The art of tape reading part II

Discussion in 'Technical Analysis' started by sh50, Dec 11, 2004.

  1. sh50

    sh50 Active Member

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    The Tape Reader, on the other hand, from his perch at the ticker, enjoys a bird's eye view of the whole field. When serious weakness develops in any quarter, he is quick to note, weigh and act.

    Another advantage in favor of the Tape Reader: The tape tells the news minutes, hours and days before the news tickers, or newspapers, and before it can become gossip. Everything, from a foreign war to the passing of a dividend; from a Supreme Court decision to the ravages of the boll-weevil is reflected primarily upon the tape.

    The insider who knows a dividend is to be jumped from 6 percent to 10 percent shows his hand on the tape when he starts to accumulate the stock, and the investor with 100 shares to sell makes his fractional impress upon the market price.

    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 any one. Manipulators are giant traders, wearing seven-leagued boots. The trained ear can detect the steady "clump, clump," as they progress, and the footprints are recognized in the fluctuations and the quantities of stock appearing on the tape. Little fellows are at liberty to tiptoe wherever the footprints lead, but they must be careful that the giants do not turn quickly.

    The Tape Reader has many advantages over the long swing operator. He never ventures far from the shore; that is, he plays with a close stop, never laying himself open to a large loss. Accidents or catastrophes cannot seriously injure him because he can reverse his position in an instant, and follow the newly-formed stream from source to mouth. As his position on either the long or short side is confirmed and emphasized, he increases his line, thus following up the advantage gained."

    This is the objective of the Tape Reader - to make an average profit. In a month's operations he may make $4,000 and lose $3,000 - a net profit of $1,000 to show for his work. If he can keep this average up, trading in 100-share lots, throughout a year, he has only to increase his unit to 200, 300, and 500 shares or more, and the results will be tremendous.

    The amount of capital or the size of the order is of 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 proficient in the art. 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 which operate automatically in guiding his market ventures.

    Long practice will make the Tape Reader just as proficient in forecasting stock market events, but his intuition will be reinforced by logic, reason, and analysis.

    Here we find the characteristics which distinguish the Tape Reader from the Scalper. The latter is essentially one who tries to grab a point or two profit "without rhyme or reason" - he don't care how, so long as he gets it. A Scalper will trade on a tip, a look, a guess, a hearsay, on what he thinks or what a friend of a friend of Morgan's says.

    The Tape Reader evolves himself into an automaton which takes note of a situation, weighs it, decides upon a course and gives an order. There is no quickening of the pulse, no nerves, no hopes or fears. The result produces neither.

    He must study the various swings and know where the market and the various stocks stand: must recognize the inherent weakness or strength in prices; understand the basis or logic of movements. He should recognize the turning points of themarket; see in his mind's eye what is happening on the floor. He must have the nerve to stand a series of losses: persistence to keep him at the work during adverse periods; self-control to avoid overtrading; a phlegmatic disposition to ballast and balance him at all times.

    For perfect concentration as a protection from the tips, gossip and other influences which abound in a broker's office, he should, if possible, seclude himself. A small room with a ticker, a desk and private telephone connection with his broker's office are all the facilities required. The work requires such delicate balance of the faculties that the slightest influence either way may throw the result against the trader. He may say: "Nothing influences me," but unconsciously it does affect his judgment to know that another man is bearish at a point when he thinks stocks should be bought. The mere thought, "He may be right," has a deterrent influence upon him; he hesitates; the opportunity is lost. No matter how the market goes from that point, he has missed a cog and his mental machinery is thrown out of gear."

    Having thus described our ideal Tape Reader in a general way, let us inquire into some of the requisite qualifications.

    First, he must be absolutely self-reliant. A dependent person, whose judgment hangs upon that of others, will find himself swayed by a thousand outside influences. At critical points his judgment will be useless. He must be able to say: "The facts are these; the resulting indications are these; therefore I will do thus and so."

    Next, he must be familiar with the technicalities of the market, so that every little incident affecting prices will be given due weight. He should know the history, earnings and financial condition of the companies in whose stock he is trading; the ways of the manipulators; the different kinds of markets; be able to measure the effect of news and rumors; know when and in what stocks it is best to trade; measure the forces behind them; know when to cut a loss and take a profit. Silence, therefore, is a much-needed lubricant to the Tape Readers mind.

    The advisability of having even a news ticker in the room is a subject for discussion. The tape tells the present and future of the market. On the other hand, the news ticker records what has happened. It announces the cause for the effect which has already been more or less felt in 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 effect of news is an entirely different proposition. Considerable light is thrown on the technical strength or weakness of the market and special stocks by their action in the face of important news. For the moment it seems to us that a news ticker might be admitted to the sanctum, provided its whispering are given only the weight to which they are entitled.

    To evolve a practical method - one which any trader may use in his daily operations and which those with varying proficiency in the art of Tape Reading will find of value of assistance - such is the task we have set before us in this series.

    --Clif Droke

    I am using two posts because this is an extract by a professional. Hoping our forum professionals would respond
     
  2. sudoku1

    sudoku1 Well-Known Member

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