Classic Techniques  |  MAR 2008

Trading By Tape-Reading by Adam Wasserman

Trading By Tape-Reading by Adam Wasserman The foundation of all trading systems, indicators, and chart patterns is the battle of the tape. If you master that, it can make all the difference in your trading. Regarded as one of the first-ever successful strategies for traders, tape-reading is trading in its purest form. Charts, technical indicators, red lights, and green lights work wonderfully when mastered, but all are products of the tape and don’t exist without it. By withstanding the test of time, tape-reading has proven to be the most consistent method of pulling money out of the stock market for a trader. WHAT IS THE TAPE? To understand tape-reading, we must understand the fundamentals that make up the New York Stock Exchange (NYSE). The NYSE trades in a continuous auction format, one that is driven higher by aggressive buyers or forced lower by aggressive sellers. The tape is made up of integral variables: the symbol, last price, last trade size, net change, bid, ask, bid size, ask size, high, low, and volume (Figure 1). From reading these, a trader is privy to recognizing patterns that define the amount of stock to be purchased at a higher price and the amount of stock to be sold at a lower price.

by Adam Wasserman