What is Tape Reading?

In the stock market, tape reading refers to examining stock market price trends and predicting their movement. Tape reading does not necessarily imply accuracy or strategy, and it does not always need to involve analysis of stock data. It is simply the act of researching the current price of a stock and guessing whether it is going up or down. Tape reading is the basis upon which a stock trader, especially a day-trader-style investor, bases her strategies for making money in the stock market.

The stock market is an organized market at which investors can buy and sell portions of publicly traded companies called shares of stock. Stock, also called capital stock, is a type of security. A stock market can be a physical, brick-and-mortar location like the New York Stock Exchange (NYSE), or it can be a virtual securities trading outpost like the National Association of Securities Dealers Automated Quotations (NASDAQ) stock market. Through the stock market, a company can sell stock to raise working capital, which is usually used to make expansions or changes. Working capital is a term for the amount of money a business has to work with, or the assets of the business minus the money the business owes or needs to pay out.

The term tape is short for ticker tape, which was the flimsy, tape-like printing material upon which stock listings were published. The ticker tape was long and thin, and printed from a machine called a ticker that received stock information by telegraph. Because this method was used for nearly a century, electronic stock quote machines are still called tickers, and streams of stock information can still be called tape. A major event in a stock market business area sometimes compelled offices to throw cut-up ticker tape from the windows like confetti, which denotes the origin of the ticker-tape parade.

Basically, tape reading is the stock market equivalent of looking at a set of horse racing stats and guessing which will perform well. Advanced forms of tape reading called fundamental analysis and technical analysis go beyond guesswork to take company information and past market trends into account in order to make a more educated guess at stock market fluctuations. Fundamental analysis involves examining the activity and health of a company to predict upcoming stock performance for the company. Technical analysis entails a study of past stock market data to predict future stock market activity.