Studies in Tape Reading | Richard D. Wyckoff

BOOK REVIEW

By Cam R

Title: Studies in Tape Reading

Author: Richard D. Wyckoff (Rollo Tape)

When one talks about the subject of reading the tape, it seems the name of Richard Wyckoff is always mentioned together with it. I first came across his book Studies in Tape Reading when I was starting out in trading. Having no awareness of what ‘the tape’ actually was, I read the book and frankly didn’t really get much out of it. It was also probably more of the instrument I was in at that time (FX). Once I was exposed to Futures however, this book suddenly took on a different light and back to it I went.

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*Readers aware of the difference between FX and Futures, please feel free to skip the simple explanation on the difference between FX and Futures below.* 
FX is an over the counter market, so there are no centralized volume figures – the bids and asks you get depends on whatever is provided by whichever broker you are using. 
Futures is an exchange traded market, so there is a centralized volume figure for the futures product in question – and usually referred to as the ‘time and sales’ on the trading software.
As an analogy, think of FX like the money changers you change money at if you go abroad for a holiday. There is no centralized rate, you cannot know specifically how much others have exchanged where and when. There are no centralized volume figures.
Whereas in Futures, everything goes through an exchange, such as the Chicago Mercantile Exchange in the U.S. or Eurex in Europe. So every single transaction (be it 1 contract or 1000 contracts) will be recorded and shown on the time and sales. Therefore, it is possible to monitor the volume figures, aka read the tape.
I should probably add if your primary trading vehicle is FX, this book might not be of much benefit to you. But if you are in Futures or Stocks for that matter, then it is likely this book will be of interest.
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So does it deliver on the subject of tape reading? Just read on below.

Packaging - 2/5 (Cosmo Classic Paperback Edition)

A small, compact and light book, it fits nicely in the palm of my hand. Paper is of relatively good quality, it should stand up to frequent handling. However, the font is rather minuscule, I had to squint a little at the start before my eyes got used to it. It's probably because it’s like a book within a book. It would have benefited from someone retyping out the book so they can adjust the formatting for modern eyes (This version is actually available which I will review later), as opposed to the simple reprint which seems to be the case here. There is plenty of space at the margins although instead of getting the urge to write, I think the publisher should have just fill up the space with a bigger font.

Writing Style - 4/5

The writing style is clearly from the 1920s. It feels slightly archaic, but there is that certain charm to it. Modern readers need not worry though, the explanations are very logical and concise, and whatever Wyckoff is attempting to explain comes across clearly. He also supplements it with the rare illustration that makes everything even clearer. I wish most writers would write as clearly as him actually - simple, clear and with all the unnecessary words trimmed off.

Trading Methods (Specifics) - 5/5

Wyckoff attempts to explain tape reading, and he does it extremely well here. He first differentiates between what tape reading is and what it is not, and also the advantages and disadvantages of it.

How he compares a pure tape reader to a fruit seller:

“The tape reader is like a vendor of fruit who, each morning, provides himself with a stock of the choicest and most seasonable products, and for which there is the greatest demand. He pays his cash and disposes of the goods as quickly as possible, at a profit varying from 50 to 100 per cent on cost. To carry his stock over night carries a loss on account of spoilage. This corresponds with the interest charge to the trader.

The fruit vendor is successful because he know what and when to buy, also where and how to sell. But there are stormy days when he cannot go out; when buyers do not appear; when his wares are scattered aboard by a careless trackman. All of these unforeseen circumstances are a part of trading and life, in general.

The vendor does not hope to buy a barrel of apples for $3 and sell them the same day for $300. He expects to make from nothing to $3 a day. He depends upon a small but certain profit, which will average enough over a week to pay him for his time and labour.”

Wyckoff then goes on to explain in detail how to tell from the volume figures the probability of a stock’s movement. This is probably the part where the essence of reading the tape is conveyed. Following that, he further illustrates with the proper example of what he actually sees to trade a stock, so it is quite clear what he is explaining. He also talks about the opportunities in dull (slow in modern terms) markets as well as fast markets and such. All in all, the age of the book aside, the general principles and theories he has shared here are definitely applicable to modern markets. Full marks here!

Trading Management (Soft Skills) - 4/5

The examples he cites does very well in explaining how he reads the tape to manage a position, though it’s more of a big picture context. But understand the big picture, and many things become obvious. What I especially like was his wonderful illustration of the ‘line of least resistance’, a phase made famous by Reminiscences of a Stock Operator.

A wonderful explanation of the line of least resistance:

“Walk into the hilly country and you will find a small river running quietly on its way. The stream is so tiny that you can place your hand in its course and the water will back up. In five minutes, it overcomes this resistance by going over or around your hand. You fetch a shovel, pile dirt in its path, pack it down hard and say, “There, I’ve dam you up”.

But you haven’t at all, for the next day you find your pile of dirt washed away. You bring cartloads of dirt and build a substantial dam, and the flow is finally held in check. It is the same with an individual stocks or the market. Prices follow the line of least resistance.

If Reading (Reading in 1920s is a big stock on the exchange, somewhat akin to a Apple or Microsoft now) is going up, someone may throw 10,000 shares in its path without perceptible effect. Another lot of 20,000 shares follows; the stock halts, but finally overcomes the obstacle. The seller gives another order – this time 30,000 shares more are thrown on the market. If there are 30,1000 shares wanted at that level, the buyer will absorb all of the 30,000 shares and the stock will go higher; if only 29,900 shares are needed to fill all bids, the price will recede because demand has been overcome by the supply.”

Trading Psychology (Mindset) - 2/5

He goes a little into the mindset required for trading, which he terms as mental poise. There are a few other items he mentioned that a tape reader needs to keep in check emotionally, but the mindset part is not expanded very much in this book.

Longevity - 2/5

Although I think this is an excellent book, the reason I have rated it low is because once you have absorbed or learn whatever you are able to from this book, I don’t really see a need to constantly go back to the book. It’s sort of like riding a bicycle, once you know the basics, you can just cycle away, you won’t keep falling over. It is the same with tape reading.

Value - 5/5

Fully worth its price if you want to learn about tape reading. The book is priced so reasonably (in fact it's probably cheap since it's about $10 for a new copy) for the knowledge that it is imparting. In actuality, good books on tape reading are few and far between. There are (to me) only two books I would wholeheartedly recommend for anyone wanting to know about reading the tape. One is this book, and the other is by Tape Reading and Market Tactics by Humphrey Neill. These are the only two books you need to understand the concepts, the rest is just practice and more practice.

Things to Watch Out For -

The stocks he cites as examples are from his time, such as Reading, Union Pacific, Anaconda etc. Modern readers should probably think of these stocks as the Apple, Google or any big active moving stocks currently. Also, he talks about the stock moving 1/8 of a point, which was the smallest increment of a stock moment way back. A stock would move say from 35-1/8 to 35-1/4 to 35-3/8 and so on. Whereas now, a stock would move in much smaller decimals now, say 0.01 to 0.02 or 1/32 to 2/32 as in the Treasury futures, so it's just something to keep in mind when reading the book.

Overall - 3/5

Highly recommended book on tape reading, if you are interested in it. It’s probably more geared towards daytraders though. Pure chartists or traders with a longer term outlook might not find this book useful, but anyone interested in the fluctuations should take it for a read.

Score Recap:

Packaging - 2/5

Writing Style - 4/5

Trading Methods (Specifics) - 5/5

Trading Management (Soft Skills) - 4/5

Trading Psychology (Mindset) - 2/5

Longevity -2/5

Value - 5/5

Overall - 3/5

Where to Buy:

If you found the above review helpful and want to buy the book, please do consider buying it from my Amazon affiliate link below. The prices are competitive, and any purchase goes a long way in supporting this site and as a small motivation for me to continue working on this resource for you. Thank you!

Related Books
If you are interested in learning more about the art of tape reading, then Tape Reading and Market Tactics by Humphrey Neill is also an excellent book to seek out. (Review Here)

If you are interested in Richard Wyckoff, I would also strongly recommend his other book, Stock Market Technique Number One (Review Here) and its sequel Number Two (Review Here). They contain his observations and musings on the stock market in general with lots of rare insights. And both books are very entertaining reads too.

Thanks so much for reading!
Do check back often, I update frequently with new reviews, cheers! :)