While day traders all have very different styles and habits, they’re also fiercely interested in what other day traders are doing — especially the most successful ones. Ross Cameron, who has been trading for over a decade, is regularly asked about his own style and methodology.
Here’s what he said.
“I focus on two things. I focus on the Level 2, and I focus on the time and sales because I am a tape reader,” said Ross Cameron in a recent YouTube video.
Level 2 is market data that includes the scope of bid and ask prices for a given security, while time and sales (also known as “the tape”) is the volume, price, direction, date, and time data for each trade executed on an exchange, provided as a real-time data feed of trade orders.
“Here’s the problem with focusing just on charts. By the time you see something on a chart, it has already happened. It’s already over — even a one-minute chart,” he said.
“I look at the road ahead — and that’s the Level two and the time and sales, which shows me the orders currently lined up. That gives me a good indication of where the stock is going,” Ross Cameron explained. “But I do check my mirrors [the charts], because I want to be able to have context of what has just happened and what other people are going to think of it.”
When Ross Cameron started day-trading, he didn’t intend to be a tape reader. It just sort of evolved. And he recognizes that being really good at tape reading is both a blessing and a curse.
That’s because one of the things that traders will sometimes notice when they look at a chart might be clean and consistent upward movement (indicated by green bars known as candles).
“It’s like, green candle, green candle, green candle. And then you have the red candle [indicating a downward move]. And I’ll sometimes think, ‘Wow, I should have held that trade so much longer. Why did I sell as soon as I did?’” Ross Cameron said, likening his style of tape reading to being focused on getting base hits in baseball — not aiming for the home run, just trying to get yourself to the next base.
“Let’s say I see a stock approaching $50 a share and it comes up to $49.90, taps that level, then pulls back, comes back up again and then pulls back again. I’m starting to see on the Level 2 orders that are sitting at $49.90 or at $50 a share. On the tape, you see them in a way that’s different than on a chart, where you see the candles but you don’t see the orders.
So, if the price starts to squeeze up, and we’re seeing lots of green on the tape, I think this is going to break the $50 level and I press the buy button to anticipate a breakout,” explains Ross Cameron, adding that if he was relying just on charts, he wouldn’t be buying until the price actually broke the level, or he might wait for the break and then wait for the retest.
“But then I would have missed the whole first leg. The better you are at reading the tape, the better you can capture these little opportunities.”
“When you’re so hyperfocused on every order, you can get faked out,” he said. “You might see a really big seller and then think, ‘Oh man, I gotta get out and you get out.’ The price drops down a little bit, then it comes back up when the seller gets bought up, and then the price returns to going higher. And then when you look back at the chart, all you see are three or four green candles in a row and you’re like, ‘Wow, why did I sell there?’”
Yet for a lot of beginner traders, Ross Cameron said learning how to read the tape is a great way to build consistency in their trading.
“It’s a lot easier to predict what a stock is going to do over the next one-to-five minutes than over the next 30 to 40 minutes, or one or two hours,” said Ross Cameron. “When you’re reading the tape, you’re zoomed in on very short time frames.”
Ross Cameron said that because a lot of tape readers are very fast and aggressive traders, they can “certainly do very well” in a hot market. But he cautions that it’s important to understand that a tape reader’s biggest weakness is that losses can outsize winners.
“You can have a negative profit/loss ratio because you’re taking lots of small little base hit trades, but inevitably you’ll have that trade where you get in at $49.90 it goes to $50, and then it flushes — and you get that jackknife move where it pops up and drops right back down.”
Over the years, Ross Cameron has learned that tape reading is a lot more difficult on certain types of stocks.
“Trying to read the tape on indices like the S&P 500 or on commodities like natural gas or gold, or on large-cap stocks like Apple or Tesla, is very difficult,” said Ross Cameron. “Those are markets where you have a lot of algorithmic trading systems competing against each other and trying to cut in front of each other — and that creates more volatility.
You also have institutional traders moving in and out their positions, which can create big flushes and pops in the price, simply because they are selling huge volumes.”
Ross Cameron has found that tape reading consistently works better on the right type of stock — stocks up at least 10%, typically priced between $2 and $20, five times relative volume or higher, has a news catalyst, and a float of under 20 million shares.
“These are the stocks where we see really big moves and these are the stocks where there’s a lot more opportunity for profit,” said Ross Cameron. “Reading the tape on small caps — for me — is really the sweet spot.”
If you want to become a tape reader, Cameron has sage words of advice: “Just keep practicing. Every single day that you’re practicing reading the tape by trading — even if it’s in a simulator — you’re gaining experience. And that experience is what creates educated intuition. So keep sticking with it.”
Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.
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