Tape Reading

Tape Reading

• "trading technique is only capability through research, observation and experience, to recognize signals in each of several stages of market movement."
- George Douglas Taylor
Tape reading has long been referred to the practice of studying old-fashioned ticker tape and monitoring of prices, output, and fluctuations in order to predict the immediate trend. (! That does not mean you have to have the ability to read the prices are moving across the bottom of the screen on CNBC) Tape reading is nothing more than following the current price action and asks: Is the price goes up or down now? It has nothing to do with technical analysis and what to do with keeping an open mind.
Even the most novice observer has the ability to see that prices are moving higher or lower in any particular moment or for that matter, when prices seem to be going nowhere or sideways. (Markets do not always have to go somewhere!) It's also quite easy to see the price goes up, then say when it stops going up - even if it shows only a momentary pause.
I've known hundreds of professional traders in the course of my career. I do not want to disappoint you, but I know of only two that can make a steady living for themselves with a mechanical system. (I'm not counting the well-capitalized CTA's who are running money-management program with "OPM" -. other people's money) All those other traders use some type of discretion is always involved watching the price action at some point - even if only to finally move up or down.
If you can learn to follow the price action, it will be two steps ahead of the game, because price is faster than any derivative. You may have heard the saying, "truth is just the current price." Your job as a trader will become ten times easier once you accept this. This means ignoring the news, views, and personal prejudices.
Looking at price action can actually be very confusing if you go about it like a ship without her sails in an ocean squall. You'll get tossed back and forth with no sense of direction and sense of purpose. There are two main tricks for monitoring price action. The first is to see the price in relation to another This is why many traders use a "pivot point" reference point. "- And it works! It's the easiest way to tell if the market moves closer to or farther from a given point. This is also why it is often easier to get a" feel "the market will once again put the position - your "reference" point tends to be your entry price.
Some reference points, such as a swing high or opening price of the day, there will be more important than those points which include some sort of calculation. (Some numbers may have special significance for those who calculate, and who am I to argue whether they work.) I want to concentrate on the pivot points that the entire market can be seen. To summarize so far, when watching price, we want to know the following: how fast, how far and in which direction. It takes two points to measure these things. There will always be the current price and the other pivot point.
The second main trick to monitoring price action to see the market response to a particular situation ... In other words, predicting specific behavior. For example, if the market is at a very low volatility point and just started breaking out on a particular trading range, we can predict that the price will start to accelerate in an impulsive manner and will not run into immediate resistance. Or, play direction, if the price moves in an impulsive manner in trending market and then stops to catch its breath on mild reaction one would expect then proceed in the direction of this trend. When there is a certain behavior to be predicted, it is easier to see the price to see if it acts according to one's expectations.
Is the market failed to break the bad news? Is finding support after a series of progress? Does it run in an invisible wall and overhead sharply back off, which means strong resistance? Here are the answers to certain market conditions. Tape reading is like playing tennis game and watch to see how your opponent hits the ball back.
Part of studying price behavior and gaining experience as a trader gradually learning what actions to predict. Then you must learn what the likely market response or outcome should be. It will always be easier to predict an event or reaction that occurs at 70% of the time, rather than looking for what is going on only 30% of the time.
However, it can also be a profitable strategy to recognize when a given signal or response is not expected. Sometimes the failed signal can be more profitable than the normal expected response. For example, the classic response could be a scenario where the price is consolidating in a pattern of higher highs and lower lows - classic triangle pattern. One would expect a breakout from makeup table to have some follow through. However, if the price falls only penetrates a small amount and then turns up, picking up volume and momentum as it goes and comes from the head, a very important turning point probably occurred and may have cost more upfront to unfold.
One last trick to watching price action is to learn to think in terms of "handles" or levels. Think of S & P as reaching for "1110" to handle, or "low in 1060" as a level. Every ten points defined level. Use a big round numbers as reference points for levels. That does not mean that you are placing orders at those numbers. It's just a simple way of organizing data that professional traders practice subconsciously.