Reading tape, or analyzing order flow, is undoubtedly the purest form of trading. It is definitely one of the most misunderstood forms of trading, it’s a skill that virtually all short-term traders would love to master, and it is also very difficult to find any useful information about on the web.
The little bit of information that does come up on a search engine is frustratingly stupid, usually a YouTube video of a novice yelling out something like ‘lots of red on the tape, lots of red – I think I need to short’. So if you’re all about losing money, be my guest and jump into the position after you see the waterfall. Usually that entry is way too late and for all the wrong reasons.
This has changed with the release of our new Tape Reading Made Simple video. It is beyond any doubt the most comprehensive work ever published about reading tape in an electronic era. It details setups ranging from a beginner level through a very advanced tape reading level, and presents things in such a way that many of the skills can be learned in a reasonable period of time instead of taking several years worth of 7 hour days staring at a Time & Sales window.
Before we rattle on too much about the video, let’s talk a bit about tape reading, define what it is, and give an idea of what a skilled tape reader can accomplish.
Tape Reading Defined
The term “tape” came about back in the 1870’s with the invention of the ticker tape machine. It was basically a modified telegraph machine; the difference was that you didn’t listen to the dots and dashes clicked on the telegraph. Instead, it printed a brief symbol of a stock followed by the price and volume of the last trade – this rolled out on a paper tape. It provided a huge increase of speed in transmitting trade information to the various banks across the country.
How was it used? Traders would stand around and read the tape – or actual executions – coming out of the machine and make decisions on whether to buy or sell. If they wanted a chart, they drew it by hand based on the closing price at the end of the day.
Fast forward 140 years and we now know the “tape” as the electronic Time & Sales window on our charting platforms, such as the one shown at left. When it is set up correctly, it conveys information that can be used to fine tune entries to a very precise level.
There is an old saying – you’ve probably heard it – ‘the tape never lies’. That is a profound truth, which is what makes learning to read the tape so valuable.
Think tape reading won’t help? Chew on this for a moment: Large traders, traders who scalp 5-20,000 ES contracts, they know all the levels – the pivot points, support and resistance areas, POC/VAH/VAL numbers, they know where traders are likely to initiate trades, and they know from the chart where other traders are likely to place stops. When you trade off of a chart, you won’t know they’re working until you get stopped out.
However, when you read the tape correctly, you can tell when these large traders are acting. So answer me this: would you rather see the 20,000 lot trader building a position and join him, or sit around trading off of a chart, waiting for him to pick your pocket?
Oh, and by the way, using a tick chart is not reading tape, even if you set it to one tick – it’s using a tick chart. It doesn’t display information in the same way. Your platform cannot draw the movement of a bar or candle in such a way that it clearly conveys the same information as a T & S window.
Really, the same goes for watching price move up and down your DOM or watching the Bid/Ask change on your Level 2 – it can be effective but it’s not reading tape because it’s not accurately representing actual sales and volume.
Tape Reading Refined…Looking At Order Flow
Now let’s add something to the tape, really get to the concept of examining both sides of order flow. We’re going to add the Depth of Market, or DOM window to the mix. How does this help? The DOM can show you something that no chart on earth will show you. See, with the DOM, you can actually view what just didn’t happen. Yes, you read that correctly. Let me explain.
With the tape running unfiltered tick data, you see raw executions, or in other words, you see what just happened a millisecond ago. When you know how to use the DOM, you also see the large scalpers at work as they go about their job of suckering you and everyone else into taking the other side of their position. They want to short 20k lots, they need to find some buyers. And they’re going to rely on those buyers placing stop orders – that’s how they’re going to profitably close their positions.
But here’s the rub: you want to build a 20k lot position, you don’t just kick a market order in there. You have to manipulate and finesse your way into the position. That manipulation is not visible on the chart – all you see on the chart are the normal fluctuations in the market. However, the manipulation is clearly visible on the DOM – if you know what to look for.
How Do You Go About Learning This Skill?
Ask most tape readers, and they will say something to the effect of ‘spend the next decade watching your Time & Sales window’. However, we don’t have that kind of time – we want to know how right now, today. I will say in all honesty, there are some tape reading skills that you can pick up very quickly, perhaps in just a few days IF you know what to look for. There are other skills that may take you a few weeks, or even a few months, again, IF you know what to look for.
It is beyond the scope of this site to teach the method on our public pages. It is also something that is virtually impossible to learn from reading an article, a book, sitting through a one day seminar, or watching a brief video on YouTube. You need to see detailed video, hours of it, showing you what to look for, and then it finally starts to sink in. It’s going to demand practice, some trial and error, and definitely a bit of dedication.
That is where The Tape Reader’s Bundle comes in – it is packed with 80+ hours of instruction, features many live trades where the entry is stalked on the tape, positions are managed and explained, and presents things in such a way that a trader who is familiar with their platform can start successfully using the tape and their DOM to greatly improve their win loss ratio very quickly.
Fortunately, the rewards are well worth all the hard work. You can take away everything I know about trading and I wouldn’t care, as long as I could still read tape. So if you’re serious about owning this skill, visit our store, pick up the most comprehensive educational tool available on the internet today. While it is not cheap, it is a worthy investment in your career as a price action trader!
Topics covered in the recording:
- Platform setup – if it isn’t done right, you’re going to miss the most important information streaming into your tradestation.
- A thorough, hands-on discussion of how to read the order flow on your Time & Sales window.
- Wish you could break away from lagging indicators? We’ll show you how!
- See how to correlate the tape back to your DOM and charts.
- Price action trading from a chart? Learn how to confirm YOUR chart setups with the tape.
- Stuck in the destructive cycle of SIM trading? We’re going to show you how to develop the confidence to trade real money.
- Learn how to deal with damaging emotions such as fear and greed.
- Wish you knew how to manage your trades? Find out numerous professional strategies.
- Still don’t have a trading plan? We’re going to discuss numerous facets of a professional trader’s action plan.
- Learn how to track the market manipulators and large traders using only your DOM and Time & Sales.
- Bonus! Learn how High Frequency Traders are operating in your instruments, and how you must adapt to compete with them.
More courses from the same author: The Price Action Room