Tape Reading and Active Trading PDF [PDF]

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Division

 

A COURSE OF INSTRUCTION IN

di

 

 

TAPE READING AND ACTIVE TRADING

   

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TABLEOF CONTENTS

P“

~

1

1

INTRODUCTION

2

2 2

1 3 4-A

JUDGINGTHE IMMEDIATETRl fD Buyingand SellingWaves Wave Chart of the Leaders

2-A

1

BUYINGAND SELLINGWAVES - PART II

5

1

3

1-A

HOW TO LINK THE WAVE CHARTWITH THE STOCK IN ‘WHICH Y OU iWE TRADING A VerticalLine Chartand Continuous Line Chart

4 4

1 3-A

TRM)INGAREASAND HOW TO PROFITBY THNM TradingArea of AuburnMotors

5 5

1 8-A

THE TAPE READINGCHART TapeReadingChartof J. 1. Case

6

1

HOW TO SPOT TH E

B U Y I NG AN D S E L LI NG P O I NTS WI TH I N A S MAL L

FRACTION

7

1

J U D G I N G S TR N G TH O R W3AK N E S S

8

1

H O WTO K E E P P E R C E N Ti iG EI N Y OU R FAVOR

9

1

TRADINGON INITIALACTIVITY

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SEC

P

12

12

  w Cs Cs Cs Cs

PractiaePersistently  H

 

3 5 7 1?

RTSTUDIES

 mwri d

Telephoneat Bottomof Reaction AmericanTelephoneat Top of Rally AlliedChmical at Bottomof Reaction Allied Chmicd at Top of ~ly J 1 lase at Bottomof Reaction AmericanCan Combinedwith Five Leaders

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D. WUX 00URSEIOFINSTRUCTIONIN TAPE READINGAND ACTIVE TR SUMM

J@du Ction. section1.

RYO T

RICH RD

DING

Generalprimiples involvedin tradingto take advantageof the minor fluctuations. Basingjudgment  impartialanalysisof avai.lab~eactg insteadof ill advisedimDUJPeSa How to internrettam actio~and learn to make YO1.W OWll &Q&3mn cknt d cidon~ with a high degreeof accuracy. How to constructend~terrm%

a Wave Chart.

The selectionof’stocksthat refli]ctloadorshinnd have tYL c CIIWAI. o=Q~~~~ How to detectthe minor price surgesand estimatetheir significance. How to recognizethe symptomsof a reversalof the trend. UMiM the  Mlrt

How to employthe barometricquality of the Wave Chartin judgingthe trend of the individualstockwhordnyou are

section3.

trading. How to operatein harmonywith the Law of Supplyand Dwand.

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-2-. and EQJFJdU Section 

How to so~.the buyingand sellinglevelswithina small fraction. How the market is _nun y who COIlgoad the ~ HoW to avoidover tx How to WQ

MD Y@+lra

1

Eivinrinformatia~to those

the market. d what to do at the turningpoints.

Recognizingthe evidencesof technicalstrengthor weakness.

wm m

Whet constitutes a normalrallyor rco.ction,nd why.

Section7. How you may @NelQn Your jUMment so thnt accumulating symptoms of strengthor weaknessbecomerecordsof subconscious memory rad resultingd~ciaons are V’htud.lY intuitivcl, How to ld.mi~,oducqand elhin atq the risk. How to Lnsur@Your PM’ its, How to developa tradingpolicywhereinrisks are consistent with probableprofits. The generalsignificance of incrensedLctivitY. How to interpretchangesin the degreeof activity. S63ction 

The imnortanc of volumewxzes in tradingzonesand followingth formationof an apex.

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-3-

The advantage of familio.ritywith the chief characteristics of leadingj active issues. Use of Stop Orders. Section 12.

HOW and when to use stop orders. The scientific location and road.jus

mentf stop orders.

Substitutes for stop or ers Miscellaneous Vital Points. Section 12.

Judging your efficiency. Consistent trading policies. h’lh rr r~t~t~on

of the averages.

Testing your trading ability without monetary risk. ~b~arketrders vs. limited orders. Limiting the duration of a trade. How to avoid the dangers of ill-advised ad~ice a nd t ips Dangerou~ pitfalls and

  ov~

to avoid them.

HOIWto select your broker and judge his efficiency.

Chart   tudies

Tape reading charts of leading active stocks and tP.eir interpretation.

http://slidepdf.com/reader/full/tape-reading-and-active-trading Typical trading

maneuvers illustrated wiih comentsj

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TAPE READING AND ACTIVE TRADTNG

For the three to five point moves with risk limited to one half to one point

The majority of those who follow our Method devote an hour more or less

to studying and planning their campaigns. But we

d y have learned that an increasing number wish to trade in the market continuously

either in their brokers’ offices or in private offices

of their own

equipped with a ticker and other facilities.

From these

traders we have received many requests for further detailed information on Tape Reading; and as the technique of active trading from the tape http://slidepdf.com/reader/full/tape-reading-and-active-trading

is different from that outlined  

the first part of our Course

we

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the immediate*rendof the smallmovesin the murket. This trend can be detectedby thisMethod soona.i er ~hc openingof the Stock Exchangeat ten o~clockdai~g

It may changefrom bQUsh

to bmrish, or vice versa

and reverseitselffrom one to threetimesduringe.whday’s session. We instructsuch tradershow to followthese trends,changing or reversingtheirpositionsas

often as the marketaffordstradingoppor-

tunities. In most instancestradesare closedout the sameday they are made, but i??thereare strongreasonsfor carryingany stockovernight, thismay be done. Detailedinstructions are givenas to the best stocksto choose and the exact time to make commitments, based on methodsformulatedand successfully employedfor over twentyyears of tradingand advisorywork. Stop ordersare placed on

v ry

trade,from one-halfto one point

away from the buyingor sellingprice. These stopsmust be constantly http://slidepdf.com/reader/full/tape-reading-and-active-trading

watchedsnd moved as quicklyas the marketpermitsin orderto reduce

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in

t h e n ext

few m in u t es or h ou r s;

gettingin when they beginand getting

out when they culminate. It requiresactivityand flexibilityof mind;readinessto change or reverseone’sopinionquickly;slso nerve poise decision promptness courageand absoluteindependence of judgment. Its purpos~is to derivean averageprofitfrom a seriesof trades. By keepingthe risk down t~ a minimumand constantlystrivingto reduceit; by clevermsmipul.ation f stop orders a net profitover comiwission~ axes and lossescan be realized. All commitments are temporary-- theirdurntionis usuallylimited to hours. They are in t en ded

t o t a ke a dva nt a ge

of

t h e small imm@i-

ate fluctuations.

with this Met h od y ou

a s a t r a der

 and work for your profithare and ~-preferto go home with a clesm

sh eet

side of t h e m a r ket . Th u s v:h en y ou http://slidepdf.com/reader/full/tape-reading-and-active-trading

st a r t

sea rch

for

y ou r opportunit.ies

today. In mo~;tcasesyou will w it h n o com mit men ts or I eit her t r a din g

n u xt m or n in g y ou r m in d

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itiesin these smallswingsw

you would have if you wz~ited for the more

importantswingsof ten to thirtypoints. If a tradedoesnot make goodat once you closeit out whether it stands v n

or at a small loss.

You will never tradewithouta stop

for your riskmust be kept down to a minimum. You willnevertakea big loss. You w ll

never be tiedup.

You can claanhousein an instant.

And you can stayaway from the tickeras often tandas long m

This

you wish

form of tradingis entirelydistinctand dlffcrentfrom

thatdescribedin the otherMvi.sionof our Method whichaims to secure profitsfrom the ten twentyand thirtypoint swings. It meets the requirementsof thosewho wish to trademore or less

constantly.

Includedin this Divisionof the Courseis a plan for charting the detailedtransactions in certainstocksas they appearon the tape by which you can sense

the immediatetrend;figurethe exactpointsfor

placingyour stopordersand where ta move them to reduceriskwhen the http://slidepdf.com/reader/full/tape-reading-and-active-trading marketgoes in your favor. It showsyou

how to C1OEWyour tradesthe

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three tc five pointsin a certaindirection. You apply the Tape Reading Methodin makingyour trade :ltthe most favorablenoment and the poGi tionyou then takewith a smallrisk of one halfto one pointmay later developinto Position2 on the long side or Position  on the short side and in{dicute run of ten twentyor thirtypointsin your favor. By thus tradingwith a fractionor a point originalrisk and letting your profitrun into the many pointsindicatedin your forecastof the probabled3.stancen points you will greatlywiden your marginof profit. For this reason theseTape Readinginstructions combinedwith our lcmger swingplan will materiallyenhancethe profitpossibilitiesn both Divi sionsof the Course.

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JUDGINGTHE IMMEDIATETREND.

For thispurposewe use a Wave Chart made up of the priceof five of the most activeleadingstocks. The pricesof theseare added togd her and plottedon a sheetof crosssectionpaper with the time scaleat the bottomof the verticallines  and the price scaleat the left correspondingith the horizontallines. Specimensheetfollows. All movementsin the marketare made up of alternating buying and sellingwaves. We judgethe strengthor weaknessof the market by the distancein pointsand fractionsrecordedby thesewaves;we combinethis distancewith the lengthof time each wave takesto run its course. In studyingthe distanceand durationof esch wave if the buyhttp://slidepdf.com/reader/full/tape-reading-and-active-trading

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ticalline. Next wretch for eithernn upwardor downwardswing to exhaust itself.When it smns to stop, put u dot on the chart at the propertime and price leval. Xf the marketthen r ev er m s t ion

t h is

 r ws

that

tiw

po

it s

d ir ec

tionof the dot is correct. If it goes

on in the sa@@ direction,chmmgethe dot until the movementagain hesitatesand sh~w~ siguoof a reversal. Them watch the new wave until i t seems to cam to an end. Place the dot,

TM marketwill confirmcm contradictyour estimateof that

turningpoint. And so on until you are thoroughlyfomilinrwith judging and recordingthe start,durationand finishof each successivewave. The ~mmediatotramdis Lndicatodas soan as one buyingand one sellingwave havo been complwtmd. You thenknow on which sideis the most power -. the buyingor the sailingside. And all you have to do is to go with that tiido. But you must alwayshe on the lookoutfor a changein thisimmediate trad.

It is likelyto chmge its directionfrom one to threetimes

in n singleEMZlswion.hio is how http://slidepdf.com/reader/full/tape-reading-and-active-trading

you datect the change: In an up trend,

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but

havh

uatmg2 m W v eC1’ km ’ t AJtht qgh the buying

tl’m

 

mmdag

W WQ

ay

M

$nmic$snt

on

certaindays to carry the marketin e certaindirectionuntil th~ close, will

this d oes not man

eontimm

to

that i t

dc so the next day. And it

do%nnot fnmn thatyOU $hotidWLmy any Tomorrowf

8

trendwill   o

tmdtxi

overnightfor this

its~f in the same W~

im

rmwn

Lnd it is bestnot

to go into tommrow~B ses$iomwith any stockson hand unlem threeis acme extrmrdintqf

reason

in

the

  ction

for example,a strongdmmkapmnt like an %mportAntbull or km volm

of the market.

of powerMar the beginningof what looks

swing

mlicated~

in a @ten direction~with scamdy

ralb$ or reac$im$ ZM the mm

Such a rcmon would be

increasingactivityand

any pointsof llesitntion,r

may be. In such instonces,a long pmition,

for exmpla$ might be allow$xio run with R frequentraisingof stopsso that a tmdo originallymd~ with a half to one point stopmightrun into http://slidepdf.com/reader/full/tape-reading-and-active-trading

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the

CM t too quicklyand do not mpoct intuitionto comeuntil

w v

you h a v e had long wpmienca

and much practice.  

Tho five leaders hculdalwaysbe repr~sentativef At timeswhm a le ding cluded.

t h o market.

rail hu~ considerable effectit shouldbe in-

At othertimesa ut ll,ty,ike Consolidated Gas, might coae

to the front;it shouldtak~ the place of somootherleaderso long this ColditicmLmate.

Selwtion of t lw se

sm’wingtho pullingpowerof a t nwh

as

leadersmay btilikenedto ob-

oup of fivehorses: If you ware driving

groupamd you naticmione horselaggingin tae tr~aeasnd another

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“

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BUYINGAND SELLINGWAVES  ’IhelVavehart-PartII

In the First Divisionof our Courseof Instruction, Section 4, we presentedPart I on the use of the Wave Chart. The materialin Part I di~cussasin somowhatgreaterdetailthe instructions set forth in TR Section2 of the   econd Division;therefore,it may be substitutedfor this last-namedSection. Or, if you prefer,you may remove Parts I and 11 from theirpresentbindersand place thorn in a separate loose-leaffolder. You will then have a completetext book on the theory of the Wave Clurt as I have developedand expandedit.

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In this illustration Figure1), it will be seenthat volumeand activity both shrinkto very smallproportionson the littlebuyingand sellingwaves from 10 olclockto 1:40 P.M. The day starts with a smallrallywhich is promptlyfollowedby a smalldip. Bullsand bearsare evidentlywell matchedat this point. After the firstdip

Period2), the bulls

try to put pricesup, but theyfail to attracta following,as shownby the failure < of activityto increase. Demandpeters

 

4

out aroundthe 11:00A.M. top. A small dip in the fourthperiodbringsout very

5

littlestock o

the downside,however,and

thisencouragesthe bullsto tryagain. FIG.1

Qncc more theyfail to attrscta follow-

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it is the bulls~turn to try theirstrengthagain, This time,dexmd is a little stronger. Prices rise a littlebit abovethe previoushighsand activityincreasesa trifleas they advance. If we are tradingfor the short swings,this is our cue to prepare for action. If activityfalls off on the next sellingwave,we may expectthe bulls to becomeaggressive.We do not have long to wait. Pricessag a

  t

n

the next fifteenminutw but the activitydies out

completelyon the dip. This is the cue we have been waitingfor. It tellsus that the supplywhichheld the bullsback on previousrallies has been absorbedon the small earlierreactions. Therefore,  with confidenceand buy.  

e

step in

are promptlyrewardedby a sharprise in

Period9. Any questionas to the validityof thisupwardmove is settled by the sharpincreasein activityas pricesrise throughthe previous tops.

Shortlyafter 2 o~clock,the bulls rest momentarilybecause,at

this point,the averagehas risento a levelwhere stocksencountered supplyon the precedingFridayand Saturday.  Not shown. http://slidepdf.com/reader/full/tape-reading-and-active-trading

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point figurechartfrom the Tape Readings. This will permityou to bring all of the principlesset forth in Sections10 12 14 16and 17 of the Main Divisionof our Courseto bear upon your   n lys s

of the Wave Chart

The charts pages 5 to 8

with ex

planatorynotes make clearhow this is done. The additionalillustrationsn pages 9 and 10 showhow to mount the daily Wave Chartsto form a continuous recordso you may comparethe actionday by day with [email protected] indications developingon the one point figurechart.

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O NE PO INT FIG URE

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HOW TO LINK THE WAVE CHARTWITH THE STOCK IN WHICHYOU ARE TRADING.

The Wave Chartbeingbased on the actionof the five leading activestocksis completein itselfif you wish to trade in all five at on

and whenevera turn is indicated. But in the beginningit

isbest to tradein only one stock. Observewhich of thesefive leadersappearsto followmost closelythe mings on the Wave Chart;or perhapstheremay be some other stocknot includedin your five leaderswhich,by observation and experiment, you find is betterfor this purpose. This will dependupon the kind of stocksthatmakeup your five leaders. You might,for example,includeAuburn,which would give the groupa differentaspectthan if it were not included;or a rail likeUnion

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i

A VE RTI CAL L IN E C H AR T a nd A C O N TI N U O U SL I N E C H AR T

 

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for studyor @real practim, plot its moves on the

WMtlm Wve

k

TM price scaleQf this

right sideaf tha sheet;cm tk

rtmkshouldbe entmed on the

left the pric~ male of the five

141MMMPB. Mow studytk action of your one stock in com intktio

the

h ngwi YOU

th

trendas slum on tho Wave Chart.

find that$t is d$

iwy

averagm ckwqe. and add.it.

imwlievte

@@m~its trend -Ctly

when ti

If this colMJl%MM,you will know $lst whezlto buy

But you may f’iud it is working exactly tha @ppo@it@:

wham the Wave Chart turnsupwardyour stookmy [email protected] you q kming

with

olwmm

begin to get weak.

that your 6tcmk raacbeaits

points before or titer the tivw atoclmIn tkm mmm@s.

You

do mot carew)mt it does DO long as you Ieam its habitsand turn them into profits. Now thatyou have the idea,it dopmk

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cm the amuuntof

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TRADING 

RE S ND MOW TO FROFZTBY THEN.

From observationou of mu’row rangesof   t o msnt for most peGplew

um

now

ow ofton stocksget into periods

points.

Theseare timesof discourage-

on the wrong side,or who are looking

for Mg profitswhen the marketaffordsonly mall profits. There are many short swingsto one long one. profitsfrom the   t o

Let us seo how we can derive

pointmoves.

Keep Q verticalline chart showingthe dailymovementsof any of the well-khownaveragws,such as Dow-Jones,SthndardStatistics,   w

y

Iork l ime ,ew York Herald-Tribune. whichever 

publishedin

r localdailynewspaper. Use thoseto indicztewhen the marketis

in a trading@ea or whetherit is movingto anotherlevel,upwardor

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 w v

to [email protected] the bullishnessor bearishness.Decreaseswarn

you of R probablereversal   direction, I couldelnborateon this -mite a b~ok> in fnctj ht

there it

iS

i

~

nutshell. Do not let its

brevitydisguim its value. When you see the runn?agcworkingback and forthover a trading area,you till genmnlly find your individualstockdoing the same. Not always,however. All stocksdo not move alike,ss you know. Your zavarage~ay be in a tradingzone und other stocksmay have small,medium or wide wings withoutaffectingthese. Your stockmay not be included in the+averaga ;whetherit is or not, rememberyouare tradingin q X

and not in the averages. The upper and lower boundariesof thesetradingswingsrepresent

the points(at the tops)where supplyovercomw demandand (at the bottoms) where demandexceedssupply. Unlessthe actionof your stockindicates (bymethod we shall. e xplain)that it is goingout of its presenttrading range,youm purchasesshouldbe mado aroupclhe bottomsof these

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in

area

trading

it

lf

it

glvs in cm cu k%g a t lm tiom 3

a n d it s

su~

m it

it 3 0-

t o it s

b@tVJW Ek

n 8a r S   5

out for C MU MMM or pr ofit

in t ica t i

ra n gs vkt h a r ,

t h is

poa it ion

y ou h a ve a ll

un t il

t ime,

it

it

a ppr oa ch es

by t h e a ct ion of y our

go on t h r ough ;

t h e f’m t s

a w mmbh d,

You n eva r

d’ a t r a din g

so you do n ot i.Q.,

on t h e

 tm

t o a bove.

t h e upper or low er level w ill

ShC@d

I m t t h a t y ou a r e t o w a t oh

a x@ on t h e Ta pa R a miin g C h a rt r eferr ed

kn ow , w h en a a t mk a ppm a cbw

35 ~

‘lhidtdcms n ot m ea n t h a t y ou a re

h cm pa in t s,

fr m

@Ud

bw y m goppor ta w a it im a

t o buy or E oU a t or n ea r

Wa veC kr t ,

3

t a ke a

t r a n sfer r ed

t h a t a pe t o ya ur Wa ve C ha r t a n d y our Ta pe R ea din g C ha rt .

*

*

or Mt t om is

a small

t ur n in g poin t ,

a nd even a sm a ll

on e m a y develop in t o on e t h a t is im por t a nt .

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TRADINGAREA OF AUBURNMOTORS DURINGMAY AND EARLYJUNE 1952 ILLUSTRATEDN LINE CHARTFORM SHOWINGACCUMULATION IN PRWARATIONFOR AN ADVANCE.

X

CONFIRMATIONF TREND INDICATEDY THE CORRESPONDING TAPEREADINGCHART

w

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THE TAPE REAl)UWWART

It iEltwanty-fivayears since I first began t o fmocaW

the

owing movemmts of the mrket from its own actionas it appearedon  *

tape of the stock ticker.

bqinnirig,

du ed q

bwt

M&ny mmorendawere mcessary at the

as I developedef’f’ioimcyn this art, I graduallyre-

notm and chartsto a minim,

wheneverI found sim@ifica-

tim possible. It &

one thingto learnto read the tape and to develop

therefromonors @mnt peoplehow W

md

intuition,and  noth r to teachother

do it, makingeverythingperfeotlyclearand practical.

I have dooid~dthat tho ~wsiestway form

to teachand for you to

learn Tape R8adingis by mmns of the Tape ReadingChartwhichis dmw’ibed

bdOW

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single

stick-- can be kept on the same sheet,so that a complete

pictureof the marketmay be had in com in tion Chart. If severalindividualstocksare   h r t e d in thisform, the WavQ Chart can

be

with

tho Tape Reading

on separatesheets

recordedon a sheetof transparent

paper,half this sire, so thatIt can be laid over any individualstock chartin oral@ to see how that stockis actingin comparison with tha haders.

 iv

Let UEIstudythe Canstrnction of this Tape ReadingChart from the specimen~heetwhich follows.

This dmuld be takenout of the

binderand kid besidethis textin orderfullyto understandthe explacations. Tho Charthas a price scaleat the left. The full figures are in on e

in

the

olu m n

n d the fractionsin the next. The figuresrecorded

chartare the totalnumberof sharesdeslt in

at

each fractional

price, When the price chsnges,the volumeat the newprioe is filbd in at the proper level on the chart. WNn is @nt@redat the fract onwhere t

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r

w r

a prhe is skippeda cipher no sales. Now watch this

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thaywere addedtogetherand recordedall at oncemen

the mice than~ed,

Not until tnendo you know thattharewill be no uore salesat thatprice for the moment. The ne ctsaleis 100 at 40-1/4. As thcxwwere no salesat 40-1/8, a cipheris enteredat the 40-1/8level,and the figure1 is enteredon tha 40-1/4I.inB.Now you have threefiguresin the first column— the 4

9 on

level;O on the 1/8 leveland 1 on the 1/4 level. The nsdctsaleis 40-1/8,only 100 shares;next 200 at 40. These

two figuresmust go in the secondcolumnas the first column5.sfilled on thosetwo levels;next sale40-1/8 (100);then200 at 40-3/8(O on the 40-1./4evel);then 100 at 1/2;no salesat 5 8;

a totnlof 2100at 40-3/4;

none at i o ’7/8~ 200 at 41.; norm at 41-1/8;200 at 41-1/4;200 at 41.-3/8. All theseitem@ were recordedin the third columnbecausethe advance continuedstre4.ghtp to 4.3.-3/8 ithouta singlefractionalreaction. The next tremmction is 100 at Q,

so in the fourthcolumnwe

must anterO on the 41.-l./4 n d 43.-1/8evels. Next s~.e100 at U-U8* http://slidepdf.com/reader/full/tape-reading-and-active-trading

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st ock

the

sh a m a t en den cy.

Wa ve C h a r t sow w a it un t il

a ft er

t h e st ock

t lds

Let us a s~ um e t h a t opin in g

it self

t h e in dica t ion s

w er e bullish ,

ha s givsn

som e sign

but t h a t of

m a y n ot be it s

00 w e sh a ll

a r e defin ilm

w sit

un t il

t h e in dica t ion s

w e w ish t o

a defin it e

Th er e m a y be a n open in g bu ge M.r t t h is

on t h e

t en d en cy .

t r u e d ir ect ion , enough to promise

a worthwhile swing. We allow1/2 a point for commissionend taxes so it

is

poin t s.

best If

n ot

t o go in t o

a t r a de

dots not promisethreeto five

that

w e ha d t h e backgroundof the previousdsylstrading we

wouldknow be~terjust whare this stockstands;but startingfrom scratch We m us t wait ~til the stocktells  

w h a t it

is

probablygoing to do be-

forewe make a commitment. In learningto read these charts it is best to cQverwith a sheetof paper most of the chart sxposingone columnat a time ~ drawingthe sheet“t the right. In t h is

w a y t h er e

is

10ss

t em da m cy

t o form judgmqptson the basis of what alreadyap~ earsn the chart. ThisMethodnqy be followedin a studyof all formsof charts care

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Next the t a pe r ecor ds

10 3 a t

l-1/8

j

at @;

300 a t &l-1/8;

300 at 43.;300 at 41-1/8 100 at 41-1/4;200 a t 41-1/8;100 at 41-1/4. The tradingrangehas narrowedto 1/4 of

 

Next saleis 3000at 40-3/4-- a sign

w ea kn ess,

of

poin t ;

w e a re

st ill

in doubt.

becausetherewere

no salesbetwaen43.-1/4 and 40-3/4;this indicates@ thin market. Next 900 at 40-5/8;800 at 40-1/2;500 at 40-3/8;300 at 40-1/4. Th os e s a les total

35OO shaxes,all takenwithinthe rangeof 40-3/4down to @-1/4.

Here is same a rength,but it may mean only temporarysupport. The chart must tellus what the insidersare tryingto do with their stock. Are they supportingit becausethey want to sell at higherprices,or do they r@wXlywant to acquirea lot of the stock? They take 900 at 40-1/2,making@

aroundthat l evel; then 3 00 at 40-5/8;WO at 40-7/8;and 1000

at 43. That is 6,OOO mhareaon the way down to 40-1/4 and up to Q.

That

doss not lookMke tnqhg for the sakeof accumulation.If they really wantedthis stockthey wcWd not have bid up for it; theywould haveput it down. So here is our indicationthat the pool is tr@ng to sell and

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400 a t

b3/8

S o fa r

t h e r ise

is

tryingto sell, for tha tape sqm

checked. Tk

pool or someoneis

00 at 41-1/4;then 1 00 at Q

and

400 at 40-7/8, Thisis a half-wayreactiorIollowingthe bulge from 40 1 4 to 41-1/2. Thik reactionconfirmsthe checkingof the rise and

narrowsthe tradingrangeto 5/ -- between40-7/8and 41-1/2. We shouldgo with the stockwhan it goesout of that range;that is, we shouldsellit shorton a bulge,andaworing to get as higha price as possibleso as to keep our risk dowm to a minimum. Remmber that we are tradingnow with a 1/2 to 1 pointstop end it wouldbe betterto lose opportunities,ecausethereare plentyof them,than to be so eager to tradethat we take an a

r s

largerthan the dove.

There s a rallyof 3/8 on a single100 sharesat 41-1/4. It looksllke a m@c-up ~

the specialist,or an odd lot houseMy mg to

Won up. Another100 at 4&l/8, them 600 at Q. W

The stock is heavy.

look for a rally on which to sell. This is confirmedby the next

sale 700 at i&3/4, whichis lJ8 underthe previouelow; thenMOO at 40-7/8j200 at Q;

100 at &l/8

-- decreasingvolumeon the rally.

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1300 shareschangehands at 41-1/4. It looks artificial,particul.mly when a quick slump to 40-5/8follows. Now observe1/8 point rally to

4&3/4j a returnto the 40.5/8low on 100; anotherweak rallyup to @ (n lowertop)3 then t m real slumpbegins. When the stockreaches40-1/2we reduceour stop to 41-1/2-our risk is only 1/2 of a pointnow, for overhead. Thereis only one rallyof 1/8 on 100 sharesat 40-3/8. Then a new ).OWat 39-3/4;anoth~rrally of 1/8 on 400 s h

r s

to

39-7/8;

then a new low at 39.1/2. Note that the volumeincreasedon

t

down

side. Therewere only mall lots soldin the upper40s. More substantiallots were sold mound 40 and under. Add the salesat 39-3/4 acrossthe page horizontally and you find they are 4400 shares. But these takingsare not sufficientto absorbthe supply,as provenby a dip to a new low -- 11OG at 39-3/8. When this Ocxmrs~-QJ& *

to 40-1/ . The declinecontinuesanother3/4point with a totalof 2300

at 39, and a low level of 38-5/8,then 200 at 38-3/4;200 at 3~7/8;

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‘dewere able to reducethat risk to 1/2 point,then reduceit to nothing-the flatpride meaningthe price at whichit was sold ;then to 40-1,/8 which assureda ‘7/8 grm

ptofit;then to 39, which was 3/8 from the

day’s low, at whichpricethe tradewas closodwith a net profitof 1-1/2points. Thereis a littlestockfor saleon the closingrallybut we get no cue fnom it for the next dayls sassion;M

fnctjwe would

rathernot carryany impressionshone with us as we preferto have am unbiasedopinionwhen the marketopensin the morning.

 

Note: A numberof other chartsand interpretationsf thiskind will be foundin the Chart Studies,followingSection1.2. Additional studi s will be addedlateron. Many detaihd instructions in ChartReadingare includedin Mvision 1 of thisCourse.

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——

— —

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TAPE READINGCHART OF J

1

CASE

JAN

9

1932

In FigureChartForm ShowingEach l 8 Point Mow

i

‘With Volumeat Each Price UNITOF VOLUME= 100 SiARli3

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HOW TO SPOT THE BUYINGAND SELLINGPOINTS WIT IN   SM LL FRACTION .

Numerousexampleeas to how this shouldbe done are foundin the explanations of the Tape ReadingC harts.But there are some fine pointswhichmay be made a littleniorecle r

One

of theseis

this: V/emust learn to anticipatethe high and low spotsin t dayismovesby assemblingin our minds,and from the chart,all the factorsthat point to a certainconclusion, and if this conclusion is justifiedat what we believeto be the rightmoment,it becomes a commandto lx%de. Thus it will be s

n that thereare two important

steps: makingthe diagnoaisand actingupon it. The marketis cdnt nuallygivinginformationas to its technical. position. It does this throughthe Wave Chart,which fdrmsyour

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But if you form a beariehconclusionand mit for z bulgeon which to tie your position,the chancesfavor a profit. All suchtechnique must be takeninto consideration.You must mieavor in everymy

to

increasethe percantagoin your favor. Ono of the nest importantways of doing thisis to learnto do y u

buyingon what I call the drivedown;that is, duringa selling

wave end at ju t about a minutebeforethis wave ands-- while the pressureis on~ not wha you see it hesito.to,ut a minutebefore that,beccuscit takesa minutefor your orderto get into the crowd and be executed.

If it ttakosore than th:.~t n the average,your

brokeris slowor he has too much businesson hand to giveyou the rightexecutions.) Sellingon the driveup is justas important. Most of the bulgesin a stackare made by pools,specialists, manipulators and floor tradersto induceoutsidersto buy. If you lenrn to spotthese play ,you have all thwe interestsworkingfor insteadof againstyou.

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conclusion, and when you hmve made it, time your stroke;that is, the momentwhen you give the order,just as you time your strokein order to hit a golf ball correctly. Watch for the pausesthat mark the end of the buyingand selling waves

hey indicatethat the forces

that

producedthe wave have

cmhaustodthemselves. For a mouentor two,evenin a fairlyactive market,the tiokeris quiet. Theseare likeperiodsat the end of paragraphs;a naw phase of the tapetsstoryusuallyfollows. V?hena stockhesitatesit notifiesyou that it has lost its momentumin the directionin whichit has been traveling.

Y

should

then quicklymnke up your ruind whetherit is advisableto buy or sell or moveyour stoporder. Any halt may be the final turningpoint in thatmove. If you have studiedthe First Mvision of this Courseand know how to judgethe distancewhich a stockshouldmove, you are well fortified;you can more easilydi6tin@sh

the haltingplacesfrom the

probableturningpoints. There are more haltingplacesthan turning

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When am upwardor dawnwwd move is losingaorae of its forceit will  

indicatedby a shorteningof the upwardor downwardthrustsas

shownon the T@e ReadingChart. Never Xes ch for a stock axceptin some caseswhereyou are pyra midingand have a substantial profiton paper.

Even at such timesthere

is frequentlyan opportunity to buy on CLreactionafter a break through  r

on the up sides

rallyfollowinga break throughon the down side.

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We do n ot

subscribeto the

thf

Y oINTS.

 

JUDOXNGSl WWTHORWSAKWWSBY

~

that actionand reaction r

equalin the Stockmarketbecausev Jhave rarelyfoundit to work out in a prmcticalway. Even if it were trne in the stockmarket,we do not see how one couldmake any money there~.

But thereis advsntageto be

gainedby watchingthe half-waypointson ralliesa n d reactionsas a basis for judgingst engthor weakness. When a stockadvancestwo pointsand then reactsone point,it may be calleda normalreaction;but if it reactsless than a point,it givm us an indicationof strength. If it reactsmore than a pointP thereis sn indicationof weakness. Used in t h is   y

poin t

a s a sor t

of m ea sur in g

st ick

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ways with the half-

w e ca n r ea lly

derivean advantage

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The saxwillustration m ay be appliedto a raid or drivedown of say threepo ntsmore or less, folhwsd ~

a recoveryof practically

tie sameamount. This iB a sign of strengthbeoausethe reboundshowed that tharewas more Wam@h

than weakness. This signis more bullish

than bearishbeqausethe sellers,hming spenttheir force,are met and ovwx xneby the buyars,who, at the momentof completionof the recovery? ,., are in a comparatively strongpo ti on

They have takenall offerings

on the way down and whataverstoodin theirway on the advance.

The

floatingsupply~s thus reduced;unless furtherofferingsappearhigher up that they are not MJM.ng to take,the way is then open for a still  urth r

advance. Study and learn all these technicalpoints.

Considereve~-

thhg that appearson the tape as an evidencaof supportand I.Mting power,or pressureand sellingpower. Continuallycomparethe strength of theseforces. Use all th~ judgmentand reasoningpower at your command.

Endeavorto improveyour judgmmt by constantstudyand prac-

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MM TO K E EP A P E WE MTAG EI N YOU R F AVOR .

This is accomplished chieflythroughthe IMtation, reducticm and d

iillh~ti tl

af risk. That swum: (1) You mustimmediately

place a stop o rder as soon w

each n~

trade is executed. (2) You

mast move thie stopto reduceyour risk as soonas the marketwill. permitwithoutendangering the life of your

trade.

 3

You must

furthermove the stopso as to covorthe price at which the trade was made, end  4

you must move your stop still furtherwheneveryou

havea chanceto insuret h m e~

a part or most of your profit. These

four stepsare vital to this form of trading. Unlessyou carry them out cold-bloodedly- withouthope or fear -- and persistently and. with determination,ou will greatlyreduceyour chancesfor success.

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TapeReadingandActiveTrading-slidepdf.com would be 1/2 pointon the threetrades~

On a W30ratical.1 point risk with a 5 point objective,if you are wrong twicefor 1 point each time, thatwould be 2 pointslost. Ii’your profiton the thirdtradewere 5 points,you would have to d+ duct the two losses 2 points)and the overheadon threetrades,which would total14/2 points,making3.1/2 pointsdebit and 5 pointscredit; a net of 1-1/2 pointson the threetrades;or an averageof l/2-point on eachtrade. We do not claim thatyou cen make cut and dried transactions like this, but we emphasizethe point thatyou must keep your los~es plus overheadin such proportionto your profitsthatyou will have a [email protected] the good. This whc)le plan for activetradinginvolvosbuying right and sellingright,and lettingtradesrun in your favoruntil you observetechnicalindicationsthat they have gone as far as you can reasonablyexpecton the strengthof

y u

di gnosis

Thusmany a trade

whichyou startwith anticipation of a pc~int o r two profitmay run into

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TR

Deciding d on e t

upon the

d ven t g e  y

ING 

INITIAL

sto

in which to trademay sometimesbe

letting

  CTIVITY

the marketitselftell you thathere is

an opportuni~. You watch the tqpe. You have no commitments.Your Wsve Chart of the five leadersis beforeyou, on a sheetof chartpaper. You make mentalnote of the pricesthat are flowingacrossthe Tape or Translux.  ou

wait for impressions. Suddenlyyou noticea certainstockgettingactiveon the up

or down side. If it is movingin harmonywith the trendof the five leaders,you immediatelytake a positionin it, long or short,with a stop   29 3 4 or 1 point awqy. Thenyou go back over the tape and make a Tape ReadingChartof it from the openingor from some r@uonabh

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dis

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  ’l wrm

sup

y

m

TapeReading andActivet$dkmiml Trading-slidepdf.com dummd or thatits positionis suchthat

theyWlleve theyc-an moveAt to aao4 mxMval ad realisea profit. You, thereforq,hop m glnm ng

the

ing a ride, M mmane

Imve.

th@ etm kmd  d

‘l hw

along with whoever

iS

en-

you hmre him workingfor you. You are tak-

to spedq m

a qmz%al train charteredand pUd for by

@lse.

Your Mpe ReadingGhartwill giveyou all tie details. You mu judge not onl by what he does but & what he dom not do, for it must be yuur first precmut$m to see that he is not makinga falsemove %n the appositedirectiontowmd whid he intendsto melm his P*. ia$ he may be pl-

a down wing,

eo M

first

That

bids the stockup a

po$mtor twc in order to attracta followingof buyersto whomhe can 13ell a largerquantity-- -eithern the my up or beginningat the top and mZIAng it back. If he intendsto bull tho stockhe may driveit dawn first so as

to CMMII

out

the

stop

stockhc can find aroundthe 2017

kvel.

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ozdersbelow o nd mcum Hence

all the

you must be on your guard

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thn

Iwy bwk

again

WMIMWlws on the

Y@lM ” Im3aom

thwl

to

Cmb

on the

a~

@W his

buy h

ZW3UW Ms

of

th$m *8 that

the

C)permtor

will pro

ly

not

  on

faaaof indlomt onshatthemarketis aboutto sell

d@Nrmry,ho wi2Apr t it y

tQok

a suddan6*;

o justwhat I am tailingym

themsell.ut sllhe Carl80 86 to

line and thusprovidepurohming poworaroundthe low point

tha Ooming dip.

Reading

ttw

You

follow

hi$

IM3W8

closdy and when your Tape

Cha t   MlJV3e $a bW@JI~ th M bSCk, buy -6

baok.

These paintain tradingare bwed on standardpracticeamong and otherimportantoperaknwwho -pert floort@@Qrs, pml managers

knowthe game. If you expectto make money,you mustnot tradothe way thepublicdoes; yQU mwt wb marely buy, sit and hop @

n

You must

and out at th rightmoments,tradingthe way warlmt tach-

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JUDGINGTHE WIKE ’BY TEGTSAND RESPONSES

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Next gat~

he

tmtw

TapeReadingandActiveTrading-slidepdf.com

 u

Steel

dep ne

or

  n

in tho sam

my

He

some foULowingin Cam, a littlein Telephoneand nothiiiguch in

Stiel. Them he triesout the utikL~ groupand gets a Mttie

mor

m

courqp m@lt OP the bull side, From his seriesd? teatshe now knows that

he can b~st ad-

ut the other maxwe the marlmtby bullingCan. liefeell?l

stocks

that

sometimesr~spondti the loadarshipof Can so as to get help or at laaat supportfrom othor Bectionsof the market. He f2nds a little mbre rmponse in otherindustrials end wlwm he has thesesizedup he gcml

aheadand bullsthe ones that show the N3st rwqxmse -- Want seem

most

to inflw ncethe rest of the  l w w r

Lh3t.

that he followsthe Une of leastresistance.He

avoidsbullingthe rails Mcauao he would therehAve to play a luno h

nd

his

He dm

way

Sonmlne

not want to take big  m

am

 

that.

~OCk8

StO @

I?hi h

standin

He advamcss ha ones that are easi-

est to put up while r equitingthe mnlhst

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Of

purchmes on MS

part. After

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 uppt se the

5/24/2018

after d. ingup

the

-slidepdf.com severaldays and bullTapeReading vt in g hand a s Active now Trading Wan runningfor

situation~

a

swi s

of

tests he findsthat the

buyingpower has temporarily become somewhatexhaustmd;that is

most

of the peoplewho couldbo influcmcedto go in and buy imvedone so; they csnnotwend that samemoneytwicennd thereis a scarcityof other buyers Ho ho

cxin

t o take theirplaces. Demandhas shrunk. rlOQ SU@i ? Y

a roun d t h e t op of

in the cwra~s

Wi’WtWcX’

t h e marketwill take;hc

W U

fill

the swing and on the way down. If the rise

has amountedto 10 points he may keep on sellinguntil

it has declined6 points;then he may begin to buy back what he has sold -not by biddingup thasQ stocksbut takingthem as theynre offered. Out of 1 000 sharesofferedat

in g

atort.ninri ce h e may take 600 or ’700

~ ~v

300 stillofferedsnd the marketunchanged. His reaccumulations

not apparent. Tho marketis stillhecvy althoughhe is buyingback on

t h e reaction. After a while he absorbsmost of the floatingsupplyat a level

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TapetReading ActiveTrading -slidepdf.com for 12M time being. AU h of thosewho sold on the way back o and rings

from the top are now absorbed;h@nce,for the n~t

five pointsup -- on

the averages-- thereis littleoppositionto an advance. The C. 0, thereforeadds to his limos, b@ng to advancepl

as careM.ly as he can, to ae not

iCfi S

After the averageshave recoveredabout3 pointsout of the 5 theylost,ha has replacedaboutQIl the stockhe wants and beginsa rapidbiddingup of pricesall aroundthe room. The marketadvances to the levelof the previoustop. Here R lot of thosewho boughtat that time ,nnd who held throughthe reactionplace sellingordersso they can get out even or at a small profit. This makes a lot of activ. ity and narrowswingsaro~d the old top and chartobserverssay: Here is a double top; w e shouldsell short on this. But the C. O. finds that the long sellingcombhed with the shortsellingis not sufficient to stopthe advanceof the market. Thereis a latentbuyingpower that appearsto intreaseon advunces. He bids certainstocksup to new highs

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lusted

stocksand broughtin S WU’ Y TapeReadingandActiveTrading-slidepdf.com

and atendmd to

long

 

5/24/2018

buyersthat the   his

st ocks;

long

t he r em a in in g

O

ha t

 

le

a s h is

n ot

so many

ot ily to unloadeverylust shareof

un loa din g

such a large 9upplyovercomf33

demand,he also beginsto put out a line of shortsall

throughthe Lst. He keeps on sellinguntil all of the aemandat the high

level

i s satisfied

he marketis now saturatedwith stocksend

thareis no buyingpowm left to lift that tremendousload whi.chwould have

to

be movedin order to advancepricesto a new Mgh lavol. The C. O. sees this situationand knows thattho timeis ripe

for a break. He bids

up severalleadinghigh-pricedstocksto

 

w

high

levc ls,hiah causesthe publicto say: The nverugcsare up into Q new high. We shouldbuy xnora.   e nwhi l e

pri es

he has been sellingso many other ntocksthat their

are tmgging under the weight

He keeps on selling,gettingout

of the ones he bid up, and gettingshor t

of thornalso. No~j~e is adding

everyhour to the supplyof stocks. The reactionhas broughtthe public throughthe successivestagesof hesitationto cautionend then into a

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what is goingon under the mrfsce in the stocksmk t

TapeReadingandActiveTrading-slidepdf.com

Thereis no

Compos teOperator,but tha effectof the cmdxknedoperationsof b nk ers pools,la

eopm’ators,  oor

tradersand the pub~c is when

bcdhd down an the tape,of the sameeffectas if it were produoedby one men’s Opar’htiowl . t is importentthat you observethe marketfrom this standpoint, end thatyour tradingoperationsare based,not on what you formerlyNgarded as t~ marketlscharacteristicsut on the ftuxk meuatalaw of @upplyand dmemd that is made i~ eva~ stock  

whichis at the bottomof everymove the marketat all times. Tlxislaw is

workingand will continueto work alwaysand forever. There can bQ no gettingawsy ftom it. It does riotmatterwhetherthe bufingand the WLling

or both,are gmuine or artificial;thatis, manipulative;

designedfor a purpose. Studym

applythiB law in the way outlinedhere,by means of

tlw Wave Chartwhich showsthe comparativestrengthof the Supplyand the Demand;by the Tape ReadingChartswhich are a micro~cop crepro-

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both AlliedChemicaland AmericanCm wouldpass theirdividends. 30@ 5/24/2018

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stockswere heavy

llied

Chabxl

made a low of 43-5/8 em hour or so

baforethe divid~d was announced,and whn the reportcame that the r&piLardivi~md had been declared,therewas a half-hearted rallyto 47, a goodpm

of whichwas quicklylost. This affordedQ testof the

timperof the market,which W effecton Ws

bearish. Bullishnews had only a momentary

stockand littleor none on the rest of the list. The

tape readerl cue wmld have been to sell eitherthis stock,or others that respondedpoorlywhUe the strengthstillappearedin AlliedChlemical. One more word abmt thesetests the Composite  an

No matterwho me.kmithem --

a pool manager,large operator,or a big floor trader,

the resultof the tewts showimmediatelyon the tape. You, sittingat the ticker,@n observ~at onca whetherthesetestsbring a bullishor lmzrishrespanse;and you are just as free to act upon them m M

made th-yourself.

if you

Therefore,neverfail to observetheseand

othardetaildin Tape Reading. You can never Wll what thay nwy lead

t

or Bighi .

I have darivedsome largeptofitsfrom tape ix@Lca-

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BEST STOCKSFOR ACTIVE TRADING.

For

t

s

purposethereare two chiefrequirements:(1) Wid&

daily swings {2) A closemarket-- tit enablesa traderto get in and out closeto the last sale. A thirdmd

less importantadvantage

is in a larg volumeof shareslistedin a stock;thisis sortcd?a guarantee‘tMt wham activitybeginsa largenumberof investorsand traderswill participate in the campaignand thus aid in maintoAninga   OW

market. Wide daily swingsare vital,for withoutthem thereis little

chanceto buy end sell,pay overheadtand.ealizea profit.  stockwith a daily averageswingof only a pointwouldbe of no use for our purpose,for in order to realizea half pointnet profitwe wouldhave to

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Most of the prinaipa,l dailypaperc throughoutthe countrycarry

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in their  ond y e ditions

completelist of transnctlons for tho prevf.ouo

mx k. Such a tableshowsquicklywhic hstockhad tha widest  Win

l

and

the grwatestvolumeof trading$ Thesewere the loadersfor tho pretious mwk.

This flheet c un be premrved as your wdcly recordand the f’iveor

ton leadersn$arkedith a blackor coloredpencil. Leadershipis constantlychanging. Past rtico~dsro no guarsnteefar ths future. It is best to takeoff’a list of the leaderseach week in order to hmne thembeforeyou for the comingweek but thisis onlyyour background. Tha tape will constantlyt~ll you which stocks are affordin~the best tradingopportunities.Of coursethereare many stocksout$iduthe lo:~derahichhave closenarkets. Watch for these. Belov isa Wxil@ion of the averagedaily rango (difference betweenhigh and low) of five l~adingactivestockshatingclosemarkets duringfour mnnthsin 1932:

 wsdQL

AA&4uMu

&k?AwL

Q uaAil

.Mi aL

of these,Tclaphone,quieteddown to a point and a smallfraction. The

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sameis trw af the other tocks;some at timesweredovm to less than 5/24/2018

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a pointbetweanhigh and low for the day. But on the averagethesefive gavepbnty of activity-- enoughto enabletradersto get in and out, oftenmore thqn once on tha same dtny, with a profitaboveovdmad. Auburnhas not been includedin this groupbecauseit is in a clast3y it~ekt. At timesit has a fairlyclosemarkut-- in its periods of preparationfor importantmoves,or in its restingBpells. But one never can tellwhan the next saleis  o n

be 1/2 1, 2

to

3 or 5

pointsaway fron the last sale. It has the reputationof being a dang@rous stockto tradein. I considerit no more d.nngeroushan any other if you Understandits peculiarities and regul.atoour tradingto fit them. The stockmerelyrequiresa differmt techniquefrom the other leaders. Everyone+s not qualifiedto tradein it. We cannotadviseanyoneto do so withoutmuch practiceon paper. He will thus bwome accu~tomedto the erraticchangesin tkds stock

hese

are

clue

to its smallcapit