# Understanding Tape Reading: Historical Methods and Modern Applications

![A day trader uses two laptops to analyze the price and volume of a stock in hopes of executing a positive trade.](https://www.investopedia.com/thmb/yBVD9JYMu8Bd9RkdgbjYq9TLnko=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TapeReadingWhatItWasandHowTradersUsedItandModernDayGettyImages-1365692592-884aff7cf35544c5808c9052a464073d.jpg)

*— tdub303 / Getty Images*

> **Definition**
>
> Tape reading was used by day traders to analyze stock price and volume data transmitted via ticker tape before being replaced by modern electronic trading methods.

## What Is Tape Reading?

Tape reading is a technique traders used to study stock prices and volumes. From the 1860s to the 1960s, stock prices were sent via telegraph lines on [ticker tape](https://www.investopedia.com/terms/t/tickertape.asp) with a [ticker symbol](https://www.investopedia.com/terms/s/stocksymbol.asp), price, and volume.

In the absence of modern charting and technical analysis tools, stock traders learned to quickly assess numerical changes to predict future price movements. These technologies were phased out in the 1960s with the rise of personal computers and electronic communication networks ([ECNs](https://www.investopedia.com/terms/e/ecn.asp)). Today, tape readers look at electronic order books to assess where a stock's price might be headed.

### Key Takeaways

*    Tape reading was a method used by traders to analyze stock prices and volumes via ticker tape from the 1860s to the 1960s.  
    
*   Ticker tapes, invented in the late 1800s, were a primary means of disseminating price and volume information for stocks.  
    
*   Despite becoming obsolete with television and computers, many tape reading strategies and terms remain in modern trading.  
    
*   Modern tape reading involves analyzing electronic order books, providing insights into stock price movements and potential resistance or support levels.  
    
*   Advanced traders use order book data in trading algorithms to gain insights into market dynamics.

## The Evolution and Impact of Tape Reading

Edward A. Calahan invented ticker tapes in 1867 for the Gold and Stock Telegraph Company. In 1871, Thomas Edison created a practical stock ticker that made the market more efficient. These machines were soon installed across all major brokerages as the primary means of price and volume dissemination.

Famous traders like [Jesse Livermore](https://www.investopedia.com/terms/j/jesse-l-livermore.asp), who pioneered [momentum trading](https://www.investopedia.com/terms/m/momentum_investing.asp), gained recognition through tape reading. Several books were also published about tape reading, including "Tape Reading and Market Tactics" and "Reminiscences of a Stock Operator". Many terms also remain in common use since then, including ticker symbol, stock ticker, and phrases like “don’t fight the tape” (meaning don’t trade against the trend).

Tape reading became obsolete in the 1960s and 1970s due to television and computers, but terms like ticker symbol and stock ticker still exist, and traders use similar techniques with modern tech.

> **Fast Fact**
>
> While the rise of personal computers made old-fashioned tape reading obsolete, much of the terminology of that time remains in today's trading vernacular, such as "ticker symbol," "stock ticker," and "don't fight the tape."

## Modern Tape Reading

[Modern tape reading](https://www.investopedia.com/articles/active-trading/021915/how-important-tape-reading-modern-markets.asp) 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 provide a higher level of detail into the market at any given time.

For example, a trader may look at a security’s order book and see that there are large [limit sell orders](https://www.investopedia.com/terms/l/limitorder.asp) at a certain price level across multiple exchanges. This may indicate that the stock will experience significant [resistance](https://www.investopedia.com/terms/r/resistance.asp) at these levels. The opposite may be true if there are large limit buy orders below the current price, which could indicate strong support at a given price point and give a trader the confidence to buy knowing there’s a price floor.

Many [brokers](https://www.investopedia.com/terms/b/broker.asp) offer access to these order books through [Level II quotes](https://www.investopedia.com/terms/l/level2.asp). In advanced cases, programmatic traders may use the information when building [trading algorithms](https://www.investopedia.com/terms/a/algorithmictrading.asp). Interactive Brokers, for example, provides a function called “reqMktDepth” that lets traders stream order book data for analysis. These insights can prove extremely helpful when developing modern trading algorithms.

> **Article Sources**
>
> 1.  Thomas Edison Papers, Rutgers University. "[Stock Ticker](http://edison.rutgers.edu/ticker.htm)."
>     
> 2.  Interactive Brokers. "[Market Depth (Level II)](https://interactivebrokers.github.io/tws-api/market_depth.html)."