What Is Tape Reading & How Does It Affect Day trading?

First we must decide upon what tape reading is not.

• Tape reading is not merely looking at what the tape to determine how day trading prices are running.
• It is not reading the news and then buying or selling "if the stock acts right."
• It is not day trading on tips, opinions, or information.
• It is not buying "because they look strong," or selling "because they look weak."
• It is not day trading on chart indications or by other mechanical methods.
• It is not "buying on dips and selling on peaks."
• Nor is it any of the hundred other foolish things practiced by the millions of people without method, planning or strategy.

It seems to us, based on our experience, that tape reading is the defined science of determining from the tape the immediate trend of day trading prices.

It is a method of forecasting day trading, from what appears on the tape now in the moment, what is likely to appear in the immediate future.

Tape reading is rapid fire common sense. Its object is to determine whether day trading stocks are being accumulated or distributed, marked up or down, or whether they are being neglected by the large investors.

The tape reader aims to make deductions from each succeeding transaction - every shift of the market kaleidoscope; to grasp a new situation, force it, lightning like, through the weighing machine of the mind, and to reach a day trading decision which can be acted upon with coolness and precision.

It is gauging the momentary supply and demand in particular day trading stocks and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.

Someone involved in day trading is like the manager of a department store; into his office are submitted hundreds of reports of sales made by the various departments. He notes the general trend of business - whether demand is heavy or light throughout the store but lends special attention to the products in which demand is abnormally strong or weak.

When he finds it difficult to keep his shelves full in a certain department or of a certain product, he instructs his buyers accordingly, and they increase their buying orders for that product; when certain products do not move he knows there is little demand (or a market) for them, therefore, he lowers his prices (seeking a market) to induce more purchases by his customers.

One who is day trading on the floor of the exchange, stands in one crowd all day is like the buyer for one department in a store - he sees more quickly than anyone else the demand for that type of product, but has no way of comparing it to what may have strong or weak demand in other parts of the store.

He may be day trading on the long side of Union Pacific stock, which has a strong upward trend, when suddenly a decline in another day trading stock will demoralize the market for Union Pacific stock, and he will be forced to compete with others who have stocks to sell.

The tape reader, on the other hand, from his perch at the ticker, enjoys a bird's eye view of the whole field. When serious weakness develops in any quarter, he is quick to note the changes taking place, weigh them and start day trading accordingly.

Another advantage in favor of day trading from the tape reader: The tape tells the news minutes, hours and days before the newspapers, and before it can become current gossip. Everything from a foreign war to the elimination of a dividend; from a Supreme Court decision to the ravages of the boll weevil is reflected primarily upon the tape.

The insider who knows a dividend is to be jumped from 6 per cent to 10 per cent shows his hand on the tape when he starts to accumulate the stock, and the investor with 100 shares to sell makes his fractional impress upon its market price.