading stocks.
Trade Volume Index (TVI) – Technical Indicator
You may see 14 orders come through at bid with large sizes, but that may not mean as much as if the stock was trading less volume. If your stock trades gigantic volume, you should expect a different kind of tape action. From my experience in day trading over the last few years, my most valuable tool became the time and sales window, aka. The “Tape.” The time and sales window shows the detailed trader information regarding the order flow for a particular security. The time and sales window provide details on each of the trades that have gone through for that security, such as Time of Trade, Price, Size of order, and condition of order. Depending on the trading platform, you will have other data points available to you.
How to Cut Losses and Become a Profitable Day Trader
At Wyckoff Analytics, David co-taught Tape Reading With the Wyckoff Method and presented at the Best of Wyckoff Online Conferences in 2017, 2018 and 2020. Knowledgeable tape readers could “see” buying and selling pressures created by large market operators and predict where prices were headed and when. With electronic bar charts, traders today have more sophisticated tools to visualize and exploit order flow, but the basic thrust is still the same. Learn the tape reading trading strategy used by Jesse Livermore, one of the world’s greatest stock traders. Tape reading is crucial for anyone who wants to fully understand the market.