Ten Commandments of Tape Reading

The Ten Commandments of Tape Reading

1. The Golden Rule, only long stocks you expect to move thru the high and short stocks that you expect to move thru the low.

2. In a market that is moving up, ALWAYS be net long. In a market that is moving down ALWAYS be net short.

3. NEVER under ANY circumstances add shares to a losing position.

4. When your reason to be in a stock is gone, you MUST be out of that stock, under no circumstances do you hold “to see if it’ll come back.”

5. If there is nothing to trade, you trade nothing.

6. The .00 and .50 will ALWAYS add to the story of the tape. In big long positions, offer some shares out at .49 and .99. In big short positions offer some shares out at .51 and .01 to bank a profit.

7. Reading the tape with tight exits is much more difficult in oil, commodity, retail, and financial stocks. Also watch out for stocks that trade over $60 a share, and stocks that gap at the open $3 or more.

8. If you missed the proper entry, sit pat until another entry develops. Do NOT force an entry when you missed the correct entry.

9. If the stock makes a VERY good move on the tape, trading the stock after the easy money is gone (EMIG) will be like trading a TOTALLY different stock.

10. When you close a position in the negative, bring down your position size for the next trade in that stock. If you lose three times in the same stock, consider not trading it anymore unless the perfect spot develops.