Reading the Tape is all you need! For some trades and some traders that is.
One savvy trader in an email exchange with veteran traders, said it so well:
When we teach our new traders to make trade decisions, we ask them to consider 5 variables:
- The Big Picture
- Technical Analysis
- Reading the Tape
- Intraday Fundamentals
On most trades we want our traders considering ALL of these variables to make a trade decision, so that their trade decisions are best.
But, but, but the savvy trader above said it so well. You can make trade decisions JUST from the tape, or order flow. That is enough to make excellent risk/reward trades. And that is anathema to the long-standing propaganda that you must use an extensive knowledge of fundamentals to trade with an edge. But Reading the Tape, especially for the active trader, is enough in of itself to give you a trading edge.
I would mitigate my thesis above with some trading advise. Make sure that the signals from Reading the Tape are significant if only making trades from the order flow. Save your order flow trades for very large changes in the Tape, signaling a trade. HFTs may chop you up if you do not. And consider shorter-term, active trading when using the Tape. We say for “scalps.”
*no relevant positions