Rediscover a 95 Year Old Trading System That Still Works Today

Revealed for the First Time in Years- an Impossible to Find Century Old Secret Buried on the Floor of the

New York Stock Exchange Everything Changed February 2007-

It was the Same Stock Market, but the View was Different

If today’s trader has access to more technology, more charting solutions and more

information than any point in history – why aren’t those advantages translating

into more money?

This report examines why the modern trader is underachieving and introduces the

obvious solution, found in the least likely of places.

What separates this information is that it’s based on real people. Real people, real

money, real traders. Traders just like yourself. The lessons were experienced through

my own eyes.

This isn’t a research report. It’s a story. A story about you with an unfinished ending.

Sixteen years of experience gives me a unique insight into why some traders finally

break through to six-figures and more. My career as a proprietary trader, mentor,

owning two trading firms in NYC, and my ten years as a trading educator, is now in your

hands.

I’ve worked with complete newbies scared to place an order, and those earning a

reliable million dollars per year.

There’s nothing I haven’t seen or done, and the biggest lesson is that working myself

to the bone, wasn’t the answer.

WATCH HERE

To The Modern Chart Reader

You know everyone thinks we’re crazy, right? To most of the world, trading is a joke.

It isn’t a career. It isn’t a real job. It isn’t a way to have security.

It’s a hobby, a diversion, a phase that’ll come and go. Sure, you can get licensed, but

don’t count on that to make you any money. That’s no guarantee.

Try telling your family or friends or coworkers you want to quit your job and make money

trading. They’ll smile politely and ask, “Does anybody really make money from that?”

Yes, they want you to have dreams. Yes, they want you to chase them. Yes, they want

you to succeed.

But they also want you to be “realistic.”

If you really want to improve your life, you should go to college, buy a franchise, or even

go into sales, not hang all your hopes and dreams on the market. Nobody can make

money trading.

Or can they?

Why the Rich Get Richer and the Poor Get Poorer

The story you are about to read is true. None of the names were changed to protect

the players.

If you’re on the wrong side of break-even, I’d recommend shutting your cellphone for the

next 30 minutes. Your view of trading and the stock market is about to change.

The charts won’t change, but what you’ll see is different.

For over 95 years those who understood order flow profited handsomely by interpreting

price action revealed on the tape. I’ve been told by clients that tape reading gives them

a “second sight.” Everything changed when they elevated from chart reader to tape

reader.

When you see what’s was missing, when you see behind the tape, trading will never be

the same.

Many traders hear “tape reading” and think it reeks of old-school methods no longer

valid in today’s 24 hour, global market. These same traders risk precious capital on

trades they see on Fast Money, Jim Cramer or on StockTwits. Maybe you’re one of

them.

The Traders Path

My journey wasn’t easy, but my goal is to make yours so. The losses, the challenges

and the lessons were expensive. Time was easily the greatest expense.

Through these pages I hope that my payments to the market Gods become your

rewards. Through my passion, my empathy and my experience, I seek to crunch the

cost and time of your learning curve by 200%.

Your greatest obstacle as you journey the trader’s path is the truth. I have mentored

traders since 2003 and the main reason most remain amateurs, is a reluctance to admit

where they are starting. A denial about their resources is the main culprit.

This journey is not just about risk capital. It’s about “screen time,” how much you

already have and how much you plan to give. It’s about risk tolerance. It’s about

previous education, it’s about investing in continuing education. It’s about having an

open mind to learn from mistakes.

The market gives us valuable feedback. Most don’t listen until it’s too late. Through

these pages I will show you the brilliant simplicity of tape reading. The tape knows

everything. It’s never wrong. If you’re struggling, the tape will show you what’s missing.

The only barrier between you and anything a trader could desire is one simple fact:

Your trading today is the result of what you see, not what you know. Something so

important yet misunderstood.

We spend our days searching for the one thing that’s missing. But everything we tried

fell short. And so, we buy another book or read another blog, or even attempt to see a

trading psychologist! Some finally give up and doubt it’s possible.

The answer you seek, the great mystery, is to simply understand what’s on the tape.

Much of this story is from my prop firm,

Keystone Trading Group, and after, my

work with the largest prop firm in the

United States.

You now hold the wisdom of millions of

managing those executions and billions of

shares traded. At our peak Keystone had

nine offices around the world and over

250 traders.

What you seek is now in your hands. The

rest is up to you.

Are you ready right now, right here, in this

moment, ready to abandon what has not

worked? Or are you comfortable in your

current level of success?

What is your current burning desire?

What is success when you visualize it?

Why do you want that goal?

During my journey I have committed or

witnessed, every mistake conceivable.

Those mistakes are the foundation for a

level of success I could never have

imagined.

Those who succeed, eventually learn to

answer the one question that leads to

powerfully effective trading. Eventually

they see, everything else is nonsense.

The Learning Curve Feeling Close for Six Months

June 16, 2000 felt like Groundhog Day.

Another break-even, boom or bust week of trading. It’s Friday afternoon and I’m

exhausted. Maybe my Dad was right, maybe it’s time to grow up, and maybe I should

finish that resume. My feet are on auto-pilot and take me to Borders Books on 7th

Avenue next to Penn Station. “Here we go again, I whispered, another cappuccino

seminar at the bookstore.”

At this point I was trading for six months. Every day I felt close, but I just couldn’t get

past break-even. I knew how to read charts. I was actually pretty good but every day at

5 pm I said the same thing, “I just need a system. It’s the only thing standing in my way

of making steady money.”

I work hard. I scan hundreds of charts each night. I know it’s not me. I can do this. I just

need a system.

All trading books preach paying your dues. They call it trader tuition. I paid with losses, I

paid with time and I paid with stress. Nothing gave me a return on investment.

Working harder made me feel good, but it wasn’t the answer. One day sitting at

Starbucks, I finally found a clue. It was the one thing I wasn’t doing. I wasn’t paying

attention.

This is the quote that popped out of my notes:

“There is nothing like losing all you have in the world for teaching you what not

to do. And when you know what not to do in order to not lose money, you begin

to learn what to do in order to win.”

— Edwin Lefevre 1927

Did you get that? You begin to learn!

The clouds vanished and the birds began to sing. I knew there was nothing wrong with

me. I simply needed to pay better attention to what worked and what didn’t.

I just need to be disciplined…

Stopped Out: How being Disciplined Almost Ruined Me

Discipline is good, discipline is smart, discipline nearly drained my account. Get a plan!

You need a trading plan.

My trading plan was a recipe for getting stopped out of every trade. I guess this is what

a punching bag feels like. I’m following the “rules,” but I’m still losing money.

My friend Bobby who was a NASDAQ market maker for First Boston gave me a clue.

He said “It’s trade management not trade predictions. Learn to work the order a little

but be disciplined in your risk management. Never lose more than you planned, but

don’t be stubborn with your entries or you’ll drive yourself crazy and get stopped out of

every trade.

As long as the tape is obvious, work the order. My institutional clients scale in and scale

out, learn to do the same “

Bar-by-bar I reviewed the trades. They all look good but I didn’t understand what Bobby

meant by an obvious tape. At this point I wasn’t losing much money. I stopped the

bleeding by doing less of the stupid stuff, but commissions, software fees and small

losses slowly drained my account.

Discipline helped. But it wasn’t the answer. I became very disciplined at taking losses…

Something was still missing. I needed a few big winners to pay for all those small

losses.

How a $795.67 Profit Can Make You Feel like an Underachieving Loser

Finally. A profit three times my accepted loss per trade.

I can super-size my lunch today! Self-confident isn’t the right description as I strutted my

way to Angelo’s Deli on 42nd. It was more like relief. Looks like ol’ Pete has this trading

thing all figured out. Paid my dues and all that stuff.

Imagine you get back to the office and…

You get back to the desk and light up the screens, log in and see your stock is now

$1.83 higher than when you sold it. You think – Great I just left almost $2,000 on the

table - as your hand tries to squeeze the mouse into a million tiny pieces.

You didn’t miss the trade. As a matter of fact, it was a great idea. The stock did exactly

what you expected. You just, well, blew it. You cut your profits short. You’re booking too

soon because you’re afraid to give back P&L. You’re afraid because you need the

money.

New traders sweat the losses. Newbies need each trade to make money. We need it to

validate what we learned and to prove that our system “works.” Every losing trade chips

away at our idealized vision of trading for a living. Losses to a new trader speed up the

dreaded clock that ticks faster and faster towards getting a “real job.”

To a trader beyond break-even, but not yet six-figures, winning trades can be your

ultimate doom. It’s worse than losing money because you’re too far into it to quit, but too

far away from earning a real living. You’re in the game, performing OK, but you’re

underachieving.

It’s all on you. You’ve had some success, you’re on the right track, you’re not getting

paid. You’re getting better but you feel worse. It doesn’t make sense but it’s the truth.

You decide to go to the gym because a workout helps you think better…

“How do I know when to hold winners? Better yet, how do I know when to add to

winners? Maybe that’s my problem. Maybe I need to add more often to winners. That’s

what the big traders in my office do”

Building Positions like Andy and Marc

The big traders always add to winning trades. Maybe that’s the answer.

I could see their positions. The light blinks and my computer beeps. There was one

trader who stood head and shoulders above the rest. He wasn’t well known outside the

industry but he was THE MAN. I sat at his desk for two mornings as a favor to a friend.

I wrote ten pages of notes but he moved so fast on the keyboard I couldn’t tell what he

was trading. When I first met Marc, he had two things on his charts. Candlesticks and

volume. Nothing else. My monitors looked like something from NASA. I think at one

point I tried every indicator imaginable.

It was like speaking a new language. “Stochastics, fibonacci, Elliot Wave, GANN and

MACD…” I sounded great at Thanksgiving, but when my brother started talking about

getting a raise plus a bonus, I went in the other room to watch football. I was happy for

him but I didn’t want to be a part of the conversation. If we calculated my pay by the

hour it would have been embarrassing.

Andy was a little different. He was calm. You never knew if he was up huge or down

huge. A true professional. Andy was a “relative strength” trader. He had big positions on

both sides of the tape. Marc was “long only.” It was rare to see him short He once told

me that if a stock traded lower in a $7 down trend, he was long the $1 rally…

The common trait between them was adding to winners. Marc said he always pressed

his winners. After getting to know him, there’s no doubt this is what made him great.

Andy too. Success leaves clues. It didn’t take long for me to test my new theory. I was

winning more often than not and a profitable trade unfolded the next day.

All systems were a go.

The winning trade paused and gave me a second entry. I followed best practices and

added less shares than my original entry. Here we go. The trade looked good, today’s

trend was solid and the stock had above average volume. I have every reason to feel

good about adding to my position.

The stock started pulling back, no big deal, that’s expected. Stocks don’t go straight up

or down. Candlesticks on my 15-minute chart turned red. Institutional supply was now

stronger than when I entered. No big deal I thought, this is how Andy and Marc make

big money so I needed to stay the course.

Add to winners, that was the plan.

The stock pulled back to my entry point. Trade over, I took a “flat” on my first entry, and

lost money on my second. I needed to ask Marc what I did wrong. Reading my journal

and feeling these emotions again I don’t think I was angry. It was more of a feeling of

doubt. I’m a rational person but I was starting to doubt I could do it.

At this point I knew virtually everything there was about chart reading. I wasn’t losing

money but I couldn’t get paid. I believed in my heart I could do it, but at some point you

need proof. Hope doesn’t pay the bills. Every day in every way I felt like I was just “one

thing” away from my dreams.

When I tracked Marc down, I asked if I could buy him lunch in exchange for picking his

brain. We walked past the New York Stock Exchange on the way to get chicken parm

heroes. He took me to a place that was downstairs, had one oven and 3 tables. Only in

NYC would someone open a food joint in about 300 square feet of space.

I explained the trade and here was his answer:

You’re right I’m always pushing my winners.

Then he asked me questions I didn’t expect.

“How long has the stock been “well-bid?” How long have institutions supported the bid?

How many days in a row was this the case?

Modern tape reading is about order flow and knowing your saturation points.

Those two criteria dictate your trade management.

When you know how to read the tape, you know how to manage the trade -

before you enter.

Chart Reading: The Problems and Limitations

Chart readers never fully grasp what they see which is why they never get past break-

even. They go in circles for years looking for an answer that’s staring them in the face.

Chart reading is analysis. Tape reading is the money.

In the long-run, our edge is order flow but in the short-term stocks trade around

saturation points. Areas where you can expect buying or selling to start or stop.

As your stock gets closer to a saturation point, you shouldn’t add more shares. The

likelihood of follow through is lower, so you don’t add. It’s still a good long because

you’re trading with the order flow, but it’s more of a cash flow play.

So, we’re trading with the order flow, but trading around saturation points. I only add

when my stocks are close to the value areas. If you can’t see these points on the tape,

you’ll end up making too many break-even trades... Break-even trades make break-

even traders.

This is why a lower open in a strong stock is a great play. The opening price action is

further from the saturation point, so your profit potential increases.

It sounds like you added to a stock later in the cycle… You shouldn’t have added. You

need to know your saturation points to set the trade expectation. A good place to start is

with your stock’s average true range.

The big picture was starting to get clear…

Chart Reading Lessons

When we begin, trading seems so easy. Read the charts and place a trade. Take a

profit, take a loss and move to the next trade.

It doesn’t take long to be a master chart reader, maybe a month if you work hard.

Looking back, that should’ve been a screaming red flag. I choose to ignore how fast I

“mastered” trading.

The market will quickly teach us what we don’t know, and its lessons are expensive.

We hold losers too long. We hope. Hope doesn’t work. This translates into lost

opportunity. We freeze and do nothing; this saps our confidence for the next trade.

We hesitate on entries and hesitate on exits. We no longer trust the charts. Suddenly

each bull flag looks different because the previous one lost money.

We minimize losses but it’s not enough. Losing less, is different than making more. To

pay for the losses we need to press our winners. The problem is we don’t know how.

A part-time job is looking more-and-more likely. It’s the right thing to do, but would be a

blow to our ego, and all hard work. It sucks, but maybe driving a limo won’t be so bad.

We make one last attempt to turn the corner. We try to hold longer, trade bigger, trade

multiple positions and add to winners…

These are all sound tactics in search of a strategy. When to apply them, was still

missing. Chart reading is a user manual, with missing pages.

We blame our discipline because we know everything, but we can’t get paid. The fact is,

we’re right. We know everything about charting, but we don’t know how to make money.

Boom or bust. Make money three days in a row, give it all back on the fourth. We get

lost in constant planning and develop an obsession for clues.

At this point we almost know too much. We deeply believe we are only “one thing”

away. One tool, one indicator or one book. We scour hundreds of charts each night but

the results are the same-we have mastered the art of not losing money.

The Reality of an EXPERIENCED Break-Even Trader

At this point we are watching the same trading movie over-and-over, hoping the ending

is different. We need a new way to change the ending.

If you’ve had a similar experience and made it this far, congratulations. Most people

give up. All billionaires say you need to love what you do. Most people don’t understand

the concept.

You need to be crazy in love with the idea, crazy in love with possibilities, crazy enough

to think different. So crazy that you believe in yourself, no matter how many obstacles.

So crazy you never give up the search.

You need to love what you do so that you put in the hours and it feels like minutes. I

can’t tell you how many nights I looked up and said, “wow, it’s dark out…”

You have paid your dues.

One of my favorite Napoleon Hill quotes is

Today you have a choice. Are you open to a new way? Or will you continue paying for

the same movie getting the same results?

When you’re ready, that quiet voice inside whispers “take one more step”. It’s not magic

but you finally see what to do. You finally see it’s possible, you finally see chart reading

is only the first step.

Making money requires an edge. An edge that becomes your strategy, and your

strategy becomes what you believe in. It requires a belief in something we can’t control.

A belief in probabilities.

But what causes probabilities to work? What makes you trust and follow your edge?

How does an edge make you money?

Let’s take the next step and find out…

The Turning Point The market changed dramatically February 2007.

The New York Stock Exchange introduced hybrid orders that exposed the specialist to

virtually unlimited shares through electronic executions. Prior to this change, there were

restrictions.

Since the specialist manually controlled the

stock through the orders in his or her “Open

Book”, quotes were needed to create a fair

market. What was once a limit of 1099 shares

on one side of the market every 30 seconds,

became unlimited exposure.

I could SELL immediately, but if I wanted to buy more shares from that quote, I needed

to wait.

The new Hybrid order was implemented on February 24, 2007 and the specialist was

now exposed to unlimited executions against the quote. It became impossible to keep

up the quotes manually.

To give some context to how this change affected active traders, I have a friend Rob,

who traded only “listed stocks.” His strategy was to watch the specialist quote, and the

prints on the tape, and follow them until the flow of trades changed.

If you were on our trading floor, you would often hear “the specialist was stepping up or

stepping down.” This meant Rob found a large order that was moving a stock.

Rob was trading over a million shares per day… Within 7 months he was no longer an

active trader. The specialist quote and prints were now harder to read, they were

computerized using algorithms.

*History lesson*

The former order was known as the DOT or

SDOT system, “direct order turnaround.”

It was a way for us to trade at a specialist

quoted price.

The restrictions meant one could only buy

up to 1099 shares every 30 seconds from

the specialist using a DOT order.

As 2007 wore on, the once hallowed grounds of the New York Stock Exchange was

now a studio to broadcast market updates.

What once was over 5,000 people buzzing in the purest sense of capitalism, is now a

digital flow of automated bids and offers that adjust quotes faster than you can blink.

Trading off the noise of the crowd was gone. It’s now a silent hum of co-located servers

where speed and distance are the new edge.

I never traded on the floor, but the guys I met said the crescendo of noise on a busy

day, was magical, and a privilege they will never forget.

A Fortunate Encounter

Blaggards, NYC

October 9, 2007, about 90 minutes after the market closed. I was enjoying an adult

beverage at Blaggards, on 35th St, between 7th and 8th Avenues.

A quick glance at my Blackberry, the market was at new all-time highs. “Where did the

Dow close?” the guy sitting next to me said. “14, 164, an amazing day for the history

books, but trading it was tough. May through October was choppy, it’s nice for TV, but

we need it to pick a direction.” I replied

He reached out his hand and said his name was Bobby, but everyone on the floor used

to called him “Sweaty.”

Of course, I laughed as I shook his hand. He said it’s not what you think.

“One day about 20 years ago I walked onto the floor wearing sweat pants. All day

long Art Cashin kept calling for SWEATY on the speaker. The name stuck. Ask almost

anyone on the floor, and they know who Sweaty is.”

He asked where I traded. I said I own a prop firm next door, 450 7th Avenue, above

Citibank. “We have a few offices and about 175 traders right now.”

“Interesting,” Sweaty said, he kept talking but I couldn’t stop thinking he looked like Pat

Riley with a fake tan. “Do you have room for more traders?” I have about 20 former

colleagues from the floor of the NYSE trading from home, and they hate it. They need to

get out of the house.”

“What’s your office like?” he asked. “Mostly filled with day traders, right?” I said yeah.

Sweaty replied “OK, cool. If you give us a good deal, my guys will teach you about order

flow. It’s how we work the big orders.

We’ll show you what’s going on behind the tape, and in exchange, you show us

how to use your fancy software. Most of us are dinosaurs, still adjusting to life off

the floor. Should be a good deal for both of us.”

I told him I needed to speak to my partner, but I would give him a call either way. He

gave me his number and walked out without saying goodbye. It was weird, from start to

finish, but worth a meeting.

Lessons in Reading the Tape Sweaty showed up a week later with a guy name Moose…

Sounds like the beginning of a good joke, right? It wasn’t.

Moose was a clerk for Bank of America. We made a deal, and before long, we also had

Joe C, Bill T, Jerry, Forrest, Greg, Jim D, Jim T, the Connolly brothers, Tim A and Rich

V.

Once they saw we knew our stuff, word spread and we had 25 former New York Stock

Exchange specialists, clerks and brokers trading in the office.

After about a month, Sweaty called the first meeting. About ten guys from the floor stuck

around. Bill spoke first.

“Seems like your traders are pretty good at trading momentum. I took Kyle to lunch; you

gave them a solid strategy for trading swings over three to five days.” I responded

“Yeah, we developed Saturation Plays a few years ago. It’s been our bread and butter,

a great strategy for cash flow.” “How does it work?” Bill asked.

I filled him in: Essentially, we stalk price and volume over a 2-6 day period. The goal is

to identify when institutions are active, and when they step aside. It’s not dependent on

the longer-term bias, its pure tape reading over that short window.

As the market alternates between buying and selling pressure, our objective is to enter

as this pressure “saturates” in a value area to buy, and “saturates” in a profit taking area

to sell or sell short.

When the market opens, we monitor three specific levels that determine today’s tape.

Once the strategy is locked in, the trader will always know what expect. The most

powerful aspect of the trade is anticipating the opening price action. We know exactly

what to expect the first 90 minutes, and the correct levels to trade.

Each day we plan ten to fifteen trades. We only need two or three to unfold as planned,

to make consistent money. Many amateur believe the opening hour is confusing, and

too volatile to interpret. The Saturation Play gives our traders confidence on the open,

because when the “expected” happens, they literally planned for it.

They are taught to let everything else go. It’s really a thing of beauty when you learn to

read the swing. “What happens if a lot of trades trigger at once?” Sweaty asked. They

are trained to flawlessly take every trade. Our traders understand the system makes

money over time, so you can’t cherry-pick the winners.

Trading doesn’t work if you only take some of the signals... Once a trader gets used to

the Game Plan, it’s actually easier to manage five positions than one. You aren’t

watching every up-tick or down-tick. You manage the aggregate of the positions. The

only way a trader gets in trouble, is if he doesn’t exit the losers.

Building a Profitable System on Simple Math

The Origins of Ten Perfect Trades

Everything starts with stocks that close in the top or bottom 10% of the range. These

setups have a 90% chance of following through in the same direction the next morning.

But, they have only a 50% chance of closing above the previous day’s high (for a long),

or below for a weak close.

Put simply, a strong close with a higher opening has a 50% probability of failing, when

combined with the Saturation Play setup. The trigger without the setup is worthless.

When you add the entry criteria, the trade is a thing of beauty.

Saturation Plays are designed to capture the move from the low to the high, or from the

high to the low. The key to the trade is knowing whether or not you should expect the

high or low to be made first each morning.

Once you know the setup, the opening play and the projected entry price, the trade is

just a matter of placing limit orders at the correct price to begin working the trade.

The secret to the play is defining your bias and never deviating. You can’t fight the tape.

There are day the momentum runs longer than usual, but it simply sets up the same

trade the next day. Take your accepted loss and move on with your day.

You come into the day as a buyer, seller, or looking for a short sale. You don’t flip-flop

during the day.

“What’s the trade objective?” Moose asked

Best case scenario is to hold to the close, but truth be told, when you have multiple

positions that are profitable all at once, your P&L can explode pretty quickly, it can be

hard not to book profits. We need to add some element that tells us when to get

aggressive with our hold time, and when to exit into momentum.

“Maybe I can help with that” Greg, the quiet one, blurted out “you need to add a bigger

view of the tape.” He was a specialist for Vandy from 1996-2007.

Taking Order Flow Deeper

Working order flow was a balance between making a fair and orderly market, with taking

the wrong side of the order flow to provide liquidity. If there was an imbalance and the

stock had an unusual supply or demand, we were on the wrong side of that trade. It was

our responsibility to fill those orders.

Once the order flow slowed down, we could trade out of the position or even earn profits

if we accepted the risk. Your trade needs a component that shows you when to trade

with the momentum and when to fade it. When to add to positions and when to exit into

momentum.

Greg went to the whiteboard and drew out this phase of market action viewed from the

specialist perspective. It was close to the Saturation Play but we didn’t consider this last

piece.

“Stocks-in play, Greg continued, tip their hand. A large buyer or seller will try to get

shares as quietly as possible, until they can’t. Greg drew the candlesticks on the

whiteboard. You this this, stay away, it’s chop city, you see these, in this order with this

type of close, you are trading with the order flow.

Generally speaking, this type of flow can last from three weeks to 3 months.”

But here is where everyone screws it up. Most traders only watch price. They watch

how much they are up or down in the trade. A stock moves against them and they are

focused on price. You need to read the tape, not just the price, and the tape includes

how many shares traded at that price.

“From the bitching I hear in the office, a few of your traders are getting stopped out of

profitable trades and not sizing up on the winners. They find winners but get scared too

easily. Every up-tick and down-tick is life or death.”

They get stopped out on price because they can’t read the tape. Everyone reads charts,

including CNBC and such, but very few read the tape. Think of it this way, maybe this

will help you explain it tomorrow…

If you buy one share at $10. Your demand and commitment to the idea is $10. If I buy

two shares at $10, my commitment and demand is $20.

The price is the same, but the tape is telling a different story. This simple example

explains why the public is always wrong. They only trade price.

You need to monitor it on these 2 time frames. (And more whiteboard stuff).

That’s what we did on the floor. When we needed a view of the tape, outside of our own

order flow, this is what we monitored.

Reading the tape must include the action of the volume. It is not price action, but

volume – – the amount of money, the supply and the demand – – which best tells the

story. Tape reading determines if institutional activity currently favors the buy side or the

sell side, the supply or demand.

Do not forget that every purchase of a share of stock means also a sell. Our job is to

determine the balance of the supply and demand: whether the demand is greater than

the supply, in which case the price advances, or the reverse.

The action of the volume tells us of the supply and demand; price merely denotes

the value of the volume!

One last thing to consider is tracking the volume on a daily basis. Order flow is not

going to jump off the page and bite you in the ass, but when you study a handful of

stocks, you can learn the tape quickly

How Tape Readers See the Cause But Chart Readers See the Effects

Order flow isn’t discussed on CNBC or penned in the Wall St Journal…

Big money doesn’t advertise…

Or do they?

Jim D. had the answer. “If I had natural buyer with size behind it, we tested the market

to gauge interest.”

“If my buyer wants to build a position, we shook the tree, to bring out sellers. We sold

stock to stimulate selling. My client sat on the bid buying more than they sold.

To attract buyers, the process was similar.

The public is attracted by higher prices. More specifically, fast-moving higher prices.

Chart readers see higher prices with wide fluctuations, after a significant move higher.

The “fluctuations” give retail buyers a second chance at a better price.

So, we are clear, a “sloppy/whippy” topping pattern (after a markup / uptrend), is when

institutions are marketing stock for sale. They are telling you they need to get out.

Institutions Marketing Stocks for Sale: Order Flow on the Tape

== >> The beginning of the markup is orderly. Not attracting attention yet.

== >> Just prior to “A” the first attempt to market stock for sale is completed in a $4

trading range. Price falls quickly during the few days of “A” but there is too much stock

for sale. We need higher prices and more “second chances” to get a hot stock at a

better price. Think of spot “A” as the movie preview. It gets your interest in things to

come.

== >>Area “B” is the marketing machine at it’s best. New high prices that violently

decline and give you another chance to buy. The wider the swings, the more attempts at

a new high, the more lemmings drawn to the buy button before the coming decline.

Is that legal?

Yes. It’s just institutions marketing what they need you to see and believe.

Big money can’t buy or exit large positions without your help.

Tape readers see distribution.

Chart readers see “action.”

Order Flow: What is it?

What exactly are Institutions?” In trading terms, I’m talking about major financial

institutions. Hedge funds, mutual funds, pension funds, the big players who need to

earn returns to keep their jobs.

These players account for an estimated 67% of the volume in the stock market on any

given day. Smart traders benefit by tracking their order flow.

The term order flow comes from market makers and specialists receiving large orders to

work. The better price they got for the order, the more order flow they got. The more

order flow, the more they made in commissions.

Order Flow in the Age of Algorithms

Struggling chart readers like to blame the “algos.”

They complain about getting stopped out by three cents, only to watch the stock march

higher without them. Eventually they believe algos are out to get them. The book “Flash

Boys” by Michael Lewis does a great job perpetuating the anger.

Narrow-minded people, only see where they focus. They forget when order flow is

obvious, and algos catapult the stock so high, so fast you can’t possibly mess up the

buying opportunity.

If I have a choice between a bunch of annoying small losses, versus a tsunami of

buying (or selling), sign me up. Tape reading and seeing order flow, solves the algo

crisis.