Tape Reading: Difference between revisions
m (Infobox5 upgrade) |
m (Text cleaning) |
||
| Line 1: | Line 1: | ||
'''Tape reading''' is a [[method]] of [[forecasting]], from what appears on the tape now, what is likely to appear in the future. The key is to observe the tape at certain [[price]] levels. It may be at a breakout point, support, or resistance levels or psychological numbers. What important in reading the tape is how many shares are being traded at a given moment. Large share awith price moving up would mean heavy buying and there is a good chance the stock may move up. Using the tape allows you to gauge players psychology and imbalances in supply and [[demand]]. Simply put, tape reading is to determine whether stocks are being accumulated or distributed, marked up or down, or whether they are neglected by the large interests<ref> R. Wyckoff 2006, | '''Tape reading''' is a [[method]] of [[forecasting]], from what appears on the tape now, what is likely to appear in the future. The key is to observe the tape at certain [[price]] levels. It may be at a breakout point, support, or resistance levels or psychological numbers. What important in reading the tape is how many shares are being traded at a given moment. Large share awith price moving up would mean heavy buying and there is a good chance the stock may move up. Using the tape allows you to gauge players psychology and imbalances in supply and [[demand]]. Simply put, tape reading is to determine whether stocks are being accumulated or distributed, marked up or down, or whether they are neglected by the large interests<ref> R. Wyckoff 2006, p. 10</ref>. | ||
The advantages of reading the tape are that it brings consistency to your trading, it is a leading indicator, you are able to see buyers or sellers in real time, it minimizes your trading [[risk]]. Finally, reading the tape is about analysis the bid, offer, size, volume, and prints. With reading the tape you will be able to determine where the stock is going to move 90% of the time<ref> N. B. Humphrey 2016, part 2-3</ref>. | The advantages of reading the tape are that it brings consistency to your trading, it is a leading indicator, you are able to see buyers or sellers in real time, it minimizes your trading [[risk]]. Finally, reading the tape is about analysis the bid, offer, size, volume, and prints. With reading the tape you will be able to determine where the stock is going to move 90% of the time<ref> N. B. Humphrey 2016, part 2-3</ref>. | ||
==Tape Readers== | ==Tape Readers== | ||
Tape Reader is a trader who reads the tape in order to observe stock price volume reports and then uses the [[information]] to make trading decisions. Long practice will make the Tape Reader | Tape Reader is a trader who reads the tape in order to observe stock price volume reports and then uses the [[information]] to make trading decisions. Long practice will make the Tape Reader proficient in forecasting stock [[market]] events. | ||
Tape reading can add 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 some 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 quantitative 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<ref> R. Wyckoff 2006, | Tape reading can add 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 some 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 quantitative 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<ref> R. Wyckoff 2006, p. 10-15</ref>. | ||
==The tools of reading the tape== | ==The tools of reading the tape== | ||
To use Tape Reading, we [[need]] two tools. They must be made available through the trading platform that we use. It is primarily a quotation window (called level II) and a transaction window (called time and sales). | To use Tape Reading, we [[need]] two tools. They must be made available through the trading platform that we use. It is primarily a quotation window (called level II) and a transaction window (called time and sales). | ||
Level 2 is an invaluable and very practical tool that informs us whether a given [[financial instrument]] is dominated by supply or demand in a given period. The correct use of the Tape Reading method is somewhat reminiscent of the [[technical analysis]] of stock market graphs. While in the latter the investor or analyst searches for data on stock market formations, in the case of reading the tape, he seeks to capture the differences between demand and supply, and also find the | Level 2 is an invaluable and very practical tool that informs us whether a given [[financial instrument]] is dominated by supply or demand in a given period. The correct use of the Tape Reading method is somewhat reminiscent of the [[technical analysis]] of stock market graphs. While in the latter the investor or analyst searches for data on stock market formations, in the case of reading the tape, he seeks to capture the differences between demand and supply, and also find the "setups". These are repetitive plays that, from a perspective of the moment, can be a guide for the investor in which instrument [[money]] should be invested<ref> R. Wyckoff 2006, chapter 2,3</ref>. | ||
==Tape transformation== | ==Tape transformation== | ||
| Line 20: | Line 20: | ||
* '''speed of their conclusion''' | * '''speed of their conclusion''' | ||
Based on these four factors, traders were able to determine the current trend on the instrument and find a convenient place to take positions. So where did the name come from? It comes from a device used to transmit the abovementioned information, called ticker tape, or stock ticker. This machine used telegraph lines to transfer data on listed companies. This information was printed on a narrow white tape and that's why the name for this market analysis technique came from. Finally, it is worth adding that the abovementioned device was used for more than a hundred years | Based on these four factors, traders were able to determine the current trend on the instrument and find a convenient place to take positions. So where did the name come from? It comes from a device used to transmit the abovementioned information, called ticker tape, or stock ticker. This machine used telegraph lines to transfer data on listed companies. This information was printed on a narrow white tape and that's why the name for this market analysis technique came from. Finally, it is worth adding that the abovementioned device was used for more than a hundred years - between 1870 and 1970. | ||
[[Technical progress]] has made the tape in the above form replaced by this electronic in a much more transparent form. It is worth remembering, however, that during this period it was the only form of information about price movements on certain stock market values. Currently, the tape in electronic form is used by a small group of individual investors, because what seems to be quite logical, it has been displaced from circulation by well-known and well-liked by everyone | [[Technical progress]] has made the tape in the above form replaced by this electronic in a much more transparent form. It is worth remembering, however, that during this period it was the only form of information about price movements on certain stock market values. Currently, the tape in electronic form is used by a small group of individual investors, because what seems to be quite logical, it has been displaced from circulation by well-known and well-liked by everyone - charts. Despite the fact that it is still an extremely useful tool, only a few choose to include it in their investment arsenal. The vast majority of professionals use tape in everyday trading<ref>D. W. Gann 1996, chapter 1</ref>. | ||
==Examples of Tape Reading== | ==Examples of Tape Reading== | ||
Latest revision as of 05:37, 18 November 2023
Tape reading is a method of forecasting, from what appears on the tape now, what is likely to appear in the future. The key is to observe the tape at certain price levels. It may be at a breakout point, support, or resistance levels or psychological numbers. What important in reading the tape is how many shares are being traded at a given moment. Large share awith price moving up would mean heavy buying and there is a good chance the stock may move up. Using the tape allows you to gauge players psychology and imbalances in supply and demand. Simply put, tape reading is to determine whether stocks are being accumulated or distributed, marked up or down, or whether they are neglected by the large interests[1].
The advantages of reading the tape are that it brings consistency to your trading, it is a leading indicator, you are able to see buyers or sellers in real time, it minimizes your trading risk. Finally, reading the tape is about analysis the bid, offer, size, volume, and prints. With reading the tape you will be able to determine where the stock is going to move 90% of the time[2].
Tape Readers
Tape Reader is a trader who reads the tape in order to observe stock price volume reports and then uses the information to make trading decisions. Long practice will make the Tape Reader proficient in forecasting stock market events.
Tape reading can add 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 some 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 quantitative 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[3].
The tools of reading the tape
To use Tape Reading, we need two tools. They must be made available through the trading platform that we use. It is primarily a quotation window (called level II) and a transaction window (called time and sales).
Level 2 is an invaluable and very practical tool that informs us whether a given financial instrument is dominated by supply or demand in a given period. The correct use of the Tape Reading method is somewhat reminiscent of the technical analysis of stock market graphs. While in the latter the investor or analyst searches for data on stock market formations, in the case of reading the tape, he seeks to capture the differences between demand and supply, and also find the "setups". These are repetitive plays that, from a perspective of the moment, can be a guide for the investor in which instrument money should be invested[4].
Tape transformation
Tape reading is an old investment strategy used by day traders to trade. Based on the tape, speculators analysed the value by focusing their attention mainly on four aspects[5]:
- price
- volume
- type of transactions (buy/sell market)
- speed of their conclusion
Based on these four factors, traders were able to determine the current trend on the instrument and find a convenient place to take positions. So where did the name come from? It comes from a device used to transmit the abovementioned information, called ticker tape, or stock ticker. This machine used telegraph lines to transfer data on listed companies. This information was printed on a narrow white tape and that's why the name for this market analysis technique came from. Finally, it is worth adding that the abovementioned device was used for more than a hundred years - between 1870 and 1970.
Technical progress has made the tape in the above form replaced by this electronic in a much more transparent form. It is worth remembering, however, that during this period it was the only form of information about price movements on certain stock market values. Currently, the tape in electronic form is used by a small group of individual investors, because what seems to be quite logical, it has been displaced from circulation by well-known and well-liked by everyone - charts. Despite the fact that it is still an extremely useful tool, only a few choose to include it in their investment arsenal. The vast majority of professionals use tape in everyday trading[6].
Examples of Tape Reading
- Tape reading can be used to identify price movements. For example, if a stock has been moving up in price due to heavy buying pressure, a tape reader may look for a breakout point where the stock has been trading in a range for some time. If the price breaks above the range, it could be a sign of increased demand and could signal a buy signal for the stock.
- Tape reading can also be used to identify potential reversals in the market. For example, a tape reader may notice that a stock has been trading in a downward trend for some time and is now starting to show signs of an upward reversal. If the stock moves back above a certain price level, it could be a sign of a potential reversal and could signal a buy signal.
- Tape reading can also be used to identify opportunities in the market. For example, a tape reader may notice that a stock has been trading in a range for some time and is now starting to show signs of an upward breakout. This could be an opportunity to buy the stock before it breaks out and potentially rise in price.
Advantages of Tape Reading
Tape reading offers many advantages for traders, investors and market participants. Here are some of the benefits of tape reading:
- Tape reading provides traders and investors with an indication of the supply and demand dynamics of a particular stock. By observing the volume of shares being traded, traders can identify whether there is heavy buying or heavy selling of a particular stock. This helps traders to determine the direction of the stock price.
- Tape reading provides traders with the ability to identify potential entry and exit points. By observing the tape, traders can identify potential support and resistance points. These levels can provide traders with an indication of where they should enter or exit a position.
- Tape reading allows traders to identify potential breakouts or reversals. By observing the tape, traders can identify situations where the stock price is likely to break resistance or support. This can provide traders with an indication of when to enter or exit a position.
- Tape reading helps traders identify market sentiment. By observing the tape, traders can identify whether the market is bullish or bearish. This helps traders to identify which stocks may be likely to move in the near future.
- Tape reading helps traders identify trends. By observing the tape, traders can identify whether a particular stock is in an uptrend or a downtrend. This helps traders determine which stocks are likely to move in the near future.
Limitations of Tape Reading
Tape reading has a few limitations, including:
- The data it provides is limited to the trades that happen on the day, so it only provides a snapshot of the market, rather than a long-term trend.
- It is difficult to identify the big players, since their trades can be masked in the noise of the market.
- It is difficult to read the tape accurately and quickly, as the price movements can be very fast and unpredictable.
- The success of a trade is often determined by the speed of the trader and how quickly they can act on the information they have gathered.
- Tape reading is also dependent on the volume of trading, so when volume is low, it may be difficult to identify meaningful trends and patterns.
- Technical Analysis: This is the study of price action and chart patterns to identify trends and forecast future prices.
- Fundamental Analysis: This is the study of a company's financials and the macroeconomic environment in order to identify potential opportunities.
- Sentiment Analysis: This is the study of the sentiment of the market participants, such as investors, traders, and analysts, in order to identify potential opportunities.
- Volume Analysis: This is the study of trading volume to identify potential support and resistance levels, as well as momentum and trend reversals.
Overall, tape reading is just one approach to forecasting future prices. Other approaches such as technical analysis, fundamental analysis, sentiment analysis, and volume analysis can also be used to gain insight into the markets and identify potential opportunities.
Footnotes
| Tape Reading — recommended articles |
| Long-legged doji — Bullish divergence — Symmetrical triangle — Bear flag — Uptrend — Price pattern — Dragonfly Doji — Gravestone doji — Trading channel |
References
- Gann W. D. (1996)., Truth of the Stock Tape and Wall Street Stock Selector, Health Research Books, New York
- Humphrey B. N. (2016)., Tape Reading and Market Tactics, Pickle Partners Publishing, United States
- Wyckoff R. (2006)., Studies in Tape Reading, Cosimo, Inc., New York
Author: Anna Marczyk
