Richard D. Wyckoff「Studies in Tape Reading」(1910)

💹Tape Reading💹

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 makeup. 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.

What is Tape Reading?
This question may be best answered by first deciding what it is not.
Tape Reading 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.

Tape Reading 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 clairvoyancy 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 lightning-like 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 particular stocks and in the whole market, comparing the forces behind each and their relationship, each to the other and to all.

The Tape Reader, from his perch at the ticker, enjoys a bird's eye view of the whole field. When serious weakness develops in any quarter, he is quick to note, weigh and act.

Another advantage in favor of the Tape Reader: The tape tells the news minutes, hours and days before the news tickers, or newspapers, and before it can become current gossip. Everything from a foreign war to the passing of a dividend, from a Supreme Court decision, to the ravages of the boll weevil is reflected primarily upon the tape.

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.

The element of manipulation need not discourage anyone. 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.

The Tape Reader 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 new-formed 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.

A simple pure Tape Reader does not care to carry stocks over night. The tape is then silent, and he only knows what to do when it tells him. Something may occur at midnight which may crumple up his diagram of the next day's market. He leaves nothing to chance; hence he prefers a clean sheet when the 3 o'clock gong strikes.

Having thus described our ideal Tape Reader in a general way, let us inquire into some of the requisite qualifications.

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

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 particular 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; self-control to avoid overtrading and a phlegmatic disposition to ballast and balance him at all times.

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 judgment 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 hesitates; 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 Tape Reader's mind.

The tape tells the present and future of the market. The news ticker records what has happened. It announces the cause for the effect which has already been more or less felt in the market.

Money is made in Tape Reading by anticipating what is coming — not by waiting till it happens and going with the crowd.

The effect of news is an entirely different proposition. Considerable light is thrown on the technical strength or weakness of the market and special stocks by their action in the face of important news. For the moment it seems to us that a news ticker might be admitted to the sanctum, provided its whisperings are given only the weight to which they are entitled.

For the Tape Reader 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.

The Tape Reader generally goes with the trend it is a case of "get on or get   left." By all means "get on."

Better to concentrate on one or two stocks and study them exhaustively.

The market is made by the minds of many men. The state of these minds is reflected in the prices of securities in which their owners operate.

If we stand in a room with fifty or a hundred people, all of whom we know, as regards their chief motives and characteristics, we can form definite ideas as to their probable actions under a given set of circumstances. This would be impossible among strangers.

Successful tape reading is a study of Force. It 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. Anyone who can spot these points has much to win and little to lose.

💹Stop Order💹

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 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.

A Tape Reader is essentially one who follows the immediate trend. An expert can readily distinguish between a change of trend and a reaction. When his mental barometer indicates a change he does not wait for a stop order to be caught, but cleans house or reverses his position in a twinkling. The stop order at net cost is, therefore, of advantage only in case of a reversal which is sudden, pronounced, and with no forewarning.

A stop should also be placed if the operator is obliged to leave the tape for more than a moment, or if the ticker gets out of order. While he has his eye on the tape the market will tell him what to do. The moment this condition does not exist he must act as he would if temporarily stricken blind — he must protect himself from forces which may assail him in the dark.

The ticker has a habit of becoming Accidents incoherent at the most critical points. Curse it as he may, it will resume printing intelligibly when the trouble
is overcome — not before. As the loss of even a few inches of quotations may
be important, a stop should be placed at once and left in until the flow of prices is resumed.

If a trade is carried over night, a stop should be entered against the possibility of accident to the market or the trader. An important event may develop before the next day's opening by which the stock will be violently affected. The trader may be taken ill, be delayed in arrival, or in some way become incapacitated. A certain allowance must be made for accidents of every kind.

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 % 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 Tape Reader 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.

One trouble with this kind of a stop is that it interferes with the free play of judgment. A homely illustration will explain why: A tall woman and a short man attempt to cross a street. An automobile approaches. The woman sees that there is ample time in which to cross, but he has her by the arm and being undecided himself, backs and fills, first pushing, then pulling her by the arm until they finally return to the curb, after a hairbreadth escape. Left to herself, she would have known exactly what to do.

It is the same with the Tape Reader. He is hampered by an automatic stop. It is best that he be free to act as his judgment dictates, without feeling compelled by a prior resolution to act according to a hard and fast rule.

There is another time when the stop order is of value to the Tape Reader, viz., when his indications are not clearly defined. The original commitment should, of course, be made only when the trend is positively indicated, but situations will develop when he will be uncertain whether to stand pat, close out, or reverse his position. At such a time it seems better to push the stop up to a point as close as possible to the market price, without choking off the trade. By this we mean a reasonable area should be allowed for temporary fluctuations. If the stock emerges from its uncertainty by going in the desired direction, the stop can be changed or cancelled. If its trend becomes adverse, the trade is automatically closed.

💹Fear, Hesitation and Uncertainty💹

Fear, hesitation and uncertainty are deadly enemies of the Tape Reader. The chief cause of fear is over-trading. 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 Tape Reader 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 as above, or by closing a trade whenever one's course is not entirely clear.

We have defined a Tape Reader 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 judgment 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.

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 Tape Reader,  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 Tape Reader 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.

His original risks can be gradually effaced by clever arrangement of stop orders when a stock goes his way. He may keep these in his head or put them on the floor. For my own part I prefer, having decided upon a danger point, to maintain a mental stop and when the price is reached close the
trade at the market. If a stop is on the floor it takes time to cancel or change it, hence there is a period of a few minutes when the operator does not know where he stands. By using mental stops and market orders he always knows where he stands, except as regards the prices at which his orders are executed. The main consideration is, he knows whether he is in or out.

The placing of stops is most effectual and scientific when indicated by the market itself.

Arbitrary stops may, of course, be used at any time, especially if one wishes to clinch a substantial profit, but until a stock gets away from the price at which it was entered, it seems best to use the stops it develops for itself.

Averaging does not come within the province of the Tape Reader. Averaging is groping for the top or bottom. The Tape Reader must not grope. He must see and know, or he should not act.

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.

Tape Reader must close a trade
(i) when the tape tells him to close;
(2) when his stop is caught;
(3) when his position is not clear;
(4) when he has a large or satisfactory profit.

The first and most important reason for closing a trade is: The tape says so. He must obey the tape implicitly.

To get the opposite side, let us suppose a manipulator is desirous of depressing a stock. This can be accomplished by offering and selling more than there is a demand for, or by coaxing or frightening other holders into throwing over their shares.

So far as the Tape Reader 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.

Walk into the hilly country and you will probably find a small rivulet running quietly on its way. The stream is so tiny that you can place your hand in its
course and the water will back up. In five minutes, however, it overcomes this
resistance by going over or around your hand. You fetch a shovel, pile dirt in
its path, pack it down hard and say, "There, I've dammed you." But you haven't at all, for the next day you find your pile of dirt washed away. You
bring cartloads of dirt and build a substantial dam, and the flow is finally held
in check.

It is the same with an individual stock Line of or the market. Prices follow the line of least resistance. If Reading is going up Resistance someone may throw 10,000 shares in its path without perceptible effect. Another lot of 20,000 shares follows; the stock halts, but finally overcomes the obstacle. The seller gives another order — this time 30,000 shares more are thrown on the
market. If there are 30,100 shares wanted at that level, the stock will break
through and go higher; if only 29,900 shares are needed to fill all bids, the
price will recede because demand has been overcome by supply.

When a stream breaks through a dam it goes into new territory. Likewise the
breaking through of a stock is significant, for it means that the resistance has been overcome. The stronger the resistance the less likelihood of finding further obstacles in the immediate vicinity — dams are not usually built one behind the other. So when we find a stock emerging into a new field it is best to go with it, especially if, in breaking through it, it carries the rest of the  market along.

These volumes which we have been discussing are least liable to mislead when manipulation prevails, for the effect of manipulator is obliged to deal in large blocks of stocks and must continually show his hand. A  complete manipulative operation on the long side consists of three parts: Accumulation, marking up, and distribution. In the case of a short operation the distribution comes first, then the mark down and the accumulation. No one of these three sections is complete without the other two.

The manipulator must work with a large block of stock or the deal will not be worth his time, the risk and expenses. The Tape Reader must, therefore, be on
the lookout for extensive operations on either side of the market.

Accumulation will show itself in the quantities and in the way they appear on the tape. Having detected the accumulation, the Tape Reader has only to  watch its progress, holding himself in readiness to take on some of the issue the moment the marking-up period begins. He does not buy it at once,  because it may take weeks or months for the manipulator to complete his line; also, there might be opportunities to buy cheaper. Holding off until the psychological moment forces someone else to carry the stock for him — to
pay his interest, so to speak. Furthermore, his capital is left free in the meantime.

When the marking up begins he gets in at the commencement of the move, and goes along with it till there are signs of a halt or distribution. Having passed through the first two periods, he is in a position to fully benefit by the third stage of the operation.

If the big fellows who accumulated Union below 120 had distributed it above 180, the stock would have broken something like thirty Technical points, owing to its having passed from strong to weak hands. As it did not have any such decline, but only a very small reaction, compared to its advance, the Tape Reader infers that Union is destined for much higher prices; that it offers comparative immunity from declines and a possible large advance in the near future.

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 Critical determine the immediate trend. Anyone 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.

This study of responses is one of the most valuable in the Tape Reader's education. It is an almost unerring guide to the technical position of the market. Of course, all responses are not clearly defined. It is a matter of indifference to the Tape Reader as to who or what produces these tests, or critical periods. They constantly appear and disappear; he must make his diagnosis and act accordingly. If a stock is being manipulated higher, the movement will seldom be continued unless other stocks follow and support the advance. If the public is in control of a stock, the other issues should be watched to see whether large operators are unloading on the strong spots. Should a stock fail to break on bad news, it means that insiders have anticipated the decline and stand ready to buy.

The expert Tape Reader is diametrically opposed to such people and their
methods. He applies science and skill in his angling for profits. 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?

💹Dull Markets and Their Opportunities💹

No one can tell when a dull market Watch a Dull will merge into a very active  \one; therefore the Tape Reader must be constantly on the watch. It is foolish for him to say: "The market is dead dull. No use going downtown to-day. 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, viz.,
those of getting in on the ground floor of a big move.

As a matter of fact, dull markets offer innumerable opportunities and we have only to dig beneath the crust of prejudice to find them.

Dulness in the market or in any special stock means that the forces capable of
influencing it in either an upward or a downward direction have temporarily
come to a balance. The best illustration is that of a clock which is about run
down — its pendulum gradually decreases the width of its swings until it  comes to a complete standstill.

These dull periods occur most frequently after a season of delirious activity on the bull side. People make money, pyramid on their profits and glut themselves with stocks at the top. As every one is loaded up, there is  comparatively no one left to buy, and the break which inevitably follows would happen if there were no bears, no bad news or anything else to force a decline.

Nature has her own remedy for dissipation. She presents the debauche with a thumping head and a moquette tongue. These tend to keep him quiet until the damage can be repaired.

So with these intervals of market rest. Traders who have placed themselves in  a position to be trimmed are duly trimmed. They lose their money and temporarily their nerve. The market, therefore, becomes neglected. Extreme dulness sets in.

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 Tape Reader must be constantly on the watch. It is foolish for him to say: "The market is dead dull. No use going downtown to-day. 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, viz., those of getting in on the ground floor of a big move.

For when a stock shakes itself loose from a narrow radius it is clear that the accumulation or distribution or resting spell has been completed and new forces are at work. These forces are most pronounced and effective at the beginning of the new move — more power is needed to start a thing rolling than to keep it going.

"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.

💹The Use of Charts as Guides and Indicators💹

The genuine chart player usually The Chart operates in one stock at a time, using Player as a basis the past movements of that stock and following a more or less definite code of rules. He treats the market and his stock as a machine. He uses no judgment as to market conditions, and does not consider the movements of other stocks ; but he exercises great discretion as to whether he shall "play" an indication or not.

The Tape Reader operates on what the tape shows now. He is not wedded
to any particular issue, 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 chart player. So many different situations present themselves that his rules gradually become intuitive — a sort of second nature is evolved by self-training and experience.

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 judgment tells you when to start and how fast to walk. That is the attitude of the trained Tape Reader.

The difference between the Chart Player and the Tape Reader is therefore about as wide as between day and night. We do not see how the chart
follower could mix Tape Reading with his art without making a hodge-podge
of it. But there are ways in which the Tape Reader may utilize charts as guides and indicators and for the purpose of reinforcing his memory.

💹Detecting Accumulation and Distribution💹

The Figure Chart is unquestionably the best mechanical means of detecting accumulation and distribution. It is also valuable in showing the main points of resistance on the big swings.

Let anyone who thinks he can make money following a Figure Chart or any other kind of 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 Make a 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 Rollo Tape down as coppering every trade and when done send him 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?

Its value to the Tape Reader lies chiefly in its indications of accumulation and distribution. These frequently (not always) warn the operator in advance of an important move and put him on the watch for the moment when either process is completed and the marking up or down begins.

The chart gives the direction of coming moves; the tape says "when."

This shows clearly the advantage of Tape Reading over chart playing. The Tape Reader sees everything that is going on; the chart player's vision is limited to one issue. 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 this trend most accurately.

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 zig-zag 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.

💹The Volume Chart💹

There is a style of chart which was originated by "The Analyst," it being Chart
especially adapted to the study of volumes. The following rough sketch will give an idea of it: When made to cover a day's movements in a stock, this chart is particularly valuable in showing the quantity of stock absorbed at various levels.

There is another form of chart which is sometimes valuable in detecting the
beginning and end of a manipulative campaign. It is based principally on
volumes and affords a ready indicator of any unusual activity in a stock. The
scale is set at the side to represent the volume and the vertical lines are drawn to show the number of shares for the day. A plus or minus sign at the top of each vertical line may be used to indicate a net advance or decline for the day. Some people add to this an oblique line to show the range for the day.

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 Absorption 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 hotter 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 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 which are transpiring every moment of the day. His stock may start upward with a rush —apparently there is 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 obsorbed, or some unforeseen incident may change the whole cormplexion of the market. The Tape Reader must be quick to detect such changes, switch his position and go with this newly formed trend.

His second loss was made on a trade which involved one of the finest points in the art of Tape Reading, viz., that of distinguishing a rally 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 rally 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.

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.

There is no reason why the Tape Reader should not make long swing trading an auxiliary profit producer if he can keep such trades from influencing his daily operations.

The real Tape Reader is apt to prefer a clean slate at 3 p. m. every day, so that he can sit down to his ticker at the next morning's opening and say, "I have no commitments and no opinion. I will follow the first strong indication." He would rather average $100 a day for ten days than make $1,000 on one trade in the same length of time. The risk is generally limited to a fraction and having arrived at a point where he is showing even small average daily profits, his required capital per 100 shares need not be over $1,500 to $2,000.

Every movement of the market and of each stock passes through stages corresponding to those in the life of an individual, aptly described by my old college chum, Bill Shakespeare, as "The Seven Ages." The Tape Reader
aims to get in during Infancy and out at Old Age.

Usually a movement gives signs when it begins to totter.

💹Volumes💹

The more we study volumes, the  better we appreciate their value in Tape Reading. 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 Tape Reader 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. The reason is this : If the stock has been suddenly advanced, it may be for the purpose of facilitating sales by a large operator. The Tape is the most suggestive thing in the world. A sharp
rise of this kind induces a number of people to buy; their buying attracts
others and as the tide swells it carries all before it until everybody throws
caution aside and jumps in. Thus we see a cross section of a pyramid formed by outsiders working en masse. A legitimate movement of this kind
will frequently run several points. The large operator who wishes to unload a block of stock or put out a big line of shorts, creates an illegitimate move,
inducing others to buy and making a market for what he wishes to dispose
of. The best way to distinguish the genuine from the fictitious move is to watch out for abnormally large volumes within a small radius. This usually evidences washed sales and other manipulations. The large volume is simply a means of attracting buyers and disguising the hand of the operator.

💹The Public💹

This was a case where the stock was put up before being put down, and the
Tape Reader who interpreted the move correctly and played for a good down
swing would have made considerable money.

We frequently hear people complaining that "the public is not in this market," as though that were a reason why stocks should not go up or the market should be avoided. The speaker is usually one of those who constitute "the public," but he regards the expression as signifying "every outsider except myself." In the judgment of many the market is better off without the public. To be sure, brokers do not enjoy so large a business, the fluctuations are not so riotous, but the market moves in an orderly way and responds more accurately to prevailing conditions.

A market in which the public predominates represents a sort of speculative "jag" indulged in by those whose stock market knowledge should be rated at y&. Everyone recognizes the fact that when the smoke clears away, the Street is full of victims who didn't know how and couldn't wait to learn. Their  plungings produce violent fluctuations, however, and in this respect are of advantage to the Tape Reader who would much rather see ten-point than three-point swings.

To offset this, there are some disadvantages. First, in a market where there is "rioting of accumulated margins" the tape is so far behind that it is seldom one can secure an execution at anywhere near his price. This is especially true when activity breaks out in a stock which has been comparatively dull. So many people with money, watching the tape, are attracted by these apparent opportunities, that the scramble to get in results in every one paying more than he figured; thus the Tape Reader finds it impossible to know where he is at until he gets his report. His tape prices are five minutes stale and his broker is so busy it takes four or five minutes for an execution instead of one or two
minutes.

In the next place, stop orders are often filled at from small fractions to points away from his stop price — there is no telling what figure he will get, while in ordinary markets he can place his stops within % of a resistance point and frequently have the price come within % of his stop without catching it.

So it is a question whether, all things considered, the presence of the public
is a help or a detriment to successful Tape Reading.

💹Stop Orders💹

The ways in which one may manipulate his stops for protection and advantage, become more numerous as experience is acquired. Remembering that the Tape Reader is operating for a fractional average profit per trade, or per day, he cannot afford to let a point profit run into a loss, or fail to "plug" a larger profit at a point where at least a portion of it will be preserved.

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.

It is also a question whether, in such a case, the trade had better not be stopped out than closed out. 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. If it is your habit to close out everything before three o'clock daily, the stop may be placed closer than ordinarily during the last fifteen minutes of the session, and when a sharp move in the desired direction occurs, the closing out may be done by a stop only a fraction away from the extreme price. 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.

💹Scalping on Both Sides💹

There is nothing more confusing than to attempt scalping on both sides of the market at once. You may go long of a stock which is being put up or is going up for some special reason, and short of another stock which is persistently weak. Both trades may pan out successfully, but meantime the
judgment will be interfered with and some foolish mistake will be made in four cases out of five. As Dickson G. Watts said, "Act so as to keep the
mind clear, the judgment trustworthy." The mind is not clear when the trader
is working actively on two opposing sides of the market. A bearish indication is favorable to one trade, and unfavorable to the other. He finds himself interpreting every development as being to his advantage and forgetting the important fact that he is also on the opposite side.

It is much better if you are short of one stock and see another that looks like a purchase, to wait until you have covered your short trade (on a dip if possible), and then take the long side of the other issue. The best time for
both covering and going long is on a recession which in such a case serves a
double purpose. The mind should be made up in advance as to which deal offers the best chance for profit, so that when the moment for action arrives there will be nothing to do but act.

This is one great advantage the Tape Reader 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 e mg m 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.

Tape Reading is the only known method of trading which gets you in at the beginning, keeps you posted throughout the move, and gets you out when it has culminated.

It is an art in which one can become highly expert and more and more successful as practice and experience sandpapers his work and shows him what to avoid.

💹Obstacles to Overcome💹

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 Tape Reader 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.

Following are some of the obstacles which are likely to be encountered :

1️⃣
One may trade too often. 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 to-morrow in case to-day's opportunities do not meet requirements.

2️⃣
Anxiety to make a record, to avoid losses, to secure a certain profit for the day or period will greatly warp the judgment, and lead to a low percentage of profits. Tape Reading 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 Tape Reader'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.

3️⃣
The market may be unsuited to Tape Reading 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.

4️⃣
One's broker may be giving poor service. In a game as fine as this, every fraction counts. Executions of market orders should average not over two minutes. Stop orders should be reported in less time as such orders are on the floor and at the proper post when they become operative. By close attention to details in the handling of my orders, I have been able to reduce the average time of my executions to less than one minute. The quickest report obtained thus far required but twenty-five seconds. To the best of my knowledge this is a record for New York Stock Exchange executions of orders given from an office.

5️⃣
The Tape Reader should be careful to trade only in such amounts as will not interfere with his judgment. 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.

6️⃣
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.

Some of my readers think it futile to aim for a fractional average profit per
trade when there are many full points per day to be made by holding on through days and weeks and getting full benefit of the big moves. Admitting that it is possible to make many more points at times there is a risk of losses corresponding to the profits and the question is not how much we can make, but how much we can make net.

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 from %toY2 point away, so that my risk is limited to this fraction plus commission and tax. 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 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.

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.

Read everything you can get hold of. If you find but a single idea in a publication it is well worth the time and money spent in procuring and studying it.

Frequent requests are made for the name of someone who will teach the Art of Tape Reading. 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.