The Scalper is a car without shocks, bouncing over every little
bump in the road with rattling windows, a rickety motion and a strong
tendency to swerve into oncoming traffic.
The Tape Reader, on the other hand, is like a fine train, which
travels smoothly and steadily along the tracks of the tape, acquiring
direction and speed from the market engine, and being influenced by
nothing else whatever.
Having thus described our ideal Tape Reader in a general way, let
us inquire into some of the pre-requisite qualifications.
First, he must be absolutely self- reliant and self-determining. A
dependent person, whose judgment hangs on the advise or passing words
of others will find himself swayed by a thousand outside influences. At
critical points his judgment will be useless because he has not been able
to exercise his ‘judgment muscles’ – they are weak from inactivity!
The professional day trader must be able to say: "The facts are in
front of me; my analysis of the situation is this; therefore I will do this
and this."
Second, he must be familiar with the mechanics of the market, so
that every little incident affecting prices will be given due weight. He
should know the history of earnings of the stocks he is trading and
financial condition of the companies in whose stock he is trading; the
ways in which large operators accumulate and distribute stocks; the
different kinds of markets (bull, bear, sideways, trending, etc.); be able to
measure the effect of news and rumors; know when and in what stocks it
is best to trade and measure the market forces behind them; know when
to cut a loss (without fear or depression) and take a profit (without pride
and puffery).
He must study the various swings and know where the market
and the various stocks stand; he must recognize the inherent weakness or
strength in prices; understand the basis or logic of movements. He should
recognize the turning points of the market; see in his mind's eye what is
happening on the floor of the exchange.
He must have the nerve to stand a series of losses; persistence to
keep him at the work or trading during adverse periods; self-control to
avoid overtrading; an amiable and calm disposition to balance him at all
times.
For perfect concentration as a protection from stock tips, gossip
and other influences which are rampant in a broker's office he should, if
possible, seclude himself. A small room with a ticker (ed. note: a
computer with real time data), a desk and private telephone connection
with his broker's office are all the facilities required. The work requires
such delicate balance of the faculties that the slightest influence either
way may throw the result against the trader.
You may say: "Nothing influences me," but unconsciously it does
affect your judgment to know that another man is bearish at a point
where he thinks stocks sho uld be bought. The mere thought, "He may be
right," has a deterrent influence upon you and clouds your own
judgments; you hesitate and the opportunity is lost. No matter how the
market goes from that point, you have missed a beat and your mental
machinery is thrown out of gear.
Silence and concentration, therefore, is needed to lubricate the
day trader’s mind.
The advisability of having even a news feed in the room, is a
subject for discussion. The conclusion is that ‘news’ is ‘news’; the
recording of wha t has already taken place, no more, no less. It
announces the cause for the effect that has already been more or less felt
in the market. On the other hand the tape tells the present and future of
the market.
Money is made in Tape Reading by anticipating what is
coming -- not by waiting till it happens and going with the crowd.
The effect of news is an entirely different proposition.
Considerable light is thrown on the technical strength or weakness of the
market and special stocks by their action in the face of important news.
For the moment it seems to us that a news feed might be admitted to the
sanctum, provided its whisperings are given only the weight to which
they are entitled.
To evolve a practical methodology – one which the trader may
use in his daily operations and which those with varying proficiency in
the art of Tape Reading will find of value and assistance -- such is the
task we have set before us in this manual.
We shall consider all the market factors of vital importance in
Tape Reading, as well as methods used by experts. These will be
illustrated by reproductions from the tape. Every effort will be made to
produce something of definite, tangible value to those who are now
operating in a hit-or-miss sort of way