‘Reading the tape’

[GordonDK 6]

Anyone read “One good trade” by Mike Bellafiore, and in particular the chapter on ‘reading the tape’? Seems to be of major importance for day trading, but I’m a bit confused about this. Not described very well/in depth in this book. Any thoughts on the subject?

Edited October 1, 2018 by GordonDK

[hsobers 1]

This is an area I'm really interested to learn more on as well. 

[Brendon 138]

Hi Gordon,

I have not read the book yet, but have heard good things about it.

My thoughts on reading the tape are this:

The tape shows what actual orders have gotten filled vs looking at the L2 which are the limit orders that are there waiting to be filled. So the L2 is a before picture and 'the tape' is the after picture. Let's say you are looking at the L2 and orders are stacking on either side, say 10,000 shares are at the top of the ASK side, you would see the number '100' sitting there. If it decreased to now 50...just by looking at the L2 you do not know if aggressive buyers were buying on the ASK or those placing those 100 sell limits orders jumped to sell on the BID side before the priced broke down. Thus the term Andrew uses in his classes 'Aggressive Buyers' buying on the ASK or 'Aggressive Sellers' selling on the BID side (not sure if he uses the later term). Now you can have sellers on the ASK that believe the higher price will come to them and are in the middle of the L2 and not aggressive buyers who believe the price will come to them on the BID side bringing the price down.

I keep my tape color coded to show Buy and Sell orders filled AT, ABOVE, and BELOW to show if those are aggressive buyers or sellers. In short it helps show who is in control. Also shows that were is order flow with the ticks of every order. You do not want to trade a stock with no order flow, so look for a tick of an order filled every second or so (shows good order flow and liquidity).

Hope this helps!

 

-B.

[Lee W 82]

As you probably know, Mike Bellafiore is also the co-founder of SMB Capital.  The SMB Capital YouTube channel has some great videos.  I did a quick search in their channel of "reading the tape."  This link should take you to what I've found.  I haven't watched these yet, but I have watched many of their other videos.  They are a wealth of information.

https://www.youtube.com/user/smbcapital/search?query=reading+the+tape

[Papertrader 1]

Thanks Guys this is great, I've just joined the community literally, and I've found like minded trades already, and yes One good trade is a must read.

Edited February 5, 2019 by Papertrader

[BBT Member 001 27]

I found a strategy called "Unusual Number of prints" which tells you the stocks whose tape is moving faster than average. I will start using it tomorrow.

Something that has helped me improve my trading is never trading a stock with a slow time and sales, the higher the # of prints the better.

[RTrader 20]

Exactly, the pace the of tape is really important. I don't even have L2 anymore. Just watch tape and chart. Chart patterns mean nothing if there is no orders coming through on the time and sales. Traders can manipulate L2 and hide orders, but nobody can hide from the tape

[BBT Member 001 27]

4 hours ago, RTrader said:

Exactly, the pace the of tape is really important. I don't even have L2 anymore. Just watch tape and chart. Chart patterns mean nothing if there is no orders coming through on the time and sales. Traders can manipulate L2 and hide orders, but nobody can hide from the tape

I agree with you. I think the level 2 has some usefulness but the tape itself tells a lot.

[ecadaret 14]

I use the Tape to exclusively to trade momentum plays, especially opening range plays. When i don't use the Tape, i usually don't trade well. The Tape is much more useful than the Order Book as a lot of manipulation occurs there, although it does have some value if you know what to look for those manipulations occurring. The Tape is the actual (note we can't see darkpool activity so it's not completely "actual") supply and demand driving the price where it goes so understanding how to read it is really useful. It gives me clues where to take profits and when to stop out if my original targets/stops don't seem like they'll be hit so i can risk manage a bit better.

As Lee W pointed out, SMB has good videos on this. If you want to learn how to read it, record your screen on a few stocks and don't trade. Just watch it and look at the charts at the same time and focus on the speed, print colors (above ask, at ask, in between bid and ask, at bid, below bid), and the patterns. Especially pay attention in consolidation areas vs. strong moves vs. staircase moves. Take notes and watch your recordings a few times over. It'll start to make sense over time.

Edited July 16, 2019 by ecadaret