Tape Reading and Active Trading

97 Pages·1998·5.66 MB·English

.
Division 2 4
, t 2
. ,
. 9
.
di
A COURSE OF INSTRUCTION -3
h
IN
\ .
TAPE READING AND ACTIVE TRADING 4
.
=4
j . ^ l
L R
-Y
.
..+%!
-q
COPYRIGHT 1932
R ICHARD D. ,FFOKCYW ON E
Niw York.
TABLEOF CONTENTS
~. -P“
1 1 INTRODUCTION
2 1 JUDGINGTHE IMMEDIATETRl#fD
2 3 Buyingand SellingWaves
2 4-A WaveChartof theLeaders
2-A 1 BUYINGAND SELLINGWAVES- PARTII
5 1 HOW TO LINKTHEWAVECHARTWITHTHE STOCKIN ‘WHICHYOU
iWE TRADING
3 1-A A VerticalLineChartand ContinuousLineChart
4 1 TRM)INGAREASAND HOW TO PROFITBY THNM
4 3-A TradingAreaof AuburnMotors
5 1 THE TAPEREADINGCHART
5 8-A TapeReadingChartof J. 1. Case
6 1 HOW TO SPOTTHEBUYINGANDSELLINGPOINTS WITHIN A SMALL
FRACTION
7 1 JUDGINGSTR$NGTHOR.W3AKNESS
8 1 HOWTO KEEPPERCENTiiGEIN YOURFAVOR
9 1 TRADINGON INITIALACTIVITY
10 1 mGING THEMARKETBY TESTSAND RESPONSES
11 1 THE BESTSTOCKSFOR ACTIVETRAI)lNG
12 1 STOPORDERSAND OTHERVITALPOINTS
12 2 Jud@ng XQurFtficimcy
12 ~ Tradingin UniformLots
12 3 Dow-Jone$Averagefl
12 4 Tradingon Paper
1: 4 Tradeat theMarket
12 4 Put a TimeLimitcm YourTrades
12 5 Qualificationosf a SuccessfulSpeculator
12 6 lhvmrAsk Advice
(“
1$? 7 Fallacyof Averaging
12 8 CapitalRaquired
12 9 How Prc)fitAsccumulate
12 9 Whereto Trade
12 10 Choiceot Brokers
12 11 StudyyourLosses
Copyright1934by RichardD. Wyckoff,Inc.
SEC. P.
12 12 PractiaePersistently
Cs 1 CHARTSTUDIES
w 1 Amwriad Telephoneat Bottomof Reaction
Cs 3 AmericanTelephoneat Top of Rally
Cs 5 AlliedChmical at Bottomof Reaction
Cs 7 AlliedChmicd at Top of ~ly
Cs J. 1. (laseat Bottomof Reaction
Cs 1? AmericanCanCombinedwithFiveLeaders
SUMMARYOFTHERICHARD D. WUXOFF
00URSEIOFINSTRUCTIONIN TAPEREADINGAND ACTIVETRADING.
J@du Ction. Generalprimiples involvedin tradingto takeadvantageof
section1. the minorfluctuations.
Basingjudgmenton impartialanalysisof avai.lab~feactg
insteadof illadvisedimDUJPeSa
How to internrettam actio~and learnto make YO1.WOWll
&Q&3mn cknt d%$cidon~ witha highdegreeof accuracy.
How to constructend~terrm% a WaveChart.
The selectionof’stocksthatrefli]c.tloadorshianndhave
o=Q~~~~ c CIIWLAtIY.L
How to detecttheminor pricesurgesand estimatetheir
significance.
How to recognizethe symptomsof a reversalof the trend.
UMiM the How to employthebarometricquality of the WaveChartin
#Mlrt judgingthe trendof theindividualstockwhordnyou are
l
section3. trading.
How to operatein harmonywiththeLaw of Supplyand Dwand.
Trading The general significanceof c,tradingareaand the exception-
&QML% al tradingopportunitiesit may offer.
section4.
How to judgewhethera stockin a tradingareabecomes
b~~ ish OX’bearish.
How to decidewhen to tradecloseto thedangerlinewith
relativelysmallrisk.
TaneReading Correlationofpricemovement,volumeand time.
gi&$.i& ~.
How to interpretthefractionalpricechangesand thevar-
iationsin volumeduringminorfluctuations.
The logical1imitatims of riskand readjustmentof stop
QZ!@Xk
How to recognizeconditionswhermlndertheriskmaY be 1Lmited
to a $Mlaufr~ction.
cop~igllt1932by RichardD. Wyckoff
--2-.
and How to so~.tthe buyingand sellinglevelswithina small
fraction.
EQJFJdU
Section6. How themarketis _nun&y 1 Eivinrinformatia~to those
who COIlgoad the ~
HoW to avoidover$tax themarket.
How to WQ MD Y@+lra d whatto do at theturningpoints.
Recognizingthe evidencesof technicalstrengthor weakness.
iiwmiml
or Whetconstitutesa normalrallyor rco.ctiona,ndwhy.
Section7.
Howyou may @NelQn Your jUMment so thntaccumulatingsymptoms
of strengthor weaknessbecomerecordsof subconsciousmemory
radresultingd~ciaons areV’htud.lY intuitivcl,
How to ld.mi~,roducqand elhinatq the risk.
How to Lnsur@Your PM’its,
How to developa tradingpolicywhereinrisksare consistent
withprobableprofits.
The generalsignificanceof incrensedLctivitY.
How to interpretchangesin thedegreeof activity.
S63ctio9n.
Theimnortanec of volumewxzes in tradingzonesand
followingth$ formationof an apex.
HOIJtheoperatorteststhe technicalconditionof themarket.
section 10. How theindividualtradermay secure,withoutexpense,the ben-
efitof thelargeoperators testsof themarket’sstrength.
Linesof resistanee; how to recoznize themand profit
o..ccordingly.
How to observewhenthemarketis in an overbou~htor oversold
condition.
How to recognize evidenceof manipul~tion.
The significnnccof themarket’sresponseto newsitemshaving
the elementof surprise.
BestStocks How to selectthebest stocksfor fictivetrading.
For Active
Trading, Recognitionof changingleadership.
Section11.
The importanceof uverngepricer:mgemd its relutionto
flo:~tingsupply.
Copyright1932by Ri.chmd D, Wyckoff
-3-
The advantage of familio.ritywith the chief characteristics
of leadingj active issues.
Use of HOW and when to use stop orders.
Stop Orders.
Section 12. The scientificlocation and road.jus+,menotf stop orders.
Substitutes for stop orders.
Miscellaneous Judging your efficiency.
Vital Points.
Section 12. Consistent trading policies.
of the averages.
h’lh?rr)r~t~t~on
Testing your trading ability without monetary risk.
~b~arkeotrders vs. limited orders.
Limiting the duration of a trade.
How to avoid the dangers of ill-advised ad~ice and tips.
Dangerou~ pitfalls and to avoid them.
kiov~
HOIWto select your broker and judge his efficiency.
Chart Tape reading charts of leading active stocks and tP.eir
Studies. interpretation.
Typical trading maneuvers illustrated,wiih comentsj
suggestions and explanations.
How to recognize the termination of a reaction, and the
subsequent buying signals.
How to recognize the termination of a rally, and the
usual indication of impending reaction.
How to use the combination trading chart and wave chart of
barometric letadcrs.
Copyright 1952 by Richard D. Wyckoff
t
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
day, more or less, to studying and planning their campaigns. But we
have learned that an increasingnumber 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
is different from that outlined in the first part of our Course, we
have prepared the following to meet the requirements mentioned.
This Division of our Course of Instructionj like the First Divi-
sion, is based on judgment of the technical position: Supply and demand --
support and pressure.
No news, earnings or other corporate or fundamental statistics
are considered;we use only tho~e which relate to the factors: Price
Movement, Volume and Time.
The active trader who is a Tape Reader is concerned only with
Copyright 1932 by Richard D. Wyckoff TR Section 1 Page 1
theimmediate*rendof the smallmovesin themurket. Thistrendcanbe
detectedby thisMethodsoona.i%er~hcopeningof theStockExchangeat
ten o~clockdai~g It may changefrombQUsh to bmrish, or viceversa$
and reverseitselffromone to threetimesduringe.whday’ssession.
We instructsuchtradershow to followthesetrends,changing
or reversingtheirpositions oftenas themarketaffordstradingoppor-
as
tunities.
In mostinstancestradesare closedout the sameday theyare
made,but i??thereare strongreasonsfor carryingany stockovernight,
thismay be done.
Detailedinstructionsare givenas to thebeststocksto choose
and the exacttimeto makecommitments,basedon methodsformulatedand
successfullyemployedforovertwentyyearsof tradingand advisorywork.
Stopordersareplacedon every trade,fromone-halfto onepoint
awayfromthebuyingor sellingprice. Thesestopsmustbe constantly
watchedsndmovedas quicklyas themarketpermitsin orderto reduce
risk,thenprotectprofits.
Thisformof tradingdisregardsthelongtrendof themarket,
as welliistheintermediatetrends. It takesinstantadvantngeof the
technicalralliesand reactionsthatpromiseto yielda profitin the
samestockmarketsession,on eitherthelongor theshortsideof the
market.
-M * *
TapeReadingis thoart of determiningtheimmediatecours~or
trendof pricesfromtheactionof themarketas it appearson the tape
of the stockticker. It mimsto detectthemows that are Lik@y to occur
Copyright1932by RichardD. Wyckoff TR Section1 Page2
in the next few minutes or hours; gettingin whentheybeginand getting
out whentheyculminate.
It requiresactivityandflexibilityof mind;readinessto change
or reverseone’sopinionquickly;slsonerve,poise,decision,promptness,
courageand absoluteindependenceof judgment.
Its purpos~is to derivean averageprofitfroma seriesof trades.
By keepingthe riskdownt~ a minimumand constantlystrivingto reduceit;
by clevermsmipul.atioonf stoporders,a net profitovercomiwission~t,axes
and lossescanbe realized.
All commitmentsare temporary-- theirdurntionis usuallylim-
itedto hours. Theyareintended to take advantage of the small,imm@i-
ate fluctuations.
withthisMethod you, as a trader, search for your opportunit.ies
(andworkforyourprofithareand~-- today. In mo~;tcasesyou will
preferto go homewitha clesm sheet -- with no commitments orI either
sideof the market. Thus v:henyou start trading nuxt morning your mind
is clearfornew impressions;yourjudgmentis unbiasedby reasonof your
neutralposition.
At eachmo.rninglospeningyou makea swiftanalysisof themarket;
sensethe trend;d’ecideon thebeststock,andif conditionsarefavorable,
you makeyour commitment.Thenyou watchthemarketfor a confirmationor
contradictionof the correctnessof yourposition. for the psycholog-
il.1.so
ical. momentfor noving stops, closingtrades or crowding stops so close to
the market price that you leavetheway openfor n furtherprofit,or you
are closedouton stopat a smallfractionfromthe extremehighor low.
Tradingthus, you are afforded several times as many opportun-
Copyright 1932 by Richard D. Wyckoff TR Sectior1~ Page 3
itiesin thesesmallswingsw you wouldhaveif you wz~itedfor themore
importantswingsof ten to thirtypoints.
If a tradedoesnot makegoodat once,you closeit out,whether
it standseven or at a smallloss. You willnevertradewithouta stop,
foryour riskmustbe keptdownto a minimum. You willnevertakea big
loss. You will neverbe tiedup. You can claanhousein an instant.
Andyou can stayawayfromthe tickeras oftentandas longm you wish.
This formof tradingis entirelydistinctanddlffcrentfrom
thatdescribedin theotherMvi.sionof ourMethod,whichaimsto secure
profitsfromthe ten,twentyand thirtypointswings. It meetsthere-
quirementsof thosewho wishto trademoreor less constantly.
Includedin thisDivisionof theCourseis a planfor charting
thedetailedtransactionsin certainstocksas theyappearon the tape,
by which you can sense theimmediatetrend;figurethe exactpointsfor
placingyour stopordersandwhereta movethemto reduceriskwhenthe
marketgoesin yourfavor. It showsyou how to C1OEWyour tradesthe
sameday at themostadvantageousmomentsby watchingtheseTapeRead-
ing Chartindicationsand gettingoutnearthe extremepointsin the
advancesand declines.
UndertlzisMethodyou mighttakenew positionsfromone to
threetimesa day,dependingupon theactivityof themarket. It is
thenearestappronchyet devised,so far as I know,to tradingon the
floorof the StockExchange.
But themostimportantadv,ontagoef a combinationof Tape
Reading end tradingfor thelongorswingsis thatit willaidyou in
increasingyourprofitsin thisway: Sections11 and 12 of theFirst
Divisionof our Courseshowhow to determinewhichstocksshouldmove
Copyright1932by ~chard D. Wyckoff ‘i%SectionL Page4