The birth of the chart. The evolution of the tape

Dec 12, 2022

Last time we studied how the exchange price is formed, and we found out that it is important to learn how to read charts correctly in order to analyze price changes correctly. Let's see how a chart is made and what it can tell us.

Everyone who went to school probably remembers: to draw a function, we need the X and Y axes. In stock charts, the X-axis is responsible for the time scale, and the Y-axis is responsible for the price scale. As we already know, a chart is built on the basis of data from a tape. At the previous post, we have produced the following tape:
FB $110 20 lots
FB $115 5 lots
FB $100 10 lots

Actually, in addition to ticker, price and volume the tape also fixes time of trade. Let's add this parameter to our tape:
FB $110 20 lots 12/08/22 12-34-59
FB $115 5 lots 12/08/22 12-56-01
FB $100 10 lots 12/08/22 12-59-02

That's it. Now this data is enough to put points on the chart. We draw three points, connect them with straight lines and get a chart.



At one time, this was enough, because trades on the exchange were not frequent. But now some popular stocks, such as Apple or Google, have hundreds of trades per second with different prices.

If the minimum division on the X scale is one second, what price point should we put if there were many trades at different prices in one second? Or let's place all the points at once?
We will discuss that in the next post. And now, as a postscript, I want to show you some pictures describing how the tape was born and evolved.

Here is a picture of a stock player, looking through a tape with quotations, which is given by a special telegraph machine.


Each telegraph machine is connected by wires which, like a spider's web, entangle New York City.


1930's broker's office with several telegraph machines and a quotation board.


An employee of the exchange looking through a tape of quotes. It won't be long before all this is replaced by the first computers.


We'll continue today's theme soon.