Reading the Tape

Reading the tape is not so much a science, as it is an art. There are no exact rules, no specific method to
its madness. Try and discover the patterns of your stock today. The patterns today. Stocks do not have to
trade the same everyday. They usually do, but they do not have to. Usually you can determine a stock’s
pattern during a day. And usually you can read the tape after you have determined this pattern and gain
an advantage. If you aren’t making money in a stock today, if you can’t read the tape today, then consider
finding an easier stock for you. What it takes is knowledge of the stock you’re watching and a keen,
catlike focus.

As you’re watching the box to see where the bids and offers are, you should also be watching the tape
(the scroll of the executions that have taken place). The tape provides meaningful information that can
make or prevent you from losing significant amounts of money.

Things to concentrate on include:

1. The size of the print (shares traded)
2. The price at which the trade occurred
a. Was it at the bid price?
b. Was it at the offer price?
c. Was it in between?
3. The speed at which the prints are scrolling by

One example is if the bid is at $30.00 and the offer is at $30.05. Seeing prints go off consistently at
$30.02 tells a very different story than prints going off consistently at $30.05. In the first case, there is
either a hidden buyer or seller, and we are not sure as to which it is. This bears watching and will take a
little more time to provide a true answer. In the latter case, trades are being executed at the offer price.
This is usually a bullish sign. The more this happens, the more shares that get executed here, the faster it
occurs – the more likely it is that the offer will lift and this stock will go up.

Another example of reading the tape occurs when a print is shown higher than the inside offer or lower
than the inside bid. This scenario indicates that either a print was late to be reported or that there is more
interest in the stock than one might first realize. If executions are occurring outside of the inside spread, it
means that something special may happen very shortly. It tells us that someone is willing to pay higher
for, or sell lower than, the expected price(s). This could signify that a move to the upside or to the
downside is imminent.

One final example occurs when you yourself sell a stock and get a better price than you offered it up at or
were willing to sell it at when you hit the bid. This instance is called price improvement and is a very telling
sign. The usual implication of this is that you should look to reestablish the position as it is probably not
done going in the direction that it was originally going in.

Specifically, if you are long TJX and your sense after watching the stock trade intraday is that a good sale
presently would be 28.75. Then, TJX trades quickly near 28.75 so you place a limit sell order at 28.75.
You not only get a sale, but the specialist prints the stock at 28.95. This is much higher than your limit sell
order and what you expected. You might conclude that a huger order is present. As long as your print
wasn’t part of a huge print that looks like the order might have been completed, you should immediately
look to get long that stock again below your print. If there are some loose ARCAs or INETs or other ECNs
below your print consider taking them. Place a limit buy order and/or an ARCA below your print
immediately. You just might get filled and make even more off of this trade.

This same principle applies if you place a market sell order when TJX is spreading up and you are looking
for a sale around 28.75. Suppose you place such a market sell order and conclude that 28.75 would be a
good print. And the specialist prints the stock at 28.95, filling your market sell order. Again, you should
conclude that this stock is probably going higher, unless it was a part of a huge print that looks like the
completion of a big buy order. If there is a loose ARCA, INET, or other ECN consider taking them if they
are below your print. Place an order on the bid to buy that stock back immediately. Place an ARCA bid
below the print and a limit buy order with NYSE below the print. And do so immediately.