Watch Full Video Here: How to use Level 2 (with ZERO experience)
Tape reading is one of the most important skills I’ve developed as a day trader. If you’ve ever wondered what tape reading is in trading, the simple answer is that this is the language of the financial markets. I use it to anticipate when a stock is about to move, when momentum is shifting, and when I need to bail immediately.
Being an expert at reading Level 2 has made me a more profitable trader. I’m not exaggerating when I say I wouldn’t have been able to turn a small account into over $10 million in verified trading profits without mastering this skill. While my results are not typical, I am confident that this skill has contributed to my success.
What Tape Reading Really Means
Tape reading comes from the old ticker tape machines that printed every trade on a narrow strip of paper. Today, that “tape” is the time and sales window, and it shows:
- Every executed order
- The price it filled
- The size
- Whether the trade hit the bid or the ask
The colors matter. Green prints mean buyers are taking liquidity at the ask. Red prints show sellers hitting the bid. White or gray prints happen between the spread and often signal indecision.
When I say I want to see green on the tape, what I really mean is that I want to see proof that buyers like the stock right now.
How Tape Reading Differs From Chart Reading
Charts show where a price has already been. Tape reading shows where a price is likely to go next. I describe it like driving a car: The chart is your rear-view mirror, and Level 2 is the windshield.
Most of the time when I’m trading, I’m staring at Level 2 and glancing at the charts. If you rely only on charts, you’ll always be behind the move. Tape reading is how you stay ahead of it.
How Level 2 Works (and Why It Matters)
Level 2 shows the real-time battle between buyers and sellers. Bids sit on the left, asks on the right, and together they tell me where traders are willing to transact.
I watch how wide the spread is, how much size is sitting at each price, and how quickly those orders come in or disappear. When buyers start absorbing big sellers or when someone steps in with size at a key level, that shift is easy to spot on Level 2.
A tight spread means the trade is manageable. A wide spread — 20 cents, 50 cents, even a dollar — usually tells me to stay out unless something exceptional is happening. Level 2 gives me a clearer sense of risk and momentum long before the chart reflects it.
How I Use Tape Reading to Time My Entries
When it comes to getting in, I’m quick. Tape reading helps me confirm that my idea is actually right.
1. I Want to See Immediate Green on the Tape
If I hit the buy button and I don’t see green almost instantly, something’s wrong. If I see red prints right after getting in, I’m probably getting out.
2. I Use Limit Orders With Small Offsets
I never use market orders. I use limit orders with a 5–10 cent offset so I can:
- Enter immediately
- Control slippage
- Avoid getting filled way above my intended price
Slippage is the silent killer for day traders. I want to control it as much as possible.
3. I Watch Sellers Get Bought Up
One of the most reliable entry signals I use is a big seller getting chewed through.
For example, if there’s a 20,000-share seller at $7.50 and buyers are hammering through it, 20k drops to 15k, then 10k, then 6k. That’s often where I’ll add, when I see sellers getting bought up, that’s a sign buyers are in control.
1. Selling Into Strength
If a stock is ripping and I want to make a profit, I put my order on the ask. I can be patient when buyers are in control.
2. Selling on the Bid When I See Trouble
But when I see a massive seller appear or momentum suddenly dies, I’m not waiting around. If a million-share seller pops up, I’m out. I’ll hit the bid and get flat immediately.
3. Red Prints = Warning Sign
A stream of red prints or mixed prints between the spread usually signals that momentum is fading. The chart won’t show the reversal yet, but the tape will. When I see that shift, I know it’s time to step aside before the pullback accelerates.
How I Use Tape Reading for Dips and Pullbacks
Some of my best trades come from dips, but only when the tape agrees.
1. Identifying the Low
I’m watching for:
- Spreads tightening
- Buyers stepping back in
- A clear level where the stock refuses to go lower
That’s the low-of-day support I’ll risk against.
2. Confirmation on the Bounce
Tape reading gives me the green light:
- Green prints start coming in
- The bid steps up
- Sellers retreat
If I see that shift, I’ll take the dip trade with a tight stop.
When Tape Reading Works Best
Tape reading works in any market, but some conditions are ideal.
1. Fast, Lower-Float Stocks
Thin Level 2 = cleaner, faster signals. These stocks can move 20–50 cents instantly, and tape reading helps me catch that move early.
2. Breakouts, Halts, and IPOs
During halts and IPO openings, charts lag. Tape reading becomes the only reliable way to read momentum.
Sometimes I can literally visualize the chart from the tape: If I see a stock drop to $53.50 and surge back to $55, I’m in. I don’t need a candle to tell me what I just saw unfold.
Risk Management With Tape Reading
Tape reading isn’t a replacement for risk management. It’s part of it.
Key Things I Manage:
- Stop placement (usually at the previous candle’s low)
- Position size (small enough to bail instantly)
- Spreads (never ignore them)
I avoid stop orders in the premarket because they’re visible to institutions. I prefer manual stops when the market is thinner.
Conclusion
Tape reading is one of the most powerful tools a day trader can learn. It lets me anticipate momentum, spot reversals before the chart shows them, and time my entries and exits with precision.
If you want to keep improving your tape reading and learn these trading strategies in real time, you can train with me inside Warrior Trading. I break this down every day in our live classes, one trade at a time.