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Minyan mailbag: Tape Reading



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Prof. Succo -

You have once mentioned that you are a tape reader, not a technician. What does that mean? What constitutes tape reading? For purely my education, what set of things do you look at (if they can be ennumerated) in forming a trading decision?

Thanks and regards,

Minyan AA

Minyan AA -

Tape reading is applying experience and "intuition" in understanding the supply and demand dynamics of short term stock movements. Intuition in this case is a subjective understanding that lies in the subconscious given years of empirical data. I say subconscious because I don't consciously apply a set of rules even though those rules exist. They come through as a "feeling" in a dispassionate sense.

It is inductive reasoning (the sun rises in the east every day, so it must always rise in the east). An example would be watching a stock go up in smaller and smaller increments on higher and higher volume. This means to me that it is taking more marginal dollars to make a stock go up. This means the stock at a higher price is attracting more supply. Another example is watching how a stock is offered when I know it is for sale. There are patterns that tell me if it is one seller or many. Another example is tick data: are stocks trading up or down on heavy tick data.

Tape reading requires intensely concentrating on the trading of a particular stock or index over the course of some period of time. Because I have many positions I normally do this only in periods of high importance like when I am legging into a position or out of one.

No positions in stocks mentioned.

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