Trading has to do with reality, and that’s precisely the prices. To drive the price up or down there can only be two factors: supply and demand. Seasoned traders look exactly for that.
Furthermore, we cannot precisely know any circumstance surrounding stock movements, apart from the aforesaid, about what owners plan to do with them. They might want to sell for reasons that have nothing to do with current company situation. For instance, a fund needs free money for another operation and we see selling when nobody expected it at all. Or maybe there is less competition for them to sell their portfolio at this level versus a higher level as they see it.
Tape reading is not about staring at the Time & Sales window. As stressed before it’s about reading the basic fundamentals of supply and demand. Original tape readers of times of Jesse Livermore used those principles, and they work today just as fine. They are applicable in any time frame, and longer time frames would require a broader view of stock/sector/commodity/market trend.
Tape reading, as it is, absolutely lethal and unbeatable. Chart guys just don’t have a matching edge. Pit traders know this from the very beginning, since they're never subjected to all the vendor-hype and snakeoil society. However, few people have to privilege to start off as a pit trader.
1. Big money comes from thinly traded stocks. There it is easier to recognize patterns of buying and selling Eg. WPO (NYSE) or ANSALINFRA (NSE).
2. The ‘flow’ is determined by the prints. The ‘levels’ are determined by the price at which block prints (major volumes) occur. Add to this how other traders react to the block prints whenever they occur.
3. Point no.2 describes 90% of the price behaviour.
4. Markets such as NASDAQ, AMEX etc. where we can see who is moving the stock (MMs, ECNs) are easier to trade by the tape then the Indian markets. Eg. ADAM is a strong bull in USNA (NASDAQ). It’s good to go long when ADAM comes, and to go short when ADAM is taken off (as on july, 2007).
5. The sensex is always a good indicator. Eg. If the sensex is strong and a stock is weak, just a dip in sensex will make the stock crash (see sketch).
6. It does well if you can add news analysis to your tape reading. It does better if you can add technical analysis to your tape reading.
Related Articles:
- What is Tape Reading?
- An Example of Tape Reading
- Basic Tape Reading - The Importance of Sub-minute Charts
- The Lost Art of Tape Reading
- Misconceptions: Bullish Block Trades
- Bid-Ask Bluffing
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