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Stock Trading
CHAPTER 9:
Daily Trading Versus Longer Term Trading
Page 1
JUST now I took a small triangular piece of blotting paper
three-eighths of an inch at its widest, and stuck it on the
end of a pin. I then threw a blot of ink on a paper and put
the blotter into contact. The ink fairly jumped up into the
blotter, leaving the paper comparatively dry.
This is exactly how the market acts on the tape when its
absorptive powers are greater than the supply - large
quantities are taken at the offered prices and at the higher
levels. Prices leap forward. The demand seems insatiable.
After two or three blots had thus been absorbed, the blotter
would take no more. It was thoroughly saturated. Its demands
were satisfied. Just in this way the market comes to a
standstill at the top of a rise and hangs there. Supply and
demand are equalized at the new price level.
(Continued after the box of related
articles.)
Then I filled my pen with ink, and let the fluid run off the
point and onto the blotter. (This illustrated the
distribution of stocks in the market). Beyond a certain
point the blotter would take no more. A drop formed and fell
to the paper. (Supply exceeded demand). The more I put on
the blotter the faster fell the drops. (Liquidation - market
seeking a lower level). This is a simple way of fixing in
our minds the principal opposing forces that are constantly
operating in the market-absorption and distribution, demand
and supply, support and pressure. The more adept a Tape
Reader becomes in weighing and measuring these elements, the
more successful he will be. But he must remember that even
his most accurate readings will often be nullified by events
that are transpiring every moment of the day. His stock may
start upward with a rush-apparently with power enough to
carry it several points; but after advancing a couple of
points it may run up against a larger quantity of stock than
can be absorbed or some unforeseen incident may change the
whole complexion of the market.
To show how an operator may be caught twice on the wrong
side in one day and still come out ahead, let us look at the
tape of December 21, 1908. Union Pacific opened below the
previous night's close: 500 @ 179 6000 @ 178 3/4 …and for
the first few moments looked as though there was some inside
support. Supposing the Tape Reader had bought 100 Union
Pacific at 178 7/8, he would have soon noticed fresh selling
orders in sufficient volume to produce weakness. Upon this
he would have immediately sold 200 Union Pacific at 178¼,
putting him short one hundred at the latter price. The
weakness increased and after a drive to 176 1/2, two or
three warnings were given that the pressure was temporarily
off. A comparatively strong undertone developed in Southern
Pacific as well as other stocks and short covering began in
Union Pacific, which came 600 @ 176 5/8 1000 @ 176 ¾ …then
177¼. Assuming that the operator considered this the turn,
he would have, bought 200 Union Pacific at 176 7/8, which
was the next quotation. This would have put him long.
Thereafter the market showed more resiliency, but only small
lots appeared on the tape.
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