The tape reading chart combines the three vital factors: Price Movement, Volume and Time. The real beauty though is that trader can see at a glance just what a certain stock is doing i.e. if and what kind of manipulation is going on. The chart shows clearly whether the stock is relatively strong (to buy long) or weak (to sell short). This chart also shows where the thrust of a certain move is losing its power and whether it is time to cover.
But even though the chart is a great tool it is still a tool and one must learn how to use it. The chart as well is not a mind reader so it is not a sure bet. The vested interests or stock sponsors of course know that the little fishes are trying to follow and therefore they use technique or two to shake them out. Every trader should have this in mind while anticipating in active stock operations.
The Tape Reading Chart was developed by Richard D. Wyckoff in early 20th century. Unfortunately if you would follow the original instructions you would find out that it doesn’t work well in 21st century on over flooded markets. Simply, on today’s markets is too much cash. The quotes are not recorded by 1/8 anymore and the number of transactions per 30 min. today is greater than number of transaction per 5 hour session in 1930’s. More money and decimal quotes decreased the stock daily volatility on average by seven times compare to 1930’s! Yes, decreased, you read correctly! This means that you today need seven times more money to make the same profit per stock which you would made in 1930’s. Today’s stock prices are flat and damn boring compare to price action in 20th century. BUT luckily we have penny stocks and good old manipulation!
The chart contains figures or numbers if you like. The figures recorded in the chart are the total number of shares dealt in at each fractional price.
When the price changes, the volume at the new price is filled in at the proper level on the chart. When a price is skipped a “0” is entered at the fraction where there were no sales.
After a sale at a certain price, the next sale will be entered in the same column if there is blank space at the proper level, above or below, in the same column. But if that space, above or below, be filled, make the entry at the next vacant space to the right.
So long as sales continue at the same price value they are added together and recorded all at once when the price has changed.
To explain how to construct the chart properly is best to use pictures with examples, and because I do not want to make this blog too long I’ve rather decided to put here a link for the instructions: