Tape Reading Trading Strategy – Can It Be Done? Rules And Backtest
With the emergence of personal computers and online trading via electronic communication networks (ECNs), you may think of tape reading as something ancient. While the term brings up memories of trading legends like Jesse Livermore, it is worth noting that, tape reading is still a part of the toolkit of day traders and scalpers in today’s markets. But what is the tape reading trading strategy?
The tape reading trading strategy is a method of trading that is based on studying the market data presented in Level II quotes in the Time and Sales window. In the past, this strategy involved reading old-style ticker tapes transmitted over telegraph lines, which provided traders with market data (ticker symbol, price, and volume) — that’s where it got its name from. The strategy is mostly used by day traders and scalpers to spot and take advantage of short-lived shifts in demand and supply.
In this post, we take a look at the tape reading trading strategy, and we’ll also include a backtest at the end of the article.
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What does tape mean in trading?
In trading, tape refers to ticker tape, which describes the paper ribbon used in the late 19th and early 20th centuries for mechanically reporting and disseminating stock quotes and trades, made famous by the Jesse Livermore trading strategy.