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01 The Essence of Trading
Trading seems to us: The science of determining from the tape the immediate trend of prices. It is judging from what appears on the tape now, what is likely to be shown in five minutes or more. It bears no relation to clairvoyance and we do not believe that spirits of departed friends could be of assistance to students. Tape Reading is rapid-fire horse sense. Its object is to determine whether Union Pacific, which is now 159, will sell at 160 before 158, or vice versa; to make deductions from each succeeding transaction — every shift of the market kaleidoscope; to grasp a new situation, force it lightninglike through the weighing machine of the brain, and to reach a decision which can be acted upon with coolness and precision — all within the space of a few seconds. It is gauging the momentary supply and demand in particular stocks and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.

02 How to Find an Edge
A trader is like the manager of a department store ; into his office are poured hundreds of reports of sales made by the various departments. He notes the general trend of business, whether demand is heavy or light throughout the store, but lends special attention to the lines in which demand is abnormally strong or weak. When he finds difficulty in keeping his shelves full in a certain department, he instructs his buyers, and they increase their buying orders; when certain goods do not move he knows there is little demand (market) for them, therefore, he lowers his prices — offers inducements to possible purchasers.

03 Look for Minimum Risk Points
The market is a tug-o'-war. Successful tape reading requires ability to judge which side has the greatest pulling power and one must have the courage to go with that side. There are critical points which occur in each swing, just as in the life of a business or of an individual. At these junctures it seems as though a feather's weight on either side would determine the immediate trend. Any one who can spot these points has everything to win and little to lose, for he can always play with a stop placed close behind the turning point or point of resistance.

04 Is There a Trading Formula?
If trading were an exact science, one would simply have to assemble the factors, carry out the operations indicated, and trade accordingly. But the factors influencing the market are infinite in their number and character, as well as in their effect upon the market, and to attempt the construction of a trading formula would seem to be futile. However, something of the kind (in the rough) may develop as we progress in this investigation, so let us preserve open minds.

05 Why Trading Cannot Be Reduced to Simple Rules
But real trading takes everything into account — every little character which appears on the tape plays its part in forming one of the endless series of ‘moving pictures.’ In many years' study of the tape, I do not remember having seen two of these ‘pictures’ which were duplicates. One can realize from this how impossible it would be to formulate a simple set of rules to fit every case or even the majority of them, as each day's session produces hundreds of situations, which, so far as memory serves, are never repeated. The subject of trading is therefore practically inexhaustible, which makes it all the more interesting to the man who has acquired the ‘study habit.’

06 How to Develop Competence
A trader absorbs information and follows a definite and thoroughly tested plan, which after months and years of practice becomes second nature to him. His mind forms habits which operate automatically in guiding his market ventures. No intelligent human need be told that when the sky darkens and the thunder rolls there's likely to be a shower. He unconsciously notes the preliminary signs, dons a raincoat and takes an umbrella. Long practice will make the trader just as proficient in forecasting stock market events, but his intuition will be reinforced by logic, reason, and analysis.

07 First Requirement of Success
First, he must be absolutely self-reliant. A dependent person whose judgement hangs upon that of others will find himself swayed by a thousand outside influences. At critical points his judgement will be useless. He must be able to say: ‘The facts are — ; the resulting indications are — ; therefore I will do so and so.’

08 Second Requirement of Success
Next he must be familiar with the technicalities of the market, so that every little incident affecting prices will be given due weight. He should know the history, earnings and financial condition of the companies in whose stock he is trading; the ways of the manipulators; the different kinds of markets; be able to measure the effect of news and rumors; know when and in what stocks it is best to trade; measure the forces behind them; know when to cut a loss and take a profit. He must study the various swings and know where the market and his stock stand; must recognize the inherent weakness or strength of the market; understand the basis or logic of movements. He should study the fundamentals and sift the wheat from the chaff; recognize the turning points of the market; see in his mind's eye what is happening on the floor. He must have the nerve to stand a series of losses; persistence to keep him at the work during adverse periods; selfcontrol to avoid overtrading and a phlegmatic disposition to balance him at all times.

09 Questions to Ask Yourself
Success is only for the few, and the problem is to ascertain, with the minimum expenditure of time and money, whether you are fitted for the work. These, in a nutshell, are the vital questions: 1. Do you have technical knowledge of the market and the factors which move it? 2. Do you have sufficient capital which you can afford to lose in an effort to demonstrate your trading ability? 3. Can you devote your entire time and attention to the study and the practice of this science? 4. Are you so fixed financially that you are not dependent upon your possible profits, and so that you will not suffer if none are forthcoming now or later?

10 Trading Method Outline
This is one great advantage the trader has over other operators who do not employ market science. By a process of elimination he decides which side of the market and which stock affords the best opportunity. He either gets in at the inception of a movement or waits for the first reaction after the move has started. He knows just about where his stock will come on the reaction and judges by the way it then acts whether his first impression is confirmed or nullified. After he gets in it must come up to expectations or he should abandon the trade. If it is a bull move, the volume must increase and the rest of the market offer some support or at least not oppose it. The reactions must show a smaller volume than the advances, indicating light pressure, and each upward swing must be of longer duration and reach a new high level, or it will mean that the rise has spent its force either temporarily or finally.

11 Trade Management
I buy and sell when I get my indications. In going into a trade I do not know whether it will show a profit or a loss, or how much. I try to trade at a point where I can secure protection with a stop... so that my risk is limited. If the trade goes in my favor I push the stop up as soon as possible, to a point where there can be no loss. I do not let profits run blindly but only so long as there appears no indication on which to close. No matter where my stop order stands, I am always on the watch for danger signals. Sometimes I get them way in advance of the time a trade should be closed; in other instances my ‘get out’ will flash onto the tape as suddenly and as clearly defined as a streak of lightning against a black sky. When the tape says ‘get out’ I never stop to reckon how much profit or loss I have or whether I am ahead or behind on the day. I strive for an increasing average profit but I do not keep my eye so much on the fractions or points made or lost, so much as on myself.

12 Take a Free Position
My stop was moved down so there couldn't be a loss, and soon a slight rally and another break gave me a new stop which insured a profit, come what might... I strongly advocate this method of profit insuring. The scientific elimination of loss is one of the most important factors in the art, and the operator who fails to properly protect his paper profits will find that many a point which he thought he had cinched has slipped away from him. When you push a stop close behind a rise or a decline, you leave the way open for a further profit; but when you close the trade of your own volition, you shut off all such chances. This whole plan of using stops is a sort of squeezing out the last drop of profit from each trade and never losing any part that can possibly be retained.

13 Selective Day Trading
Many opportunities for profit develop from each day's movements; only the very choicest should be acted upon. There should be no haste. The market will be there tomorrow in case today's opportunities do not meet requirements.

14 Wait for Wide Swings
There must be wide swings if profits are to exceed losses, and the thing to do is, wait for good opportunities. ‘The market is always with us’ is an old and a true saying. We are not compelled to trade and results do not depend on how often we trade, but on how much money we make.

15 Distinguishing Pullbacks from a Change in Trend
One of the finest points in the art of trading is that of distinguishing a pullback from a change in trend. A good way to do this successfully is to figure where a stock is due to come after it makes an upturn, allowing that a normal pullback is from one-half to two-thirds of the decline. That is, when a stock declines two and a half points we can look for at least a point and a quarter rally unless the pressure is still on. In case the decline is not over, the rally will fall short.

16 One Man’s Meat
The results which are attainable depend solely upon the individual. Each must work out his own method of trading, based on suggestions derived from these studies or from other sources. It will doubtless be found that what is one man's meat is another's poison, and that no amount of book learning will avail if the student does not put his knowledge to an actual test in the market.

17 Pitfalls
Anxiety to make a record, to avoid losses, to secure a certain profit for the day or period will greatly warp the judgement, and lead to a low percentage of profits. Trading is a good deal like laying eggs. If the hen is not left to pick up the necessary foods and retire in peace to her nest, she will not produce properly. If she is worried by dogs and small boys, or tries to lay seven eggs out of material for six, the net proceeds may look like an omelet. The trader’s profits should develop naturally. He should buy or sell because it is the thing to do — not because he wants to make a profit or fears to make a loss.

18 The Sixth Sense in Trading
By proper mental equipment we do not mean the mere ability to take a loss, define the trend, or to execute some other move characteristic of the professional trader. We refer to the active or dormant qualities in his make-up. The power to drill himself into the right mental attitude; to stifle his emotion, fear, anxiety, elation, recklessness, to train his mind into obedience so that it recognizes but one master — the tape — these, if possessed, would be as valuable in shaping the result as natural ability, or what is called the sixth sense in trading.

19 The Power of Commitment
Some people are born musicians, others seemingly void of musical taste, develop themselves into virtuosos. It is the amount of I WILL in a man which makes him mediocre or pre-eminent — in Wall Street parlance, a dub or a big trader.

20 Keene
Whatever laurels Mr. Keene has won as an operator or syndicate manager, do not detract from his reputation as a trader. His scrutiny of the tape is so intense that he appears to be in a trance while his mental processes are being worked out. He seems to analyze prices, volumes, and fluctuations down to the finest imaginable point, then telephones to the floor to ascertain the character of the buying or selling in certain active stocks. With this auxiliary information he completes his judgement and makes his commitments. Mr. Keene stands to-day on the pinnacle of fame as a trader, and his daily presence at the ticker is sufficient evidence that the work pays and pays well.

21 How Success Happens
Success in this field usually results from years of painstaking effort and absolute concentration upon the subject. It requires that one devote his whole time and attention to the tape. He should have no other business or profession. ‘A man cannot serve two masters,’ and the tape is a tyrant.

22 Full Time Learning from Mistakes
One cannot become a trader by giving the ticker absent treatment; nor by running into his broker's office after lunch, or seeing ‘how the market closed’ from his evening newspaper. He cannot study this art from the far end of a telegraph or telephone wire. He should spend twenty-seven hours a week at the ticker, and many more hours away from it studying his mistakes and finding the ‘why’ of his losses.

23 What Trading is Not
Trading is not merely looking at the tape to ascertain how prices are running. It is not reading the news and then buying or selling ‘if the stock acts right.’ It is not trading on tips, opinions, or information. It is not buying ‘because they are going up, ’ or selling ‘because they look weak.’ It is not trading on chart indications or by other mechanical methods. It is not ‘buying on dips and selling on bulges.’ Nor is it any of the hundred other foolish things practised by the millions of people without method, forethought, or calculation.

24 Inertia
The market is like a slowly revolving wheel. Whether the wheel will continue to revolve in the same direction, stand still or reverse depends entirely upon the forces which come in contact with its hub and tread. Even when the contact is broken, and nothing remains to affect its course, the wheel retains a certain impulse from the most recent dominating force, and revolves until it comes to a standstill or is subjected to other influences.

25 Manipulation Not a Problem
The element of manipulation need not discourage any one. Manipulators are giant traders, wearing seven-leagued boots. The trained ear can detect the steady ‘clump, clump,’ as they progress, and the footprints are recognized in enormous quantities of stock appearing on the tape. Little fellows are at liberty to tiptoe wherever the footprints lead, but they must be wary that the giants do not turn quickly and crush them.

26 Advantage Over Big Traders
The trader has many advantages over the long swing operator. He never ventures far from shore; that is, he plays with a close stop, never laying himself open to a large loss. Accidents or catastrophes cannot seriously injure him because he can reverse his position in an instant, and follow the newformed stream from source to mouth. As his position on either the long or short side is confirmed and emphasized, he increases his line, thus following up and cumulating the advantage gained.

27 The Trading Objective
This is the objective point of the trader — to make an average profit. In a month's operations he may make $3,500 and lose $3,000 — a net profit of $500 to show for his work. If he can keep this average up, trading in 100- share lots, throughout a year, he has only to increase his unit to 200, 300, and 500 shares or more, and the results will be tremendous.

28 Before, During, and After the Trade
The trader evolves himself into an automaton which takes note of a situation, weighs it, decides upon a course and gives an order. There is no quickening of the pulse, no nerves, no hopes or fears. The result produces neither elation nor depression. There is equanimity before, during, and after the trade.

29 The Ideal Work Environment
For perfect concentration as a protection from the tips, gossip and other influences which abound in a broker's office, he should, if possible, seclude himself. A tiny room with a ticker, a desk and private telephone connection with his broker's office are all the facilities required. The work requires such delicate balance of the faculties that the slightest influence either way may throw the result against the trader. He may say: ‘Nothing influences me,’ but unconsciously it does affect his judgement to know that another man is bearish at a point where he thinks stocks should be bought. The mere thought, "He may be right," has a deterring influence upon him; he hesitate ; the opportunity is lost. No matter how the market goes from that point, he has missed a cog and his mental machinery is thrown out of gear. Silence is a much needed lubricant to the trader's mind. The advisability of having even a news ticker in the room, is a subject for discussion. The tape tells the present and future of the market.

30 How Money is Made
Money is made in trading by anticipating what is coming — not by waiting till it happens and going with the crowd.

31 Trading Driven by Psychological Needs
The trader of slight experience suffers mental anguish if the stock does not instantly go his way; he is afraid of a large loss, hence his judgement becomes warped, and he closes the trade in order to secure mental relief. As these are all symptoms of inexperience, they cannot be overcome by avoiding the issue. The brave and the business-like thing to do is to wade right into the game and learn to play it under conditions which are to be met and conquered before success can be attained.

32 Start with Minimum Size
After a complete absorption of every available piece of educational writing bearing upon trading, it is best to commence trading in ten share lots, so as to acquire genuine trading experience. This may not suit some people with a propensity for gambling, who look upon the ten-share trader as a piker. The average lamb with $10,000 wants to commence with 100 to 500-share lots — he wishes to start at the top and work down. It is only a question of time when he will have to trade in ten-share lots. To us it seems better to start at the bottom with ten shares. There is plenty of time in which to increase the unit if you are successful. If success is not eventually realized you will be many dollars better off for having ventured the minimum quantity... Think of a baby, just learning to walk, being entered in a race with professional sprinters!

33 Start Right or Not at All
Trading is hard work, hence those who are mentally lazy need not apply. Nor should anyone to whom it will mean worry as to where his bread and butter is coming from. Money-worry is not conducive to clear-headedness. Overanxiety upsets the equilibrium of a trader more than anything else. So if you cannot afford the time and money, and have not the necessary supply of patience, better wait. Start right or not at all.

34 Entering at the Right Time
For the trader there is a psychological moment when he must open or close his trade. His orders must therefore be ‘at the market.’ Haggling over fractions will make him lose the thread of the tape, upset his poise and interrupt the workings of his mental machinery.

35 Get On!
As the trader generally goes with the trend, it is a case of ‘get on or get left.’ By all means ‘get on.’

36 Specialize
It is better for a trader to trade in one stock than two or more. Stocks have habits and characteristics which are as distinct as those of human beings or animals. By a close study the trader becomes intimately acquainted with these habits and is able to anticipate the stock's action under given circumstances. A stock may be stubborn, sensitive, irresponsive, complaisant, aggressive; it may dominate the tape or trail along behind the rest; it is whimsical and coquettish; it may whisper, babble like a brook or roar like a cataract. Its moods must be studied if you would know it and bend it to your will. Study implies concentration. A person who trades in a dozen stocks at a time cannot concentrate on one... Better to concentrate on one or two stocks and study them exhaustively. You will find that what applies to one does not always fit the other: each must be judged on its own merits. The varying price levels, volumes, percentage of floating supply, investment values, the manipulation and other factors, all tend to produce a different combination in each particular case.

37 What to Trade
The trader must endeavor to operate in that stock which combines the widest swings with the broadest market; he may therefore frequently find it to his advantage to switch temporarily into other issues which seem to offer the quickest and surest profits. It is necessary for us to become familiar with the characteristics of the principal speculative mediums that we may judge their advantages in this respect, as well as their weight and bearing upon a given market situation.

38 Interdependence
The various stocks in the market are like a gigantic fleet of boats, all hitched together and being towed by the tugs ‘Money Situation’ and ‘Business Conditions’. The leaders are first to feel the impulse; the others follow in turn. Should the tugs halt, the fleet will run along for awhile under its own momentum, and there will be a certain amount of bumping, backing and filling. In case the direction of the tugs is changed abruptly, the bumping is apt to be severe. Obviously, those in the rear cannot gain and hold the leadership without an all-around re-adjustment.

39 On Break Even Trades
The trader's problem is not only to eliminate losses, but to cover his expenses as quickly as may be. If he has a couple of points profit in a long trade, there is no reason why he should let the stock run back below his net buying price. Here circumstances seem to call for a stop order, so that no matter what happens, he will not be compelled to pay out money. This stop should not be thrust in when net cost is too close to the market price. Reactions must be allowed for.

40 On Break Even Trades
The trader's problem is not only to eliminate losses, but to cover his expenses as quickly as may be. If he has a couple of points profit in a long trade, there is no reason why he should let the stock run back below his net buying price. Here circumstances seem to call for a stop order, so that no matter what happens, he will not be compelled to pay out money. This stop should not be thrust in when net cost is too close to the market price. Reactions must be allowed for.

41 Always Have a Stop
I know a trader who once bought 500 shares of Sugar and then went out to lunch. He paid 25 cents for what he ate, but on returning to the tape he found the total cost of that lunch was $5,000.25. He had left no stop order, Sugar was down ten points.

42 Trailing Stops
A closer stop may be obtained by noting the ‘points of resistance’ — the levels at which the market turns after a reaction. For example, if you are short at 130 and the stock breaks to 128, rallies to 129, and then turns down again, the point of resistance is 129. In case of temporary absence or interruption to the service, a good stop would be above 129. If the operator wishes to use an automatic stop, a very good method is this: Suppose the initial trade is made with a one-point stop. For every one eight the stock moves in your favor, change the stop to correspond, so that the stop is never more nor less than one point away from the extreme market price. This gradually and automatically reduces the risk, and if the trader be at all skilful, his profits must exceed losses. As soon as the stop is thus raised to cover commissions, it would seem best not to make it automatic thereafter, but let the market develop its own stop or signal to get out.

43 How to Manage an Open Trade
Fear, hesitation, and uncertainty are deadly enemies of the trader. Therefore commitments should be no greater than can be borne by one's susceptibility in this respect. Hesitation must be overcome by self-training. To observe a positive indication and not act upon it is fatal — more so in closing than in opening a trade. The appearance of a definite indication should be immediately followed by an order. Seconds are often more valuable than minutes. The trader is not the captain — he is but the engineer who controls the machinery. The tape is the pilot and the engineer must obey orders with promptness and precision. Uncertainty may be reduced by the use of stops, or by closing a trade whenever one's course is not entirely clear.

44 The Importance of Immediate Trend
We have defined a trader as one who follows the immediate trend. This means that he pursues the line of least resistance. He goes with the market — he does not buck it. The operator who opposes the immediate trend pits his judgement and his hundred or more shares against the world's supply or demand and the weight of its millions of shares. Armed with a broom, he is trying to stay the incoming tide. When he goes with the trend, the forces of supply, demand and manipulation are working for and with him.

45 Stay Out of Quiet Markets
A market which swings within a couple of points cannot be said to have a trend, and is a good one for the trader to avoid. The reason is: unless he catches the extremes of the little swings, he cannot pay commissions, take occasional losses and come out ahead. No yacht can win in a dead calm. As it costs him nearly half a point to trade, each risk should contain a probable two to five points profit, or it is not justified.

46 Strong, High Momentum Moves
A mechanical engineer, given the weight of an object, the force of the blow which strikes it, and the element through which it must pass, can figure approximately how far the object will be driven. So the trader, by gauging the impetus or the energy with which a stock starts and sustains a movement, decides whether it is likely to travel far enough to warrant his going with it — whether it will pay its expenses and remunerate him for his boldness. The ordinary tip-trading speculator gulps a point or two profit and disdains a loss, unless it is big enough to strangle him. The trader must do the opposite — he must cut out every possible eighth loss and search for chances to make three, five and ten points. He does not have to grasp everything that looks like an opportunity. It is not necessary for him to be in the market continuously. He chooses only the best of what the tape offers.

47 Never Move Your Stop
If the operator is shaken out of his holdings immediately after entering the trade, it does not prove his judgement is in error. Some accident may have happened, some untoward development in a particular issue, of sufficient weight to affect the rest of the list. It is these unknown quantities that make the limitation of losses most important. In such a case it would be folly to change the stop so that the risk is increased. This, while customary with the public, is something a trader seldom does. Each trade is made on its own basis, and for certain definite reasons. At the outset the amount of risk should be decided upon, and, except in very rare instances, should not be changed, except on the side of profit. The trader must eliminate, not enhance, his risk.

48 Never Average a Loser
Averaging does not come within the province of the trader. Averaging is groping for the top or bottom. The trader must not grope. He must see and know, or he should not act.

49 Gun for Absolute Profits
It is impossible to fix a rule governing the amount of profit the operator should accept. In a general way, there should be no limit set as to the profits. A deal, when entered, may look as though it would yield three or four points, but if the strength increases with the advance it may run ten points before there is any sign of a halt.

50 Four Reasons to Close a Trade
Trader must close a trade:
(1) when the tape tells him to close
(2) when his stop is hit
(3) when his position is not clear
(4) when he has a large or satisfactory profit.

51 Volume As a Crucial Indicator
The hand of the dominant power, whether it be an insider, an outside manipulator or the public, is shown in ... volumes. The reason is simple. These big fellows cannot put their stocks up or down without trading in enormous amounts.

52 How to Evaluate Volume
Volumes must be valued in proportion to the activity of the market, as well as the relative activity of that particular issue. No set rule can be established. I have seen a trader make money following the lead of a 1000- share lot of Northwest which someone took at a fraction above the last sale. Ordinarily Northwest is a sluggish investment stock, and this size lot appeared as the forerunner of an active speculative demand.

53 Price Factors Everything
So far as the trader is concerned, he does not care whether the move is made by a manipulator, a group of floor traders, the public or a combination of all. The figures on the tape represent the consensus of opinion, the effect of manipulation and the supply and demand, all combined into concrete units. That is why tape indications are more reliable than what anyone hears, knows or thinks.

54 Strength and Volume
The comparative activity of the market on bulges and breaks is a guide to the technical condition of the market. For instance, during a decline, if the ticker is very active and the volume of sales large, voluntary or compulsory liquidation is indicated. This is emphasized if, on the subsequent rally, the tape moves sluggishly and only small lots appear. In an active bull market the ticker appears to be choked with the volume of sales poured through it on the advances, but on reactions the quantities and the number of impressions decrease until, like the ocean at ebb tide, the market is almost lifeless.

55 Don’t Enter after Prolonged Moves
Of course, these things are mere guide posts, as the trader's actual trading is done only on the most positive and promising indications; but they are valuable in teaching him what to avoid. For instance, he would be wary about making an initial short sale of Smelters after a 15-point break, even if his indications were clear. There might be several points more on the short side, but he would realize that every point further decline would bring him closer to the turning point, and after such a violent break the safest money was on the long side.

56 Chances Decrease as Move Continues
It is seldom that the market runs more than three or four consecutive days in one direction without a reaction, hence the trader must realize that his chances decrease as the swing is prolonged.

57 Day Trading
The daily movements offer his best opportunities; but he must keep in stocks which swing wide enough to enable him to grab a profit.

58 The Use of Market Cycles
It is an astonishing fact, and one which we have never before seen in print, that there is a market cycle which runs almost exactly one hour. Watch it for yourself when next at the ticker, and you will find that if an upward movement culminates at 10:25, the reaction usually will last till 10:55, and the apex of the next up swing will occur about thirty minutes later. I have actually stood watch in hand, having decided what to do, waiting for the high or low moment on which to sell or buy, and have often hit within a fraction of the best obtainable figure. Why this is I do not attempt to explain, but it happens very often. I have frequently used this idea as a test of the market's strength or weakness, in this way: If a decline ended a certain moment and the subsequent rally only lasted ten minutes, instead of the normal half hour, I would consider it an indication of weakness and would look for a further decline.

59 Getting to the Bottom of Things
He studies, figures, analyzes, and deduces. He knows exactly where he stands, what he is doing and why. Few people are willing to go to the very bottom of things. Is it any wonder that success is for the few?

60 No One Knows
When a market is in the midst of a big move, no one can tell how long or how far it will run.

61 How to Anticipate Big Moves
When a dull market shows its inability to hold rallies, or when it does not respond to bullish news, it is technically weak, and unless something comes along to change the situation, the next swing will be downward. On the other hand, when there is a gradual hardening in prices; when bear raids fail to dislodge considerable quantities of stock; when stocks do not decline upon unfavorable news, we may look for an advancing market in the near future. No one can tell when a dull market will merge into a very active one; therefore the trader must be constantly on the watch. It is foolish for him to say: ‘The market is dead dull. No use going downtown today. The leaders only swung less than a point yesterday. Nothing in such a market.’ Such reasoning is apt to make one miss the very choicest opportunities, i.e. those of getting in on the ground floor of a big move.

62 Scalping
There are other ways in which a trader may employ himself during dull periods. One is to keep tab on the points of resistance in the leaders and play on them for fractional profits. This, we admit, is a rather precarious occupation, as the operating expenses constitute an extremely heavy percentage against the player, especially when the leading stocks only swing a point or so per day... We cannot recommend it. It will not as a rule pay the trader to attempt scalping fractions out of the leaders in a dull market. Commissions, tax stamps and the invisible eighth, in addition to frequent losses, form too great a handicap.

63 Developing Subconscious Competence
The trader operates on what the price shows now. He is not wedded to any particular instrument, and, if he chooses, can work without pencil, paper or memoranda of any sort. He also has his code of rules — less clearly defined than those of the chartist. So many different situations present themselves that his rules gradually become intuitive — a sort of second nature is evolved by self-training and experience.

64 Discretionary Trading
A friend to whom I have given some points in trading once asked if I had my rules all down so fine that I knew just which to use at certain moments. I answered him thus: When you cross a street where the traffic is heavy, do you stop to consult a set of rules showing when to run ahead of a trolley car or when not to dodge a wagon? No. You take a look both ways and at the proper moment you walk across. Your mind may be on something else or you may be reading your newspaper while crossing — your judgement tells you when to start and how fast to walk. That is the attitude of the trained trader.

65 Charting and Hindsight Bias
Now if charts were an infallible guide no one would have to learn anything more than its correct interpretation in order to make big money. Our correspondent says, ‘after a thorough trial of the chart I find that I could have made a very considerable sum if I had followed the indications shown.’ But he would not have followed the indications shown. He is fooling himself. It is easy to look over the chart afterwards and see where he could have made correct plays, but I venture to say he never tested the plan under proper conditions. Let anyone who thinks he can make money following a chart have a friend prepare it, keeping secret the name of the stock and the period covered. Then put down on paper a positive set of rules which are to be strictly adhered to, so that there can be no guesswork. Each situation will then call for a certain play and no deviation is to be allowed. Cover up with a sheet of paper all but the beginning of the test chart, gradually sliding the paper to the right as you progress. Record each order and execution just as if actually trading. Put me down as coppering every trade and when done send me a check for what you have lost. I have yet to meet the man who has made money trading on a figure chart over an extended period. Any kind of a chart will show some profits at times, but the test is: How much money will it make during several months' operations?

66 Proper Use of Charts
The chart gives the direction of coming moves; the tape says ‘when.’

67 Wide Vision
The trader sees everything that is going on; the chart player's vision is limited to one instrument. Both aim to get in right and go with the trend, but the eye that comprehends the market as a whole is the one which can read trends most accurately.

68 Local Trends vs. General Trends
If one wishes a mechanical trend indicator as a supplement and a guide to his trading, he had best keep a chart composed of the average daily high and low of eight or ten leading stocks. Such a composite chart is of no value to the trader who scalps and closes out everything daily. But it should benefit those who read the tape for the purpose of catching the important five or ten point moves. Such a trader will make no commitments not in accordance with the trend, as shown by this chart. His reason is that even a well planned bull campaign in a stock will not usually be pushed to completion in the face of a down trend in the general market. Therefore he waits until the trend conforms to his indication.

69 Identifying Trend, Range, Accumulation, and Distribution
It seems hardly necessary to say that an up trend in any chart is indicated by consecutive higher tops and bottoms, like stairs going up, and the reverse by repeated steps toward a lower level. A series of tops or bottoms at the same level shows resistance. A protracted zigzag within a short radius accompanied by very small volume means lifelessness, but with normal or abnormally large volume, accumulation or distribution is more or less evidenced.

70 Discard All Mechanical Helps
The proficient trader will doubtless prefer to discard all mechanical helps, because they interfere with his sensing the trend. We advise students to stand free of mechanical helps so far as it is possible.

71 Watching One Market Insufficient
Our correspondent in saying ‘a chart is but a copy of the tape’ doubtless refers to the chart of one stock. The full tape cannot possibly be charted. The tape does tell the story, but charting one or two stocks is like recording the actions of one individual as exemplifying the actions of a very large family.

72 Market Absorption
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. 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 trader becomes in weighing and measuring these elements, the more successful he will be.

73 Range Does Not Mean Reversal
When a stock holds steady within a half point radius it does not signify a reversal of trend, but rather a halting place from which a new move in either direction may begin.

74 Document All Trades
A good way to watch the progress of an account is to keep a book showing dates, quantities, prices, profits and losses, also commission, tax and interest charges. Beside each trade should be entered the number of points net profit or loss, together with a running total showing just how many points the account is ahead or behind. A chart of these latter figures will prevent anyone fooling himself as to his progress. People are too apt to remember their profits and forget their losses.

75 Professional Losses Are Tiny
The losses taken by an expert trader are so small that he can trade in much larger units than one who is away from the tape or who is trading with an arbitrary stop. The trader will seldom take over half a point to a point loss for the reason that he will generally buy or sell at, or close to, the pivotal point or the line of resistance.

76 Big Swings and Large Volumes
The big money in trading is made during very active markets. Big swings and large volumes produce unmistakable indications and a harvest for the experienced operator.

77 What is the ‘Best’ Trading Style?
If his make-up is such that he can closely follow the small swings with profit, gradually becoming more expert and steadily increasing his commitments, he will shortly ‘arrive’ by that route. If his disposition is such that he cannot trade in and out actively, but is content to wait for big opportunities and patient enough to hold on for large profits, he will also ‘get there.’ It is impossible to say which style of trading would produce the best average results, because it depends altogether upon individual qualifications.

78 Trading As a Profession
Trading is essentially a profession for the man who is mentally active and flexible, capable of making quick and accurate decisions and keenly sensitive to the most minute indications... Speculation is a business. It must be learned.

79 Day Trading vs. Swing Trading
A trader might find it both difficult and less profitable to operate solely for the long swings. In the first place, he would be obliged to let twenty or thirty opportunities pass by to every one that he would accept. The small swings of one to three points greatly outnumber the five and ten point movements, and there would be a considerable percentage of losing trades no matter how he operated.”

80 Can’t Tell How Far
Recent trading observations and experiments have convinced me that it is impracticable and almost impossible to gauge the extent of a movement by its initial fluctuations. Many important swings begin in the most modest way. The top of an important decline may present nothing more than a light volume and a drifting tendency toward lower prices, subsequently developing into a heavy, slumpy market, and ending in a violent downward plunge.

81 Wait for a Breakout
The operator should aim to catch every important swing in the leading active stock. To do this he must act promptly when a stock goes into a new field or otherwise gives an indication, and he must be ready to follow wherever it leads. If it has been moving within a three-point radius and suddenly takes on new life and activity, bursting through its former bounds, he must go with it.

82 Re-enter On a Pullback
If the stock rises three points and then reverses one or one and a half points on light volume, he must look upon it as a perfectly natural reaction and not a change of trend. The expert operator will not ordinarily let all of three points get away from him. He will keep pushing his stop up behind until the first good reaction puts him out at close to the high figure. This leaves him in a position to repurchase on the reaction, provided no better opportunity presents itself. Having purchased at such a time, he will sell out again as the price once more approaches the high figure, unless indications point to its forging through to a new high level.

83 Use Volume on Breakout
The more we study volumes, the better we appreciate their value in trading. It frequently occurs that a stock will work within a three-point range for days at a time without giving one a chance for a respectable-sized scalp. Without going out of these boundaries, it suddenly begins coming out on the tape in thousands instead of hundreds. This is evidence that a new movement has started, but not necessarily in the direction which is first indicated. The trader must immediately go with the trend, but until it is clearly defined and the stock breaks through its former limits with large and increasing volumes, he must exercise great caution.

84 How to Move Your Stop
Suppose the operator sells a stock short at 53 and it breaks to 51. He is foolish not to bring his stop down to 51 1/4 unless the market is ripe for a heavy decline. With his stop at this point he has two chances out of three that the result will be satisfactory: (1) The price may go lower and yield a further profit ; (2) The normal rally to 52 will catch his stop and enable him to put the stock out again at that price. The third contingency is that it will rally to about 51 1/4, catch his stop and then go lower. He can scarcely mourn over the loss of a further profit in such a case.

85 Playing Dominoes
Mental poise is an indispensable factor in trading. The mind should be absolutely free to concentrate upon the work ; there should be no feeling that certain things are to be accomplished within a given time; no fear, anxiety, or ambition. When a trader has his emotions well in hand, he will play as though the game were dominoes. When anything interferes with this attitude it should be eliminated. If, for example, there be an unusual series of losses, the trader had better suspend operations until he discovers the cause.

86 No Trend, No Trade
The market may be unsuited to trading operations. When prices drift up and down without trend, like a ship without a rudder, and few positive indications develop, the percentage of losing trades is apt to be high. When this condition continues it is well to hold off until the character of the market changes.

87 Impaired Trading
The trader should be careful to trade only in such amounts as will not interfere with his judgement. If he finds that a series of losses upsets him it is an easy matter to reduce the number of shares one-half or a quarter of the regular amount, or even to ten shares so that the dollars involved are no longer a factor. This gives him a chance for a little self-examination.

88 Tired, Hungry, Horny, or Upset
If a person is in poor physical condition or his mental alertness below par for any reason, he may be unable to stand the excitement attending the work. Loss of sleep, for example, may render one unfit to carry all the quotations in his head, or to plan and execute his moves quickly and accurately. When anything of this kind occurs which prevents the free play of all the faculties it is best to bring the day's work to a close.

89 The Foundation of Strong Trading Psychology
I endeavor to perfect myself in clearheadedness, quickness of thought, accuracy of judgement, promptness in planning and executing my plays, foresight, intuition, courage, and initiative. Masterful control of myself in these respects will produce a winning average — it is merely a question of practice.

90 One Idea into a Method
To be sure it is possible for a person to take a number of the ‘tricks of the trade’ herein mentioned and trade successfully on these alone. Even one idea which forms part of the whole subject may be worked and elaborated upon until it becomes a method in itself. There are endless possibilities in this direction.

91 On Trading “Teachers”
Frequent requests are made for the name of someone who will teach the Art of Trading. I do not know of anyone able to read the tape with profit who is willing to become an instructor. The reason is very simple. Profits from the tape far exceed anything that might be earned in tuition fees.

92 Forming a Trading Character
Even those who get pretty well along in the subject will be scared to death at a string of losses and quit just when they should dig in harder. For in addition to learning the art they must form a sort of trading character, which no amount of reverses can discourage nor turn back and which constantly strives to eliminate its own weak points such as fear, greed, anxiety, nervousness and the many other mental factors which go to make or unmake the profit column.

93 The Game of Speculation
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.