Tape Reading Level 2 | Stock Trading Lessons

Hey everybody, it’s Pete. Thank you so much for joining me today. In today’s video, I’m going to teach you an old school technique called tape reading the tape, but I’m actually going to be replying to comments that you left underneath one of our recent videos. So I’m going to show you the comments excuse me, and we’re going to work our way into it.

I promise you this is going to be a video that you’re really going to enjoy, a video that’s going to be actionable and a stock trading lesson for really helping you understand when to buy stocks and how to time your entries. And more importantly I’m going to make it easy for you to understand how to track and follow what we call order flow or the deep pockets who push stocks around.

This is actually why stocks go up and down and you’re going to see it right now. So first stick around, I’ll be right back and we’re going to get right into your comments.

Okay, so we’re going to start out with we’re going to share a image. of this. This is actually the question that we got. The question was from Joey B. How are you deciding at what price to buy on things you’re looking at? So we’re going to get into a lot of detail on that. I promise I’m going to make it easy for you.

Mr. Vicious Spiegel replied with he reads the tape, which is true, but probably not in the way that is explained here. Go all the way down to the bottom where Darth Trader says tape reading is reviewing time and sales, watching the volume back and forth. He’s correct. The way we’re going to teach you to do it, though, is a little bit easier.

This is what’s known as a… level two box. So this is actually what Darth Trader is talking about. And this is really going old school when you’re trading off of a level two box. It 100% absolutely can be done by watching level two. First, we’re going to explain what’s going on here in level two and how that translates into you setting up some really good ideas to buy stocks and to buy those stocks confidently.

So the first thing I want to do though is I want to walk you through what’s actually happening in level two. Most people, when they log into their trading account, you’ll see what’s known as Level 1. Level 1 is where you see the best advertised price to buy, which in this case in Apple, is 141. 69, 141. 69. Then you’ll see on the ask, which is also known as the offer, is the best advertised price to sell.

So what’s actually happening here? So in level one, we are, let me see if I can clean that up a little bit. Level one, we are advertising to buy because we want to get into that stock. For whatever reason, we think that stock is going higher or If we sold the stock short, we’re covering the stock. But let’s just keep to buying it.

It’s easier. So we go out to the market and we say, okay, I want to buy Apple stocks. You go out into the, you place an order on the level one quote. If you want to buy it at the best right now, buy it at the best bid. And in this case here, 141. 69, so you’re advertising to buy Apple. But what happens if when you choose to buy Apple, all of a sudden it starts going higher?

If it’s going higher, nobody’s going to sell it to you at a discount down there. You now have to make a decision, do I pay higher prices? Because I really have a lot of conviction that it’s going higher. So the question, like the first question should be, why would you have conviction that it’s going higher?

It’s because you believe that the smart money, the deep pockets right now are making that stock go up and you want to piggyback on what they’re doing. You’re like, that sounds great. How do I find that out? That’s what we’re going to talk about right now. So we’re going to go out to the larger picture of this again.

So the Adver and I keep using the word advertise very specifically. Here’s the advertised bid people advertising to buy. Here’s the advertised, ask people advertising to sell. What we see over here in this window is exactly what Darth Trader is talking about here, reading time and sales, seeing prices with heavy volume on either the buy side or the sell side.

So he is technically correct. But the question is, how do we read that? And how do we read that without losing our sanity? We all know now in today’s market, 75% of the trading is done by algorithm. It’s done by computers. So this, what’s known as time and sales, moves very quickly. It goes up, it goes down, it’s spreading all over the place.

But let’s slow it down for a second in this window, so that I can teach you the easiest way to read this without having to watch every print. By the way, time and sales is the ticker window. It’s the old school ticker window. We used to see people sit in front of that Thomas Edison ticker and they’d read the price quotes.

That’s what time and sales is. So let’s actually take a look in this snapshot of Apple, what’s actually going on. So the red prints, typically in time and sales, that means it was a lower trade. Lower trade than the previous trade. It’s also known as active selling. So these red prints, so you have the terminology down.

A lot of people ask me to slow it down and give you the terminology. The red prints are trading at the bid. That’s another terminology. These are people actively selling to these people buying. So they’re selling for whatever reason right now. They want to get out. They don’t want to advertise.

They’re like, no, get me out now. I want to get out right now. So what we can infer in this window. is more people in this snapshot, which again, this changes pretty quickly, but in this snapshot, people are actively selling. So active selling means they’re willing to pay a lower price. Okay. The green prints mean that people are actively buying.

So again, when there’s a dominance. And a consistency of red prints or green prints. That means somebody is taking action. Somebody has urgency to do something. So a dominance of red prints in that moment, there’s active selling a dominance of green prints mean that at that moment, there’s active buying when the deep pockets step up, which is known as order flow, they push stocks.

That’s why stocks go up and down. That’s why we choose to be buying stocks. The yellow prints. This is an interesting one. I’m going to come back on the screen here for a second. What we’re showing here in level 2, in level 1 actually, is 141. 69, 141. 70. So in this case, there’s a 1 cent spread. That’s what’s the spread.

Sometimes that spread gets wider because the stock gets a little more volatile. So let’s just say for argument’s sake there’s a 3 cent spread. As the stock starts to go up, what you’re going to end up seeing on the tape, on the prints, remember what we said, as it’s going up, you’re going to see green, that’s active buying.

People having urgency to get in there and buy. Green green. All of a sudden, they’re done. And it slows down. Now what you start to see is a Christmas tree. You start to see red and green. On this screen here though, you’re seeing yellow also.

So yellow means it happened in between the best bid and the best ask. So what does that mean? That means it’s, if you could picture it going up, and then all of a sudden it slows down. And now if you bought it down there and it’s going up and it starts to slow down up there, you’re like, oh, gosh, let me try and advertise.

So now you try and advertise. If you can’t advertise, you’ll generally see the spread widen just a little bit. And that’s where it starts to roll over and you start to see the Christmas tree. So the yellow prints on here are trades that happen in between. The best bid and the best ask. And often that can be a turning point because at that moment, there’s indecision, you’re not trading at the bid.

You’re not trading at the S it’s indecision. So that’s how reading old school tape reading worked. When I first started trading way back in 2000, things were in fractions, market makers and specialists, physical people, not algorithms were in charge. And it was a lot more orderly. So we would actually be watching stocks.

I’ll go, I’ll show this level two again. So let’s say back in the day, we were watching Apple actually back then. Cisco is the more popular stock to trade. Let’s say I was advertising to buy here on Apple on the bid. And let’s say I got filled, I bought my stock, somebody sold it to me. So that shows up as a red trade here.

But let’s say I found out, I got information in the execution platform that I had, that all of a sudden, while I’m doing the same thing, I’m there buying, all of a sudden I see Goldman Sachs, at that point, who is a big player, obviously, they also join me on the bid, and all of a sudden, GSCO is sitting there, and you see a lot of redprints.

So what do we just say about a lot of redprints? A lot of redprints is selling, right? So that would imply the stock, the next move, the next immediate move should be to the downside. But what if Goldman Sachs is sitting there holding it? And they’re buying, people are actively selling, and Goldman Sachs is I’ll take them, I’ll take them, who knows why, they have, they must have a big order flow from either their own account or institutions, clients, and they have a big order to buy, so they’re just going to keep sitting there taking stock as people keep selling it.

But all of a sudden, we’re now going to say, oh, that stock’s well bid, Goldman Sachs is holding the bid. So what should happen next if all of that selling doesn’t make the stock go down? People are going to be like, oh, this stock’s going up. Goldman’s buying a lot of this stock. And now you start to see green prints.

The stock starts to go up. So us as active traders, we’re going to stay in that stock. How long? As the stock starts to go up, we’re going to stay with as long as you see green. In that moment, there’s buying. So this is more momentum trading. As it was going up, we stay in it. As soon as we start to see.

Red, green, yellow, red, green, yellow, red, green, yellow. All right. Something changed. It’s indecision. We go out and go back to the ask and we advertise to sell as it’s going up while there’s still buying, while there’s a little bit of indecision and then it starts all over again, that sounds like a lot of work, right?

I’m making it a lot easier for right now. We can do the same exact thing where we see all of this dominant green prints. Or dominant red prints or that indecision on the charts. We’re going to make it a lot easier. So I’m going to show you right now what it means to read order flow, what it means to read the tape on the charts.

It sounds like chart reading. It sounds like technical analysis, but it’s really not. I want to change the way you look at things instead of saying uptrend or downtrend. I want you to say bullish order flow, bearish order flow, or indecision. That’s really what we’re going to get to, but before we get to that, I just want to emphasize what we’re looking at here again.

Before I talked about level one being the best bid and the best ask, Level two, you could see the quotes outside of that. That’s also known as liquidity. So you can see the best bid here is 141. 69. The next best price is 141. 68. So that’s what in level two boxes outside of the best bid and the best ask.

And you can also see that the different levels. So here’s what I want you to remember, and I’m going to leave this on the screen. Green prints are active buying. Somebody stepping up and choosing to pay a higher price. When the dominant players in the market, the deep pockets, start pushing stocks around, if they can’t sit on the bid and advertise anymore, they have to start paying higher prices, and that’s what we pay attention to.

When we start to see the smart money, the deep pockets pushing prices up, that’s where we find a spot to piggyback on with them. And we continue to ride that with them until we see red, green, yellow, red, green, yellow on the charts. So the question is, how do we see this same activity on the charts so we can take advantage of this from one day to the next, depending if you’re swing trading one hour to the next, if you’re day trading.

It’s very simple. So I just want you to keep in mind when you’re looking to buy a stock, think about is there order flow, does somebody with deep pockets pay higher prices? How do I know it’s still happening? And how do I know when it changes? And this is really getting into the timing of buying and selling on the charts.

So we’re going to learn now to read the tape on the charts, but I want to say one more time, red, indecision or green. That’s all we’re looking for on the charts. By the way, if you haven’t done so and you’re with me now, it’s 12 minutes into the video. If you find this kind of stuff helpful, smash the like button.

I’d really appreciate it. Subscribe and hit the alert button. So again, red, green, indecision. Red, green, indecision. That’s what we’re looking for. We’re looking for clarity in that. So now let’s jump over to the charts and we’re going to go here. So this is really what we’re looking for. We’re sticking with Apple, the same exact stock, and now we’re looking at it on a weekly chart.

So if you can visualize what we just talked about, paying higher prices for an entire week. How do we know? Stock’s going up. And it’s staying there. That’s the big thing. Remember what we just said about we want to find stocks that have dominant order flow. We want to find stocks where the smart money, the deep pockets, people with deep research and a lot of money are willing to pay higher prices from one hour to the next, one day to the next, one week to the next.

How do we know? We could look it on level two or we could just look at a chart and say, okay, now I’m watching the order flow. There’s real order flow in that stock because they keep holding higher prices and keep paying higher prices. That’s what we’re looking at here on the chart of Apple. So you can see here from one week to the next, higher prices, higher lows.

a really big explosion in price. Then you start to see indecision. Indecision are the red, green, yellow. Red, green, yellow. This just happened over a week. So something changed here. If you can imagine this, where it’s dominant, then it changed because the difference between the open and the close was much smaller.

Then the following week, something happened. Now here’s the cool, here’s the cool terminology that you have. It’s well bid and it’s continuing to be well bid. Then you’re going to say the tape changed because it’s not as obvious. As soon as it’s not as obvious anymore. If you can remember green, it’s obvious.

Then all of a sudden it goes green, red, green, red, green, red, yellow, green, red. Something changed. That’s what you’re seeing on the chart here. When you see what’s known, sometimes it’s known as a doji candlestick. I call it an indecision candlestick, also known as a melted candlestick because it has a small body.

Something changed. So you see how easy it is to read the tape on the charts. You’re looking for somebody with green. And then you’ll candlesticks.

typically lead to a change. The tape has changed. So if we zoom out a little bit more on Apple here, the tape changed. It’s still higher prices, but the body is much smaller. There’s less clarity between massive green and differing opinions. In this window here, still higher prices, but even smaller over that week.

So now there’s even more indecision of a lot of green, a lot of red, a lot of yellow, a lot. And that’s why it’s changing on the tape. And lo and behold, look what happens. The tape changes and now they’re paying, excuse me, selling down lower prices, lower highs, lower lows, lower highs, lower lows. Now, what’s interesting here is the buyers tried to fight back, but they couldn’t do it.

Indecision, indecision, until finally, still a little bit of indecision, but the buyers finally got it to the high of the week. And now smart money, deep pockets start to pay higher prices, start to pay higher prices, start to pay higher prices. So as of right now, as of this window, unless something changes, unless the tape changes, unless we start to see melted candles in this window, we are still looking for a spot to buy apple.

And that’s where you now drill down to time your entries using other charts. So now we’re looking at the same thing. We just looked on a weekly chart. Now we’re zooming in a little bit. You can see buying, indecision. Indecision leads to selling. Indecision, buyer step back up, buyer step back up.

Green green. Paying higher prices until we see that change. And that is tape reading 101. You could look at level two and pull up that box. And if you want, you could look at this and watch every red, green, red, green, red, green, red, green red green, and.

It’s possible to learn how to read the tape in one particular stock. You just, it takes a lot of time, but hopefully what I just explained to you, you understand what’s going on under the hood where now you understand I’m trying to buy it by advertising. If I can’t buy it by advertising, then I have to pay somebody’s higher price.

So when the deep money, the deep pockets, excuse me, the deep pockets, the smart money starts to pay higher prices. What’s going on is green over time. And we see that translate on the chart. So that’s putting together order flow, tape reading, and then ultimately how we know it’s still valid, what to look for if it changes and how aggressive we should be based on how long that’s happening.

Is it happening one hour, one day, one week, a couple of months. That’s putting all the pieces together to build an argument. For accepting risk. And that’s a big part of trading. What we do is we choose to accept risk because we think we’ve spotted something where deeper pockets are pushing a stock up, and that’s why we choose to buy that stock.

And now you have a visual image on the charts of understanding when that might have changed and when it’s still valid, there’s still the part in between there of when to exactly when to buy and how to work that order and when to sell, that’s what happens between entry and exit. That’s a whole other lesson.

If you want to find out how to do that, click the link below the video and Let me know if you’d like to join us in our private community. I would love to see you there. So hopefully you found this valuable. If you did smash the like button, I’d really appreciate it. If you have any questions about this, definitely leave a comment.

I would love to hear from you. So I hope you found this valuable. Thank you so much. It’s a 18 minutes into the video. Hopefully this was a lesson that you really enjoyed and it makes chart reading a lot more simple for you. And now you actually know what’s going on behind the scenes. There’s never a question anymore.

Red, green, red, green, or indecision. That’s what you’re looking for. Have a great day, everybody.