A Crystal Ball: The Power of the Tape

by David Jenyns on September 10, 2007

Tape-reading day traders have an advantage over floor-men in that they see news trends, changes in company positions and small shifts in the market before anyone else, but their dependence upon the tape can also put them at a disadvantage to their competitors. A Tape Reader is, however, able to avoid taking losses to a large extent, thanks to his position “in the know” so early in the game.

He may be trading on the long side of Union Pacific stock, which has a strong upward trend, when suddenly a decline in another stock will demoralize the market for Union Pacific stock, and he will be forced to compete with others who have stocks to sell.

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 the changes taking place, weigh them and act accordingly.

Another advantage in favor of the tape reader: The tape tells the news minutes, hours and days before the newspapers, and before it can become current gossip. Everything from a foreign war to the elimination 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 that 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 its 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, with deep pockets. The trained ear can detect the steady “chomp, chomp”, as they gobble up stocks, and their teeth marks are recognized in the fluctuations and the quantities of stock appearing on the tape.

Little traders are at liberty to tiptoe wherever the food trail leads, but they must be careful that the giants do not turn quickly on them. The Tape Reader has many advantages over the long- term investor. He never ventures far from 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.

A pure tape reading day trader does not care to carry stocks overnight. The tape is then silent, and he only knows what to do when it tells him. Something might occur at midnight that could crumple up his diagram of the next day’s market. He leaves nothing to chance; hence he prefers a clean sheet when the market gong strikes.

The Tape Reader cannot always control his portfolio down to the dollar, but he does have advantages over his fellow traders on the floor. One should consider learning the art of tape reading if one is interested in conservative, but steady, profits.

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