Tape Reading questions

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NeedToSucceed

Hey fellow traders,

I have a question for you all.

I trade just IBM and MER, and have noticed that the tape on IBM shows a lot of buys on the tape (mostly 5000 shares lots), before it eventually sells off. I use charts to make my trading decisions, but it would be great to understand the tape, and for IBM the post-open is a lot different from the pre-close in terns of interpreting tape action.

If anyone out there trades IBM, please share your knowledge and also recommendations for good tape reading stocks.

Thanks,

Jim
 
I'm fairly new to tape reading. Since this thread is about tape reading, I also would like to ask for suggestions, tips on improving tape reading skills? What do you look for when reading the tape?

Thanks.
 
Originally posted by NeedToSucceed
Hey fellow traders,

I have a question for you all.

I trade just IBM and MER, and have noticed that the tape on IBM shows a lot of buys on the tape (mostly 5000 shares lots), before it eventually sells off....
More...

What do you mean exactly by a lot of buys? Every transaction that is printed is both a buy and a sell. Why aren't you perceiving them as 'sells'?
 
>>
What do you mean exactly by a lot of buys? Every transaction that is printed is both a buy and a sell. Why aren't you perceiving them as 'sells'? >>



The way, I see it (my understanding could be wrong), if you are selling to the specialist it would be either be at the bid or somewhere in between. So if see a print in green on the tape, it is either a buy or someone selling at the ask to another buyer, which also implies buying pressure, since you typically can't sell at the ask if there is a lot of selling going on.

Am I right ?
 
A rough rule of thumb might be:

"a lot of buys then price sells off" = a lot of momentum money meets even more "value" money...
(by that I mean the all-timeframe distinction between strategies which buy-low/sell-high and those that buy-high/sell-higher)

Basically tape reading is enlightened common sense:

If you see "a lot of buying" and price doesn't rise by much then as zig follows zag a little dip in price then tests the strength of those buyers - as the dip plays out do more/bigger bids come in are there people hitting the bids in any way like others were just lifting the offers? I find there is often too much information in tape reading to do anything other than use your cumulative 100s/1000s of hours watching price action to get a feel for what it means - ie absorb the whole situation and see what that feels like.

For example, late on Friday I was watching the SPY as it traded up above 111.50. The bids kept getting knocked down, replenished, knocked down replenished on what seemed like a fairly active spot. Price was HOD-ish and just below yesterday's midpoint. Add to that the vigour with which the upthrusts continued to be batted down and it seemed that price was headed down to look for fresh buying support most likely to come in around today's mipoint/open at 111.00/11 (conservative exit at 111.15). Again add to that some sense of the overall situation (late Friday, generally in a downtrend etc)

The difficulty with tape reading (for me at least) is that I end up constructing these little stories in my head about what is happening (ie short-term momentum buys being met with strong value sellers in the above case). If you do this you naturally seek development in the narrative through changes in what is happening for each set of traders. Unfortunately trading is more messy and as often as there is an inflexion point in the narrative there are as many messy changeovers. So if you're expecting a clean transition and the development is messier than you expect you can get faked out believing your interpretation was wrong in the first place as the side you thought was capitulating suddenly shows some unexpected strength.

....as happened to me on this occasion :D
 
Originally posted by NeedToSucceed
Hey fellow traders,

I have a question for you all.

I trade just IBM and MER, and have noticed that the tape on IBM shows a lot of buys on the tape (mostly 5000 shares lots), before it eventually sells off. I use charts to make my trading decisions, but it would be great to understand the tape, and for IBM the post-open is a lot different from the pre-close in terns of interpreting tape action.

If anyone out there trades IBM, please share your knowledge and also recommendations for good tape reading stocks.

Thanks,

Jim
More...

You need to have a better understanding of how all this works...there is a seller for every buyer, and the Specialist is not always involved.

We teach our traders to stay away from IBM, for very specific reasons....and those that have not heeded our advice, have paid dearly. To answer your question about the 5000 share lots on the way up....very simple....the options traders in the pit on the CBOE are selling calls way over valued.....they buy the stock to hedge....when the call buyer is gone...they simply hit the bids, run the stock back down....leaving the short calls with a much lower delta.....been this way for 20 years.
 
When I read some of these posts I realize how little I know about the markets. There are so many angles. I love these little tidbits you throw out, Don.
 
for every buyer there is a seller.
and you don't usually sell or buy to/from the specialist.

the specialist might be involved only 10% of the time or less. so this is a big misconception that you deal against the specialist. forget this.

what people call a buy I suppose is when a transaction is at the ask and a sell if a bid was hit. Still this is a simplification and not fully accurate.
the accurate view is that there is no buy or sell, there's only a trade = an exchange.

what is more important imo is where the prints are relative to each other, the speed and volume. and even more important, where is supply and where is demand.
supply will slow a price rising (or stop it), demand will slow a price falling (or stop it). There are basic support and resistance.

I too often read people transforming this into a struggle with an adversary : the specialist. That is so inaccurate. there is no struggle. and as pointed out earlier, usually he's not involved anyway.
tape reading to me, is about discovering where supply and demand are. you don't need tape reading to know it imo. but it is a tool to confirm (or not) the expected levels.

tntneo
 
Thanks again to easy, et al.

TNT has it right...the Specialist is more of a "traffic cop" and will not risk his (her) cushy job just to screw you out of a dime on a couple thousand shares.

The rules are important, and knowing the rules will set your mind free when trading...you will know when something has happened that shouldn't have...but more often than not, the trades are fair when all conditions are considered.

When there is an error, our traders know it...check it with their managers, and then have the full clout of SLK (the largest specialist firm on the floor) to help straighten it out.
 
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