CHAPTER FOURTEEN 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.

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.

New York, 1919