What is to be said under Tape Reading?
The Ticker Band
Ticker tapes were invented in 1867 by Edward A. Calahan, an employee of the American Telegraph Company. Two years later, Thomas Edison developed the first practical stock ticker that helped the market become more efficient. These machines were soon installed in all major brokerage houses and banks as a primary means of price and volume analysis.
Many famous traders made a name for themselves through Tape Reading, including Jesse Livermore, who pioneered Momentum trading. Terms such as ticker symbol, stock ticker and phrases such as “don’t fight the tape” (i.e. do not act against the trend) have been in use ever since.
Tape Reading is an old technique that Daytraders used at the time to analyze the price and volume of a particular instrument by observing the ticker tape sent by a telegraph. Analog reading of tapes was discontinued in the 1960s. But similar strategies are still in use by electronic retailers today.
Modern Tape Reading
With the help of the smart tape from ATAS, it is possible to analyze the real depth of the market. For other platforms, this has not been possible since the end of 2009 due to the market-regulating change.
A market transaction of 100 contracts can be summarized in ATAS as a single transaction, as opposed to a normal order book, where each order may be presented individually.
ATAS has developed internal algorithms that make it possible to detect transactions in their original composition, as was the case in the old good times.
In addition, the Smart Tape enables individual filters and adjustment options. So it is finally possible to see the transactions of large and small market participants in real time. Iceberg orders can also be detected in this way. The Smart Tape is a unique selling point of ATAS.
Many brokers provide access to Level II data. In advanced cases, programmatic traders can use the information when building trading algorithms. ATAS processes this Level 2 data “natively” i.e. that many indicators and tools process the stock market stream directly and unfiltered.
The order book, the perfect complement to Tape Reading
Modern tape-reading means looking at the order book to analyse where the price might go. The order book shows us the orders placed on the market, which offer us a higher level of detail of the market.
For example, a trader can query the order book and find that there are large limited customer orders at a certain higher price level. This may indicate that the price at these levels may be significantly resisted. The opposite would be a large limit order at a lower price level, which means a possible strong support at this price level.
If we see the volume for each price tick with the tape and the possible supports/resistances in the order book, we can make the market entry much safer and more effective.