Tape Reading Like A Specialist

Beginning traders often have a narrow view regarding the process of trading and tend to focus on technical indicators while ignoring other important information. We feel a better approach is to become a specialist in the markets one trades. A specialist understands the sentiment, macro economic, and technical factors that influence their markets. A specialist knows the type of traders who are likely to be present in their market at any given time.

One of the specialists most powerful techniques is to combine tape reading, a form of process based trading, with hypothesis (hypothesis based trading). For example, the specialist day trader may start the day off with a hypothesis that the market is likely to move one way or the other based on recent global macro news, sentiment, other time frame data, or other factors. Because the specialist tracks their market and the factors that drive it on a regular basis they usually have a good idea of where it is going before the market even opens. But, instead of placing the "higher risk trade" the specialist tape reader waits for the market to open and drills down by reading the tape to see whether or not the market's action is actually supporting their original hypothesis. The specialist additionally benefits from having a stronger context to interpret the tape.

Let's imagine that the specialist starts the day off with a hypothesis that the market will trend lower due to recent global economic news. The specialist next drills down and reads the tape. There are several possibilities that may unfold:

  • Case #1 Abnormally Strong Tape

    The tape is not supporting the hypothesis. The specialist has the option to discard the original hypothesis and formulate a new hypothesis or optionally the trader may stick with the original hypothesis and wait for the tape to become more supportive.
  • Case #2 Abnormally Weak Tape

    The tape is supporting the hypothesis. The trader now has additional confirmation to place a trade and, importantly, useful information on how to place that trade. Because the tape is weak the trader knows that a conservative limit order is less likely to be filled.
  • Case #3 Mixed Tape

    The tape is mixed. The trader may skip the trade, wait for more supportive conditions, or attempt to get better pricing with the knowledge the trade is a lower probability.

Of course, serious traders choose OrderFlowDashPro's AlphaReveal to read the tape. AlphaReveal is the next generation tape reading and order flow analysis software which makes tape reading easier and more powerful then ever before. We've recently lowered the price to just $115/month. So, be sure to take our Free 14 Day Trial today.


Sunday, June 02, 2013 4:20:00 AM


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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure:

Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.