The Tape Reader — Not an Average Trader
By Chris Mark on The Capital
There were two traders. The first was profitable and generated a fortune the other was just scratching the surface with a few thousand dollars. Why was one of these men able to generate a fortune, while the other never acquired more than a few thousand dollars trading?
Their chances were equal at the start of their pursuit as far as capital and opportunity. The profit was there, waiting to be won by either or both. The answer seems to be in the peculiar qualifications of the mind, highly potent in the successful trader, but not possessed by the other.
By proper mental qualifications, I don’t mean the mere ability to take a loss, define the trend, or to execute some other move, characteristic of the professional trader. I refer to the active or dormant qualities in his make-up. For example, the power to force himself into the right mental attitude before trading, to control his emotions: fears, anxiety, elation, recklessness, and to train his mind into obedience so that it recognizes but one master — the tape. These qualities are as vital as natural ability, or what is called the sixth sense in trading. Some people are born musicians, others seemingly void of musical taste, develop themselves until they become virtuosos.
You might be urged to say: “Yes, but these are rare examples. The average man or woman never makes a success of trading by reading moment by moment transactions of the market.” You’re right. The average man or woman seldom makes a success of anything…That is true of trading, business endeavors or even hobbies. Success in trading usually results from years of painstaking effort and absolute concentration upon the subject. It requires the devotion of one’s whole time and attention to — the tape.
He should have no other business or profession. A man cannot serve two masters, and the tape is a tyrant. One cannot become a Tape Reader by giving the ticker absent treatment.
So, what is Tape Reading?
This question may be best answered by first deciding what it is not.
-Tape reading is not merely looking at the tape to determine how prices are running.
-It is not reading the news and then buying or selling “if the security acts right”.
-It is not trading on tips, opinions, or information.
-It is not buying “because they look strong,” or selling “because they look weak.”
-It is not 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.
Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend (It does not mean you have to have the ability to read the prices scrolling across the bottom of the screen on CNBC). Tape reading is nothing more than monitoring the current price action and asking: Is the price going up or down right now? It has nothing to do with technical analysis and everything to do with keeping an open mind. Go on and read the “Technical Analysis Fallacy”.
Tape Reading is the defined science of determining from the tape the immediate trend of prices. It is a method following prevailing movements, from what appears from the tape now — in the moment and what is likely to appear in the immediate future. Tape Reading is rapid-fire common sense. Its object is to determine whether securities are being accumulated or distributed, marked up or down, or whether they are being neglected by the large investors, manipulated, etc.
If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, “The only truth is the current price.” Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases. You can read more in “My Video Tape is Price Action”.
I’ve known hundreds of professional traders throughout my career. I don’t want to disappoint you, but I know of only two individuals who were able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA’s who are running a money-management program with “OPM” — other people’s money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment — even if just to move a stop up or down.
Professional Fund Manager and Trader
The Tape Reader aims to make deductions from each succeeding transaction — every shift of the market, to grasp a new situation through the weighing machine of the mind, and to reach a decision which can be acted upon with coolness and precision. It is gauging the momentary supply and demand in particular securities and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.
The Tape Reader 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 act accordingly. The tape tells the news minutes, hours and days before the news releases, and before it can become current gossip.
The market is like a slowly revolving wheel. Whether the wheel will continue to revolve in the same direction, stand still or reverse depends entirely upon the forces which come in contact with its hub and tread. Even when the contact is broken, and nothing remains to affect its course, the wheel retains a certain impulse from the most recent dominating force, and revolves until it comes to a standstill or is subjected to other influences.
The element of manipulation need not discourage anyone. The trained ear can detect when they are here, and their teeth marks are recognized.
The Tape Reader is successful because he knows what and when to buy, also where and how to sell. But there are stormy days when he cannot go out; when buyers do not appear, when he doesn’t see his play in action, when the market is not ready. All of these unforeseen circumstances are part of trading and life, in general.
The amount of capital or the size of the order is secondary importance to this question: Can you trade in and out of all kinds of markets and show an average profit over losses, commissions, etc? If so, you are getting proficient in the art of tape reading. If you can trade with only a small average loss per day, or come out even, you are rapidly getting there. A Tape Reader abhors information and follows a definite and thoroughly tested plan, which, after months and years of practice, becomes second nature to him. His mind forms habits that operate automatically in guiding his market adventures. Practice will make the Tape Reader just as proficient in understanding market events and his intuition will be reinforced by logic, reason, and analysis.
Here we find the characteristics that distinguish the Tape Reader from an average trader. The latter is essentially one who tries to grab a point or two “without rhyme or reason” — he doesn’t care how, as long as he gets it. He will trade on a news tip, a look, a hear — on what he thinks or what a friend says.
The Tape Reader evolves himself into a “trading machine” which takes note of a situation, weighs it, decides upon a course and gives an order. There is no acceleration of the pulse, no nervousness, no hopes or fears concerning his actions. The result produces neither elation nor depression: there is calmness before, during and after the trade.
The Tape Reader is like a fine train, which travels smoothly and steadily along the tracks of the tape, acquiring direction and speed from the market engine, and being influenced by nothing else whatever.
Having thus described our ideal Tape Reader in a general way, let me inquire into some of the pre-requisite qualifications.
First, he must be absolutely self-reliant and self-determining. A dependent person, whose judgment hangs on the advice or passing words of others, will find himself swayed by a thousand outside influences. At critical points his judgment will be useless because he has not been able to exercise his ‘judgment muscles’ — they are weak from inactivity.
Second, he must be familiar with the mechanics of the market, so that every little incident affecting prices will be given due weight. He should know the history of the security he is trading and its underlying characteristics; the ways in which large operators accumulate and distribute, the different kinds of markets, be able to measure the effect of news and rumors, know when and in what securities it is best to trade and measure the market forces behind them, know to cut a loss (without fear) and take a profit (without pride and puffery).
He must study the various swings and know where the market and the various securities stand, he must recognize the inherent weakness or strength in prices, understand the basis or logic of movements. He should recognize the turning points of the market, see in his mind’s eye what is happening to the other participants.
He must have the nerve to stand a series of losses, persistence to keep him at the work or trading during adverse periods, self-control to avoid overtrading, an amiable and calm disposition to balance him at all times.
Silence and concentration are needed to lubricate the trader’s mind. ‘News’ is ‘news’; the recording of what has already taken place, no more, no less. It announces the cause for the effect that has already been more or less felt in the market. On the other hand, tape tells the present and the future of the market. Money is made in Tape Reading by anticipating what is coming — not by waiting till it happens and going with the crowd.
The study of Tape Reading “on paper” is one thing, but to practice and become proficient in the art is quite another. Almost anyone can make money on imaginary trades because there is no risk of any kind — the mind is free from the strain and apprehension that accompanies an actual trade; fear does not enter into the situation and patience is unlimited.
Originally published at www.trading-manifesto.com
