HOW TO READ THE TAPE CORRECTLY The best way to read the tape correctly is to stay away from it. Get the records of the day's prices and the volume of sales, make up your chart and judge it when you are not influenced by rumors, gossip or reports or by the way the tape looks when it is making a move that only lasts thirty minutes or one hour. When final tops or bottoms are made, for a major or minor move, it will be plainly shown by the volume of sales and the time consumed at bottom or top before the move starts. A stock, in order to go up, must have reactions, but each succeeding bottom or top must be higher if the stock is going to continue upward, until it reaches a level where the selling is so strong and the volume of stock offered so great that there is not enough demand to absorb it. Then a reaction will take place and the stock decline to a level where the demand again exceeds the supply and the trend will turn up. Studebaker. — Notice the weekly Chart No. 2 on Stude- baker which runs from September, 1920 to January 6,1923 . A decline started from 66 on September 25,1920 and declined to 54 on October 2; then rallied to 59 in the week of October 9. For four weeks following this date, it made the same level of prices, failing to advance higher. This showed that the supply of stock was greater than the demand. A decline started on November 3 and by November 8 prices had broken below 54, the bottom made on October 2, which showed that the trend was again down. During the period from October 9 to November 6, when prices were fluctuating within the range of two or three points, and each week getting up around 59, the man watching the tape would have been fooled many times, because each time it made 59 it would look like it was going higher, and how could he tell but what the buying would be great enough to carry it through. The proper thing to do when a stock makes a level like this is to sell out and go short with a stop one to two points above the level; then wait until supply or demand forces it higher or lower. In this case, the stock declined rapidly to 41 on Novem ber 20, then rallied to 48 the following week. After that each week made a lower top and a lower bottom. In the week ending December 25,1920 , the high of the stock was 41 3/4 and the low 37 3/4. The volume was large, but the stock did not decline over two points below the previous week and it closed near the top prices of the week, which was an indication that the buying was better than the selling. The following week it advanced to 45 1/2 which was higher than the two previous weeks, but resistance was met at 47 to 48. During the week ending January 8,1921, it advanced through this level up to 52 and continued on up to 59, the resistance levels made in October and November, 1920. trade stock online ~ forex strategies |