Tape reading or the reading of moment by moment transactions in a stock is widely used by traders, institutional, professional and hedgers.
It can help them seeing in real time, the current consensus for a stock.
Tape reading consists of reading order books which contain the current bests bid and ask prices and their respective sizes.
Here is an example of an order book
66 9737 9 9738
55 9736 11 9739
40 9735 35 9740
52 9734 40 9741
38 9733 16 9742
9737 is the best bid, 66 is the size for that bid; 9738 is the best ask, 9 is the size for that ask.
Tape reading needs a lot of experience and practice; you must watch closely every day live order books for months and years.
It shows at what price buyers are willing to buy the stock and sellers are willing to sell the stock.
Tape reading is difficult, because order book flow is constantly changing, the more the stock is liquid, the more bid ask prices and sizes will change quickly.
Many traders will tell you that there aren’t enough resources on the net or even books that talk about tape reading, that is true and this is because tape reading need to be learn by experience.
But I have found a nice article in the CBOT web site that introduces tape reading, here is the link.
I found this resource useful especially for beginner.
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