TAPE READING BASICS
» The Dual Reality
» The RealityTrader Tape Reading Philosophy
» The Reality Trader Tape Reading Method
» Tape Reading 101
» Mental State
The Dual Reality
Traders come to the marketplace with pre-conceived ideas about how and why the markets move. While some of these ideas are valid, most are based on untrue assumptions . Many of these assumptions are found within the un-moderated areas of bulletin boards and trading threads. Most of these assumptions, while seem logical and true, are simply dead wrong. This leads traders down a road of failure without offering a trader an explanation to why he was unable to make the trading plan work effectively. This early failure leads to disgust and negativity towards trading for living. Many turn this emotional state to blame of the market and its participants in a manner that the trader is not able to apply what happened in their trading plan to lead to a positive result. This lack of accountability moves traders away from profitability over the long term and does not give the trader a solid foundation to build his or her portfolio. All this stems from initial misinformation that was presented to a trader and accepted blindly.
There is a true reality and a reality that traders create for themselves from such misinformation that is accepted blindly. Unfortunately, these two realities are never the same. However, the more a trader is a detached and objective observer rather than an opinionated and emotional follower, the closer his reality to real market reality becomes.
The RealityTrader Tape Reading Philosophy
This provides a solid foundation for a better possible outcome in his trading plan. Our philosophy is that the only reality of the market has to do with the price/volume action of a specific stock. All other factors are either hints or distortions. A seasoned trader distinguishes himself from a naive follower by his ability to see the true reality through all the curtains provided by those with less than adequate knowledge or misguided intentions. The stock market moves in its own manner. Stocks themselves move not because financial circumstances of the company dictate its direction. Otherwise, it would be too easy. Traders would simply buy what has strong fundamentals and sell what has weak fundamentals. Obviously this is not the case. Instead, interests of players in the stock and their emotions move the price. This philosophy can be confirmed by strong moves in stocks with questionable fundamentals. It can also be confirmed by a stock with great news that declines in price following the release.
Please read this article to gain more perspective on this matter.
Furthermore, we can not possibly know all the circumstances surrounding stock movements, all the shares accumulated or distributed, and 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 by trading from straight fundamentals. That's why a seasoned trader will only look at what is going on in a stock, from a price/volume action view, in a form he chooses, that lets him be closer to reality. Our preferred way to read stock market is tape reading. This is also why only a detached and unemotional state of mind allows us to make our decisions objectively, with no emotions distorting the picture. The link from your mechanical approach to the enhancement of your mental approach will develop your winning and confident attitude each trading day. Reality defines what is happening before you as you read it. There are no predictions or false expectations for what a market or stock will do. There is just what you see that demands the response to enter and exit a trade with as much profit or as little loss as the trade allows. There is no ego to block that response nor is there a lack of accountability when the trade moves against you. Trading resides within you and develops from a reality learned.
The RealityTrader Tape Reading Method
RealityTrader uses the RT method to teach traders our unique approach to the market. It leads you through all the stages from the general outlook right down to the exact moment of responding to the trade and execution technique.
Pure T&S/Level 2 reading is NOT Tape Reading
Many new subscribers are confused about what Tape Reading is. Tape Reading to us goes into much deeper understandings of the information presented on a Time and Sales (T/S) screen. Simple staring at T&S/Level 2, trying to gauge the strength at this very moment leads to pure scalping for cents, while true tape reading is capable of much more. Principles of tape reading allow to distinguish the smart money action from that of the majority. 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 looking at the chart, from intraday and higher depending of trader's objectives.
Pure T&S/Level 2 reading narrows this method to very small time frame and tiny profit objectives. While this style is valid, this understanding is just too narrow and gives tape reading bad name among those that try to work for more than several cents.
Please read this article to gain the right perspective on this matter.
RT stands for Read and Trade.
READ means two things:
1. Forget the Aristotle logic, which in essence is trying to establish a firm link between a reason and an outcome. Obviously this does not work in the market. Learn to see what is hidden under the surface. Ignore what is being offered to you by those that want you to see things at face value. Look at what is shown to you as bait for you to go in a certain direction. Then ask who wants you there and for what reason.
2. Learn to read what is really going on. We will provide you with the method to this reading. Being truly universal, this method will serve you no matter what kind of data presentation of choice you use: chart, technical analysis, particular set of technical indicators or something else. You will see how tape reading helps you to understand what the majority of market participants fails to comprehend. You will learn how to weigh market action in terms of price and volume. Then you will realize how to read the emotions that drive the market.
1. Be in the right state of mind that successful trading requires. Be ready to execute your decision flawlessly, in an automated unemotional manner when the moment demands the response. Learn to control yourself and become the master of your emotions. Only when you are in full control of yourself will problems like keeping stops or hesitation to enter the trade cease to exist. From this, no external influences can impact your performance. We will train you to reach this wonderful inner state when trading becomes the source of joy as well as income.
2. Learn to execute your trading decisions in a manner that maximizes the probability of your orders to get filled. It's really frustrating to see great opportunities pass by just because your execution skill was not refined enough to get the amount of shares desired or to route your sell order incorrectly. We will provide unique real-time execution classes that will put a solid foundation under your trading.
When your training is done, R and T are being put together. That's when you become a RealityTrader. A RealityTrader is one that is able to see what lies beneath the surface and to execute his decisions without hesitation. They are traders that trade the reality of the market, not their opinion that is impacted by his position in the market or from a neighbor's hot stock tip. They are traders that trade what they see, not what they thinks. Reaching this state of trading is our ultimate desire for you and will make us most proud of the hard work devoted. We want traders who are in control.
Read and Trade.
Read the Tape and be Ready to Trade.
Tape Reading 101
Tape Reading is one of the oldest methods of market movement interpretation. Like any other methods applied by market players, it's intended to show "what's behind the ticker". There is no tape itself anymore. It has been replaced by a scrolling Times Of Sales Window and Electronic Tickers. But the term, and more importantly, the principles are alive and are as useful as ever. They are based on aspects that never change. These are human psychology and major accumulation/distribution rules.
We prefer Tape Reading as our major method. There are plenty of technical indicators used by traders in different combinations. Many of them are very sophisticated and computers make it easy to watch them in real time. However, Tape Reading is a truly universal method that can be combined with any technical study, and we suggest it as a base for any other method traders like. Sophisticated indicators based on complicated calculations tend to somewhat mask the reality of a scenario happening. Tape Reading goes right to the roots of the stocks action. This is necessary for newer traders.
Like no other method, Tape Reading deals with reality itself allowing traders to see market moving forces in action and to judge which one prevails at that moment. It provides us with a look into what other players try to hide and then allows us to separate reality from our perception. The best example of this is as old as the Wall Street situation of selling on news. There are numerous examples of XYZ is selling on such a great news. Tape Reading shows why and how it happens. This tells you when you should expect non-conventional action on the stock and how to exploit it.
Tape Reading deals with two major categories of market players. They are the Smart Money and the Public. You can replace these old terms with any pair you like (big guys and small time traders, insiders and online traders, institutions and retail traders, etc). However, the core of market events is the same. Tape Reading is a method of analyzing which side is doing what at that moment. Analysis is done by observing the only, and ultimately, truthful indicators of Price and Volume Action.
Tape Reading does not always answer all our questions. In the stock market, nothing does. The stock market has no single ultimate answer. Otherwise this answer would already have been discovered and the market would have ceased to exist. There is no way price would ever change if traders knew the exact situation. Furthermore, any absolute method, once discovered by someone, could not be kept a secret for others. What Tape Reading does is:
1. It puts probability on your side as it allows you to read the truth to the extent it can be read, putting as few "interpreters" between you and reality as possible.
2. It allows you to develop a detached state of mind that a side observer possesses. The state of mind that traders want to experience is when they look at market action with no emotions, seeing clearly what happens. This is in direct conflict with cloudy judgement of emotionally involved traders with formed opinions that could be right or wrong, but in any case has nothing to do with reality.
A positive mental state is an extremely important factor for successful trading. A trader's inner state of mind directly impacts his performance. In short-term trading, the right mindset plays an even bigger role. It ultimately defines whether a trader's technical knowledge and mechanical skills will lead to success. Almost all the top traders in this industry acknowledge the fact that the understanding of how the market functions is just a foundation for success. Self-control is what eventually makes a winner out of a trader.
One of the most difficult shifts in thinking that a trader has to develop is the switch from Prediction" to Response". Instead of a trader always trying to predict or expect an event to happen, they simply respond to the event that is before them. The wrong assumption that is made by a trader is that he knows what the market will do at a certain moment. No one ever knows with 100% accuracy what will happen. The trader needs to shift his thinking in a manner that he will not try to predict, but rather respond, to whatever the market decides to do. This type of thinking requires that a trader develop a sense of absolute self-reliance. To achieve this state, a trader must take full responsibility for any outcome of his actions (or lack of actions). Any loss has to become a learning point. This is only possible if the trader is willing to take undivided responsibility.
In order to read undistorted reality, the trader needs to read the market with no emotions, as a detached observer. It's not easy to get rid of emotions but it's doable. Accepting the fact that nobody can be always right, willingness to admit mistake fast and thinking of trading capital as of tool rather than money are some of steps in right direction. The trader can't progress unemotionally if every uptick puts him in a euphoric state and every downtick scares him. A trader that experiences strong emotions loses the ability to see the reality of the trade. From this, the trader goes from hope to fear. These emotions dictate his actions and leads to almost certain failure over time. A seasoned trader lets only one entity dictate his actions, the market. Self-confidence, self-reliance, cold blooded reading of reality and keeping emotions in check are the traits of successful trader. Our room provides a powerful educational program devoted to development of a correct state of mind that members can build their confidence upon everyday.
Please read series of articles on trading psychology starting with Psychology 101
Morning Preparation Guide
Come to each day without preconceived ideas about what you think "should" happen.
If you are watching stocks from the day before, determine support and resistance levels that you may be able to derive and "IF/THEN" scenario. If the stock holds "x" support, then I will enter long with a stop on the break of support.
Determine market sentiment or pre-market mood, mainly using futures figures. However, do not feel that what the futures show, will be necessarily how the morning or afternoon trading session continues.
Read news stories. Do not try to assess value to the news as we are not experts in this field. We are traders that are simply interested in possible interest derived from the news stories. Look for a gap up or down and volume. If stories are negative to an extreme, use caution as the stock may become dangerous for trading. When a stock receives interest shown in the gap or volume or both, place this stock on the Level 1 screen for monitoring.
If you have access to a stock scanner or list of pre-market movers, place ones of interest onto your Level 1 screen for monitoring. Together with news stories, try to have 10 to 15 stocks during the pre-market session on the screen. Remember that you dont need to try and monitor "all" the stocks with activity. Try to narrow your focus for the open.
Near 9:00 EST, begin to take stocks from the Level 1 screen and place them on the Level 2 screen for risk evaluation. On the Level 2 screen, look for levels between prices to be tight, preferably 1/16 to 1/8. Also begin to look for larger sizes from participants at each level. Showing 100 shares each doesnt show big sizes. Showing 500 to 1000 shares is better. The idea is to find stocks that will not be hard to execute and read when the market opens. Also, near 9:20 EST, stocks become more clear on risk evaluation.
In the last 10 minutes of pre-market, narrow your focus for the open to 3 to 5 stocks. Place 3 to 5 stocks on a Level 2 screen that have moderate risk and looks readable from the open. During the last 10 minutes of the pre-market session, try to develop possible if/then scenarios on those stocks. If you do not have any developed for the open, wait for the stock to define a range and trade from that. Make sure volume is good enough and there is no risk for halt candidates. Often we see stocks gapping up or down excessively on no news. Use caution on these activity stocks as they are more apt to halt.
Calm yourself. Prepare for the open with a clear mind and readiness to trade. Do not pressure yourself to trade however. Instead, let a trade setup occur and be ready to take it if it shows. Even if a ½ hour goes by and you havent made a trade, do not feel like you need to force a trade. Many times Ive waited hours for my first trade. Dont feel as if you have to trade. But be prepared to do so if a trade setup presents itself. Some use meditation, breathing techniques or other "tricks" to keep the clear mind for the open.
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