Reading Tape

[RMorgan]

Can anyone point me in the direction of some good information on reading tape?

I'm particularly interested in the futures markets (E Mini's, Dow Mini's, Gold Futures, Crude Futures)

I'm a newbie - I'm looking at the following as a strategy and if I'm barking up the wrong tree maybe someone could set me straight there too. So far this is the strategy I'm going to try to paper trade.

I'm looking at scalping the futures markets.

I will use 5 minute and 15 minute Ichimoku charts as a way of indicating sentiment.

I will use Resistance and Support levels as an indicator of entry and exit points.

I will use the tape as the last indicator of which way to scalp.

So in theory if my Ichimoku charts and the tape are agreeing with each other I will have a fairly high level of confidence entering in to a trade. I'll wait for the market to interact with the resistance or support levels and based on the trend I'm seeing in the charts and tape I will scalp accordingly.

First things first - I need some more help reading/understanding tape.

Thanks in advance for the help.

 

[timsk]

Hi RM,
Have you checked out the books FAQ: Tape Reading Also, I suggest you do a search and read the many threads on the subject as your question has been discussed many times.

On a more general note, if you're new to trading, I would suggest that by all means look at lots of different markets, but only select one or two at the most to actually trade. So, for example, if you decide to trade the ES (the e-mini S&P futures), you might like to compare it to the YM or Russell futures. Chopping around from index futures to oil to gold and back again - is likely to make an already difficult task that much harder!
Tim.

 

[DionysusToast]

When you say scalping, what are your targets?

If you plan to scalp out 4 ticks on the ES for instance, you do not need any indicators to do this if you are reading tape, nor do you need support & resistance. In fact, if you are looking at short term targets, all that stuff will be detrimental.

So - can you define what you mean by scalping? The sort of targets you are aiming for? Trades per day you think you'll be hitting - that sort of stuff.

It's hard to comment on the Tape side without knowing what you plan to do.

 

[Pazienza]

Hi RM,
Have you checked out the books FAQ: Tape Reading Also, I suggest you do a search and read the many threads on the subject as your question has been discussed many times.

On a more general note, if you're new to trading, I would suggest that by all means look at lots of different markets, but only select one or two at the most to actually trade. So, for example, if you decide to trade the ES (the e-mini S&P futures), you might like to compare it to the YM or Russell futures. Chopping around from index futures to oil to gold and back again - is likely to make an already difficult task that much harder!
Tim.

I think this is probably sensible for a new trader looking to do what you're talking about. I trade 4 things, all US index futures. I am experimenting with expanding (for obvious reasons) but am only looking at adding European index futures, and then only for the mornings. So that would be 6 in all (really 2 in the morning and 4 in the afternoon) and all things that act in a very similar way.

I would add that my advice would be totally different if you were going to trade daily - in that case I think you should be watching more like 150 - 200 things.

 

[RMorgan]

Thank you for the reply.

I am looking to start with 1-4 contracts. I'm hoping to make between 4-6 ticks, I'm not sure if this is realistic.

Is it realistic to think that one could trade 3-6 times per day and make 4-6 ticks per trade or is that just unrealistic?

When you say scalping, what are your targets?

If you plan to scalp out 4 ticks on the ES for instance, you do not need any indicators to do this if you are reading tape, nor do you need support & resistance. In fact, if you are looking at short term targets, all that stuff will be detrimental.

So - can you define what you mean by scalping? The sort of targets you are aiming for? Trades per day you think you'll be hitting - that sort of stuff.

It's hard to comment on the Tape side without knowing what you plan to do.

 

[RMorgan]

Hi RM,
Have you checked out the books FAQ: Tape Reading Also, I suggest you do a search and read the many threads on the subject as your question has been discussed many times.

On a more general note, if you're new to trading, I would suggest that by all means look at lots of different markets, but only select one or two at the most to actually trade. So, for example, if you decide to trade the ES (the e-mini S&P futures), you might like to compare it to the YM or Russell futures. Chopping around from index futures to oil to gold and back again - is likely to make an already difficult task that much harder!
Tim.

That seems like great advice that I will definitely heed.

Thank you.

 

[RMorgan]

I've acquired Studies in Tape Reading by Rollo Tape (Richard Wyckoff), Tape Reading and Market Tactics by Humphrey B. Neill, and Techniques of Tape Reading by Vadym Graifer & Christopher Schumacher.

I'll begin reading them immediately. Thank you for pointing me in that direction timsk.

 

[DionysusToast]

I've acquired Studies in Tape Reading by Rollo Tape (Richard Wyckoff), Tape Reading and Market Tactics by Humphrey B. Neill, and Techniques of Tape Reading by Vadym Graifer & Christopher Schumacher.

I'll begin reading them immediately. Thank you for pointing me in that direction timsk.

None of these books will actually help you in Tape Reading. In fact, the Graifer book is a book on reading charts.

 

[DionysusToast]

Thank you for the reply.

I am looking to start with 1-4 contracts. I'm hoping to make between 4-6 ticks, I'm not sure if this is realistic.

Is it realistic to think that one could trade 3-6 times per day and make 4-6 ticks per trade or is that just unrealistic?

No - this sounds fine.

The following tools are what you will need:

1 - Chart
2 - DOM
3 - Time & Sales

You should not add in any indicators. They won't help at this level. What you are looking for is short term imbalances. The chart helps you to see where to look but with a 4 tick target on the ES, it will not be your main point of focus.

I'd use a 500-900 tick chart on the ES for a 'normal' market. Right now the ES is not normal and so it may put you off. A 200 tick chart would be better right now.

 

[timsk]

None of these books will actually help you in Tape Reading. In fact, the Graifer book is a book on reading charts.

DT,
If you know of any books that will help - please can you post details of them to the Books FAQ.
Thanks,
Tim.

 

[new_trader]

Can anyone point me in the direction of some good information on reading tape?

I'm particularly interested in the futures markets (E Mini's, Dow Mini's, Gold Futures, Crude Futures)

I'm a newbie - I'm looking at the following as a strategy and if I'm barking up the wrong tree maybe someone could set me straight there too. So far this is the strategy I'm going to try to paper trade.

I'm looking at scalping the futures markets.

I will use 5 minute and 15 minute Ichimoku charts as a way of indicating sentiment.

I will use Resistance and Support levels as an indicator of entry and exit points.

I will use the tape as the last indicator of which way to scalp.

So in theory if my Ichimoku charts and the tape are agreeing with each other I will have a fairly high level of confidence entering in to a trade. I'll wait for the market to interact with the resistance or support levels and based on the trend I'm seeing in the charts and tape I will scalp accordingly.

First things first - I need some more help reading/understanding tape.

Thanks in advance for the help.

IMO: Avoid any book that was written after 1950. Tape reading is much more of an art than an exact science and the art has been corrupted by authors and software designers who think they can re-invent the wheel.

 

[DionysusToast]

DT,
If you know of any books that will help - please can you post details of them to the Books FAQ.
Thanks,
Tim.

There aren't any books on the topic. It's a bit like learning to drive from a book.

The tape is something that moves - it speeds up, it slows down & it jiggles about. The medium of the written word does not serve well for teaching the subject.

 

[dribs]

Agree with Dionysus, no book will teach you to trade like this. Get up a decent DOM + T&S and stare and record, look at what side is being hit, acceptance and rejection, speed, spoofing etc. If you really want to learn how to do it, I wouldn't have any charts up either(to begin with, maybe bring one up early to see where main S&R prices are so you can watch how it reacts when/if it gets there) so its just total concentration on reading the book.

 

[DionysusToast]

If you want to scalp with DOM/T&S - here's what I'd do if I was starting out.

1 - Stick to one market only.

2 - Decide the types of trades you want to take: Buy when people are buying OR Buy when people are seling (and vice-versa). So - you either become an expert in looking for moves that will continue a 4-6 ticks or for when moves exhaust and pull back 4-6 ticks. Don't try to look for both. Become expert in the one thing.

3 - Do not trade around OBVIOUS support & resistance. There's too many other people entering there and too many games played. Think about it - if you are below resistance many people are watching that area waiting to enter both reversals & breakouts. How many people trade into the resistance on the way up? Not so many. Same can be said for action on trendlines.

4 - Make sure your target isn't too large. If the ES is in a tight range and putting in 2 point swings, then you can't expect to go for 6 ticks.

5 - Don't rely too much on the market doing something it hasn't done yet. So - if the average swing sizes are up 2, down 3, up 2, down 4 - don't go short after you have just moved down 4 points.

6 - Sell market orders should be reflected by a down move in price. If that is not the case, someone is holding the market, absorbing the selling. This is one of the ways that market reverses, people see this and jump in buying. Another way the market reverses is by lots of selling that DOES cause a big down move. Eventually we run out of sellers. Get to know the difference.

At this point - I have to go back to my previous post - it's hard to describe this as it's a moving thing when you see it live.

Here's 2 scalps from yesterday. I am scalping like this on the ES mostly because of the increased volatility in the past week. It's calming down now but I don't usually go down to such a low timeframe. Still, there's no reason why not.

Trade 1 - First Blue Arrow - Long. Entered @ 1193.50 with a target at 1195.00. Target & Stop 6 ticks. This was looking good once I got in with it refusing to break 1192.75. It did peak down to 1192.50 but it was a fake out & price moved up. Although my target was 1195, I didn't get a fill and bad management on my behalf let it go down to the stop. I should have cut it but 'hope' kicked in and I thought we'd have buyers again at 1192.50.

Trade 2 was a continuation trade, I saw the little up move from 1190-1191.25 fail so I got on short. Nothing much to say on that trade to be honest. It's a more typical 'scalp' but don't expect to be in & out in 30 seconds on these. This one went down after taking 2 ticks of heat but I was still in for 7 minutes.

The lesson is in the first trade. When you see a base like that, it's generally good but do expect a fake break down before it moves up.

Whatever you do though - if it hits your target, doesn't fill you and starts moving back - don't be a d1ck like me and let it go back to your stop!

 

[timsk]

Hi DT,
Excellent post!
I was wondering about your stop size. Is the 6 tick stop mechanical and the same for each and every trade - or do you vary it according to your reading of the DoM (or some other factor)? Ditto with your targets.
Tim.

 

[DionysusToast]

Tim - right now - in this volatile market (which is cooling rapidly) - it's just 6 ticks both ways.

I had a trade last week that lasted 3 seconds. That's not normal at all for me. If you look at a 900 tick chart, the ATR for that was 7 ticks most of last week. So 6 ticks either way is very tight. The ATR yesterday was down to 3-4 ticks for the same timeframe but the depth isn't back on.

So - for now, it's just pull the trigger, sit back and wait. Not a great deal of intra-trade management because it's been all over the place and moving so quick that it's hard to get a lot from the tape anyway.

Hope this makes sense.

 

[new_trader]

Tim - right now - in this volatile market (which is cooling rapidly) - it's just 6 ticks both ways.

I had a trade last week that lasted 3 seconds. That's not normal at all for me. If you look at a 900 tick chart, the ATR for that was 7 ticks most of last week. So 6 ticks either way is very tight. The ATR yesterday was down to 3-4 ticks for the same timeframe but the depth isn't back on.

So - for now, it's just pull the trigger, sit back and wait. Not a great deal of intra-trade management because it's been all over the place and moving so quick that it's hard to get a lot from the tape anyway.

Hope this makes sense.

No, it doesn't. You are just taking stabs in the dark. I don't know why anyone pays attention to you.

 

[DionysusToast]

OK N_T - why don't you explain your theory as to why these are stabs in the dark as opposed to adjusting to different market conditions?

You have given your conclusion, why not tell everyone how you came to that conclusion?

 

[new_trader]

OK N_T - why don't you explain your theory as to why these are stabs in the dark as opposed to adjusting to different market conditions?

You have given your conclusion, why not tell everyone how you came to that conclusion?

Years of study and practice.

 

[DionysusToast]

Years of study and practice.

I knew in advance, that you were going to say that.