Reading the Tape?

[techy]

Hi,
Reading through Mike Bellafiore's book 'One Good Trade' he covers one chapter on the importance of tape reading. However, what I'm particularly interested in is how many people in this forum, of whom trade of course, actually use this approach in becoming profitable.

Of those that use it, how helpful is tape reading and can anyone learn it as he says "Its very simple in making consistent profits by reading the tape".

Thanks.

 

[DionysusToast]

Well - Tape Reading can mean different things to different people.

Way back in the days of old, it meant reading the ticker tape, now it's most often referred to in reading Time & Sales.

In Prop shops (which is what the book is about), they are usually focused more on overall order flow.

Without having read the book - it's hard to know what the author was referring to - can you expand on it?

 

[techy]

Hi, thanks for your comment.

In prop firms, as they focus on intraday moves he said that they use Tape readings in order to predict the movement of the day (rising/falling) based upon strength on certain buying and selling moves repeatedly made from the market.

 

[Mr O]

Nothing hard about 'tape reading' You just have to watch to see how price reacts in your market to various sizes that trade. A basic example would be say 1400 is the high of the day on ES on a range bound day. If you see the market tick through 1400 and see blocks of 100+ buying 1400.50 but price can't even move one tick higher then someone big is obviously absorbing all the buying, and all them buyers have their stops a few ticks lower. In that situation, the buyers are stuck long. When they all realize this and start hitting the offer, that's when you enter a short.

Like i say, that's just one small example.

 

[techy]

Nothing hard about 'tape reading' You just have to watch to see how price reacts in your market to various sizes that trade. A basic example would be say 1400 is the high of the day on ES on a range bound day. If you see the market tick through 1400 and see blocks of 100+ buying 1400.50 but price can't even move one tick higher then someone big is obviously absorbing all the buying, and all them buyers have their stops a few ticks lower. In that situation, the buyers are stuck long. When they all realize this and start hitting the offer, that's when you enter a short.

Like i say, that's just one small example.

Sorry, im a little confused. What do you mean that somebody big is absorbing all the buying and that buyers are stuck long so they start hitting the offer?

I mean, if one saw big sizes in buying on the tape would that encourage a trader to go long as well as many others have gone long on big sizes as shown on the tape?

 

[Mr O]

Sorry, im a little confused. What do you mean that somebody big is absorbing all the buying and that buyers are stuck long so they start hitting the offer?

I mean, if one saw big sizes in buying on the tape would that encourage a trader to go long as well as many others have gone long on big sizes as shown on the tape?

Well it depends on market state, but just buying when you see big buying is just going with the crowed and is why most people don't understand why it doesn't work for them. Like I say it's about how price reacts to that size trading. So in the example I gave, the person/algo/whatever is absorbing all the buying because it's selling to all them buyers. That's someone/something with deep pockets to stop the buying. The buyers keep on trying to push it up, but if someone keeps selling to them and keeps a lid on it then eventually they give up or realize someone big is selling. The only why out of a long position is to sell.... so all them buyers are selling, and more people are selling as it down ticks, plus all the size higher up that was sold buy the big guy who started everything ontop.

You're using 'the tape' to read order flow like that so you can pin point your entries. If you see action like that happening at a resistance level then you know it's a high probability short trade.