What is tape reading?

Day traders used the antiquated tape reading technique to assess a stock’s price and volume. Stock prices were sent via telegraph lines on ticker tape, which featured a  ticker symbol, price, and volume from around the 1860s through the 1960s. Due to the development of personal computers and electronic communication networks (ECNs) in the 1960s, these technologies were phased out.

Comprehending the Tape Reading Process

Edward A. Calahan created ticker tapes in 1867 for the Gold and Stock Telegraph Company. In 1871, Thomas Edison created the first helpful stock ticker, which improved market efficiency. These devices quickly became the primary tool all major brokerages used to distribute prices and volume.

Tape reading helped well-known traders gain notoriety, including momentum trading pioneer Jesse Livermore. Several books regarding tape reading have also been released, such as Reminiscences of a Stock Operator and Tape Reading and Market Tactics. Since then, several terms have been widely used, including the ticker symbol, stock ticker, and expressions like “don’t fight the tape,” which refers to trading against the trend.

With the development of television and computers in the 1960s and 1970s, tape reading gradually became obsolete. However, the phrases “ticker symbol” and “stock tickers” are still in use, and traders still utilize many of the same strategies with more advanced equipment.

Even though tape reading became outdated with the advent of personal computers, several terms from that era are still used in modern trading jargon, such as “stock ticker,” “ticker symbol,” and “don’t fight the tape.”

Contemporary Tape Reading

These days, tape reading entails examining computerized order books to determine potential future stock prices. In contrast to stock tickers, these order books include deals that still need to be performed, offering a greater degree of market insight at any moment.

A trader could notice, for instance, several colossal limit sell orders at a certain price level across several exchanges while examining the order book for securities. This might mean that there will be strong resistance in the stock at current levels. On the other hand, if there are sizable limit buy orders below the current price, it may be a sign of strong support at that particular price and encourage a trader to purchase since they know there is a price floor.

Several brokers offer access to these order books in the form of Level II quotations. Programmatic traders could incorporate the data into their trading algorithms in more complex situations. For example, traders may stream order book data for examination using Interactive Brokers’ “reqMktDepth” function. These observations are beneficial for creating contemporary trading algorithms.

Conclusion

• Before the technology was updated, day traders would examine the price and volume of a particular stock using tape readings.
• Ticker tape was used to transmit a stock’s price, volume, and ticker symbol across telegraph lines.
• Although tape reading was discontinued in the 1960s, electronic traders still use comparable techniques, and much of the terminology from that era is still commonly used.