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Upgrade your browser today or install Google Chrome Frame to better experience this site. Intraday trading is about skills development and discipline. Those who under-perform in our arena often have not fully developed their trading skills. Too many Intraday Traders think that trading is only about fundamentals, learning technical analysis, and loading up.

The developing intraday trader must also learn how to Read the Tape. Reading the Tape offers an enormous edge to the intraday trader. I know a few, and most of them have something in common: For this issue I would like to give you a brief introduction to Reading the Tape. I will begin by defining Reading the Tape, what is needed, and how it helps your trading. My intent is to give you a brief description of Reading the Tape, and hopefully get you thinking about developing this important trading skill.

Reading the Tape is an important skill all intraday traders must develop. Reading the Tape is about taking a look at the market from the most basic perspective: When you read the tape you are trying to determine whether a stock will go up or down from its present price by looking strictly at the bids, the offers, and the prints.

In essence you are gauging the very short term sentiment in the stock by calculating the order flow. Reading the Tape helps SMB Traders find the places where the big supply and demand exists in a stock, or important intraday levels.

And then armed with this information we seek to understand the storyline behind the stock to make an educated decision of where the stock ought to go to.

Let me give you an example. Take a look at the following 3 minute chart of HGSI. This is a great trading opportunity but from the chart I cannot judge my level of confidence in the play.

If the stock starts to trade below 22, can I conclude the stock is weak? Around 9am the Right before the market opened The stock traded down to Not surprisingly the stock drove up on the open with very little selling, even through Finally some sellers appeared near So from reading the tape I had identified 4 different events in the stock that allowed me to conclude the stock could trade higher. By the time I started to see the accumulation in the My risk at this point was a few pennies for all of my extra size and my level of confidence in the play was very high.

Stunning Chart: Today’s Stock Market is Eerily Reminiscent of …

In this relatively simple example I have just dissected the chart to its bare bones. From all the individual events I was able to understand the story behind the big buyer not being able to fill his order without stepping higher. If I saw selling below 22 then I would get short…you get my point.

The possibilities are endless. You need access to the Level II Level II Box. See the picture below for an example of my Level II as seen in LightSpeed, our trading software provider. You need access to the ARCA, NSDQ, BATS, EDGX, FLOW, among other ECNs as well as the market makers GSCO, MSCO, UBSS, etc.

Not all are required, but obviously being able to see all of them increases your edge. Reading the Tape improves your trading consistency. In fact my negative days manifest from the costs of trading actively.

It is very rare for me to be gross negative. I really have to be off my game mentally for this to occur. After 4 years of trading, I have only reached my max daily stop loss once. If you are not yet convinced, think about the example given above. Those events provided 6 excellent trading opportunities and we were able to capture many other plays that were otherwise not easily seen in charts.

On average each of those trades offered a 1: Further, as active traders and tape readers we are able to limit our risk during fake breaks and reversals.

We are also able to spot the catalysts for when the stock is ready to make its move and often have a chance to load up with little risk. Think about a breakout play where we are able to spot a huge buyer above an important intraday level holding for size.

Now that is a chop! There is not much literature out there about Reading the Tape, but we are changing that right here at Wall Street Cheat Sheet.

Reading the Tape with Gman: How to Read the Tape - The Cheat Sheet

SMB soon will be launching the SMB Reading the Tape training program, which I developed. While the course is structured for you to learn the basics of tape reading in two days, you will still have to put in the hard work to develop this important skill.

The good news is that learning this skill takes less time than that of learning to read the charts. Nonetheless, I hope to continue contributing little pieces on the subject on this bi-weekly column to help you get better over time. We are proud to have hand-selected SMB Capital as a partner to offer our audience products and services to become better traders. Reading the Tape with Gman: How to Read the Tape Gilbert Gman Mendez More Articles August 27, Gilbert "Gman" Mendez , Professional Trader , Reading the Tape , SMB Capital , stocks , Technical Analysis , Trading , Trading The Fascinating Things You Need to Know About Jared Kushner.

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