Wyckoff - Method of Tape Reading.pdf - Traders Laboratory

405 Pages·2012·3.16 MB·English

CONTENTS

Sect.
Page

How to Proceed

A-B

Foreword
1M
1-2

Basic Law
2M
1-4

Judging the Market by Its Own Action
3M
1-4

Forms of Charts
4M
1-27

Buying and Selling Waves
5M
1-3

Chart Records
6M
1-4

Determining the Trend of the Market - Composite. Averages
7M
1-35

Comparing Strength and Weakness - Group Averages
8M
1-25

How a Campaign is Conducted - Individual- Chart Studies - Part I
9M
1-10

How the Operator's Intentions may be Detected - Chart Studies II 10M
1-13

Figure Charts - Individual Chart Studies - Part III
11M
1-13

Figure Chart Studies - Individual Stocks - Part IV
12M
1-9

Figure Charts - N. Y. Times Average - Chart Studies Part V
13M
1-10

Market Technique - Volume Studies
14M
1-14

Significance of Trend Lines
15M
1-20

Vertical Line Charts - Chart Studies Part VI
16M
1-34

Vertical Line Charts - Chart Studies Part VII
17M
1-26

Selecting the Best Stocks - Position Sheet - Barometer
18M
1-19

How to Determine the Position of an Individual Stock
19M
1-14

Buying and Selling Tests
20M
1-7

Refinements
21M
1-10

The Wave Chart
22M
1-39

Stop Orders
23W
1-17

General Instructions - Cautionary Suggestions
24M
1-18

Market Philosophy - Cautionary Suggestions (Cont.)
25M
1-11

Addenda

A1-A7

HOW TO PROCEED WITH THE STUDY OF THE
RICHARD D. WYCKOFF COURSE OF INSTRUCTION

The following is recommended as a plan of study which should facilitate
your progress and enable you to get the most out of this Instruction:

1. Read through the entire Course casually without attempting to study any
part of it. YOU will find numerous cross-references in the text. Disregard
these for the present. Let your, first casual reading be for the purpose of
gaining a general idea of the scope and presentation of the subject matter.

2. Read through the entire Course a second time, again, ignoring the cross-
references. This time, weigh the meaning of each paragraph more care-
fully, but do not attempt to dwell upon any part or section for more than
a few minutes yet. Let the purpose of this second reading merely be to
impress upon your mind more firmly the ideas you absorb as you go
along.

If necessary, read the whole Course through a third time before you begin
to concentrate on any particular part. By these repeated readings you will
find that your memory will retain more firmly the ideas that are
presented in each section. Then, when you do begin to study and analyze
each paragraph intensively, you will have a clear understanding of the
way in which the various parts, fit into, the complete philosophy of this
Instruction.

Bear in mind that everything in the Course is important. Nothing is
superficial. Do not neglect those sections which are necessarily shorter,
than others. Every paragraph is as much an integral part of the Course
as any other paragraph.

3. On your second or third reading, mark any paragraphs that may not be
clear to you.

4. Now study carefully Sections 4M and 6M and practice making vertical line
and figure charts, as explained in Section 4M, until you are sure that you
understand how to construct them properly. Should you have any dif-
ficulty or doubts concerning the method of making the 1 or 3 point figure
charts or the vertical charts, consult our Coaching Staff — that is send us
samples of the charts you have made in accordance with your un-
derstanding of the instructions and we shall be glad to check your work.

5. Next, study and analyze carefully Sections 5M to 25M, inclusive, again
marking any portions of the text which may not be clear to you. Make full
use of all cross-references and - footnotes as you go along. .The cross-
references are indicated thus: "Sect. —, Pg. —, Par. —,” which means that
when you come to one of - these references you should turn to the
Indicated section, page and paragraph and study it in conjunction with the
text in the part of the Course where you are at the moment. Note that
paragraph one begins on any given page, with the first indentation on
that page.

For instance, turn to Page 2, Section 3M. Paragraph 1 begins with the

Copyright 1937 by Wyckoff Associates, Inc.
Page A

fifth line from the top of the page, which reads "No one can deny, etc.";
Paragraph 2 begins with the words "Tape Reading and Chart Reading,
etc." The first four lines on the top of the page are the run-over from
paragraph 5 on the preceding page.

In all cases where charts are discussed, follow the instructions given in
Section 7M (Pg. 2, Par. 3) for studying them alongside of the reading
matter in the Course.

6. Review the portions of the text you may have marked as suggested in
items 3 and 5, above. If you still find that you do not understand them,
send us a list of these questions (referring to the proper section, page
and paragraph number) and any other questions, that I are puzzling
you, so we may clear up your difficulties.

7. Next, practice making up a Position Sheet and the Technical Position
Barometer, consulting freely the instructions contained in Sections 18M
and 19M.

8. You will now be ready to test your ability to apply the principles you
have learned from this Course by making a series of paper trades.

9. After you have completed the above steps, one by one, if you have troub-
le, in applying any of the principles, or if your paper trades do not de-
velop according to expectations, you are urged to select a paper trade,
that illustrates your difficulty and submit it to us. Be sure to include a
statement showing when and at what price you bought or sold; where
you placed your stop, the technical position of the stock as you
understood it at the time you entered the trade; and an outline of the
reasoning you employed in arriving at your decision to make the trade.

10.
It will be advisable also for you to send us copies of your Position
Sheets and Records of Paper Trades for review and criticism. Please use
the short forms of these records which are furnished you for the
purpose of securing this additional instruction. Do not fail to accompany
these records with full outline of your own reasons for your decisions.

11.
As you gain proficiency in the application of this Instruction and ac-
quire experience in the interpretation of market action, you will find an
occasional review of your Course extremely beneficial. As your
knowledge of stock market technique increases, your Course will acquire
increasing value as a reference work. Therefore, do not lay it away —
but consult it often. It not only will refresh your memory of vital
principles, but by constant review will awaken you to the discovery of
refinements and principles that may have escaped your notice on earlier
occasions.

Copyright 1937 by Wyckoff Associates, Inc.
Page B

WARNING

Every paragraph - every line – in
this Course is vital - it was put for a
very definite purpose.

Do not neglect any part of it and
do not attempt to operate in the market
by this Method until you have
thoroughly learned the whole of it.

FOREWORD

This is a method of judging the stock market by its own action.

It is intended for investors as well as for traders.

It has been planned and prepared for those who desire to safeguard their

investment capital against, and to make money from, the fluctuations in the

priced of stocks dealt in on the New York Stock Exchange or any other organized

exchange.

It is applicable as well to bonds, preferred stocks and the leading com-

modity markets.

Anyone who buys or sells a stock, a bond or a commodity for profit is

speculating if he employs intelligent foresight.

If he does not, he is gambling.

Your purpose should be to become intelligent, scientific and successful

investor and trader.

This Method is for those who have had either little or no experience

operating in the stock market, or for those who have had much experience but

who have never been shown the real rules of the game.

Out of the very limited number who really understand the inner workings

of the stock market, practically no one has been willing to show the public the

real inside. I believe it is time for someone to step forward and do this.

The appalling losses, in securities, suffered annually by millions of people,

are enough to make the angels weep.

These losses are the direct result of stock market plunging by people,

most of whom do not realize what they are risking, and who have an amazingly

small knowledge of the market.

That the American public needs help in its security market operations

there can be no question. I believe the best way to help people is to show

Copyright 1931 by Wyckoff Associates, Inc.
Section 1M Page 1

them how to help themselves; and so I am here offering the cream of what I have

learned in forty years of active experience in Wall Street.

By the methods herein explained, I have made a great deal of money for

myself and my clients and subscribers who numbered in excess of 200,000. By

making this available to those who desire to learn the business or trading and

investing in stocks — for it is a business just like law, medicine, or any other — I

hope to be of still greater service, not only to my former patrons, but to others

who have not had an opportunity to invest under favorable conditions.

After you have learned this Method, you can devote half an hour, an

hour, all day or as much time, as you like, to forecasting the market, selecting

the best stocks in which to make commitments and the best time to buy and sell.

You can learn from this how to develop independent judgment, so that you

need never ask anyone's opinion or listen to anyone's tips, or take anybody's

advice. You can so train your judgment that you will know just what to do and

when to do it. When you are in doubt you will do nothing.

I do not claim that you can be invariably right. No one could. What I aim

to do is to show you how to be right in the majority of instances. This will require

close study and self-training on your part.

I will teach you how to read the market from your daily newspaper; from

the tape of the stock ticker; from your charts, or any or all combined.

I will teach you to plan your stock market campaigns just as a general

plans his battles.

Copyright 1931 by Wyckoff Associates, Inc.
Section 1M Page 2

THE BASIC LAW OF SUPPLY AND DEMAND

I had been in Wall Street 20 years when I discovered that it was possible to

judge the future course of the market by its own action. In my book, "Wall Street

Ventures and Adventures Through Forty Years" (pg. 168) I stated my experience

and observations in 1909 as follows:

"I saw more and more that the action of .stocks reflected the plans and

purposes of those who dominated them. I began to see possibilities of judging from

the very tape what these master minds were doing. My editorial work was proving

a most valuable means of self-education. In gathering material that would benefit

my readers, I was actively searching out the stuff that would aid me personally.

While my subscribers were given the best of what I collected, there was much in

material discarded which helped to build up what I might call a code of enlightened

procedure for use in this greatest of all the world's games.

"I had a friend who had been a member of the Exchange and who was well

up on the technique of the market from the standpoint of the floor trader. We

often discussed the difference between reading the tape simply to follow price

changes (as most clients did) and reading the tape in order to judge the probable

action of stocks in the immediate future.

"Starting from the simple ground that the logical, action of a stock was to

decline when offerings exceeded the number of shares bid for and to advance when

the amount bid for was greater than the amount offered, we agreed that the

quantity or volume of stock changing hands in each succeeding transaction was of

great importance. Anyone who undertook to read the minds of the momentary buy-

ers and sellers was able to measure, to a certain degree, their eagerness or anxiety

to buy or sell; also to measure the force of the buying power or selling power as

shown by the number of shares; and to judge of the purpose behind the action,

Copyright 1931 by Richard D. Wyckoff
Section 2M Page 1

whether it was to buy without advancing the price, or to force the price up, or to

mark it down, or to discourage buying or selling by others, as the case might be.

"Each transaction carried with it certain evidence, although it was not

always possible to interpret that evidence. All stocks no matter by whom they

were owned, bought or sold, looked alike on the tape. But the purposes behind this

buying and this selling were different and these might be fairly clear to those who

understood market psychology.

"Each transaction, although recorded only once, represented a meeting of

minds; those of a buyer and a seller. This meeting of minds took place at a certain

post on the floor of the Stock Exchange, even though the buyer might be in the far

west and the seller in Europe.

"Not all transactions were significant, but the interpreter must detect those

which were. He must see that some indicated a purpose. Some one or some group

was carrying, or attempting to carry, something through. He must take advantage

of that."

Continuing my studies of the tape, I realized, that the Basic Law of Supply

and Demand governed all price changes; that the best indicator of the future

course of the market was the relation of supply to demand.

The Law of Supply and Demand operates in all markets in every part of the

world. When demand exceeds supply, prices rise, and when supply is greater than

demand, prices decline. This is true not only of stocks; it is constantly being

demonstrated in markets for wheat, com, cotton, sugar and every other commodity

that is bought and sold; also in other markets such as real estate, labor, etc.

I demonstrated this further in a series of articles entitled: "Studies in Tape

Reading" which attracted wide attention as the first of their kind ever published

anywhere, so far as I knew.

My basic idea in this series was that the stock market, by its own action,

Copyright 1931 by Richard D. Wyckoff
Section 2M Page 2

continually indicates the probable direction of its immediate and future trend, and

anyone able to determine this with accuracy should attain success in trading and

investing.

Coming events, I claimed, were foreshadowed on the tape because large

interests there disclosed their anticipation of advances or declines by their

purchases or sales. So, too, with the manipulator who was endeavoring to raise or

depress prices. If one were to become sufficiently expert, he could judge by the

action of stocks what was in the minds of these large interests and follow them.

The trend was simply the line of least resistance. When a stock met op-

position in its rise, it must either be strong enough to overcome this resistance

(selling) or it must inevitably turn downward, and when, in its downward course,

sufficient buying was encountered to halt the decline, it would turn upward. The

critical moments in all these various phases of the market were these minor and

major turning points, or else the points where the price broke through the

opposition into a new field.

Further development of this method of judging the market from its own

action resulted in my using it as a basis for predicting the probable course-of-the

market, and this eventually led to my issuing weekly, "The Trend Letter" (first

published in 1911) which had a most successful career for many years. In fact,

the forecasts contained in this Letter were so accurate that a large following was

developed. As a result of a series of successful campaigns we were not only

overwhelmed with business but brokerage houses throughout the country passed

along these advices to their clients. So many followers were thus gained that an

undue effect was had on the quotations for the stocks in which we traded, and in

certain cases the effect on the market was important.

All of the above in much more detail, is described in my book "Wall Street

Ventures and Adventures Through Forty Years" which it is advisable for you to

Copyright 1931 by Richard D. Wyckoff
Section 2M Page 3

read. My reason for mentioning these facts is to show that this method of judging

the market by its own action was highly successful, from the standpoint of profits

realized for subscribers who followed my advices, as well as for many thousands

of people who were not subscribers but who bought and sold when we did.

From the above you may judge how vital it is, in the stock market, as in

every other field, to get down to the right principles.

Copyright 1931 by Richard D. Wyckoff
Section 2M Page 4

JUDGING THE MARKET BY ITS OWN ACTION

The business of Wall Street is to finance corporations and to sell the

securities — stocks and bonds — which result from this financing. Some secur-

ities are good; others not so good. Those who manufacture and sell them to the

public know their value best. The public has comparatively little idea of their

real value, except seasoned securities — those which have been on the market

for a long time and which, therefore, have established earning power and intrin-

sic value.

In every case the banker who does the financing and the dealers who help

him distribute, have paid for their securities either in cash or in services, or

underwritten them. The object is to market these stocks and bonds at as high

prices as possible. This marketing is done through distributing houses and syn-

dicates, by private sale, by public offering, and by means of listing on the stock

exchanges.

In the latter case, the stock is advertised by making it active on the tape.

If the price be advanced, and the transactions made large, the activity attracts

buyers, and those who are handling the stock are thus able to dispose of their

shares.

Sponsorship is continued after the market is thus made for a company’s

shares. The bankers operate for themselves, or others operate for them. After a

stock is floated, its sponsors try to create a stable market and support the price

as well as they can without taking back too much stock. When it is thoroughly

distributed and enough people are interested in the stock to make a market which

takes care of itself, under ordinary conditions, the original banker, syndicate or

sponsor may discontinue operations and turn attention to some other which

affords a new opportunity for money-making.

Other interests may begin operations in that stock. Generally speaking,

Copyright 1931 by Richard D. Wyckoff
Section 3M Page 1

there are usually one or more sponsors or large operators working in every

stock. Sometimes there are many. These interests see opportunities for profit,

accumulate a line, mark up the price when conditions are favorable, and then

sell out. Or they may sell short, depress the price and cover.

No one can deny that in Wall Street the, big fish eat the little ones.

Large operators could not operate successfully without the large number of

people making up the public; that is, if there were only ten big interests in the

market and no public, these ten could only make a profit by dealing with each

other. It would be difficult for one crowd to deceive any of the nine others. But

when the public enters the stock market, the large operator's game becomes

easier for him.

Tape Reading and Chart Reading, enable one to detect and profit by

these inside operations or manipulation; to judge the future course of stocks,

by weighing the relation of supply and demand. This sometimes can be done

from price movement alone, but if you consider also the volume of the

transactions you gain an additional and vitally important helpful factor.

By accurately judging this supply and demand, you are able to decide

the trend of the whole market and of certain stocks; also which stocks to buy

or sell, and, what is even more important, when to do so.

You always aim to select the most promising opportunities; that is, the

stocks which are likely to move soonest, fastest and farthest. You make no

commitments without sound reasons, and you avoid undue risks.

Whenever you study the tape or a chart, consider what you see there

as an expression of the forces that lift and depress prices. Study your charts

not with an eye to comparing the shapes of the formations, but from the

viewpoint of the behavior of the stock; the motives of those who are dominant

in it; and the successes and failures of the buyers and sellers as they struggle

for mastery on every move.

Copyright 1931 by Richard D. Wyckoff
Section 3M Page 2

The struggle is continuous. The tape shows all this in detail. The charts

enable you to pick the market apart and study whatever portion or phase of it

you choose.

Supply and demand may be studied on the tape of the stock ticker, and

to even better advantage from charts.

The tape is like a moving picture film. Every minute of the day it is

demonstrating whether supply or demand is the greater. Prices are constantly

showing strength or weakness: strength when buyers predominate and

weakness when the offerings overpower the buyers. All the various phases

from dullness to activity; from strength to weakness; from depression to

boom, and from the top of the market down to the bottom — all these are

faithfully recorded on the tape. All these movements, small or great,

demonstrate the workings of the law of supply and demand. By transferring to

the charts portions of what appears on the tape, for study and forecasting

purposes, one is more readily enabled to make deductions with accuracy.

And now that you are undertaking to learn this Method it is best that

you prepare your mind for it by discarding most of the factors that you have

heretofore employed in forming your judgment and making your decisions,

such as: tips, rumors, news items, newspaper and magazine articles, analyses,

reports, dividend rates, politics and fundamental statistics; and especially the

half-baked trading theories which are expounded in boardrooms and popular

books on the stock market.

It is not necessary for you to consider any of these factors because the

effect of all of them is boiled down for you on the tape. Thus the tape does for

you what you are unable to do for yourself: it concentrates all these elements

(that other people use as a basis for their stock market actions) into the com-

bined effect of their buying and selling. You draw from the tape or from your

charts the comparatively few facts which you require for your purpose. These

facts are: (l) price movement, (2) volume, or the intensity of the trading, (3)

Copyright 1931 by Richard D. Wyckoff
Section 3M Page 3