Tape reading is an old technique for analyzing price and volume data for a particular stock. It represents the number and the type of trades taking place on the market and the price agreed by the buyers and sellers. Tape reading is used mostly by day traders who build their strategies upon intraday trading information.
What is tape reading in trading?
Modern Tape Reading. Modern tape reading involves looking at electronic order books to analyze where a stock price may be headed. Unlike stock tickers, these order books include non-executed trades, which provides a higher level of detail into the market at any given time.
When did the stock market stop using tape reading?
Tape reading eventually became obsolete in the 1960s and 1970s with the rise of television and computers, but the terms ticker symbol and stock tickers remain in use and traders employ many of the same techniques with more modern technology.
What is the history of tape reading?
The concept of tape reading first emerged in the late 1860s. That was when traders started using ticker tapes to transmit trading information. Experts generally consider Edward A. Calahan the father of tape reading. At the time, he was an employee at the American Telegraph Company. The tape reading technique became mainstream in 1869.
What is ticker tape trading?
A stock's ticker symbol, price, and volume were sent over telegraph lines via ticker tape. While tape reading was phased out in the 1960s, similar strategies are used by electronic traders, and many of the terms originating from the time are still widely used.
Is reading the tape important?
Reading the tape is a leading indicator, not like charts and indicators where they are based on past data. Tape reading is an important skill to master as an intraday trader because it allows you to see real time where there is buying and selling going on at level.
What is the tape strategy?
Tape reading is an old technique for analyzing price and volume data for a particular stock. It represents the number and the type of trades taking place on the market and the price agreed by the buyers and sellers. Tape reading is used mostly by day traders who build their strategies upon intraday trading information.
Is price action the same as tape reading?
And that's what tape reading is all about: price action. Think of tape reading as equation with multiple variables. Those variables would be price, volume, bid price, offer price and bid and ask size. Tape readers combine these variables to get a sense of stock's trend during a given time frame.
How does a tape reader work?
During playback, the motion of the tape pulls a varying magnetic field across the gap. This creates a varying magnetic field in the core and therefore a signal in the coil. This signal is amplified to drive the speakers. When you turn the tape over, you align the other half of the tape with the two electromagnets.
How do you trade with tape reading?
4:576:28How To Read The Tape for Day Trading - YouTubeYouTubeStart of suggested clipEnd of suggested clipWatching for the speed of the prices that approaches it you're watching to see how price responds.MoreWatching for the speed of the prices that approaches it you're watching to see how price responds. At that level. And just watching. Price you're just looking at price you're just making observations.
What is level2 tape?
Tape Reading with Level 2 Level 2. The level 2 window provides the trader with an edge. It will show you the sizes of the orders in the market makers book. While the market makers can play games with level 2 to fool traders, in general, you want to see high bid sizes and low ask sizes when you go long.
What does soaking the bid mean?
If a market maker is soaking up size on the bid, that means they could be accumulating shares or creating a level of support, which can be a bullish sign.
What is a buy order?
An instruction from an investor to a broker to buy a certain amount of a security. Buy orders may take various forms. For example, an investor may instruct the broker to buy immediately at the best available price, or to wait until a certain price is reached. See also: Sell order.
What are tapes used for?
Because tapes are so slow, they are generally used only for long-term storage and backup. Data to be used regularly is almost always kept on a disk. Tapes are also used for transporting large amounts of data. Tapes come in a variety of sizes and formats.
How does tape store data?
Tape is a narrow strip being magnetized on one side of the strip. To store data, the narrow strip goes through below the magnetic head which stores the data into bits. Various data are stored on the strip.
What does a tape reader do?
Tape readers interpret complex background data during the market day to gain a definable trading edge over the competition. Through experience and skill, they react to environmental changes well before price movement awakens the sleeping crowd.
Why are tape readers better than chartists?
Tape readers have an advantage over chartists because they can interpret intraday data in real time, filtering pages of numbers into surprisingly accurate predictions of short-term price movement.
What does a tape reading trader look for?
The tape reading trader will also look for the events taking place between the first trading hour and the middle of the trading session. He would consider the opening prints and how the price has gone after that. This may help him spot inflection points that may lead to price breaks or reversals. These moves help traders find out whether it is a good idea to add to their intraday positions or serve as exit signals.
What is tape reading?
Tape reading is an old technique for analyzing price and volume data for a particular stock. It represents the number and the type of trades taking place on the market and the price agreed by the buyers and sellers. Tape reading is used mostly by day traders who build their strategies upon intraday trading information.
Why do traders use tape reading?
Tape reading helps traders overcome this and make better short-term trading moves by bringing small, but valuable signals regarding other market participants’ behavior.
Why is tape reading important in day trading?
The benefit of tape reading for day trading is that you get access to real-time intraday data. This is invaluable for short-term price forecasts. When combined with long-term trading strategies, tape reading can help improve efficiency. It does so by confirming or rejecting your theories on an intraday basis.
When did tape reading start?
The concept of tape reading first emerged in the late 1860s. That was when traders started using ticker tapes to transmit trading information. Experts generally consider Edward A. Calahan the father of tape reading. At the time, he was an employee at the American Telegraph Company.
When did tape reading become obsolete?
To some extent, tape reading became obsolete as soon as electronic communication networks (ECNs) were introduced in the 1970s. The rise of computers and media made markets more accessible.
Is tape reading a skill?
In a nutshell, tape reading might not be the top skill required to be a successful trader. However, it certainly distinguishes the best ones. Even if you don’t plan to apply it regularly, there is no harm in understanding how the depth of the market and the time and sales work.
Why do you use stock market tape reading?
We can view tape reading as one of the most effective indicators for active day traders. The second reason you would want to use tape reading is to make a quality risk-reward strategy.
What is tape reading?
Tape reading is also known as the “time and sales,” (or Level II) is the oldest trading strategy used to analyze the price and volume of stocks. See the time and sales window below: What you see in the above time and sales window are the trades that have been executed.
What is tape reading in day trading?
Tape reading day trading is a big part of his decision-making process. According to Mike Bellafiore, this is how to think about reading the tape: Tape reading traders need to look for certain clues on the buy and sell-side orders.
When did Jesse Livermore start learning tape reading?
More, in 1891 at the age of 14, Jesse Livermore started learning tape reading skills while he was working in a bucket shop (retail broker). He was so good at tape reading stocks and subsequently making millions in profits that these bucket shops started to kick him out.
Can Jesse Livermore read tape?
Yes, you read that right, the retail broker hated Jesse Livermore for his ability to successfully read the tape. If you’re scalping or day trading and even for trend following, you probably need to learn how to read tape trading. These market tactics can be used to fine-tune your entries and better time the market.
What is tape reading?
Tape Reading, reading from the tape, it’s one of daytrading strategies, which deepening can help in maximization of your profits and to reduce losses. It is trading strategy, which is well-suited in day trading investments on the stock markets.
What is reading from the tape?
Reading from the tape in quite strong harmonizes with using basic formations of the technical analysis, i.e. supports and oppositions in connection with volume rate. Most of information, which result from analysis of the tape, it is possible to relate to analysis of supports and oppositions on the graph; however they allow with prejudice ...
Why do traders use tape?
Some traders solely use the tape in trading. They make relatively short term trades and allow supply and demand, as displayed on the tape, to dictate their exits and entries.
What is the most important setting for T&S?
Size Filter. Most modern platforms that offer T&S allow you to change settings within it. One of the most important settings is a size filter. Otherwise, the tape will be moving much too fast and will be clogged with tiny orders. One of the best tape readers of all time agrees that the tape moves too fast nowadays.
What is time and sales?
Time and sales, also known as “the tape”, is a record of all stock transactions throughout the trading day and typically includes trade size, price and time of trade. The tape got its name from the mechanical ticker tapes used in the late 1800s and early 1900s. These machines used to print stock prices on small strips of paper, ...
Why are bid and ask prices important?
The bid and ask prices are vital to analyzing time and sales data. The bid is the best price that buyers are willing to pay for shares, and the offer is the best price that sellers are willing to take for shares.
Is tape reading disrupted?
It’s clear that tape reading as a discipline has been disrupted by the advent of electronic trading and the following developments that it stemmed. Many who made their living from tape reading were driven out of the trading business post-GFC, citing structural changes to the market.
Does tape reading generate alpha?
While tape reading might not be able to generate the alpha it once did, several successful traders still rely on the practice to confirm their trading decisions. Instead of being the conduit to a trading strategy on its own, it has taken a backseat and instead become a secondary indicator to be used for confirmation.
Revolution in Market Structure
Pre-Market Preparation
First-Hour Tells
- Note the opening prints on the S&P 500, Nasdaq 100 and Russell 2000 futures or underlying exchange-traded funds (ETFs). The relationship between price swings and those levels presents the first tell of the day, with bulls in control above opening prints and bears in control beneath. Mark out the first 5- or 15-minute trading ranges, looking for small sideways patterns that could …
Midday Messages
- Track first-hour themes into the lunch hour, watching opening prints and market internals. Be especially vigilant when indices push well beyond prior closing prints and then reverse gears, pushing back in the other direction. Market tells become primary leading indicators at these inflection points, often breaking out or reversing ahead of price. These can be used to build or a…
Reading The Final Hour
- Expect persistent intraday themes to reach their climax in the last hour, especially in the last 15 minutes. Index prices can surge much higher and lower during this period, with institutional capital coming off the sidelines, while algorithms work hard to shake out traders wanting to hold overnight positions. Market internalsbecome your best friends at these critical junctures becaus…
The Bottom Line
- Tape readers interpret complex background data during the market day to gain a definable trading edge over the competition. Through experience and skill, they react to environmental changes well before price movement awakens the sleeping crowd.
What Is Tape Reading?
Why Use Tape Reading?
- There are several reasons. The most important one is getting a clearer understanding of the market environment and the participants’ behavior. In the day trading world, there is a split between tape readers and chartists. In other words, traders who analyze data from the order book and others who look at charts and employ indicators to get trading signals. The benefit of tape r…
How Does Tape Reading Work?
- Understanding tape reading works isn’t rocket science. In fact, the basics are very simple and easy-to-understand. Think of it as a mix of several factors, including the price of the instrument, the volume, the bid and offer price, and the bid and offer size. By combining these factors, traders get a more complete picture of the market. However, the harder part is understanding how to eff…
Advantages and Disadvantages of Tape Reading
- The best way to evaluate whether a particular trading strategy or analysis technique is suitable for your trading style is by considering its advantages and disadvantages. Here are the most popular pros and cons of tape reading:
Examples of Tape Reading
- There is no better way to understand how you can apply tape reading in your day trading activities than going through an example of a whole trading session. To better understand it, let’s divide the trading session into separate phases.
Is It Worth Using Tape Reading Today?
- The answer depends on whether you are willing to deep-dive in the concept of tape reading. Understanding the way it works and the basics is one thing. Learning how to apply it successfully, however, is something entirely different. If you have the time and dedication to explore the topic in detail, it is definitely worth using it today. It will give you that bit of expertise that many traders la…
Final Thoughts
- In a nutshell, tape reading might not be the top skill required to be a successful trader. However, it certainly distinguishes the best ones. Even if you don’t plan to apply it regularly, there is no harm in understanding how the depth of the market and the time and sales work. However, if you are taking your first steps in trading, make sure to focus your efforts on understanding how financia…