Tape readers have an advantage over chartists because they can interpret intraday data in real time , filtering pages of numbers into surprisingly accurate predictions on short-term price movement. In turn, these generate a broad trading edge that adds firepower to longer-term market strategies.

The basics of tape reading can be learned in a few minutes but the practice takes a lifetime to master, for three reasons. First, the market is enormously complex, requiring many years of observation to understand how individual parts affect the whole.

Second, macro forces that move world markets change over time, with qualitative easing controlling one cycle, while a housing bubble keeps markets afloat in another cycle. Third and most importantly, the market structure has changed dramatically over the years, forcing tape readers to continuously learn new skill sets. In the s, cent bid-ask spreads forced tape readers to abandon simple tickers and focus their attention on market depth screens, commonly known as Level II.

In turn, those instruments have taken on enormous power, moving thousands of securities at a time. For related reading, refer to Electronic Trading: The Role of a Market Maker. Many tape readers abandoned Level II in the next few years, instead watching index futures for clues on broad equity impulses.

Tape readers have adapted well to this electronic environment and now watch a broader array of market inputs than at any time in history. For additional reading, refer to An Introduction To Dark Pools. Heard enough and want to become a skilled tape reader? Here are some tips and techniques to help you get started. Start in the pre-market session, looking at the overnight index futures.

Get up to speed by following the checklist mentioned in Pre-Market Routine Sets Stage For The Trading Day. Consider the impact of the projected open and how gaps will impact trader psychology.

Big gaps have become more common in recent years due to the rise in hour trading and playing them well requires careful strategies, as noted in How To Create Profitable Short-Term Gap Strategies. Get ready by estimating how opening prints will interact with overnight levels. A gap into an overnight high or low suggests rangebound action that may yield a quick reversal , while a gap into levels not traded for days or weeks carries a higher likelihood of trend day action wherein major instruments thrust in a single direction for most part of the session.

The Opening Price Principle. The relationship between price swings and those levels presents the first tell of the day, with bulls in control above opening prints and bears in control beneath. Mark out the first 5- or minute trading ranges , looking for small sideways patterns that could yield breakouts or breakdowns later in the session. Now, take your first look at the relative strength and weakness, pulling up a list of the most liquid ETF for each major sector.

Sort the list by percentage change, exposing the strongest and weakest funds in the first hour. This may also identify rotational strategies that persist for the entire session.

These four data sets yield immensely useful tells on short-term capital flows, rotationally as well as in and out of cash. The advance minus decline variation also carves predictive intraday patterns, often ahead of price, as you can see when the indicator reversed sharply after a strong January open.

This reversal led a nasty decline that dropped major indices deeply into the red. Notice now a Fibonacci grid over the initial plunge predicted the extent of a midday recovery, while swing lows near defined support that broke in the last hour. Now look at VIX , recording observations about the morning tape.

First, is it flashing red or green after the first hour and is that number trending higher or lower?

Rising VIX signals conflict or fear that favors lower prices, while dropping VIX reveals a speculative appetite that supports higher prices. Second, track divergences between VIX and index action because they often resolve with capitulative behavior that forces the indicator or index to reverse and follow. Track first-hour themes into the lunch hour, watching opening prints and market internals.

Be especially vigilant when indices push well beyond prior closing prints and then reverse gears, pushing back in the other direction. Market tells become primary leading indicators at these inflection points, often breaking out or reversing ahead of price. These can be used to build or add to intraday positions, or as exit signals, allowing you to take profits or losses ahead of the crowd that gets trapped by sudden changes in the market tone.

Tape Reading : Tricks to Read the Market

For related reading, refer to A Day In The Life Of A Day Trader. Pay special attention between With other world markets closed, US afternoons may elicit a second theme of the day, with internals shifting off morning messages and into new tells that last into the closing bell. This second wave may require a rework of morning strategies that includes exiting early positions to avoid getting targeted by contrary price action.

Expect persistent intraday themes to reach their climax in the last hour, especially in the last 15 minutes. Index prices can surge much higher and lower during this period, with institutional capital coming off the sidelines, while algorithms work hard to shake out traders wanting to hold overnight positions. Market internals become your best friends at these critical junctures because they tell you what to expect into the closing bell.

Numbers that expand or contract throughout the session predict that contrary strategies will fail, while mediocre numbers suggest a mixed close, with neither bulls nor bears happy about the outcome. Tape readers interpret complex background data during the market day to gain a definable trading edge over the competition. Through experience and skill, they react to environmental changes well before price movement awakens the sleeping crowd. Dictionary Term Of The Day.

A measure of what it costs an investment company to operate a mutual fund.

Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. How Important Is Tape Reading In Modern Markets? SPY, QQQ By Alan Farley February 19, — 7: Revolution in Market Structure In the s, cent bid-ask spreads forced tape readers to abandon simple tickers and focus their attention on market depth screens, commonly known as Level II.

For additional reading, refer to An Introduction To Dark Pools Heard enough and want to become a skilled tape reader? Pre-Market Preparation Start in the pre-market session, looking at the overnight index futures. Midday Messages Track first-hour themes into the lunch hour, watching opening prints and market internals. Reading The Final Hour Expect persistent intraday themes to reach their climax in the last hour, especially in the last 15 minutes. The Bottom Line Tape readers interpret complex background data during the market day to gain a definable trading edge over the competition.

Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell. Calendar and clock bias, better known as seasonality, is a frequently misunderstood concept that exerts a huge influence on the ticker tape. Overnight action in index futures sets the tone for the U. Traders can use hour index futures charts to predict action in the coming day.

Reading the Tape with Gman: How to Read the Tape - The Cheat Sheet

We explain the meaning and use of that reel of symbols whizzing across your TV or computer screen. Convergence points to dynamic conditions that can elicit strong trends while divergence suggests conflict, more typical of rangebound price action. Trading earnings news for consistent profits requires considerable discipline and patience.

Early warning signals allow traders to take action before a change in trend traps the prevailing crowd. Well-organized trading screens sum up intraday market action, breaking it into digestible bites that can speed up complex decision making.

Understand the elements of the morning star candlestick pattern and how this reversal signal is interpreted by traders and Discover the various signals of bull market tops and what traders and analysts look for as signs of an impending bearish Learn about the mass index technical indicator and the common market reversal trading strategy that is designed to be utilized Discover why these indicators are so Learn about how traders and analysts use a momentum oscillator called the force index to measure trend strength for a given SPY , QQQ , IWM.

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