Studies in Tape Reading

1. Tape Reading: Decoding the Market's Immediate Intentions

Tape Reading seems to us: The science of determining from the tape the immediate trend of prices.

Defining Tape Reading. Tape reading is not about news, tips, or mechanical formulas; it's about interpreting the real-time flow of transactions to discern the immediate direction of prices. It's a rapid-fire assessment of supply and demand, requiring quick thinking and decisive action. The tape reader aims to understand whether large interests are accumulating, distributing, marking up, or marking down stocks.

Beyond the News. The tape reveals information before it becomes public knowledge. From dividend changes to geopolitical events, the tape reflects the initial impact of news, offering a crucial advantage to those who can interpret it. This allows tape readers to anticipate market movements rather than react to stale information.

The Market's Language. The tape is a continuous stream of information, and tape reading is the art of understanding the language of the market. It's about grasping the momentary supply and demand in particular stocks and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.

2. Mental Fortitude: The Indispensable Trait of Successful Tape Readers

We refer to the active or dormant qualities in his make-up; viz., the power to drill himself into the right mental attitude; to stifle his emotions, such as fear, anxiety, elation, recklessness ; to train his mind into obedience so that it recognizes but one master—the tape.

Emotional Mastery. Successful tape readers possess the ability to control their emotions, including fear, anxiety, elation, and recklessness. This emotional discipline allows them to make rational decisions based on the tape's signals, rather than being swayed by personal biases or impulses.

Training the Mind. Mental training is crucial for developing the right attitude. The tape reader must cultivate a mindset that recognizes the tape as the ultimate authority, overriding personal opinions or external influences. This requires consistent practice and self-discipline.

Qualities of a Tape Reader:

• Self-reliance: Independent judgment, not swayed by others' opinions.
• Market knowledge: Familiarity with market technicalities, company financials, and manipulator tactics.
• Nerve and patience: Ability to withstand losses and persist through adverse periods.
• Concentration: Seclusion from distractions to maintain focus.

3. Small Beginnings, Monumental Outcomes: The Power of Incremental Trading

Success in this field usually results from years of painstaking effort and absolute concentration upon the subject.

Starting Small. Begin with small trades (e.g., ten-share lots) to gain experience and minimize risk. This allows the trader to learn the nuances of tape reading without exposing a large amount of capital to potential losses. The focus should be on points, not dollars, initially.

Capital Management. Adequate capital is essential, but over-trading is financial suicide. A unit of $1,000 per ten-share lot is recommended to absorb initial losses and provide a cushion for learning. Avoid the temptation to increase trade size prematurely.

The Path to Success:

• Technical knowledge: Understanding market factors and their influence.
• Financial capacity: Willingness to risk capital for demonstration of ability.
• Time commitment: Devoting full attention to study and practice.
• Financial stability: Not depending on profits for basic needs.

4. Choosing the Right Battlefield: Selecting Stocks and Brokers for Optimal Trading

The choice of a broker is an important matter to the Tape Reader.

Stock Selection. Focus on high-priced, actively traded stocks like Union Pacific and Reading, which offer greater daily fluctuations. These stocks provide more opportunities for profit, but it's better to trade in one stock to deeply understand its habits and characteristics.

Broker Selection. Choose a broker equipped to provide close attention to orders, quick bid/asked prices, and verbal flashes of market activity. A smaller commission house may offer better service and personalized attention. The ticker should be within easy reach of the telephone to the Stock Exchange.

Order Execution:

• Market orders: Generally preferred for quick execution.
• Limited orders: Can be used in scale trading or specific situations.
• Avoid haggling: Fractions can cause missed opportunities and disrupt focus.

5. Volume Analysis: Unveiling Supply and Demand Dynamics

The figures on the tape represent the consensus of opinion, the effect of manipulation and the supply and demand, all combined.

Understanding Market Price. The "last sale" is history; the "market price" is the bid and asked price, reflecting the current balance of supply and demand. Volume indicates the weight shifting between buyers and sellers. Large volumes on the upside suggest demand dominance, while large volumes on the downside indicate selling pressure.

Manipulation and Volume. Manipulators use volume to influence prices. Accumulation involves buying large quantities, while distribution involves selling. The tape reader must recognize these patterns to anticipate market moves.

Studying Volume:

• Tape study: Essential for real-time analysis.
• Home study: Use automatic reels to review tapes at leisure.
• Avoid paper trading: Real trades with real money are necessary for accurate assessment.

6. Market Technique: Recognizing Strength and Weakness in Market Behavior

Successful tape reading is a study of Force; it requires ability to judge which side has the greatest pulling power and one must have the courage to go with that side.

Technical Strength. Observe how stocks react to market shocks. A strong stock will show resilience during a market downturn, indicating it's in strong hands. A weak stock will decline sharply, revealing vulnerability.

Responses to News. Monitor how stocks respond to news events. Strength under adverse news suggests strong holdings and confidence. Weakness indicates an untenable public position.

Critical Points:

• Identify junctures where a small influence can determine the immediate trend.
• Use these points to play with a close stop behind the point of resistance.

7. Dull Markets, Hidden Opportunities: Profiting When Others See Nothing

Dullness in the market or in any special stock means that the forces capable of influencing it in either an upward or a downward direction have temporarily come to a balance.

Dullness as Equilibrium. Dull markets signify a temporary balance between buying and selling forces. These periods often follow intense activity and offer opportunities to anticipate the next significant swing.

Anticipating the Swing. Technical strength or weakness can indicate the direction of the next swing. Gradual price hardening and resistance to bear raids suggest an advancing market. Inability to hold rallies or response to bullish news indicates a downward swing.

Trading Strategies:

• Watch continuously: Avoid complacency and be ready to act.
• Get in early: Capitalize on the start of a big move.
• Trade active stocks: Focus on stocks with manipulative or other causes for activity.

8. Charts as Guides: Supplementing Tape Reading with Visual Aids

The chart gives the direction of coming moves; the tape says “when.”

Figure Charts. Figure charts are valuable for detecting accumulation and distribution, as well as identifying major resistance points. They require accurate data sources like the New York Evening Sun.

Chart Limitations. Charts are historical records and can be misleading if relied upon solely. The tape reader must consider the broader market context and not be blinded by chart indications.

Chart Usage:

• Composite charts: Track average high and low of leading stocks.
• Volume charts: Visualize quantities of stock at various levels.
• Dividend adjustments: Maintain relative price positions after ex-dividend sales.

9. Daily Scalping vs. Long-Term Swings: Tailoring Strategies to Temperament

The real Tape Reader is apt to prefer a clean slate at 3 p. m. every day, so that he can sit down to his ticker at the next morning’s opening and say, “I have no commitments and no opinion. I will follow the first strong indication.”

Scalping vs. Long Swings. The choice between daily scalping and long-term swings depends on the tape reader's temperament. Scalping requires quick decisions and constant attention, while long swings demand patience and the ability to ignore minor fluctuations.

Auxiliary Long Swings. Tape readers can incorporate long swing trading as an auxiliary profit source, provided it doesn't interfere with their daily operations. This involves identifying opportunities during shake-downs or major market turns.

Maintaining Separation. It's crucial to separate long swing trades from daily trading to avoid biased judgment. The tape reader must be able to act in a dual capacity without compromising their primary strategy.

10. Overcoming Obstacles: Maintaining Poise and Adapting to Market Realities

Mental poise is an indispensable factor in Tape Reading.

Mental Equilibrium. Maintain mental poise by trading in amounts that don't interfere with judgment. If losses become upsetting, reduce trade size or suspend operations until the cause is identified.

Common Obstacles:

• Over-trading: Acting on too many opportunities.
• Anxiety: Focusing on record-making rather than objective analysis.
• Unsuitable markets: Drifting prices without clear trends.
• Poor brokerage service: Slow executions and unreliable stop orders.

Profit Maximization. Aim for a continuous chipping in of small average net profits per day. The goal is not large individual profits, but consistent profitability through disciplined tape reading.

Last updated: March 2, 2025