Here are Livermore’s stock market tape reading rules:
- Use the tape for a clue of who is in control of the market.
- If the market breaks below the pivotal point by $1 (or $3) go short.
- If the market holds above the pivotal point and rallied by $3, Livermore would have bought the stock.
Full Answer
How to read a stock ticker tape?
· Here are Livermore’s stock market tape reading rules: Use the tape for a clue of who is in control of the market. If the market breaks below the pivotal point by $1 (or $3) go short. If the market holds above the pivotal point and rallied …
How did stock tickers work?
To complete the strategy of reading the tape for a NASDAQ stock, we would look for a “well bid stock” and “green prints” on the tape (time and sales). As long as active buying was occurring (Large and consistent green prints, I would continue to be a buyer.
What is a fake stock market?
Filter the tape's message through index movement and market breadth. Look for the ticker to react with surging volume when the indices break out or …
Are stocks up or down?
What is the "Tape?" For me, reading the tape consists of two things: the printed orders, and the order book. Understanding the relationship between the two is key. The order book shows us the market participants that are providing liquidity to the market. Those that are willing to buy at a certain price are the bids, and those willing to sell at a certain price are the offers (or asks).
Why do you use stock market tape reading?
We can view tape reading as one of the most effective indicators for active day traders. The second reason you would want to use tape reading is to make a quality risk-reward strategy.
What is tape reading?
Tape reading is also known as the “time and sales,” (or Level II) is the oldest trading strategy used to analyze the price and volume of stocks. See the time and sales window below: What you see in the above time and sales window are the trades that have been executed.
What is the most common way to trade?
Most trades happen on the ASK price (traders buying from the sellers).
What is level 2 in trading?
Last but not least, Level II is a window into what the smart money aka the big whales is doing. After all, what is ultimately driving the price is the smart money buying and selling interaction. Retail traders don’t have the buying power to alter the price in any way, shape, or form.
Who will often place orders so large that they can actually influence future prices?
Market makers, such as major banks, will often place orders so large that they can actually influence future prices.
What does it mean when a buy resting order is above the current price?
Conversely, if you see a large sell order resting on the order book above the current price, it may suggest the price may find a resistance level and sell-off.
Can Jesse Livermore read tape?
Yes, you read that right, the retail broker hated Jesse Livermore for his ability to successfully read the tape. If you’re scalping or day trading and even for trend following, you probably need to learn how to read tape trading. These market tactics can be used to fine-tune your entries and better time the market.
What does "tape reading" mean?
Too many traders want to know “why” after the fact. Tape readers by the very definition, don’t interpret THE WHY. Tape reading is interpreting price action . “The reason for what a certain stock does today, may not be known for two or three days, or weeks, or months.
When did the NYSE expand?
When I say the old days, I am referring to 2007. This is when the NYSE expanded to allow increased amounts of electronic trading. (More on this at the end of the article)
What does it mean when a market maker is quoting large size?
If a big market-maker was quoting large size, you had every reason to believe it was a real quote. Essentially you were tape reading by monitoring the size of bid/ask quotes and WHO the quotes belonged to.
What is the difference between a catalyst and a trade management?
There is a difference between a catalyst and trade management. Struggling traders believe a catalyst or an edge will translate into profitability. Your edge , or any reason to be in a trade, is only the first part of the trading equation. The money is made or lost in trade management.
Is tape reading popular?
Tape reading is not as popular as it was in the old days. Computers have taken care of that. Savvy traders have adapted and are skillfully implementing tape reading in a much different way today. Chart reading is one method. Another technique is interpreting news and volume traded off the news. When I say the old days, I am referring to 2007.
Who made note of fluctuations?
In this first quote from Reminiscences of a Stock Operator, Jesse Livermore makes note the fluctuations were giving messages. Early on he was intending to understand the message that would result in a trading edge. What tape reading method do you use? I personally use candlesticks in multiple time frames.
Was there day trading on the NYSE prior to 2007?
There was an edge day trading NYSE stocks prior to 2007. Tape reading was easier, there was far less electronic trading. The floor of the New York Stock Exchange was dominated by “specialists.”
What is a skilled tape reading?
Skilled tape reading depends on a single key observation: Professionals move markets in whatever direction yields the greatest volume. To this end, the most basic order flow manipulates price against the crowd's emotions.
How to tell if a tape is strong or weak?
Look for the ticker to react with surging volume when the indices break out or break down. Recognize that a strong tape rings a loud bell in a weak market, while a weak tape rings the same bell in a strong market.
What is bid ask spread?
The bid-ask spread engine expands and contracts as it reacts to shifting market conditions. Look for spreads to widen when neither side wants to make a commitment to the current price.
Does the ticker tape know the chart?
The ticker tape already knows the chart. Market insiders push prices toward support and resistance levels to test the waters, trigger the stops and see how much interest they can generate with the public.
When was the column "TheStreet" originally published?
This column was originally published on RealMoney on Feb. 14, 2008 at 11:22 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
Is it a good way to lose money on a ticker?
Most traders focus their attention on the excitement of the break, jumping in when the ticker bursts with buying or selling activity. But this is a good way to lose money. In contrast, tape readers step back and examine the quality of this three-prong conflict, which tells them if the embryonic move is bona fide, or a nasty trap waiting to be sprung.
How many kinds of tape reading setups are there?
There's 4 "kinds" of tape reading setups that I like to use.
What does it mean when an order crosses the tape?
That means if you place an order to buy at a lower price than what the market is pricing, there's no guarantee that you will find a willing seller.
What happens to a stock after a news event?
After a news event like earnings or FDA announcements, a stock will only have so much liquidity supply available. Because of that, the bid/ask spread will widen out and those that want to get in or out quickly will be forced to really move price. Eventually that comes to an end that the stock consolidates in a range, but soon enough the demand for liquidity is so great that the stock will move. This is the basis for "flag" patterns in traditional technical analysis.
Why do stock sellers go away?
In response to this, algorithmic traders will start placing orders just above that bid price, and the sellers go away because they know that large order is much larger than them and it will be harder for the stock to get underneath that price.
How many shares are in a 5 lot?
The size is divided into lots of 100 shares, so a 5 lot would be equivalent to 500 shares.
What happens if a large order never trades?
If the large order never actually traded in the market, it still had an effect on price. That's the value of reading the tape.
How do traders use tape?
Traders use the tape to identify shifts in supply and demand in markets by developing an intuition for how the tape moves when shifts are occurring.
How to identify momentum in trading?
Speed is one way traders utilize the tape to forecast future market direction. You can identify momentum by seeing an acceleration of prints in one direction.
What is the most important setting for T&S?
Size Filter. Most modern platforms that offer T&S allow you to change settings within it. One of the most important settings is a size filter. Otherwise, the tape will be moving much too fast and will be clogged with tiny orders. One of the best tape readers of all time agrees that the tape moves too fast nowadays.
When the market is consistently printing on one side of the transcation, what is the indication of?
When the market is consistently printing on one side of the transcation–the bid or the offer–that’s an indication of a short-term supply or demand imbalance.
What is a held bid?
A held bid is when sellers are aggressively hitting the bid on high volume, but the price won’t break below a certain level, and vice versa for a held offer. These are essentially short term support and resistance levels which can be traded off of.
Does a chart show where the market is trading?
Sure, a chart will show you where the market is trading, but the additional context provided by the tape is meat and potatoes on short term frames.
How many shares are in a small order?
When you see you’re seeing a string of small orders, between 100 and 2,000 shares, and you suddenly see an order north of 50,000 shares, that should get your attention. It’s likely to be from a large institution. You have to ask yourself: are they done buying or selling? Will other huge orders come through the market? If so, in what direction?
What is a ticker tape?
Hence, a ticker tape automatically records each transaction that occurs on the exchange floor, including trading volume, onto a narrow strip of paper or tape.
How many trades are there on a ticker tape?
There are literally millions of trades executed on more than 10,000 different stocks each and every day. As you can imagine, it's impossible to report every single trade on the ticker tape. Quotes are selected according to several factors, including the stocks' volume, price change, how widely they are held and if there is significant news surrounding the companies.
What does it mean when a stock is red?
Red indicates the stock is trading lower than the previous day's close. Blue or white means the stock is unchanged from the previous closing price. Before 2001, stocks were quoted as a fraction, but with the emergence of decimalization all stocks on the NYSE and Nasdaq trade as decimals.
How many letters are in the Nasdaq?
Some Nasdaq stocks have five letters, which usually means the stock is foreign. This is designated by an "F" or "Y" at the end of the stock symbol. 2 . On many tickers, colors are also used to indicate how the stock is trading. Here is the color scheme most TV networks use:
How to tell if a stock is foreign?
You can tell where a stock trades by looking at the number of letters in the stock symbol. If the symbol has three letters, the stock likely trades on the NYSE or American Stock Exchange (AMEX). A four-letter symbol indicates the stock likely trades on the Nasdaq. Some Nasdaq stocks have five letters, which usually means the stock is foreign. This is designated by an "F" or "Y" at the end of the stock symbol. 2
Does the ticker show only stocks?
In most cases, the ticker will quote only stocks of one exchange, but it is common to see the numbers of two exchanges scrolling across the screen.
How long did the ticker tape machine take to record?
1 . Ticker-tape machines introduced in 1930 and 1964 were twice as fast as their predecessors, but they still had about a 15-to-20 minute delay between the time of a transaction and the time it was recorded.
