Tape Reading in practice

Originally posted by Breakout


Hi cwb...be happy to help. We'll start with Tick/Diff...

Tick/Diff means "tick difference". When the yellow bar
is going up, this means the bulls are in control. When the
yellow bar is going down, bears are in control. I should
point out that tick difference isn't "Volume" in the strictest
sense. Tiff/Diff doesn't tell you "how many" contracts were
bought or sold, but rather... who is in control, the bulls or
the bears? Which, personally, I find more useful.

Now, you'll notice that some of the yellow bars are
very long. This is where 60 -60 comes in. When the
yellow extends beyong 60 or -60, this tells me
who's "really in control", at least for the moment.

I like to get in on breaks of "support" and "resistance"
on a "50" period price channel, and high (60 -60) accom-
panying buying or selling.

Here's an example:...feel free to ask any more questions.
More...

Thank you for your reply. I'm still wondering how the Tick/Diff is actually calculated though; I'm guessing it's the differential between upticks and downticks during the period in question--is this correct? Also, what actually determines how the 50 period price channel is drawn; is it a channel a certain distance from a moving average (it seems to step-wise as its drawn to be this), or is it something else?

Hope to hear more about this from you when you have a chance, and many thanks again for your help.

Best regards,

cwb1014

:cool:
 
Originally posted by cwb1014


Thank you for your reply. I'm still wondering how the Tick/Diff is actually calculated though; I'm guessing it's the differential between upticks and downticks during the period in question--is this correct?

Yes...each price bar constitutes 100 ticks. If there
are 50 up ticks and 50 down ticks, you would not see
a "yellow" tick/diff bar.



Also, what actually determines how the 50 period price channel is drawn; is it a channel a certain distance from a moving average (it seems to step-wise as its drawn to be this), or is it something else?

Hope to hear more about this from you when you have a chance, and many thanks again for your help.


The 50 period price channel simply draws a line from the
highest high and the lowest low of the last 50 bars. Some
people like to use other settings, such as 20, 30 or 100
bars.

Here's a link to a site that is very good for traders starting
out. Hope this helps

www.incrediblecharts.com

:)
More...
 
I never found so much to read about tape reading. Probably because it is difficult to describe and explain.
IMO, you just learn it by watching price action during hours, days & months.

Here is a copy of a post made on ET some time ago that was helpful to me (sorry don't remember the member's name )

----------------

Here are a few of my own insights into tape reading:

When I used to trade stocks i watched not only the tape but also the L2 and ISLD book. Frankly i dont think you can divorce any of these components.

The next time a issue puts is putting in a reversal, notice the relationship of the best ISLD versus the Best L2. Whichever side the ISLD is on is the side that is running out of gas. Daytraders.

As to watching TOS and L2 on E-mini, you may find this interesting to read:

copy of an email:

Here is an observation I would like to share with you.

I watch ES TOS (TimeOfSales) like a hawk... Its the last thing I look at when I pull the trigger; in or out.

While watching TOS, it is apparent that a signifficent majority of volume is carried out with Stop Market Orders (SMO).

Scenario: SP consolidation break from 1159.00 @ 2:16 PM January 3, 2002.

She takes out the consolidation high and surges up. The futures pull back and base, there is a pause of sorts, a dynamic equilibrium. Buyers begin to push again, eating contracts on the ask side. As they push they reach across, slowly at first. Heavier now, They trigger the SMO's. Torrents of contracts hit the books knocking it back a layer or two. You can clearly see these prints on TOS. The one order that triggered the stop prints green, followed by a strip of red sales. The sell orders strip out the bid side, then exhaust themselves two or three ticks down. The spread at this moment can be over a point at times.#

This is a critical moment. How quickly and with what kind of size does the bid backfill? How committed are the buyers to the belief that they own that hole? That void? Do they resieze that portion of the battlefield?

In our case the equilibrium returns momentarily. New SMO's jockey for position, the bid side recovers to its momentary line in the sand. How was the vacuumed resolved? Who showed weakness? Who showed strength?

Another surge, the SMO's are triggered again. This is the seminal moment. Did the Sellers come back to the table with equal to or greater size on the SMO? How deep did it hit the book this time? Less or more than the first hit? And on the next hit? Smaller still, the tide gates open and futures surge ahead with an ES overshoot....you pare...sense further strenghth....and the cycle repeats until the larger under lying rythem wearys.

The ebb and flow of SMO volume and the speed at which side backfills the spread are powerful final entry triggers. Powerful indicators of short term sentiment.

I see their usefulness as being analogous to a surfer who wants to jump from the rocks. He senses the rythem, times his jump to catch a wave peak. The wave ebbs and carries him clear of the rocks. He paddles out and hopefully catches a great wave.

One other interesting observation is the interplay of SP and ES. Who is leading who? Is ES more eager to favor the bear SP ticks or the bull SP ticks. How quickly or willing is the ES to follow an SP tick oneway or the other. Does it gap further from SP on one side or the other? How quickly in its exuberance does ES stepover from one side to the other and play leader for a moment? What size do they bring to the table? Did they stepover with more or less volume?

The character and rhythm of these transactions oscillations is the pulse of the market. It is the market in its purest form. TOS is a window. You can see where the rubber meets the road. For me the immediacy of the sales window is intoxicating.

If you sit through one cycle before entry, you are in sync.
 
Originally posted by ronb107
When discussing Tape Reading for listed stocks, it's defined as reading the Time Of Sales (TOS) for the stock. The TOS includes the Bid/Ask data which provides clues as to the impending movement of the stock. Looking at charts will not provide this data.

Generally, it is best to do this for small and mid-cap stocks (100k to 1 meg average daily volume). A stock like GE is far too large for effective tape reading.

--Ron
More...

Ron,

I actually read in a another thread that GE was a good starting place for new tape readers. which stocks would you suggest as good candidates to start learning tape reading?

thanks
 
If you would really like to learn how to tape read, try daytrading. The NASDAQ Lvl 2 is like a Tape Reader's dream come true. The tape reading concepts used by Jesse Livermore about breakouts and resistance lvl, strong weak buyer/seller, and etc. are still extremely viable.

As long as you don't get overwhelmed by the faking out of Axe's(Axe = Large Institutional Market Makers) Bid/Ask you'll do just fine.

Yes, there are fakeouts but I personally get caught in them more frequently when I'm doing a pure Bar chart reading. It is harder to find strength of a breakout with a Bar chart than the tape. There are ways to figure the strength by pure chart reading like the time of consolidation at a certain range but it's still harder, personally. But that doesn't mean Bar charts are bad. They are better to determine the trend of the market.

If you would like to use something else than the tape to trade, I would recommend Point and Figures(X and Os). As I recall, P&F was initially made for tape readers back in the early 1900s(well, before I was born) to remind them and keep track of important price lvls.

I personally like MSFT and INTC if I were to tape read. It is a hard stock to daytrade compared to other Daytrader's favorite because they give a lot of fakeouts. Still, the stocks will teach you how to determine a fake and a break. It is a lot of hard work and you'll find easier stocks to tape read but if you can tape read the 2 stocks, I'm sure you'll be able to catch other harder stocks(QLGC would be one) to trade profitably. They also tend to lead the market indexes.

Also, keep a Daily Diary and write simple notes why you traded. I personally think that homework is more important than what you do during trading hours. Prepare, prepare, prepare.
 
Thanks Ronb, WDGann and x-or...after reading and considering
your posts, I see the light...:D


I can see now that tape reading and charting are 2 different
methods for trading, and I couldn't possibly see on a
chart what you guys are looking at.


That's what I like about this forum...a lot of smart guys
that will set you straight!

Thanks


P.S. I have a new name for you, though. Instead of
"Tape Readers" I'm calling you guys..."Screen Watchers"!:D
 
Originally posted by JustStarted


Ron,

I actually read in a another thread that GE was a good starting place for new tape readers. which stocks would you suggest as good candidates to start learning tape reading?

thanks
More...

Wherever you read, the guy is who said it is not puuting himself in the shoes of a new trader. New trader are nt accustomed to being inundated with a large volume of information very quickly.

GE trades 10 MM shares a day or whatever, the point though is that it trades more than a stock that averages 10K to 1 MM shares a day, which is much easier to follow, especially if you are new and want to trade more than one stock.

The problem with trading a stock like GE is not the stock, its the limit that is physically placed on you, the trader.

IMO, there are fakouts and BS trades in the tape no matter what stock you trade, its just a matter of information overload to trade large caps, if you're just starting out.

MUChris
 
You must log in or register to reply here.
Back
Top