Tape Reading

Discussion in 'Technical Analysis' started by WmWaster, May 12, 2006.

  1. Hi.
    Does anyone know if there's any good sources/resources which teaches people how to trade from Level 1 &/or 2 quotes; Time & Sale?

    Thank you.
  2. I personally think you are going to be your own best teacher regarding this. Watch level 2/ T&S simultaneously. Look at lifted bids and offers. Good stocks for observing this are HANS, AAPL, CME, OII (however don't start trading these unless you have > 1 year of experience though - they are quick and deadly if you are not disciplined). Couple that with some basic chart analysis and you will start to notice certain repeating behaviors.

    Wyckoff is fairly well known if you need a starting point, but his methods are from the 20's and 30's.
  3. That's bad.
    We're all alone to learn by ourselves.

    No one even post some tips and tricks to help us go through the master of tape reading. Pretty sad! :(

    Anyway, it's what I'm trying to do so personally.

    I would like to learn from others because I would like to see if I've missed anything which others know.

    Do you think Wyckoff's methods are still working nowadays?
  4. Best way to learn is to watch, that is what a lot of people have told me.

    They learned themselves, not going to find a cheap and quick way to learn Level 2 and T&S.

    Gotta read it yourself.
  5. I can try my best to tell you what I've learned, but, my approach is being constantly refined. I do not have a "consistent" approach day in day out, there are just too many variables.

    I mentioned the stocks in my prior post because they present a good mix of what is out there. AAPL is liquid and smooth. CME and HANS are high priced and erratic but when they move (I mean really move, 10-20pts in a day), it can be fun and scary at the same time. The OII specialist is good a picking out stops. The CME specialist is a bit tougher to read.

    Some general observations about "tape reading" (I use quotes because my style is composed of chart price/volume analysis on 3,10 and 30 min time frames, so it is tape reading with a price action approach thrown in):

    On low volume days (most fridays):

    -- Inflection points most always occur on low volume. This is usually stop taking testing.

    -- Weaker stops, generally speaking, execute in small lots. These are the amateur traders that are getting flushed by fake moves designed for just this purpose.

    "Normal-range" volume days
    -- Larger lots that lift bids and offers will "hide" themselves over/under inflections. Watch volume/price movement during hit bids/offers. Know historical S/R levels and keep track of volume above/below these levels. A good rule of thumb, breaks = no volume dry-up, holds = volume dry-up.

    Trend days:
    -- Stocks still like rounds numbers. If a price doesn't break over 70.00 the first time into the 70.10's, theres a good chance it won't go to 70.25 that day. If a stock touches 70.25 there's a good chance it will go to 70.50 and a good chance it will continue to 71 and higher. The hit bids/offers at these levels will be dramatic.

    -- Knowing when to stay in stock for more than a few hours is tough. More often than not, the tape will start to hiccup, volume dry-up will cause an extended period of no real movement. Sometimes you can anticipate based on price patterns (base-over-base comes to mind), other times nothing happens.

    There is always the challenge of separating random price movement from inefficient price movement. This is much easier to do on thinner stocks as a serious buyer cannot hide his intentions as easily. Look at NMTI for an example. Solid buyers do things over a period of days, not minutes. Most minute intervals are random, hours and days are not.

    Let me know if you are finding this interesting or whether I am making any sense.

    Wykoff is good for background, but no, I do not believe his methods apply today.

    What I know works is Market Profile for estimating ranges and hinting at directional bias. MP is essentially a time based volume analysis tool that can produce statistically significant data when applied correctly.
  6. rcj


  7. there is a book that i found informative entitled "The undergroundtrader.com guide to electronic trading ..dates back to 2000 author is Jay Yu. He describes methods of trading.
    Chapter two specifically speaks of level two and time of sales and his method for using them in your trading. its a good book with practical info , he trades for a living if i'm not mistaken.
  8. Any more exmaples?

    breaks = no volume dry-up, holds = volume dry-up.
    How could you know about that?
    Sometimes they tried to kill large ask orders at significant price level. They broker thorugh but fell back quickly afterward.

    I saw a strong ask on the round number.
    It did break through and go a bit further.
    However it fell just before the close and closed a bit behind the round number - a sign of false breakout and the stock is going to fall soon.

    I think time has some meaning for some sorts of action.
    Eg: If price soars at a specific time, it is likely to be real. For other times, it's not.

    A serious buyer will always hide its hands.
    They usually buy at market price.
    How can you spot them out?

    Sort of.
    It would be more interesting if you could talk more about it. :D

    Market Profile, what is it?
  9. Does the book has anything to do with the website, undergroundtrader.com?
    #10     May 18, 2006