Tape Reading

Sometimes it is nice to reexamine a simple concept when there appears to be overwhelming volatility in the markets. Mechanical systems and patterns are helpful and even necessary for the structure they impose in organizing data, but even Richard Dennis in his original course discussed ways to “anticipate” entry signals, exit trades early, and filter out “bad” trades.

Learn to follow the market’s price action and read the signals it gives. This can become a strict discipline in itself and the result will be greater confidence that a trade is or is not working.

Tape Reading

“Trading technique is simply the ability, through study, observation, and experience, to recognize the signals in each of the several phases of market movement.”
- George Douglas Taylor

Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend. (It does not mean you have to have the ability to read the prices scrolling across the bottom of the screen on CNBC!) Tape reading is nothing more than monitoring the current price action and asking: Is the price going up or down right now? It has nothing to do with technical analysis and everything to do with keeping an open mind.

Even the most novice observer has the ability to see that prices are moving higher or lower at any particular moment or, for that matter, when prices seem to be going nowhere or sideways. (Markets do not always have to be going somewhere!) It is also fairly easy to watch a price go up and then tell when it stops going up – even if it turns out to be only a momentary pause.

I’ve known hundreds of professional traders throughout my career. I don’t want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA’s who are running a money-management program with “OPM” – other people’s money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment – even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, “The only truth is the current PRICE.” Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases.

Watching price action can actually be very confusing if you go about it like a ship without her sails up in an ocean squall. You will get tossed back and forth with no sense of direction and no sense of purpose. There are two main tricks to monitoring price action. The first is to watch the price relative to another “reference point.” This is why many traders use a “pivot point” – and it works! It is the easiest way to tell if the market is moving closer to or further away from a particular point. This is also why it is often easier to get a “feel” for the market once you put a position on – your “reference” point tends to be your entry price.

Some reference points, such as a swing high or the day’s opening price, will have much more significance than those points involving some type of calculation. (Some numbers might have special meaning for those who calculate them, and who am I to argue if they work.) I like to concentrate on pivot points that the whole market can see. To sum up so far, when watching price, we want to know the following: how fast, how far, and in which direction. It takes two points to measure these things. One will always be the current price, the other a pivot point.

* Do not watch price for the sake of watching price. Watch price with the intent to do something or to anticipate a certain response!

Responses

“The study of responses … is an almost unerring guide to the technical position of the market.”
- Rollo Tape (Richard Wyckoff), 1910

Position Size and Risk Management

In my career as a trader, I have Never seen anyone who applying the position size and risk management in correct size position and Stop Loss. Most of them just show the entry, technic, small equity gain large % ROI just want to make the others impressed with them. hahaha sound childish. In the long run, they Are just a trash or loser. Even some of them are famous or call genius from the Forum  or FB (Facebooking) lol does not apply this basic theory. I never make them as my inspiration because there are just famous in certain places. Not knowing of the world history itself. Is this guy you all ever want to follow? Use your brain. Don’t simply follow others because what they are doing, you want to do the same thing. Don't be idiotic. They just make you a loser again and again and again. Does not help at all.

Some of you might know this but the question is, how to put and Calculate exactly the position size and where exactly the Stop Loss should it be. Because, we often read and hear, no risk 2% bla bla bla bla bla.. If you are scalper mostly you will be wiped out in no time even using good money management. Seriously. But there is a way to avoid this. Maybe later I will be able to write about this.

I don’t want to give a specific answer whom have these questions. How to put and Calculate exactly the position size and where exactly the Stop Loss should it be.  Because it is your homework. And my advice and experienced is worth more than jewel and gold. Just kidding. Actually it depends on yourself. Your comfort level. And combine with the other strategy / method. If you carefully  observe on your chart. There is a specific place that price unable to get if you put it "there". But sometimes it can be hit also. Because we are just human. Nothing perfect.

Drawdown effects

Size of draw-down on initial capital    Percent gain to recover


                          5%                         5.3%
                         10%                       11.1%
                         15%                       17.6%
                         20%                       25.0%
                         25%                       33.3%
                         30%                       42.9%
                         40%                       66.7%
                         50%                       100 %
                         60%                       150 %
                         70%                       233 %
                         80%                       400 %
                         90%                      1000 %

 Everything you need to know is right there in Front of you.

- Jesse Livermore 

The most important rule of trading is to play good defense, Not great offense. - Paul Tudor Jones 

Invincibility lies in the defense the possibility of victory in the attack

To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.

- Sun Tzu Art Of War

Here some good articles worth to read http://www.trade2win.com/articles/1476-position-sizing-approach-risk-management

Position Size and Risk Management are the more important thing that everyone should know to make money by trading for a living in the long run.

The above quotes is my inspiration people who already know by the history world itself. These people that you should make them as inpiration not the "trash". IMHO