Tape Reading

mahavishnu: You said "I'm more of a tape reader than chart setup trader"

I do not know what tape reading is but I am guessing that it deserves its own thread so I have started this one in the hope that you will enlighten me.

Enlighten? I'm not capable of doing that. But this might explain it in basic terms and it applies to futures.

http://www.hardrightedge.com/wizard/rt1.htm

I learned watching over the shoulder of a professional for a year. He has since retired from trading.

If you're having success with chart pattern recognition or other methods, I advise staying the course until those setups stop working.

Hope that helps.

Check these out also.
http://www.traderslog.com/tape-reading.htm
http://www.traders.com/Documentation/FEEDbk_docs/Archive/0597/Abstracts0597/0597Smith.html

There are also many books written about the subject although I can't recommend any in particular.

Those links are all very well but they don't explain how you can use "tape reading" to trade. The definitions are all superficial and abstract. For example from one of your links:

"Trading technique is simply the ability, through study, observation, and experience, to recognize the signals in each of the several phases of market movement." - George Douglas Taylor

Can you give me an example of how you apply tape reading to your trading?

I look at the size of contract lots sold or bought at bid or ask in conjunction with the price movements to help determine if the sellers or buyers are staying in control or if the balance of power is shifting. For example, if the price has been going steadily down and now large lots are being absorbed with little or no change in the bid (i.e. the buyers are replenishing and taking it all in), I might step in and buy or vice versa.

You really need to see it happening in realtime to get a better understanding of the dynamics. This is why its hard to explain unlike a chart pattern which sets up with more advanced notice. After the fact, that is to say in hindsight, you can point to the chart and see the "setup" but not before. Hope this helps. It's the best I can do without you seeing it happen live.

I understand what you are saying but struggle to believe that it gives you an edge. This is the premise of the Market Delta software and the vendor of this software has never been able to demonstrate any strategies that work with this idea that provide a positive return.

I have seen this happen in realtime as well and made some notes on it. I have not found this technique to be predictive in any manner. I have not been able to get this back tested but from the notes that I have made I see that the market can go in either direction with this type of action.

What market are you trading that this works in?

And you call this tape reading? This is not a criticism it is just that I did not know that this is what tape reading was.

I am trading ES and yes, to me this is tape reading. It's not an exact science. In fact, trading is not an exact science regardless of the methods deployed. If it were, all traders who learned about the scientific methods would be winners.

An edge? I can't say. To me, the important thing is an upward sloping equity curve, which I'm happy to say I currently enjoy.

How many weeks, months, years did it take you to become a winning trader? And did you start tape reading from the beginning or learn it later?

I don't recall the exact amount of time but there was a long learning process which was painful and expensive. Many times I contemplated quitting. I, like many people, thought trading would be easy; nothing could be further from the truth.

I learned tape reading (time and sales print) about 3 years ago. Had I not done that, I would have left the business.

Today, a very high probability trade was setting up at the 1452.00 level. This price proved to be a barrier for the bulls (and a fortress for the bears) from approximately 1:30 to 2:45 p.m. This was also a period of fairly low volatility and for lack of better words, consolidation.

I observed the expansion of volume after 2:45 and immediately after 1452.25 was pierced, the price ran to 1455.00 in less than a minute on this mini breakout on large volume. Watching the price and volume action would have alerted the student of tape reading to buy at 1452.25-1452.50 for a quick 2+ point profit.

For tape readers, this was a classic setup with instant gratification.

Originally posted by wldr316

i would like to learn how to tape read, but I don't want a book. is there anyone who could point me in the right direction

In the past few years "tape reading" has evolved into the field of study called "Order Flow Analysis" so that is where you will want to start your research of the topic. A new cottage industry of trading educators has sprouted up to support traders wanting to learn and use this technique.

I have studied the topic for several years myself, there is a lot we can learn from order flow analysis. By itself order flow is not a complete solution for trading, it can be a helpful way of looking at market behavior but is only going to be helpful on a consistent or repeatable basis if viewed in the context of the established and developing price structure.

Here is a good starting introduction and overview of the key order flow concepts... Peter Davies is one of the leaders in developing order flow concepts and advanced OF tools...

part 1:

part 2:

part 3: