Strategy Session: Next Level Tape Reading

Strategy Session: Next Level Tape Reading

Oct 25, 2005

Tape reading is the technique used by “seasoned” professional traders to get a feel for the market. The idea is simple, as you watch the “ticker tape” you get a sense of what is happening – whether buyers or sellers are in the control at the moment. Tape reading skills can be applied against the entire market, a particular group of stocks or even one stock at a time.

Not too long ago the only way to get a feel for the market was to watch the “ticker tape” in real-time. You can still see examples of ticker tapes on places like CNBC, FOX and Bloomberg TV as well as many financial websites. Training to become a trader often included time spent watching the tape go by in an effort to develop a sense or quick read for the market based solely on what happened with the tape.

Today if you are tape reading from a CNBC ticker it would be the equivalent of surfing the Internet on a Radio Shack (TRS 80) – with a hand crank. To begin with many tickers are delayed at least 20 minutes but even with real-time access to the data, the market is faster these days and participants use evermore sophisticated tools such that reading the tape in a traditional sense can put you at a dissadvantage.

Tape Reading Intelligently
That said the art of tape reading is far from dead, it has evolved. Trade-Ideas puts itself squarely at the forefront of this evolution. We built a preconfigured strategy to help tape readers get a better sense of what is happening – not by looking at ticks “in the weeds” but by being able to look at specific events from a better (i.e., higher) vantage point that provides a quicker, easier and more accurate a sense for the market.

The Strategy
Here is our latest version of “Tape Reading”

How It’s Modeled
The key to this set up is the combination of alerts and filters. Instead of just looking at any random ticks what you are doing with this set up is noticing when real buyers and sellers are taking action. This action is combined with filters for high relative volume to give a tape reader a better sense of:

  • who is in control
  • when to act and
  • what to trade

As usual remember that these set-ups are sketches meant to give you an idea of how to model your own trading plan. Use this ‘as is’ or modify it to your own liking as many others do.