Fighting the Tape

What Is Fighting the Tape?

The term fighting the tape refers to the act of placing a trade(s) that goes against the prevailing trend(s) of the market. The phrase comes from the time in history when stock prices were printed on a ticker tape.

Going against the tape is acting in a way that’s contrary to what is usually done when the market is moving in a specific direction, and fighting the tape is aggressively acting in the opposite way the tape is moving.

How Fighting the Tape Works

Investment strategies vary from investor to investor. Strategies require an overview of how much money an investor is willing to put up, their risk tolerance, investment horizon, goals, and their needs in the future. Some investors choose to take a more aggressive approach because they actively seek gains, while others — who may be more patient — are willing to ride out any waves in the market in order to protect their capital.

Fighting the tape is considered by some to be an active, aggressive strategy. It means executing a trading strategy that goes against the established position for a given market at any given time. In simpler terms, fighting the tape is akin to going against the market.

As noted above, the phrase originated when share prices were listed on a ticker tape, which has been replaced with an electronic version. The constant stream of prices on the ticker tape showed whether prices were rallying — going up — or falling. Someone who buys stocks while the overall market is falling is said to be fighting the tape, as is someone who sells stocks while the overall market is rallying.

Examples of Fighting the Tape

Other examples of fighting the tape are shorting stocks while the market is rallying, or going long while the market is falling.

Fighting the tape is seen by the majority of traders as a bad idea that violates common sense. But in volatile markets, choosing to fight the tape can lead to profitable trades, since such markets can make directional changes very quickly and abruptly. Conversely, traders can also lose their shirts if the market continues to move against them for a prolonged period.

Fighting the tape is considered to be a contrarian stance by a trader, as traders who choose to trade against the tape are taking positions that oppose the perception of the general market. There are varied reasons a trader would take a contrarian stance, ranging from aggression and ego to strong feelings that the market is about to reverse.

Traders who fight the tape just to take a contrarian position with someone else's capital may be making an unethical decision.

Special Considerations

There is no ethical dilemma for individual investors who fight the tape since it is their own money they are risking by moving contrary to the market. That isn't the case for traders who risk other entities’ money. This is when fighting the tape becomes an ethical issue.

Consider the case of a trader who fights the tape because of a suspicion that the market will suddenly reverse. Going contrary to the current direction of the market will position them to capture this reverse course, meaning the trader is acting in good faith. But what about a trader who fights the tape just to take a contrarian position? This person is risking another person's money just to take an ideological position, making this is arguably an unethical position.