Reading the Tape - Part One

Reading the Tape:

Before January of this year, I did not know such a thing existed. It was then that I was directed to Fear and Greed Day Trader. I read his blog for a number of days and it was an awakening. I couldn't believe that such a skill was possible. It was, to be redundant, unbelievable. I was very new to day-trading at that time, having only tried it for a few weeks last October. My very limited experience consisted of trying to catch on to other peoples' stock calls in a chat room. I thought day-trading was all about deep background research; technicals and fundamentals, waiting for that special time in a day where everything came together to produce an opportunity to get in. I wasn't even thinking about exits back then. In that context, it was easy to see how I was dumbstruck to find that it was possible to trade with no fundamental analysis, no study of fibonacci or elliot wave or MACD, etc. Possible to trade a significant percentage of the ups and downs of the market intra-day. It was a feast for a starving man. To that point, I had been searching for a method, wandering from position trading to swing trading to trading pump and dump schemes on low-volume, micro-cap stocks to just focusing on catching huge breakouts and breakdowns of micro-cap stocks. I was wandering the desert, so to speak. But, after FNG, I knew my destination, I had a goal. At that time, I didn't even know this skill had a name. Only more recently have I come to know it as "Reading the Tape" or "Trading the Tape." I have found that it is not like some mysterious, undiscovered Tibetan Art form kept in a mountain top monastery. While it is an art form, it is widely known inside trading circles and is really at the source of many successful trading strategies and practiced daily all over the world. As I discover more information on it, I still consider FNG as the gold mine because of his simple, uncluttered approach to this art. Further, his is the only deep-study reference source that I know of which is faithfully updated, intra-day based and exclusively momentum focused, and made available to us at no charge. He has blogged on his disdain of those who charge money for their information, saying (paraphrase)"...dont they make enough money trading?" To the extent that what I put on this blog has any value to its readers, I am committed to never charging admission or putting up ads.
Here are some excerpts from material I found after doing a google search today of "read the tape stock trading." I am breaking it into four successive posts because of size. From time to time, I will continue to post other reference material, being faithful to crediting author and source.

July 24th - Morning Trade

FAS landed the big blow to me yesterday but I got in my own lick this morning. Picked up a $204 winner after getting stopped out just prior. Also called that big move down on FAS after the open but hesitated on pulling the trigger. One thing of note and which leaves me feeling sour is that big drop in FAS earlier, my trade from yesterday would have been "in the money" if I had held! Big moves always give a nice reverse eventually, the question is what is your appetite for pain in the interim? Am I disappointed at selling last night and thinking I SHOULD have held it overnight? Hell no! It was the prudent decision based on my account size. I SHOULDN'T have been in the trade to begin with. Lesson learned. One important detail that I don't remember posting about chasing yesterdays run up in FAS is that I had more $ in my account to chase it... I couldn't do it because FAS no longer had shares available to short on IB. No matter. It was right to get out. The markets could very easily have been up this morning and I could possibly be getting margin calls and forced selling (depending on how high it was hypothetically up)... I'll say again, a reversal can sometimes take a while to come to you.

UPDATE: I did continue trading but in my paper-trade account after this activity in my live account. The results were for a loss because of early difficulty with higher stop-losses than I wanted. I had to acclimate to the speed of FAS as it jumped through my stops. I finished the day paper-trading with a long string of winners trading in the PROPER way.

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1 for 2 winners, a 50% win rate. Gain of $114 in .75 hours of trading

July 23rd

I guess yesterday was a premonition of things to come. I took a really tough loss today trying to average in/ add to losers while playing for a reversal on FAS. Got cocky and thought I was going to beat it this time and I didn't. Like I've posted many times over the past months since I started, the problem with adding to losers is that it only takes one big day in a single direction and you'll get dropped on your head... reversals just don't come on days like today, only small pullbacks. That happened to me today when the reversal I was playing for did not come.

I'm not even for a second considering quitting the markets. But I have given my word to Mrs. Bluecollar that I will never trade that way again. And if one thing is true, I am a man who keeps his word to others. No more adding to losers. My pledge to her is that if I do it again, I WILL stop trading. I'm going to have to sharpen my skills and be prepared for taking stop losses and poorer win rates. But, I simply can't afford to do this again. It's tougher on my psyche than my account. This is not a killer loss financially in the big picture. But, it does sting my ego and my confidence, which is good for me in the long run, I think.

After all the carping about not adding to losers, doing the "trading bootcamp" last month, posting stories of how other traders blew out their accounts by trading this way, and all the times I've read Scott Farnham say how stupid it is, I feel like a fool for having to learn the hard way. Sometimes wisdom is hard to come by.

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8 for 22, a 36 % win rate. Loss of $3789 in 6 hours of live trading.