August 4, 2010
Tape Reading Day Trading Scalping Crude Oil Gold Euro Russell E-Mini Futures Schooloftrade.com
Hi guys!
Have you learned to read the tape yet?
It’s easily one of the most important skills any trader can master, and I wanted to share some tips and tricks with you about how you can easily learn to read the tape.
• What is it?
• Tape Reading is the study of raw price action as it comes across your time & sales window, and is considered by most to be the ‘purest form of the market.’
• The term tape comes from ticker tape; print out by the ticker tape machines available since 1870s which reports the latest trade/bid/ask update information.
• How is it used?
• Predict short term price changes by examining price and volume information as it comes across the ticker tape.
• Most effectively used at potential turning points in the market to gauge overall market sentiment and help determine the future direction of price.
• Traders use this to see confirmation of a potential trade set-up, or a heads-up that a set-up should be avoided.
• Also used as an indicator of when momentum has dried up, signaling a trader to take profits or to limit his/her risk on a position.
• Benefit to the trader:
• Filter out the highest percentage set-ups
• Confidence in your entries
• Know when to exit a trade
• Maximize profits on each trade
• Limit the risk on each trade
• What to watch:
• Speed of the orders
• Size of the orders
• Order Condition
• Pace of the Tape Indicator / Patterns
• Learning to read the tape is a vital part to becoming a successful trader in the long term, and understanding how to learn this skill can be difficult if you don’t know what to look for.
3 Steps to Tape Reading Success!
• Step #1: Find a Price Level
• Step #2: Watch for Patterns
• Step #3: Execute w/ Confidence!
Today we covered step #1, and we will finish our 3-part series with parts 2 and 3 in the coming days.
Step #1: Find a Price Level
• Find a Price Level
– price level for the market you are trading
– most common pivot points for this would be the open, high or low of day, and previous close levels
– If we see that price action shows bullish patterns around the high of day, that will tell us we should expect to see the market try to rally through the highs of the day.
• In other words, this tells us the overall market sentiment at these levels.
• Reaction to Price Moves
– Successful traders always trade the reaction, rather than the move
– the experienced trader pays close attention to how the tape reacts to moves around important levels.
– the trader can get a better feel for the sentiment in the market Using simple price patterns at these important levels
• Conviction in the market
– Are buyers met with equal amount of sellers?
– Are the sellers having a hard time keeping up with the buy orders?
– Is price forcefully moving through levels of support or resistance?
– Is price flirting with support and resistance levels, only to be swatted back and forth like a paper napkin?
– Price patterns on the tape solidify conviction in the market and give the trader more confidence getting involved with the current short-term trend.
– On the opposite side, conviction on the tape can also give the trader an indication that the current move has ended, and they need to be prepared to see a potential reversal
(click these to enlarge)
Let’s recap what we’ve learned about tape reading today….
• I use the Auto-Levels Indicator we provide our members to locate these levels easily
• HOD / LOD will be the best levels for every type of trader b/c the most people watch them
• Watch price action around these important levels
• Looking for a reaction to this price level, and signs of market sentiment
• Look for conviction to know when to enter
– Lack of conviction will be a clear sign to avoid the trade.
What’s coming up next?
… in our next video will cover more important information on tape reading strategies…
• Step 2: Looking for Patterns
– Identify some simple patterns on the time and sales window
– Show you how to use these patterns to identify what will happen next
– Simple technique you can use to practice your tape reading skills.
