Tape Reading Technique Secrets for Trading Stocks 101 – A Wall Street Insiders View!


Most people who get into securities trading have found that reading tapes is difficult and very stressful. As a former Wall Street insider, there is a secret that most traders do not know.

Do not trade any shares whose average volume exceeds one million shares per day!

That's it! This is the big secret that most Wall Street insiders use to their advantage. Most retail traders like to trade the stocks on the most active lists because they are easy to buy and sell and their spreads are tight. But there is a big problem with most stocks which trade on a large volume and these are:

  • Institutional order of all directorates

  • Cover spreaders / operators

  • Too much information

Institutional order of all directorates

Once there are too many institutions involved in trading a stock, it constantly changes the direction of the price. Institutions buy and sell stocks for many reasons that have nothing to do with the fundamentals of stocks. Here are some examples of why institutions buy and sell stocks:

  • Investors buying or selling shares of their fund

  • Annual window covering

  • Sectoral rotations

When you mix all of these important commands, it creates unstable conditions and makes it difficult to read the tape. The direction of the tape changes back and forth to quickly sense any behavior. Another problem that institutions create stems from placing large orders with control desks. Most control consoles "operate the control" and that means getting the best price possible. This affects the trader, because whenever the stock seems to go in one direction, the order office intervenes and stops this movement.

Spreaders and cover operators

Traders and hedgers trade to protect another position. Management generally does not affect them, so their decisions are based on broadcast relationships. An example would be Home Depot Stock verse Lowe & # 39; s. If Home Depot rose 3% on the day and Lowes rose only 1%, the trader can sell Home Depot stocks short while buying Lows stocks. These types of traders capitalize on the 2% spread difference because they know that the stock prices of these two companies move together and will eventually come back.

Too much information

Finally, it's just too much information. As a tape drive, you should be able to remember certain prices and how the quotes behaved around those prices. For example, if each time a stock hits the bottom of the day and a lot of sell orders arrive but an ECN stays there and absorbs the entire sale. In this case, you would buy this media unless the ECN is disturbed and the price drops too low. A good tape reader learns to remember certain price levels and how the order book reacts to those levels. If you are trading in a stock that has a lot of volume orders, come and go too quickly to remember and read this data.

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