Reading tape is one of the essential factors in active trading. Many traders are familiar with hundreds of indicators available in most trading platforms, but few people have an idea of how to read and understand the tape (Time & Sale) "Reading the Tape,” when talking about the skills of the work with the window Time and Sales. Unlike other indicators, which have overbought or oversold reading tapes for each individual situation. We are not talking about how the market is trading on a particular day or at a specific price level .We will look at the general characteristics of the window Time & Sales and tape reading (tape speed, the size of orders, etc.). The tape is most important in confirming the identification and breakdown of demand and supply at critical points. You have to understand that you must learn to read the tape as it requires a "sixth sense" to read the tape, skills at a level that you can anticipate what will happen in the next moment. If you are ready to start practicing with the tape, you need to spend a lot of time watching how prints are seen and comparing with what is happening on the chart, and trade with professional traders is the only way to hone the skills of reading the tape
If you ask a trader with good skills of reading a tape the question; "what tools for market analysis is the best?" He unequivocally tells you that the most valuable tool for me is a Time & Sales window called "Tape". It is detailed information about the flow of orders for a particular market. This box contains the details of each transaction that have passed on this action: the time of the transaction, price, order size, time and order conditions. Depending on the trading platform, you can have access for this data. Only after mastering tape messages, you can make the most accurate decisions on entering and exiting positions.
For a professional day trader, exist two very important things in the market: one - the price, and the second –the volume. This is present in the Time &Sale window. When used properly, the ability to read the tape increases your chances of success, because the purpose of reading the tape - follow the big money. While many professional traders do not like to admit it, trading is a game of Probabilities. The trader's job is to place trades that have the highest chance of success. Trading with Time & Sale window (Tape) requires a lot of patience, but I tell you patience will pay off. You can not buy or sell a stock just because you have noticed that the tape a little accelerated. You have to understand support and resistance levels, to combine tape message with the formation of price action. Tape movement can sometimes be very fast and discouraging. It takes some patience to get used to understanding the true meaning of what you see. Remember that each individual action, and should be traded in their own way. Before you enter into a transaction, it is necessary for a couple of minutes to observe the behavior of the Tape. To read the tape, to train their eyes, to search for changes in the nature of the behavior of the tape.
Let's start with size. The size of the executable orders helps to understand whether the price of the visible behavior of players confidence. Before you enter into the trade we want to see big orders showing in the time & sale window a huge traffic of orders flow buy or sell contracts from 100 and more (on E-mini S&P 500) . Of course the number of contracts you will change depending of market condition, what time you’re trading, and what E-mini contracts you are trading. This will be your visual signal to pay attention for this price action. It doesn’t mean you have to trade in this moment, but it means there is a lot of interest on this price level.
Speed orders - another key element of the message in the time & sale window. Typically, when a price breaks support / resistance levels, not only increases the size of orders, we also observed the acceleration of the tape. This indicates that there is high interest on the current price level. You see not only small traders buying and selling, but you see big players coming into the game.
Order Flow - is one of what sides of the trade (bid / ask) coming transaction. When we want to enter into a long, we want to see a lot of orders executed at the Ask (Of course it’s not always like this). Conversely, if we want to enter into a short, we expect the execution of orders at the price Bid. This gives you a clue as to how traders desperately trying to get into the action or other traders try to exit from the loosing trade.
This question is touched them every novice trader. Anyone who has experience trading will respond to it simply: Good volatility and volume. E-mini S&P 500, E-mini NASDAQ 100, E-mini Russell 2000, E-mini Dow, E-mini Oil, E-mini Gold, 10-30 years T-Note E-mini futures, these are the most popular for trading using the tape. That E-minis have a large volume and considerable interest from big players. They provide strong and fast movements, which you can earn large profits. Remember that we need to see is big orders and speed of the tape, and this requires action with interest
If we analyze how changing the activity of market participants during the day we can say, it is best to trade only in the first 2-3 hours of each day , when the market presents highest volume and volatility, and when this happens is a majority of the trades of the day. After the break, the market is usually ragged. At that time, trade merchants, guided by considerations other than those that can be used in the first session of trading hours on the intraday trend. Of course, you can not exclude the possibility of trade in the afternoon, but you need to have some experience.
Level 2 is most of the time for trading in the stock market; in some cases we use E-minis. The window shows the size of orders in the book market maker. Although market makers have the ability to manipulate the Level 2 to mislead traders, but as a rule, to buy contracts in long should be the presence of large the bid and the ask small. Conversely, if you want to take action in the short, or sell it, look for the small size of the bid and the ask big. Of course, this principle is not foolproof, but it increases the chances to make a profitable trade.
This is probably the hardest part of trading for most traders. Reading tape helps to get out of the deal at the right time, looking at the imbalance of orders. When graph shows a sharp price movement in one direction, you need to immediately look at the tape, to know when will be used "stop market order"(stop losses). But this skill is necessary to develop trade practices. If you take action in short, watch out for increasing the bid side and almost or little present ask. It can serve as a signal telling that the movement is ending; there is no “Fuel” for short riders anymore.
There are some E-mini futures (E-mini bonds) with large volumes. You have to understand the time & sale window and Level 2, compared with other E-minis will be very different. You can see how big orders take place in one tick only… Do not forget the tape reading is always considered in context. For each E-mini, your time & sale window have to set up differently.
We have already discussed the order size, speed and order flow. While all of these are key elements of the tape, it is necessary to confirm the price action. For example, if you are looking for the entrance to the long at E-mini S&P 500 at price of $2000, the tape tells you, go “long”…. WAIT, this is a very important level, a lot of stop sell orders below this level, and market maker, computer programs will push the price lower, for triggering these orders, and move the price much lower when you thinking to enter before. Pay Attention for important levels, be very patient, they must be tested and penetrated, before they make a big move.
One of the biggest mistakes that many traders have observed is their attachment to their positions. In an attempt to pacify their egos, they often open the trade and hold until it will not go in your direction. Remember that day trading - this is a very fast game. If you do not react quickly, you will lose money too often. When you make a decision based on the behavior of the tape, and the action does not go in your direction at once, there is a possibility that it is better to get out of position with a small loss.
It is important to be fully concentrated when the trade and you are trying to understand what the tape says. Screen out extraneous noise. If you want to enter a trade, make sure it is not distracted by other things. This will help you feel, when to stay in the action, and when it's time to go out.
Tape Reading is one of the most important skills for day trader, which can help many people to stay on the right side of the market. All trading systems and strategies, technical indicators, candlesticks, a variety of different indicators, all of these are displayed on the Time & Sale window. You will always be one step ahead of other traders. A trader who has mastered reading and understanding the tape, simply doomed to make a profit from the trade. Everything else in the market - graphical representations, technical analysis, indicators - will then work well, but only as a consequence of the tape. Without Time & Sale, they can not be useful for a trader. Mastering the Art of Tape Reading requires time and effort, but you will be rewarded for your work...