Excellent synopsis. In fact, during today's session you could tell that the broad market was acting with a "bid" in it and didn't need the oils to participate in order to rally. I always track the OIH and XOI to see how it relates to the SPX. More often than not, the SPX is unable to rally unless there is participation by the energy sector. If you overlay the OIH or XOI today on the SPX, you will notice that they were trading near their respective lows of the day, even though the SPX got an initial rally going up to 920, before pulling back to 892. The oils did not participate during that SPX rally, yet the SPX WAS IN FACT STRONG ENOUGH TO RALLY WITHOUT THE OILS! This was a HUGE tip-off to me that the markets "tone" had changed from bearish to BULLISH. Of course, the oils finally participated in the last 30 minutes ( CVX and XOM ) because these are some of the easiest names for portfolio managers to put money to work, in size, because of the liquidity that they offer. But the "tip-off" and change in market "tone" was traceable back to the divergence that occured between the energy sector and the SPX earlier in the day.
When I do "tape reading" off futures, I watch charts, but also the DOM/price-ladder with the orderbook changes and all. When I do "tape reading" off forex, I watch the charts and the "price action" on the charts/quote. Both are pretty similar, and user Dnaj65000 is correct in saying the "feel for time/sequence relation" is something that sort of "describes the situation" just like the charts and support-/resistance-levels themselves. A few years ago, I did some tries at identifying "patterns" off such tape readings using feed-forward MLP neural networks, fuzzy logic and scripting. However, the patterns change - and doing tape reading you get in and out of "sync" with the readings -- at least that is how I could explain this. With my software, I would need training through the backlog of data, but the models I had were not good at catching both the longer term strategy and the continuously changing conditions - so eventually I canned that. However, with more work put into it - I think there could be a possibility of capturing the mechanics of it. For scalping - I think nothing beats tape reading; it is very fast adaptation to changing market conditions. It needs a fair amount of intelligence, though - because it needs to process a lot of data fast and get the changing conditions/patterns off of this. That is not at all trivial. The brain works with two types of "intelligence" - crystal and fluid intelligence - where the fluid part can be trained. Both components are tested in an IQ test... For those with knowledge of artificial intelligence and computer prediction models, you can see how all this can be leveraged in a computer-based model. I made some models for energy markets, and those beat all the human traders - and saved the client company roughly USD 100,000 per day in better optimized predictions. We used software employing MLP and genetic algorithms originally developed by the British Ministry of Defence for artillery trajectories, which was especially well tuned for dealing with changing weather conditions - important for the energy markets/consumption. It was easy having â¬450/hour working then... hehe.
"Price Action" is the New Age concept of trading. Somehow, someone figured out that price either goes up, down or sideways and doesn't need indicators to do it. Brilliant huh? What's funny is there are a bunch of websites out there that used to use indicators to teach and now say they are "Price Action" teachers. It's the New Age of trading.
Tape reading as it applies to stocks refers to analyzing the prints on Time and Sales to discern clues as to which market makers are accumulating positions and identifying repeating patterns to forecast a move in price. It means identifying the "axe" in a stock and seeing how the stock behaves when he is on the bid or on the ask. A good tape reader can anticipate a stock's movement based on this type of information and make educated decisions. Tape reading becomes less meaningful in many of today's highly liquid and volatile stocks. The more daytraders trading a stock, the more noise there is in trying to read the tape. During Livermore's time, there were fewer players and tape reading was not as difficult as it is today. It's tough to tape read AAPL but you can still read lower volume stocks.
What I was referring to was at which point in time, that tape reading (watching T&S or derivatives of), may be the most beneficial. Ofc you can watch T&S for 24hours and draw the chart in your head.
To me, tape reading is looking at the orderbook primarily, and secondarily the time and sales... the orderbook is more important than the time and sales. When a level goes and there's momentum behind it, whether or not the level was printed or if it simply cancelled... it doesn't matter, you want to swipe the next level to cover your loss with minimal pain, and for that you need to be focused on the orderbook. If everyone was leaning on that level then yes, the cancel will cause more of a shakeout/spike/stop gun move because fewer people who wanted to get out had a chance, maybe if the level goes like shit and you see it print slowly you decide to say fuck it I'm not going to go with it... but that's dangerous thesedays, I see algos that print slowly and algos that print NOTHING and let humans take out the whole level and then come in aggressively afterwards... so you're thinking "I didn't take that long the offer went like shit" and then the ecn buy program is refreshing 50 cents up. Either way... tape reading is looking at the book and prints... it is NOT trading price-action alone, nor is it doing cross sector analysis... though one can combine sector analysis with tape reading.
Price action is just..the action of price. Price action traders base their trades off of price action analysis period. We look at price for ourselves (not via indicators) and decided based on its action what to do next. Whats so abstract about that?