Tape Reading Day Trading Strategy

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.

I use tape reading to predict short term price changes by examining the price and volume information as it comes across the time and sales window.  The most effective way to read the tape is to use this strategy around potential turning points in the market.  I use my tape reading to confirm my order entries, as well as when to sit on my hands and skip a trade.  Tape reading will also tell me when a market move is coming to an end so I can look to take profit.
There are many benefits of tape reading that you will see right away.  First, you will filter out the highest percentage trading opportunities when you read the tape properly.  You will have more confidence in your entries, know when to avoid a trade, and when to take profit when you read the tape.

Learning to read the tape is easy, here’s what to use.  First, you need a live data connection (beware the use of filtered-data from some of the larger brokers such as IB) and open up a time and sales window.  I will give you the specific settings to use on your ‘tape’ when you work with me as a client.  Once you have your time and sales window open, then you are looking at three main aspects, speed, size, and condition.

First, how is the speed of the orders? Are they fast, slow, that is a big clue.  How large or small are the orders?  100 contracts on the tape is coming from a different type of trader than a 5-contract on the tape, so we look for clues to where the BIG MONEY is coming into the market looking at the size of the orders.  And finally, we need to know the condition, buy or sell, above or below the bid/ask, etc.  I will teach you how to read the tape more effectively watching for these three aspects.
In today’s lesson we review a simple technique for learning how to read the tape effectively.  This technique will train you how to be ready to read the tape, and we then execute this skill along with our trading plan every day when we trade in our live trade room.