study it, for this means long hours of hardwork, and Mr. Speculator is laziness personified. Frequently I have metthose who pin their faith to some one point, such as the volumes up ordown, and call it Tape Reading.Others, unconsciously trading on mechanical indications such ascharts, pretend to be reading the market.Then there is a class of people who read the tape with theirtongues, calling off each transaction, a certain accent on the higher orlower quotations indicating whether they are bullish or bearish. Theseand others in their class are merely operating on the superficial. If theywould spend the same five or six hours a day (which they nowpractically waste) in close study of the business of speculation, the resultin dollars would be more gratifying at the end of the year. As it is, themajority of them are now losing money.
Richard D. Wyckoff
It is a source of satisfaction, however, that these suggestions ofmine which, I believe, are the first practical articles ever written on thesubject of Tape Reading, have stirred the minds of many people to thepossibilities in the line of scientific speculation.This is shown in a number of letters I’ve received, many of themfrom traders situated in remote localities. In the main, the writers, whoare now carrying on long distance operations for the big swings aredesirous of testing their ability as Tape Readers. No doubt those whohave written represent but a small percentage of the number who are thusinclined.To all such persons I would say you can make a success of TapeReading but you must acquire a broad fundamental knowledge of themarket. A professional singer who was recently called upon to advise ayoung aspirant said:"One must become a 'personality' -- that is, an intelligencedeveloped by the study of many things besides music".It is not enough to know a few of the underlying principles; onemust have a deep understanding. To be sure, it is possible for a person totake a number of the "tricks of the trade" herein mentioned and tradesuccessfully on these alone.Even one idea which forms part of the whole subject may beworked and elaborated upon until it becomes a method in itself. Thereare endless possibilities in this direction, and after all it matters littlehow the money is extracted from the market, so long as it is donelegitimately.But real Tape Reading takes everything into account -- everylittle character which appears on the tape plays its part in forming one ofthe endless series of "moving pictures". In many years study of the tape,I do not remember having seen two of these "pictures" which wereduplicates. One can realize from this how impossible it would be toformulate a simple set of rules to fit every case or even the majority ofthem, as each 5 day trading session produces hundreds of situations,which, so far as memory serves, are never repeated. This goes on to
Richard D. Wyckoff
suggest further that charts and chart ‘pictures’ are merely guides andcannot be relied upon to form judgments of the market at the momentyou need it to.The subject of Tape Reading is therefore practicallyinexhaustible, which makes it all the more interesting to the man whohas acquired a habit of study habit.Having fortified himself with the necessary fundamentalknowledge, the student of Tape Reading should thoroughly digest thesesuggestions and any others which may be obtainable in future. It is notenough to go over and over a lesson as a student in elementary schooldoes, driving the facts into his head by monotonous repetition; tapesmust be procured and the various indications matched up with what hasbeen studied. And even after one believes he understands, he willpresently learn that, to quote the words of a certain song, "You don'tknow how much you know until you know how little you know".One of my instructors in another line of study used to make mego over a thing three or four times after I thought I knew it, just to makesure that I did.I should say that it is almost impossible for one who has neverbefore traded from the tape to go into a broker's office, start right in andoperate successfully. In the first place, there are the abbreviations and allthe little characters and their meanings to know the abbreviations of theprincipal stocks; it is necessary to know everything that appears on thetape, so that nothing will be overlooked. Otherwise the trader will be likea person who attempts to read classic literature without knowing wordsof more than four letters.It is a common impression that anyone who has the money canbuy a seat on the Stock Exchange and at once begin making money as afloor trader. But floor trading is also a business that one has to learn, andit usually takes months and years to become accustomed to the physicaland nervous strain and learn the ropes.Frequent requests are made for the name of someone who willteach the Art of Tape Reading. I do not know of anyone able to read the
Richard D. Wyckoff
tape with profit who is willing to become an instructor. The reason isvery simple. Profits from the tape far exceed anything that might beearned by charging tuition fees to his students. It’s simple economics.In addition to the large operators and floor traders who use TapeReading in their daily work, there are a number of New York StockExchange members who never go on the floor, but spend the session atthe ticker in their respective offices. Experience has taught them thatthey can produce larger profits by this method, or else they would notfollow it. The majority of them trade in 5000 share lots and up and theirbusiness forms an important share of the daily volume.A number of so-called semi-professionals operate on what maybe termed pure ‘intuitive’ tape reading. They have no well-defined codeof rules, methods or strategies and probably could not explain clearly justhow they do it, but they "get the money" and that is the best proof of thepudding.The existence of even a comparatively small body of successfulTape Readers is evidence that money making by this means is anaccomplished fact and should encourage you.One of the greatest difficulties which the novice has to overcomeis known as "cold feet". Too many people start and dabble a littlewithout going far enough to determine whether or not they can make ago of it. And even those who get pretty well along in the subject will bescared to death at a string of losses and quit just when they should dig inharder.For in addition to learning the art they must form a sort of tradingcharacter, which no amount of reverses can discourage nor turn back andwhich constantly strives to eliminate its own weak points such as fear,greed, anxiety, nervousness and the many other mental factors which goto make or unmake the profits in this business.Perhaps I have painted a difficult proposition. If so, the greaterwill be the reward of those who master it. As stated at the beginning,Tape Reading is hard work. There seems no good reason for alteringthat opinion.
Richard D. Wyckoff
CHAPTER XIIITwo Day’s Trading – An Example Of My MethodApplied
BELOW is a record of transactions made by me, results having beenobtained by following the methods suggested in these pages on TapeReading. The object is to show the possibilities in this adventure and toencourage anyone who wants to master the art of day trading.Please note that out of fifteen transactions, figuring on the buyingand selling prices alone, there were thirteen wins and only one loss. Onetransaction showed neither profit nor loss.Seven trades were on the long side and eight on the short. Thestock fluctuated between 166 3/4 and 170 3/8 (3 5/8 points) during thesetwo sessions, and gave numerous trading opportunities.All transactions were protected by a close stop, in some cases notmore than 1/8 or ¼ point from the original buying or selling price.These stop orders were not always put on the floor.The reason: in such active trading -- stops could be changed orcancelled more quickly when they were carried in the head and executed"at the market" when the price hit the required figure.
Richard D. Wyckoff
CHAPTER XIVThe Principles Applied to Longer Term Trading
THE first edition of this book having been exhausted, it has been myprivilege to edit the foregoing chapters in preparation for the secondedition. This has required a consideration of the principles therein setforth, and has enabled me to test and compare these principles in theiradaptation to the stock market of 1916.I find that in no important degree is it necessary to modify whathas been written. While the character of the trading has altered since theoutbreak of the European War, this change represents more a shifting of
Richard D. Wyckoff
the leadership and a widening of the swings, due to extraordinaryconditions.Proof that these rules and methods are correct is also found intheir adaptation to other forms of trading, chief among which is thedetection of accumulation and distribution at certain important turningpoints in the market.I have used this method successfully in forecasting the market forthese principal swings and find it to be a much more comfortable way offollowing the market, because it is not so confining.Preparation for a long advance or decline, as well as for theintermediate movements are numerous, is clearly apparent to those whounderstand the art of Tape Reading.In judging the market by its own action, it is unimportant whetheryou are endeavoring to forecast the next small half hourly swing or thetrend for the next two or three weeks. The same indications as to price,volume, activity, support and pressure, are exhibited in the preparationfor both.The same elements will be found in a drop of water as in theocean, and vice versa.A study of the stock market means a study in the forces aboveand below the present level of prices. Each movement has its period ofpreparation, execution and termination, and the most substantial ofmovements are those that make long preparation. Without thispreparation and gathering of force, a movement is not likely to besustained. On the other hand, the greater the preparation, the greater theprobable extent of the swing.Preparation for the principal movements in the market will veryoften occupy several months. This may be preceded by a decline, inwhich large operators accumulate their stocks. They may evenprecipitate this decline in order to pave the way for such accumulation.
Richard D. Wyckoff
Large operators differ from small ones in their ability to foreseeimportant changes in stock market values from six months to a year inadvance, and to prepare themselves for it.A study of these preparatory periods discloses to those whounderstand the anatomy of market movements the direction andpossible extent of the next big move. Thus, a study of these importantturning points, principal among which are booms and panics, is the mostessential.Small operators should take a leaf from the book of those whobuy and sell enormous quantities of securities. It is their foresight whichenables them to profit. To cultivate foresight means to study the marketscondition.In a lecture at the Finance Forum, New York, I showed how allinfluences 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 fromacquiring any knowledge, and giving some consideration to FundamentalStatistics such as crops, money, politics, corporate earnings, etc.-- but theadvantages of studying the action of the market, as a guide to futureprices, are productive of too great results to warrant their dilution withfactors which are really of secondary importance.I make this claim because of my conviction that the position oflarge operators is more important than the so-called basic factors.For several years past I have applied the principles in this book tothe forecasting of the swings of from 5 to 20 points. Results have beenhighly outstanding.For this reason I can recommend that the subject be studied witha view to the formation of a method of trading, especially adapted to theindividual requirements of those who wish to follow this intenselyinteresting and highly profitable business.
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