Most people who enter the trading stocks find that tape reading is difficult and stressful. As a former Wall Street insider, most retail traders don't know this secret.
Don't trade any stock that averages more than one million shares per day!
now it's right! This is the big secret that most Wall Street insiders use. Most retail traders prefer to trade stocks on the most active stocks because they are easy to buy and sell, and the spread is small. But most stocks have a big problem in trading with large volumes. They are:
- Institutional order from all directions
- Spread trader/hedger
- Too much information
Institutional order in all aspects
Once there are too many institutions involved in trading stocks, then the direction of the price is constantly changing. There are many reasons why institutions buy and sell stocks, and they have nothing to do with stock fundamentals. Some examples of institutions buying and selling stocks are:
- Investors buy or sell fund stocks
- Annual window decoration
- Department rotation
When you mix all of these large orders together, this creates unstable conditions that make reading tapes difficult. The direction of the tape changes back and forth so that you can quickly feel any behavior. Another problem created by the organization came from their big orders and order counters. Most order counters are "per-order", which means you get the best deals. This will affect the trader, because each time the stock looks like it will go in one direction, the order table enters and stops moving.
Spread traders and hedgers
Propagating traders and hedgers are trading to protect another position. Directions usually do not affect them, so their decision is based on communication. An example is Home Depot Stock verse Lowe's. If the home warehouse rose by 3% on the day and Lowes only rose by 1%, then the spread trader might sell Home Depot stock short and buy low stocks. These types of traders are taking advantage of the 2% spread difference because they know that the stock prices of the two companies move together and eventually return.
Too much information
In the end, this is just too much information. As a tape reader, you need to be able to remember certain price points and how quotes behave around these prices. For example, if each stock reaches the low point of the day and a large number of sell orders enter, the ECN just sits there and absorbs all the sells. In this case, you will buy the support without letting the ECN move away, and the price will break through such a low price. A good tape reader learns to remember certain price levels and how orders respond at these levels. If you are trading a stock with a large volume of trading, it is too fast to remember and read the data.
Orignal From: Trading stocks of tape reading technology secrets 101 - Wall Street insider views!
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