Tape Reading: Learn to Look Inside

If you are going to day trade for a living tape reading will be a great help. Learning how to decipher the level 2 is essential. Your level 2 is not the holy grail first off, it tells the truth and lies all at the same time. Can you tell the lie from the truth? Most can’t . If you are looking at level 2 from the wrong angle it will hurt you not help you. Jump in front of size that’s shown..good luck..maybe in to 90’s.  Held bid ,held offer…oh yeah, seems simple but if that’s the only info you are going to consider for the trade..move on..find another job. What you are being shown is what they want you to see. Who is they you ask?  They is the trader working the order or the robot executing the order. Do you really think they will make it so simple for you as the above examples so you can just front run them for easy money! I doubt it. They are showing you nothing and that’s what you need to see or they are blatantly lying and that’s what you need to understand. Nowadays an order for size can be easily broken up to trade the whole large order in small size without ever showing size. So when size is shown doesn’t it make sense that it is done to fool you and get you to react. Not only react, but react in a totally predictable way. When you see size how do you react? What questions are running through your head? Are you Pavlovian in your actions?  Letting the level 2 rule your emotions and reactions without having a full understanding of what is actually being told to you by it is very dangerous. What prints in your time and sales stand out to you? How did the prints line up with what the level 2 was saying? Prints on the bid or on the offer should be speaking to you, sometimes loudly and sometimes in a whisper. What about prints that don’t find the bid or offer are they meaningful to you? Question after question that you need to know the answer to if you are going to risk your money.

I can’t stress the importance of  aspiring day traders really and truly knowing the rules of the game they are playing in and who they are playing against. In poker there is a saying “when you sit down at the table if you can’t identify the sucker..it’s you”.  Don’t be the sucker. Learn and study the correct things. It will still be tough, but the reward is worth it. I have just touched on one small part of tape reading and yet it requires knowing the right questions and answers. Make sure you know both before you risk big amounts of money.