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Stock Trading
CHAPTER 14:
The Principles Applied to Longer Term Trading
THE first edition of this book having been exhausted, it has
been my privilege to edit the foregoing chapters in preparation
for the second edition. This has required a consideration of the
principles therein set forth, and has enabled me to test and
compare these principles in their adaptation to the stock market
of 1916.
I find that in no important degree is it necessary to modify
what has been written. While the character of the trading has
altered since the outbreak of the European War, this change
represents more a shifting of the leadership and a widening of
the swings, due to extraordinary conditions. Proof that these
rules and methods are correct is also found in their adaptation
to other forms of trading, chief among which is the detection of
accumulation and distribution at certain important turning
points in the market. I have used this method successfully in
forecasting the market for these principal swings and find it to
be a much more comfortable way of following the market, because
it is not so confining.
(Continued after the box of related
articles.)
Preparation for a long advance or decline, as well as for the
intermediate movements are numerous, is clearly apparent to
those who understand the art of Tape Reading. In judging the
market by its own action, it is unimportant whether you are
endeavouring to forecast the next small half hourly swing or the
trend for the next two or three weeks. The same indications as
to price, volume, activity, support and pressure, are exhibited
in the preparation for both. The same elements will be found in
a drop of water as in the ocean, and vice versa. A study of the
stock market means a study in the forces above and below the
present level of prices. Each movement has its period of
preparation, execution and termination, and the most substantial
of movements are those that make long preparation. Without this
preparation and gathering of force, a movement is not likely to
be sustained.
On the other hand, the greater the preparation, the greater the
probable extent of the swing. Preparation for the principal
movements in the market will very often occupy several months.
This may be preceded by a decline, in which large operators
accumulate their stocks. They may even precipitate this decline
in order to pave the way for such accumulation.
Large operators differ from small ones in their ability to
foresee important changes in stock market values from six months
to a year in advance, and to prepare themselves for it. A study
of these preparatory periods discloses to those who understand
the anatomy of market movements the direction and possible
extent of the next big move. Thus, a study of these important
turning points, principal among which are booms and panics, is
the most essential. Small operators should take a leaf from the
book of those who buy and sell enormous quantities of
securities. It is their foresight which enables them to profit.
To cultivate foresight means to study the markets condition. In
a lecture at the Finance Forum, New York, I showed how all
influences of every sort affecting the stock market are shown on
the tape, and in the changes in prices. While I would not for a
moment discourage the student from acquiring any knowledge, and
giving some consideration to Fundamental Statistics such as
crops, money, politics, corporate earnings, etc.- the advantages
of studying the action of the market, as a guide to future
prices, are productive of too great results to warrant their
dilution with factors which are really of secondary importance.
I make this claim because of my conviction that the position of
large operators is more important than the so-called basic
factors.
For several years past I have applied the principles in this
book to the forecasting of the swings of from 5 to 20 points.
Results have been highly outstanding. For this reason I can
recommend that the subject be studied with a view to the
formation of a method of trading, especially adapted to the
individual requirements of those who wish to follow this
intensely interesting and highly profitable business.
RICHARD D. WYCKOFF
New York, 1919
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