.Division 2 4, t 2

. ,. 9.

A COURSE OF INSTRUCTIONdi-3

IN h\ .TAPE READING AND ACTIVE TRADING 4.

=4j . ^ L lR-Y.

..+%!-q

C O P Y R I G H T 1932

RICHARD D. WYCKOFF, ON ENiw York.

TABLEOF CONTENTS

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34445678991011

INTRODUCTION

JUDGINGTHE IMMEDIATETRl#fDBuyingand SellingWavesWave Chartof the Leaders

BUYINGAND SELLINGWAVES- PART II

HOW TO LINK THE WAVE CHARTWITH THE STOCKIN WHICHYOUiWE TRADING

A VerticalLine Chartand ContinuousLine Chart

TRM)INGAREASAND HOW TO PROFITBY THNMTradingArea of AuburnMotors

THE TAPE READINGCHARTTapeReadingChartof J. 1. Case

HOW TO SPOTTHE BUYINGAND SELLING POINTS WITHIN A SMALLFRACTION

JUDGINGSTR$NGTHOR.W3AKNESS

HOWTO KEEP PERCENTiiGEIN YOURFAVOR

TRADINGON INITIALACTIVITY

mGING THE MARKETBY TESTSAND RESPONSES

THE BEST STOCKSFOR ACTIVETRAI)lNG

STOP ORDERSAND OTHERVITALPOINTSJud@ng XQur FtficimcyTradingin UniformLotsDow-Jone$AverageflTradingon PaperTradeat the MarketPut a Time Limit cm Your TradesQualificationsof a SuccessfulSpeculatorlhvmrAsk AdviceFallacyof AveragingCapitalRaquiredHow Prc)fitsAccumulateWhereto TradeChoiceot BrokersStudyyour Losses

Copyright1934 by RichardD. Wyckoff,Inc.

SEC. P.

12 12

Cs 1w 1Cs 3Cs 5Cs 7CsCs 1?

PractiaePersistently

CHARTSTUDIESAmwriad Telephoneat Bottomof ReactionAmericanTelephoneat Top of RallyAlliedChmical at Bottomof ReactionAlliedChmicd at Top of ~lyJ. 1. (laseat Bottomof ReactionAmericanCan CombinedwithFiveLeaders

00URSE

J@du Ction.section1.

UMiM the#Mlrtl

section3.

Trading&QML%section4.

Tane Readinggi&$.i& ~.

cop~igllt1932

SUMMARYOFTHE RICHARD D.IOFINSTRUCTIONIN TAPE READING

Generalprimiples involvedinthe minorfluctuations.

WUXOFFAND ACTIVE

tradingto

TRADING.

takeadvantageof

Basingjudgmenton impartialanalysisof avai.lab~efactginsteadof ill advisedimDUJPeSa

How to internrettam actio~and learnto make YO1.W OWll&Q&3mn cknt d%$cidon~ with a highdegreeof accuracy.

How to constructend~terrm% a Wave Chart.

The selectionofstocksthatrefli]ct.loadorshinand haveo=Q~~~~ c CIIWAI.LtYL

How to detectthe minor pricesurgesand estimatetheirsignificance.

How to recognizethe symptomsof a reversalof the trend.

How to employthe barometricquality of the Wave Chartinjudgingthe trendof the individualstockwhordnyou aretrading.

How to operatein harmonywith the Law of Supplyand Dwand.

The general significanceof c,tradingarea and the exception-al tradingopportunitiesit may offer.

How to judgewhethera stockin a tradingareabecomesb~~ ish OXbearish.

How to decidewhen to tradecloseto the dangerlinewithrelativelysmallrisk.

Correlationof price movement,volumeand time.

How to interpretthe fractionalpricechangesand the var-iationsin volumeduringminorfluctuations.

The logical1imitatims of risk and readjustmentof stopQZ!@Xk

How to recognizeconditionswhermlnderthe risk maY be 1Lmitedto a $Mlaufr~ction.

by RichardD. Wyckoff

andEQJFJdU

Section6.

iiwmimlorSection7.

S63ction9.

section 10.

Best StocksFor ActiveTrading,Section11.

2-- -.

How to so~.tthe buyingand sellinglevelswithina smallfraction.

How the marketis _nun&y 1 Eivinrinformatia~to thosewho COIlgoad the ~

HoW to avoidover$txa the market.

How to WQ MD Y@+lra d what to do at the turningpoints.

Recognizingthe evidencesof technicalstrengthor weakness.

Whet constitutesa normalrallyor rco.ction,and why.

How you may @NelQn Your jUMment so thnt accumulatingsymptomsof strengthor weaknessbecomerecordsof subconsciousmemoryrad resultingd~ciaons are Vhtud.lY intuitivcl,

How to ld.mi~,roducqand elhinatq the risk.

How to Lnsur@Your PM its,

How to developa tradingpolicywhereinrisksare consistentwith probableprofits.

The generalsignificanceof incrensedLctivitY.

How to interpretchangesin the degreeof activity.

The imnortance of volumewxzes in tradingzonesandfollowingth$ formationof an apex.

HOIJthe operatorteststhe technicalconditionof the market.

How the individualtradermay secure,withoutexpense,the ben-efit of the largeoperators testsof the marketsstrength.

Linesof resistanee; how to recoznize themand profito..ccordingly.

How to observewhen the marketis in an overbou~htor oversoldcondition.

How

Thethe

How

to recognize evidenceof manipul~tion.

significnnccof the marketsresponseto news itemshavingelementof surprise.

to selectthe best stocksfor fictivetrading.

Recognitionof changingleadership.

The importanceof uverngepricer:mgemd its relutiontoflo:~tingsupply.

Copyright1932 by Ri.chmd D, Wyckoff

-3-

Use ofStop Orders.Section 12.

MiscellaneousVital Points.Section 12.

ChartStudies.

The advantage of familio.ritywith the chief characteristicsof leadingj active issues.

HOW and when to use stop orders.

The scientific location and road.jus+,mentof stop orders.

Substitutes for stop orders.

Judging your efficiency.

Consistent trading policies.

hlh?rr)r~t~t~on of the averages.

Testing your trading ability without monetary risk.

~b~arketorders vs. limited orders.

Limiting the duration of a trade.

How to avoid the dangers of ill-advised ad~ice and tips.

Dangerou~ pitfalls and kiov~ to avoid them.

HOIWto select your broker and judge his efficiency.

Tape reading charts of leading active stocks and tP.eirinterpretation.

Typical trading maneuvers illustrated, wiih comentsjsuggestions and explanations.

How to recognize the termination of a reaction, and thesubsequent buying signals.

How to recognize the termination of a rally, and theusual indication of impending reaction.

How to use the combination trading chart and wave chart ofbarometric letadcrs.

Copyright 1952 by Richard D. Wyckofft

TAPE READING AND ACTIVE TRADTNG

For the three to five-point moves

with risk limited to

one-half to one-point

The majority of those who follow our Method devote an hour

day, more or less, to studying and planning their campaigns. But we

have learned that an increasing number wish to trade in the market

continuously, either in their brokers offices or in private offices

of their own, equipped with a ticker and other facilities. From these

traders we have received many requests for further detailed information

on Tape Reading; and as the technique of active trading from the tape

is different from that outlined in the first part of our Course, we

have prepared the following to meet the requirements mentioned.

This Division of our Course of Instructionj like the First Divi-

sion, is based on judgment of the technical position: Supply and demand --

support and pressure.

No news, earnings or other corporate or fundamental statistics

are considered; we use only tho~e which relate to the factors: Price

Movement, Volume and Time.

The active trader who is a Tape Reader is concerned only with

Copyright 1932 by Richard D. Wyckoff TR Section 1 Page 1

the immediate*rendof the smallmovesin the murket. This trendcan be

detectedby thisMethodsoona.i%er~hc openingof the StockExchangeat

ten o~clockdai~g It may changefrom bQUsh to bmrish, or vice versa$

and reverseitselffrom one to threetimesduringe.whdays session.

We instructsuch tradershow to followthesetrends,changing

or reversingtheirpositionsas oftenas the marketaffordstradingoppor-

tunities.

In most instancestradesare closedout the sameday theyare

made,but i??thereare strongreasonsfor carryingany stockovernight,

thismay be done.

Detailedinstructionsare givenas to the best stocksto choose

and the exacttimeto make commitments,basedon methodsformulatedand

successfullyemployedfor over twentyyearsof tradingand advisorywork.

Stop ordersare placedon every trade,from one-halfto one point

awayfrom the buyingor sellingprice. Thesestopsmust be constantly

watchedsnd movedas quicklyas the marketpermitsin orderto reduce

risk,thenprotectprofits.

This form of tradingdisregardsthe long trendof the market,

as well iisthe intermediatetrends. It takesinstantadvantngeof the

technicalralliesand reactionsthatpromiseto yielda profitin the

same stockmarketsession,on eitherthe long or the shortsideof the

market.

-M * *

Tape Readingis tho art of determiningthe immediatecours~or

trendof pricesfrom the actionof the marketas it appearson the tape

of the stockticker. It mims to detectthe mows that are Lik@y to occur

Copyright1932 by RichardD. Wyckoff TR Section1 Page 2

in the next few minutes or hours; gettingin when they beginand getting

out when they culminate.

It requiresactivityand flexibilityof mind;readinessto change

or reverseonesopinionquickly;slsonerve,poise,decision,promptness,

courageand absoluteindependenceof judgment.

Its purpos~is to derivean averageprofitfrom a seriesof trades.

By keepingthe riskdown t~ a minimumand constantlystrivingto reduceit;

by clevermsmipul.ationof stoporders,a net profitover comiwission~,taxes

and lossescan be realized.

All commitmentsare temporary-- theirdurntionis

ited to hours. They are intended to take advantage of the

ate fluctuations.

with this

(andwork for your

preferto go home

Method you, as a trader, search for your

usuallylim-

small,imm@i-

opportunit.ies

profithare and ~-- today. In mo~;tcasesyou will

with a clesm sheet -- with no commitments orI either

sideof the market. Thus v:hen you start trading nuxt morning your mind

is clearfor new impressions;your judgmentis unbiasedby reasonof your

neutralposition.

At eachmo.rninglsopeningyou make

sensethe trend;decideon the best stock,

a swiftanalysisof the market;

and if conditionsare favorable,

you make your commitment.Thenyou watchthe marketfor a confirmationor

contradictionof the correctnessof your position. il.1.so for the psycholog-

ical. moment for noving stops, closingtrades or crowding stops so close to

the market price that you leavethe way openfor n furtherprofit,or you

are closedout on stopat a smallfractionfrom the extremehigh or low.

Tradingthus, you are afforded several times as many opportun-

Copyright 1932 by Richard D. Wyckoff TR Sectior~1 Page 3

itiesin thesesmallswingsw you wouldhave if you wz~itedfor the more

importantswingsof ten to thirtypoints.

If a tradedoesnot make goodat once,you closeit out,whether

it standseven or at a smallloss. You will nevertradewithouta stop,

foryour risk must be kept down to a minimum. You will nevertakea big

loss. You will neverbe tiedup. You can claanhousein an instant.

And you can stayaway from the tickeras oftentandas long m you wish.

This form of tradingis entirelydistinctand dlffcrentfrom

thatdescribedin the otherMvi.sionof our Method,whichaims to secure

profitsfrom the ten, twentyand thirtypoint swings. It meetsthe re-

quirementsof thosewho wish to trademore or less constantly.

Includedin thisDivisionof the Courseis a plan for charting

the detailedtransactionsin certainstocksas they appearon the tape,

by which you can sense the immediatetrend;figurethe exactpointsfor

placingyour stopordersand whereta move them to reduceriskwhen the

marketgoesin your favor. It showsyou how to C1OEWyour tradesthe

sameday at the most advantageousmomentsby watchingtheseTapeRead-

ing Chartindicationsand gettingout near the extremepointsin the

advancesand declines.

Under tlzisMethodyou mighttakenew positionsfrom one to

threetimesa day, dependingupon the activityof the market. It is

the nearestappronchyet devised,so far as I know,to tradingon the

floorof the StockExchange.

But the most importantadv,ontageof a combinationof Tape

Reading end tradingfor the longorswingsis thatit will aid you in

increasingyour profitsin thisway: Sections11 and 12 of the First

Divisionof our Courseshowhow to determinewhich stocksshouldmove

Copyright1932 by ~chard D. Wyckoff i%SectionL Page 4

threetc fivepointsin a certaindirection. You applythe TapeReading

Methodin makingyour trade:ltthe most favorablenoment,and the poGi-

tionyou then takewith a smallrisk of one-halfto one pointmay later

developinto Position2 on the long side,or Position4 on the short

side,and in{dicutea run of ten,twentyor thirtypointsin your favor.

By thus tradingwith a fractionor a pointoriginalrisk and letting

your profitrun into the many pointsindicatedin your forecastof the

probabled3.stancein points,you will greatlywidenyour marginof profit.

For this reason,theseTapeReadinginstructions,combinedwith our lcmger-

swingplanwill materiallyenhancethe profitpossibilitiesin bothDivi-

sionsof the Course.

Copyright1932by RichardD. P?yckoff

,JUDGINGTHE IMMEDIATETREND.

For thispurposewe use a Wave Chart,made up of the priceof

five of the most activeleadingstocks. The pricesof theseare added

togd+her,and plottedon a sheetof crosssectionpaper,with the time

scaleat the bottomof the verticallines, and the pricescaleat the

left,correspondingwith the horizontallines. Specimensheetfollows.

All movementsin the marketare made up of alternatingbuying

and sellingwaves. We judgethe strengthor weaknessof the market

by the distancein pointsand fractionsrecordedby thesewaves;we

combinethis distancewith the lengthof time eachwave takesto run

its course.

In studyingthe distanceand durationof eschwave,if the buy-

ing wavesare longerin durationand travelfartherthan the selling

waves,we get an indicationthat the immediatetrendis upward. If

the sellingwavesexceedthe buyingwavesin timeand distance,the

immediatetrendis downward. Wheneverthe buyingand sellingwaves

seemto offseteachotherond no material.strengthor weaknessis in-

dicated,the immediatetrendis in doubt. Our positionshouldthen

be neutral.

Selectthe five leading stocks. At the openingof the market

add the pricesof theirfirstsales,includingthe fractions,which

shouldbe addedin eighths. Put a mark at the pricerepresentingtheir

totalat the properplaceon the price scaleand on the 10 otclockvor-

Copyright1932 by RichardD. Wyckoff TR Section2 Page 1

ticalline. Next wretchfor eithernn upwardor downwardswingto ex-

haustitself.When it smns to stop,put u dot on the chartat the

propertime and priceleval. Xf the marketthen reverms its direc-

tion this prows that tiw po$$tionof the dot is correct. If it goes

on in the sa@@direction,chmmgethe dot until the movementagainhesi-

tatesand sh~w~siguoof a reversal.

Them watchthe new waveuntilit seemsto cam to an end. Place

the dot, TM marketwill confirmcm contradictyour estimateof that

turningpoint. And so on untilyou are thoroughlyfomilinrwith judg-

ing and recordingthe start,durationand finishof each successivewave.

The ~mmediatotramdis Lndicatodas soanas one buyingand one

sellingwave havo been complwtmd.You thenknow on which sideis the

mostpower-. the buyingor the sailingside. And all you have to do is

to go with that tiido.

But you must alwayshe on the lookoutfor a changein thisimmedi-

ate trad. It is likelyto chmge its directionfrom one to threetimes

in n singleEMZlswion.Thio is how you datectthe change: In an up trend,

when the selung wavoabeginto increasein time and distancesor the

buyingwavw mhorten. E$$heror bothwill be an indicationof a change

in the immediatetrend. Applythe sam reasoningto a dom trend. Watch

closelyfor thesechamgesfor they tellyou when to buy and sell;when

to get long or short;when to closeyour presenttradeand reverseyour

position. IhUtherdetailsare on thQ chart,Page 4-A.

Rmmber you havenothingto do with the othertrendsof the

market-- d.thar the long trendor tlw intermediateswingsof 10 to 30

points. The latterswingsare the basisof the FirstDivisionof this

Coursein Sto@kMarketSci.ancaand Technique. Tradingfor such wings

is .anentirelydifforentproposition,reqwiringless time and attention,

Copyright1932 by Rial%mxlD. Wyakoff l% Sect&on2 Page 2

but havh$

uatmg2 m

Wtv$eC1kmrt

AJtht$qgh the buying or tlm mmdag WLWQB &ay M $nmic$snt on

certaindays to carrythe marketin e certaindirectionuntilth~ close,

thisdoes not man thatit will eontimm to dc so the next day. And it

do%nnot fnmn thatyOU $hotidWLmy

Tomorrowf 8 trendwill dofim its~f

any tmdtxi overnightfor

in the sameW~. Lnd it

to go into tommrow~B ses$iomwith any stockson handunlem

this rmwn.

is bestnot

threeis acme

extrmrdintqf reason in the action of the market. Such a rcmon wouldbe,for example,a strongdmmkapmnt of powerMar the beginningof what looks

like an %mportAntbull or km swing,$mlicated~ increasingactivityand

volm in a @ten direction~with scamdy any pointsof llesitntion,or

ralb$ or reac$im$ ZM the mm may be. In suchinstonces,a longpmition,

for exmpla$ mightbe allow$xito run with R frequentraisingof stopsso

thata tmdo originallymd~ with a half to one pointstopmightrun into

mvmal or many pointsand thu$ixmrmso the net averageof profiton all

yo@ tra$wlfor the month. Full advantageof sucha situationmy be

takenby them who understandcw IWthod of +awUnfg for the largarstings

and cm forecm% the probablemmiimr of

anc$Ba tradeis Xnadoon $dW Str(wagth of

@A$ well may from the startingpoint,

points certainstocksshouldmove.

dimctiarm hmd.n, and its price

and imdicate&,accmding to the

othatMvisim of our Methodsthatit will probabLydmmlop a move of

M to 30 pm!.ntsethe traderU.owflhia profitto run accordingto instruc-

tiOXiS, and lmg#!profitsshouldrm~t.

The Wawo Charttwdwm Tape Reading. Afteryou have used it for

a while,you ~ not need it. Yom aye and brainwill seo and record

Copytight1932 w E4idmrdD. Wgckoff TR Section2 Page 3

the wave

you have

CM&t too quicklyand do not mpoct intuitionto comeuntil

had long wpmienca and much practice.

***

Tho fiveleaders$hculdalwaysbe repr~sentativeof tho market.

At timeswhm a leading railhu~ considerableeffectit shouldbe in-

cluded. At othertimesa ut$ll,ty,like ConsolidatedGas,mightcoae

to the front;it shouldtak~the placeof somootherleaderso long as

this ColditicmLmate. Selwtion of tlwse leadersmay btilikenedto ob-

smwingtho pullingpowerof a &oup of fivehorses: If you ware driving

t?nwh a groupamd you naticmione horselaggingin tae tr~aeasnd another

alwaystu@.mg aheadof the rw$t,you wouldat oncedecidethatthe fcxmr

shouldba r@l.acedand that the Iattw is the real leader. Applythis

roason$ngin Ice@ping your fivm leaders amcmgtho most reprosmtative of

all the stock~in the mark~tin theirabilityto influencethe rest of

the list. Keep weiglxtngthe$Qfrom day to day. Wood out poor ones,

whichmmns thosethathaw lost theirinflucance,or have becometoo in-

activeto be included.

**-W

Chartof the previousday shouldbe beforeyou when

so thatyw get the relationof todaytsmarketto that

of ywterday.

Copyright193$? by Fti.chwd D. Wyckoff TR Section2 Page 4

-4

\

BUYINGAND SELLINGWAVES

(IhelVaveChart-PartII)

In the FirstDivisionof our Courseof Instruction,Section

4, we presentedPart I on the use of the Wave Chart. The materialin

Part I di~cussasin somowhatgreaterdetailthe instructionsset forth

in TR Section2 of the Second Division;therefore,it may be substi-

tutedfor this last-namedSection. Or, if you prefer,you may remove

PartsI and 11 from theirpresentbindersand placethornin a separate

loose-leaffolder. You will then havea completetextbook on the theory

of the Wave Clurtas I havedevelopedand expandedit.

On pages 7 to 9 of Part I, I showedyou how to interpretthe

Wave Chartfrom the standpointof pricemovement,durationof each buy-

ing and sellingwave,and comparf.i.tive supportor pressure. The follow-

ing illustrationwill showin more detailhow to applythe additional

factorsof volumeand activityto your analysisof the smallwaves.

Copyright1934 by RichardD. Wyckoff,Inc. TR Section2-A Page 1.

Fl 340335FIG.1

In thisillustration(Figure1),

it will be seenthatvolumeand activity

both shrinkto very smallproportionson

the littlebuyingand sellingwavesfrom

10 olclockto 1:40P.M. The day starts

with a smallrallywhichis promptlyfol-

lowedby a smalldip. Bullsand bearsare

evidentlywellmatchedat thispoint.

Afterthe firstdip (Period2), the bulls

try to put pricesup, but theyfail to at-

tracta following,as shownby the failurein fnctjht thereit iS iKI ~ nutshell. Do not let its

brevitydisguim its value.

When you see the runn?agcw!workingback and forthover a trad-

ing area,you till genmnlly findyour individualstockdoingthe same.

Not always,however. All stocksdo not move alike,ss you know. Your

zavarage~may be in a tradingzoneund otherstocksmay have small,medium

or wide wings withoutaffectingthese. Your stockmay not be included

in the+averaga$;whetherit is or not, rememberyouare tradingin q

X and not in the averages.

The upperand lowerboundariesof thesetradingswingsrepresent

the points(at the tops)wheresupplyovercomw demandand (at the bottoms)

wheredemandexceedssupply. Unlessthe actionof your stockindicates

(bymethod$we shall.explain)thatit is goingout of its presenttrad-

ing range,youm purchasesshouldbe mado aroupclthe bottomsof these

shortswingsand your sales~long or shart~around.the tops. This seems

a simplething,but very few peoplecan do it. That is becau8etheyhave

not had the properinstruction,or thqyhavenot studiedand practiced

it. We will showyou how to do this accordingto our Tape ReXiingChart

the most perfeatmethodthat,ao far an we know,haa ever been dwised

for thosewho tradefrom the tape,in an office,or on the floorof the

StockExchange. If one is a mmbcr of tho Exchangeand cun tradefrom

the tape on thtifloor,thiswill be found,allthe more valuable. It is

qlained in Saction5 of thisDivisionof the Ccur8e.

Mmntinc conaidorthe positionof a singlestockwith its move-

mentsplottedon the !&we Chart,and in connectionwith its location

Copyright3932by Riahmd D. Wyckoi3? TR SQctlon& Page 2

in it#3 trading area. lf it it3 0- b@tVJW#Ek 30 @Ud 35 ~ ShC@dglvs incmcu!k%g atlmtiom to its bwy$mgopportawaitim a$ it approaches

30,and its su~ m it n8arS 35. lhidtdcms not meanthat you are

to buy or EoU at or near $hcm paints, Imt that you are to watoh

out for CMUMMMfor profit inticati by the action of your atmk on the

WaveCkrt, ax@ on the Tapa Ramiing Chart referred to above. You nevar

know, when a atmk appmacbw the upper or lower level$ d a trading

rangs vkthar, this time, it will go on through; so you do not take a

poaition until you have all the fmts awmmbhd, i.Q., transferred

frm tha tape to yaur Wave Chart and your Tape Reading Chart.

* * or Mttom is a small turning point, and even a small

one maydevelop into one that is important.

Cop~ght 1932by Ftidmd D. W@koff TRSIWtion~ Page3

TRADINGAREAOF AUBURNMOTORS

DURINGMAYANDEARLYJUNE,1952ILLUSTRATEDIN LINECHARTFORM

SHOWINGACCUMULATIONIN PRWARATIONFORAN ADVANCE.

CONFIRMATIONOF TRENDX INDICATEDBY THECORRESPONDING

TAPEREADINGCHART

w

50

APRIL /WA Y ~UfVE

Copyright19$52by RichardD. Wyckoff TR Section4 Page3-A

THE TAPE REAl)UW

It iEltwanty-fivayearssince

WART.

I firstbeganto fmocaW the

owing movemmts of the mrket from its own actionas it appearedon

#* tapeof the stockticker. M&ny mmorendawere mcessary at the

bqinnirig, bwt

duced q notm

tim possible.

as I developedeffioimcyin thisart,I graduallyre-

and chartsto a minim, wheneverI found sim@ifica-

It &$ one thingto learnto read the tapeand to develop

therefromonors$@mnt md intuition,and another to teachother

peoplehow W do it, makingeverythingperfeotlyclearand practical.

I have dooid~dthat tho ~wsiestway form to teachand for you to

learnTape R8ading

dmwibed bdOW.

This Chart

Vohm and l%m in

is by mmns of the Tape ReadingChartwhichis

CQIUIXLIMWthe three wkttil fttctow PriceMovexmmt,moh a ww thata tradercan see at a glancejust

what a certa$nstockis doing?howit

tions;the valumeof-a; the

cldmm?;the proportionof tha rallies

aats on the rallies and retac-

progressof the advancesand de-

ad rmotdms to previousswings)

the lines of! mpply and dmand; the best

M6MUM of d63C$dillgwhen to U!OV9 stops

fact,combimm, on one page,most of

TapeReader.

It cm be kept on a sheetof

oblomgin

(33p&i#rt

the

locationfor stoporders;the

how far, etc. This Chart,in

indicationsrequiredby the

crossewtion paper. If thisbe

-- of th fiveleadersand of a

TR t%ctin 5 PqB 1

single stick-- can be kept on the samesheet,so thata complete

pictureof the marketmay be had in combination with tho TapeReading

Chart. If severalindividualstocksare charted on separatesheets

in thisform,the WavQ Chartcan be recordedon a sheetof transparent

paper,half this sire,so thatIt can be laid over any individualstock

chartin oral@to see how that stockis actingin comparisonwith tha

five haders.

Let UEIstudythe

the specimen~heetwhich

Canstrnctionof

follows. This

this Tape

dmuld be

binderand kid besidethis textin orderfullyto

placations.Tho Charthas a price scaleat the left. The full figures

ReadingChartfrom

takenout of the

understandthe ex-

are in one column and the fractionsin the next. The figuresrecorded

in the chartareprice, When the

in at the proper

the totalnumberof sharesdeslt in at each fractional

pricechsnges,the volumeat the newprioe is filbd

levelon the chart. WNn a prhe is skippeda cipher

is @nt@redat the fract$onwhere thre were no sales. Now watchthis

pointvery carefullybocau$eon it

in makingW9 kind of a chart;it

get it clearlyinto your mindyour

saleat a certainprice,you enter

#are 18

Cohmn.

Imtz$at

blankspaceat the pH3pW

dependsyour gettingthe rightstart

is simpleenough,but ifycnado not

chartwill not be correct. Aftera

the next salein the w _ u

level,aboveor below,in that same

But if that spacesaboveor below,be filled,you make the

the next vacantspace~~-. This will b~ perfectly

clearwhan you go over the folkowingdetailedexplanation.

Your Chart,recordingthe movementsof J. I. Case beginsat

10 A. M. with totalsaibsd 300sharesat 4.0, This%)0 mi$ht h8Ve

beenmade

Cqlymq$lt

up og severallot~;so long aa scalescontinuedat thatprice

1932bYRicbiIwd m wpkm TRSecti43m5 Paga 2

thaywere addedtogetherand recordedall at oncemen the mice than~ed,

Not until tnendo you know thattharewill be no uore salesat thatprice

for the moment.

The ne$ctsaleis 100 at 40-1/4. As thcxwwereno salesat 40-1/8,

a cipheris enteredat the 40-1/8level,and the figure1 is enteredon

tha 40-1/4I.inB.Now you have threefiguresin the firstcolumn 9 on

the 40 level;O on the 1/8 leveland 1 on the 1/4 level.

The nsdctsaleis 40-1/8,only 100 shares;next 200 at 40. These

two figuresmust go in the secondcolumnas the firstcolumn5.sfilled

on thosetwo levels;next sale40-1/8(100);then200 at 40-3/8(O on the

40-1./4level);then 100 at 1/2;no salesat 5/8; a totnlof 2100at 40-3/4;

none at i$o-7/8~ 200 at 41.; norm at 41-1/8;200 at 41-1/4;200 at 41.-3/8.

All theseitem@were recordedin the thirdcolumnbecausethe advance

continuedstre4.ghtup to 4.3.-3/8withouta singlefractionalreaction.

The next tremmction is 100 at Q, so in the fourthcolumnwe

must anterO on the 41.-l./4and 43.-1/8levels. Next s~.e100 at U-U8*

As the spaceabove the previoussoleis alrenclyoccupiedby u cipherwe

must enterthibin the next column,and when the followingsaletakes

pkacaat u it goes justbelowthe previoussale-- in the samecolumn.

with that exphnationas to how to startkt?cping& chartofthiskind~

whichis redly Q l/8-pointfigurechart,combiningvolumeand price

movoment}I WW proceedwith the instructionsas to how this cmt

shouldbe used in actualtradingand forecasting.

On JaKNWY19, 1932,Case opensat 40. Our positionis neutral.

We wish to make n tradoon eitherthe long or the shortsideas soonr-s

Copykight1932by RichardD. Wyckoff TR Section5 Page 3

the stock sham a tendency. Let us as~ume that the indications on the

Wave Chart sow after tlds opining were bullish, but that we wish to

wait until the stock itself has givsn some sign of a definite tendency.

There may be an opening bu%ge M.rt this may not be its true direction,

00 we shall wsit until the indications are definilm enough to promise

a worthwhile swing. We allow1/2 a pointfor commissionend taxes,so

it is best not to go into a trade

points. If we had the background

wouldknow be~terjustwharethis

that dotsnot promisethreeto five

of the previousdsylstrading,we

stockstands;but startingfrom scratch,

We must wait ~til the stocktellsUS what it is probablygoingto do be-

forewe make a commitment.

In learningto read thesecharts,it is best to cQverwith a

sheetof papermost of the chart,sxposingone columnat a time ~

drawingthe sheett the right. In this way there is 10ss temdamcy

to form judgmqptson the basisof what alreadyap~)earson the chart.

ThisMethodnqy be followedin a studyof all formsof charts,care

beingtakennot to see the goncralformationin detailbeforestudy

is

at

at

begun.

Afterthe

@-1/~; 100 at

opening 900 Aares at 40--

l/8; 200 at 40; 100 at 40-1/8;

40-1/2; and a total of 2,100 at 40-3/4. Then

the tape shows 100

200 at 40-3/8; 100

200 at &l; 200 at .

4=/4; 200 at &3/8 -. R rise of 1-3/8 from the opening. Tho re-

actionrecordedby 100 sharessellingat 42.marksfor the presentthe

boundaryline of that tradingrangeof 1-3/8 for the day so far. We

do not wish to take a positionuntilthe stockclearlyindicatesthat

it is goingout of thatrange. TO tradewithinit mightnot giveus

enoughroom to turn aroundin, and PW

Comght 1932 by Richard D. Wyckoff

l/2-point for overhead.

TR Section5 Pago 4

Next the tape records 10(3 at &l-1/8 j 100 at @; 300 at &l-1/8;

300 at 43.;300 at 41-1/8j 100 at 41-1/4;200 at 41-1/8;100 at 41-1/4.

The tradingrangehas narrowedto 1/4 of a point; we are still in doubt.

Next saleis 3000at 40-3/4-- a sign of weakness, becausetherewere

no salesbetwaen43.-1/4and 40-3/4;thisindicates@ thinmarket. Next

900 at 40-5/8;800 at 40-1/2;500 at 40-3/8;300 at 40-1/4. Those sales

total 35OO shaxes,all takenwithinthe rangeof 40-3/4down to @-1/4.

Hereis same a%rength,but it may mean only temporarysupport. The chart

must tellus what the insidersare tryingto do with theirstock. Are

they supportingit becausetheywant to sellat higherprices,or do they

r@wXlywant to acquirea lot of the stock? They take 900 at 40-1/2,mak-

ing@ aroundthatlevel;then300 at 40-5/8;WO at 40-7/8;and 1000

at 43. That is 6,OOOmhareaon the way down to 40-1/4and up to Q. That

dossnot lookMke tnqhg for the sakeof accumulation.If they really

wantedthis stocktheywcWd not have bid up for it; theywouldhaveput

it down. So hereis our indicationthat the pool is tr@ng to selland

not to buy. We form a tentativelybearishattitudeand wait for the

marketto confirm,cancelor reverseit.

The biddingup proceeds~400 at 41.-l/8;600 at 41-1/4;1.400at

41-1/2. Now the pricestundsat a new high for the day whichhas the

appearanceof an artificialbulgemade by the pool in order to attract

outsidebuying, It required8400 shams to be takenin orderto advance

the stockl-1/&points. Thisis not bullishbecauseof the way theydid

it; tkrefore, bearish. Unlessthis stockgoes on upwardand its volume

increasesas it advancos$we are lookingfor a chanceto go short.

The tapenext records700 at &L-3/8and 400 at 41-1/2;then

(k)pyright1932 by RichardD. Wyckdf TR Section5 Page 5

400 at &b3/8. So far the rise is checked. Tk poolor someoneis

tryingto sell,for tha tape sqm $00 at 41-1/4;then100 at Q and

400 at 40-7/8, Thisis a half-wayreactiorIfollowingthe bulgefrom

40-1/4 to 41-1/2. Thik reactionconfirmsthe checkingof the rise and

narrowsthe tradingrangeto 5/$ -- between40-7/8and 41-1/2. We

shouldgo with the stockwhan it goesout of that range;thatis, we

shouldsellit shorton a bulge,andaworing to get as high a price

as possibleso as to keep our riskdowm to a minimum. Remmber that

we are tradingnow with a 1/2 to 1 pointstop end it wouldbe betterto

lose opportunities,becausethereare plentyof them,thanto be so eager

to tradethatwe takean a risk largerthanthe dove.

There$s a rallyof 3/8 on a single100 sharesat 41-1/4. It

looksllke a m@c-up ~ the specialist,or an odd lot houseMy#mg to

Won up. Another100 at 4&l/8, them600 at Q. The stockis heavy.

W look for a rallyon whichto sell. Thisis confirmedby the next

sale700 at i&3/4, whichis lJ8 underthe previouelow; then MOO at

40-7/8j200 at Q; 100 at &l/8 -- decreasingvolumeon the rally.

- w a m _ Q M ~d we get & for it. we ~t a l-point

stopat 42 [in$icatedby an S) in the 42 space. 300 sharesmore are

soldat thatpkice~makingit 400, followedby 100 at 40-7/8snd 800

at 40-3/4.

The chartnow has a slab-sideddownwardformation,made by sever-

al lemming tops. A rallyto 41.1/4occurs cm lightvolume,confirming

the prwious b$arishindic~tion.Someoneelse triesto sell.300 and gets

Q foxit, folkowedby 100 at @-7/8. The l/4 pointrallywhichfollows

at &l/8 is the weak~atya%. Then comes300 at Q; 200 at 40-3/4;100

at i@-5/8-- a now fractionallow on the down ting sinceit made 41-1./2,

Mtt30 dwmnd at the low level. (lhddo the stockis bid up 5/8 snd

1300 shareschangehandsat 41-1/4.It looksartificial,particul.mly

when a quickslumpto 40-5/8follows. Now observe1/8 pointrallyto

4&3/4j a returnto the 40.5/8low on 100; anotherweak rallyup to @(n lowertop)3 then t!m real slumpbegins.

When the stockreaches40-1/2we reduceour stopto 41-1/2--

our riskis only 1/2 of a pointnow, for overhead.

Thereis only one rallyof 1/8 on 100 sharesat 40-3/8. Then

a new ).OWat 39-3/4;anoth~rrallyof 1/8 on 400 shares to 39-7/8;

thena new low at 39.1/2.Note that the volumeincreasedon the down

side. Therewere only mall lots soldin the upper40s. More sub-

stantiallotswere soldmound 40 and under. Add the salesat 39-3/4

acrossthe page horizontallyand you find they

thesetakingsare not sufficientto absorbthe

dip to a new low -- 11OG at 39-3/8. When this

* to 40-1/$.

are 4400 shares. But

supply,as provenby a

Ocxmrs~-QJ&

The declinecontinuesanother3/4point with a totalof 2300

at 39, and a low levelof 38-5/8,then200 at 38-3/4;200 at 3~7/8;

100 at 38-3/4;600 at 3g-5/8;then a 1/4pointrallyto 38-7/8. Note

thatofferingsare gettingvery thinhere;that is, the volumemound

this levelis light. When the stockagaindips to 38-5/8,we bringour

stopdown to 39, becausewe do not want it to rallyeven1/8 abovethe

38-7/8levelwithouttakingour profit.

and we must not let thatprofitget awe.y

with a cleansheet. Thereis a rallyto

at 38-3/4;@O at 38-7/8and500at 39.

have our profitfor th~ day.

Our initialriskwas 1 point,or

Copyri@t 1932 by RichardD. Wyckoff

It is gettingtoward3 otclock

fromus if we went to go home

38-7/$on 100 shares;then100

Thiscatchesour stopemd we

1-1/2allowingfor overhead.

TR Section5 Page 7

dewere able to reducethatrisk to 1/2 point,then reduceit to nothing--

the flatpride (meaningthe priceat whichit was sold);then to 40-1,/8

whichassureda 7/8 grm!$ ptofit;then to 39, whichwas 3/8 from the

dayslow, at whichpricethe tradewas closodwith a net profitof

1-1/2points.

Thereis a littlestockfor saleon the closingrallybut we

get no cue fnom it for the next daylssassion;M fnctjwe would

rathernot carryany impressionshone withus as we preferto have

am unbiasedopinionwhen the marketopensin the morning.

***

Note: A numberof otherchartsand interpretationsof thiskind will befoundin the ChartStudies,followingSection1.2.Additionalstudias will be addedlateron. Many detaihd instructionsinChartReadingare includedin Mvision 1 of thisCourse.

Copyri&@t 1932 by RichardD. Wyckoff TllSection5 Page 8

.

--

i

TAPEREADINGCHART

OF J. 1. CASE JAN. 19, 1932

In FigureChartFormShowingEach l/8 PointMowWithVolumeat EachPrice

UNIT OF VOLUME= 100 SiARli3

HOW TO SPOTTHE BUYING

WITHIN A SMALL

AND SELLINGPOINTS

FRACTION.

Numerousexampleeas to how this shouldbe doneare foundin

the explanationsof the TapeReadingC!harts.But thereare some

finepointswhichmay be made a littleniore

this: V/emust learnto anticipatethe high

dayismovesby assemblingin our minds,and

factorsthatpointto a certainconclusion,

clear. One of theseis

and low spotsin the

from the chart,all the

and if this conclusion

is justifiedat what we believeto be the rightmoment,it becomes

a commandto lx%de. Thusit will be seen that thereare two important

steps: makingthe diagnoaisand actingupon it.

The marketis cdnt$nuallygivinginformationas to its tech-

nical.position. It does thisthroughthe Wave Chart,whichfdrmsyour

background,and forecaststho immediatetrend. It givesfurtherin-

formationas to the particularstockin whichyou are tradingif you

will plot a Wave Chartof that stockon the sane sheetwith tha Wave

Chartof the fiveleadingstocks.

all the littledetailoif you will

stockon the same sheetas the two

In additionto the above,you get

keep the Tape ReadingChartof that

Wave Charts. With thesethreeand

your eye on the tapeyou am well equipped.

Thus fortifiedtherewill be no reasonto buy on bulgesand

sellon wmk spots;for$in this form of trading,theseare not oppor-

tunities to m&e profitsbut to make lossQs. If you sellon weakness

with a shortstopyou increaseyour chances of havingthat stop caught.

Oopyright1932 by MoW D. Wyckoff 1RSection6 Page 1

But if you forma beariehconclusionand mit for z bulgeon whichto

tie your position,the chancesfavora profit. All suchtechnique

must be takeninto consideration.You must mieavor in everymy to

increasethe percantagoin your favor.

Ono of the nest importantways of doingthisis to learnto do

your buyingon whatI call the drivedown;thatis, duringa selling

wave end at ju$tabouta minutebeforethiswave ands-- whilethe

pressureis on~ not wha you see it hesito.to,but a minutebefore

that,beccuscit takesa minutefor your orderto get into the crowd

and be executed. (Ifit ttakosmore than th:.~ton the average,your

brokeris slowor he has too much businesson hand to giveyou the

rightexecutions.)

Sellingon the driveup is justas important. Most of the

bulgesin a stackare made by pools,specialists,manipulatorsand

floortradersto induceoutsidersto buy. If you lenrnto spotthese

play$,you have all thwe interestsworkingfor insteadof againstyou.

Take advantageof the pl,ablictstendencyto buy on bulgesand

sellon wwkneas by doingthe reverseof this. It is betterto get out

too soonthan to overstay. The publicusunllyoverstays.

Watch the Y?aveChartfor your cue. If you expectto buy, and

the five leadersare showingan up trendfor the timebeing,wait for

the sellingwave. Look back and see how long the previousdownwave

lastd; judge~ thatand the actionon the tapeabouthow far thisdown

wava will go, Watch the Wave Chartof the individualstockycJuare trad-

ing in, almo the TapeReadingChartfor volumes,comparativestrengthor

weakmss, and 41 the othertechnicalpointsmentionedin chartinter-

pretation. Learn to combineall thesevariousLndicationainto a sound

Copyright1932 by Fu.cmrd D. Wycdmff IllSeetion6 Page 2

conclusion,and when you hmvemade it, timeyour

momentwhenyou givethe order,just as you time

to hit a golfball correctly.

stroke;thatis, the

your strokein order

Watchfor the pausesthatmark the end of the buyingand sell-

ing waves. They indicatethatthe forces that producedthe wave have

cmhaustodthemselves. For a mouentor two, evenin a fairlyactive

market,the tiokeris quiet. Theseare likeperiodsat the end of

paragraphs;a naw phaseof the tapetsstoryusuallyfollows.

V?hena stockhesitatesit notifiesyou thatit has lost its

momentumin the directionin whichit has been traveling. YOU should

thenquicklymnkeup your ruindwhetherit is advisableto buy or sell

or moveyour stoporder. Any haltmay be the finalturningpoint

thatmove. If you have studiedthe FirstMvision of this Course

knowhow to judgethe distancewhicha stockshouldmove,you are

in

and

well

fortified;you can more easilydi6tin@sh the haltingplacesfrom the

probableturningpoints. Thereare more haltingplacesthan turning

points. The periodsof hesitationusuallyindicatea reversalof

temporarytrend. They also oftenmark the beginningof a nsw trading area.

Everymove startsat the end of a previousmove. If thereare

indicationsth~tthe comingmove will be important,take advantageof it.

If thereare no suchindications,let it pass.

Alwaysbe expectinga change. Be constantlyon your guardand

readyto closeyour tradeat the firstsignof danger. (Seeillustra-

tionsin the TapeReadingCharts.)

Even WBenyou havemovedyour stopcloseto the marketpricefor

your ~tock,t~ to do betterby sellingon a strongspotor buying on

w%ahmas if yow reallydesireto closeyour trede.

Copyright1932 byltiohardD. Wyokoff TR Sectian6 ?age 3

When am upwardor dawnwwd move is losingaoraeof its forceit

will be indicatedby a shorteningof the upwardor downwardthrustsas

shownon the T@e ReadingChart.

NeverXes,chfor a stockaxceptin somecaseswhereyou are pyra-

midingand have a substantialprofiton paper. Even at such timesthere

is frequentlyan opportunityto buy on CLreactionaftera breakthrough

on the up sidesor a rallyfollowinga breakthroughon the down side.

Copyri@xt1932 by Ridmrd D. ?@kdf TsRSecWcm 6 Page k

JUDOXNG

We do not

Sl%WWTHORWSAKWWSBY

subscribeto the thf30~

equalin the Stockmarketbecausev#Jhave

in a prmcticalway. Evenif it were trne

see how one couldmake any moneythere~.

gainedby watchingthe half-waypointson

for judgingst#engthor weakness.

m w WAYpoINTS.

that actionand reactionare

rarelyfoundit to work

in the stockmarket,we

But thereis advsntage

out

do not

to be

rallies

When a stockadvancestwo pointsand then

may be calleda normalreaction;but if it reacts

givm us an indicationof strength. If it reacts

thereis sn indicationof weakness. Used in this

and reactionsas a basis

reactsone point,it

less than a point,it

more than a pointP

ways with the half-

way point as a sort of measuring stick, we can really derivean advantage

Thisis provenby the numerousexamplesexplainedin the text acccmqmny-

ing our Tape RaadingCharts.

Other signswhichmay be includedunderthis head are thoseex-

treme caseswhere,aftera movement

direction,Q reversemovementtakes

all of the precedingmove. A stock

greaterthanthe sellingpower;but

of say threepointsin a certain

placeto the extentof all or nearlyA

advancesbecausethe buyingpoweris

if it doesnot hold this advcwe: if

it immediately reversesand losesall or most of what it has gained,this

tellsus that ~omeoneet once took advantage of the strengthand soldthe

stockback to its starting point by offering more shares than the buyers

were willing tO accept.

co-t %932 by FNdMu@ TRSa4#3n 7 Pa&&i1

The saxwillustrationmay be appliedto a raidor drivedown

of say threepo$ntsmore or less,folhwsd ~ a recoveryof practically

tie sameamount. ThisiB a signof strengthbeoausethe reboundshowed

thattharewas more Wam@h thanweakness. This signis more bullish

thanbearishbeqausethe sellers,hming spenttheirforce,are met and

ovwx%xneby the buyars,who, at the momentof completionof the recovery?,.,

are in a comparativelystrongpodtion. They have takenall offerings

on the way down and whataverstoodin theirway on the advance. The

floatingsupply~s thus reduced;unlessfurtherofferingsappearhigher

up thatthey are not MJM.ng to take,the way is thenopen for a still

further advance.

Studyand learnall thesetechnicalpoints. Considereve~-

thhg that appearson the tape as an evidencaof supportand I.Mting

power,or pressureand sellingpower. Continuallycomparethe strength

of theseforces. Use all th~ judgmentand reasoningpowerat your

command. Endeavorto improveyour judgmmt by constantstudyand prac-

tice. Striveto liftyour Judgmmt from commonplaceto good;from good

to better;from betterto excellent.

When your judgmentha~ becomeexcellentthroughyour own efforts

mkwmborthat

tion; so that

psycholckgiml

you can carryit to a higherpointby trainingyour intui-

aftera whileyou wLLl get the pulseof the marketand the

momentfor tradingdown to sucha finepointthatyou can

form conclusionswithoutconsciousreasoning.You can learnto act on

theseintuitiveconclusionsamd tha go back and chackup your recsons

in orderto find out how goodyour intuition$@ becoming.

Copyfi$ht1932 by Riehatrd D. Wyckoff TRs&?ctiom7 Page 2

MM TO KEEP A PEWEMTAGEIN YOURFAVOR.

Thisis accomplishedchieflythroughthe IMtation, reduc-

ticmand d.iillh~tiOtl af risk. Thatswum: (1) You must immediately

placea stoporderas soonw eachn~ tradeis executed. (2) You

mast move thie stopto reduceyour risk as soonas the marketwill.

permitwithoutendangeringthe lifeof your trade. (3) You must

furthermove the stopso as to covorthe priceat whichthe trade

was made,end (4) you must move your stop stillfurtherwheneveryou

havea chanceto insurethme~ a part or most of your profit. These

four stepsare vitalto this form of trading. Unlessyou carrythem

out cold-bloodedly-- withouthope or fear -- and persistentlyand.

with determination,you will greatlyreduceyour chancesfor success.

Baaedon your intentionof tradingfor the swingsof 3 to 5

pointsthat occurin a dny!s session,or perhapstwo or threedaysin

succession,your riskis kept down to a smallpercentageof your pros-

pectiveprofitby placingstopOrders1/2 to 1 pointawey;but %fyou

shouldfail to use thesestopsin the way indicated,you are positive-

ly incraesingthe percentageof your risk.

At 1/2 pointr$sk and 3./2pointfor commissions and otherover-

head?you can bo wrongtw$ceout of threetimesif you realizeon the

thirdtradea profitof threepoints. Your two losseswouldbe 1 point

each,or a tdal. of 2 points,includingoverhead;the thirdtradewould

carryan overhoadof 1/2 point, making 2-1/2. Henceyour net profit

wouldbe 1/2 pointon the threetrades~

On a W30ratical.1 pointriskwith

you are wrongtwicefor 1 pointeach time,

a 5 pointobjective,if

thatwouldbe 2 pointslost.

Iiyour profiton the thirdtradewere

duct the two losses(2 points)and the

wouldtotal14/2 points,making3.1/2

5 points,you wouldhave to d+

overheadon threetrades,which

pointsdebitand 5 pointscredit;

a net of 1-1/2pointson the threetrades;or an averageof l/2-point

on eachtrade.

We do not claimthatyou cen make cut and driedtransactions

likethis,but we emphasizethe pointthatyou mustkeepyour los~es

plus overheadin suchproportionto your profitsthatyou will have a

mar@.nto the good. This whc)leplan for activetradinginvolvosbuy-

ing rightand sellingright,and lettingtradesrun in your favoruntil

you observetechnicalindicationsthat theyhave gone as far as you can

reasonablyexpecton the strengthof

whichyou startwith anticipationof

severalpointsand helpyour average

On the otherhand,your risk

your diagnosis. Thus many a trade

a pc~intor two profitmay run into

profitfor the week or month.

is strictlylimitedfrom the start;

it is ~evor increased. It is frequentlydecreased.Many timesyou can

plug a profitwith a stoporderso thatit cannotget away fromyou.

Thereinliesyour expectationfor success. You aim at n largerprofit

thanloss in everytrade. You keep a percentagein your favor.

Rememberthatwe have by thismethodeliminatedall guessing;

all tradingon tips,hopes,hunches,hearsay,news,information,sta-

tistic; snd thatwe are tradingon the basisof stockmarkettechnique

whichhas its rootsin th~ law of suppQ and demand,the onlyreal funda-

mental on whicha

copyright1932w

soundmethodmy be

Richard D. Nyckoff

based.

J%section8 Page 2

TRADINGON INITIAL ACTIVITY.

Deciding upon the stock in whichto trademay sometimesbe

done tQ adventage by letting the marketitselftellyou thathere is

an opportuni~.

You watchthe tqpe. You have no commitments.

of the five leadersis beforeyou, on a sheetof chart

Your Wsve Chart

paper. You make

mentalnote of the pricesthatare flowingacrossthe Tape or Translux.

You wait for impressions.

Suddenlyyou noticea certainstockgettingactiveon the up

or down side. If it is movingin harmonywith the trendof the five

leaders,you immediatelytakea positionin it, long or short,with a

stop1/29 3/4 or 1 pointawqy. Thenyou go back over the tape and make

a Tape ReadingChartof it from the openingor from some r@uonabh dis-

tanceback. Iithe high and low pricesare on the quotationboardbe-

foreyou,you ean mark theseon the left sideof your chartas a guide

to the daytsr≱thenif you have a verticalline chartof that stock

in your collectionyou cen see whereit stands;whetherit is in a narrow

tradingrange,or movingout of it on the up or the down side,heading

towarda new level.

Your incentiveto tradeis due to the fact that this stockwhich

has been idlingalongin a very narrowrangeand with smallvolume,is

now becominga~tive. lhisactivitymmn~ that somebodyis gettingbusy

in it and

Copyri$lt

you inferthathe may be in pomswmion of informationlikelyto

1932~ RZchmrdD. Wydw)ff !FRSection9 Page 1

MlLwrm sup$dy m dummd or thatits t$dkmiml positionis suchthattheyWlleve theyc-anmoveAt to aao4#mxMval ad realisea profit.

You, thereforq,hop m th@ etm!kmd Ad% along with whoever iS en-

glnm%ng the Imve. l!hw you hmre him workingfor you. You are tak-

ing a ride,M to spedq m a qmz%al traincharteredand pUd for by

mmane @lse.

Your Mpe ReadingGhartwill giveyou all tie details. You mu

judgenot onl#by what he does but & what he dom not do, for it must

be yuur first precmut$m to see thathe is not makinga falsemove %n

the appositedirectiontowmd whid he intendsto melm his P*. That

ia$ he may be pl- a down wing, eo M first bids the stockup a

po$mtor twc in orderto attracta followingof buyersto whomhe can

13ella largerquantity-- -eitheron the my up or beginningat the top

and mZIAng it back. If he intendsto bull tho stockhe may driveit

dawn firstso as to CMMII out the stop ozdersbelowond mcum all the

stockhc can find aroundthe 2017 kvel. Hence you must be on your guard

tith your stoporderfor it ia ymr onlyprotectionagainsta sudden

revoraaland a big 10SS.

If, hawever,the aperatm is reallybull$ngthe stock(or bear-

ing it, ae the casemy be) d raullygoes on with the deal the my he

startedit, your stoporderis safe,so long aQ you do not gd it up too

closeto the priceof the @ock so thatyou are kickedout on a small

reaction. Keepyour stopat a safedistance- on the wl aide below

the bottom of the lastdip, and on the bear aideabovethe top of the

lad rdly$ untilthe timouppmmlm for 404ng the trade.

Watchjnmr !l%p Re_g -t, W watchth@ trendof the five

lmdera to mako sure* we not iticatimg a turningpdnt in the dayss

MmYri$kt 1932 by lMh@rd D. WyckMf ~ &3CtiiO139 pA&i 2

thn Iwy bwk again

WMIMWlws on the

Y@lM!

thwl to buy

Cmb on the

Im3aom ttw th$m *8 that the C)permtor will

h faaaof indlomt$onsthatthemarketisd@Nrmry,ho wi2Aprdtdity do justwhat I

probably not con-

aboutto sell

am tailingym

a~ @W his #tQok a suddan6*; themsell.Outsllhe Carl80 86 to

ZW3UW Ms line and thus providepurohming poworaroundthelowpoint

of tha! OomingReading Cha?t

These

dip. You follow hi$ IM3W8 closdy andwhen your Tape

#!MlJV3he $a bW@JI~ th#M bSCk,buy -6 baok.

paintain tradingare bwed on standardpracticeamong

-pert floort@@Qrs,pml managersand otherimportantoperaknwwho

knowthegame. If you expectto make money,youmustnot tradothe

waythepublicdoes;yQU mwt wb marelybuy, sit and hope, You must

@ $n and out at th rightmoments,tradingthe way warlmttach-

nieiam do.

It mwt be your codxnt aim to refineand poli~ ywr jud~

mont w thatyou will be able to keep yourulndclearandunbiasedand

firm yet flexible+Hsverbacomoprejudicedin fmm oftiemarket, for if you do you will b like a shipthat

to &hwQ on high tido and is strandedthere.

vw to pqwxw for tradingopportunitieson initialc&Av-

@t yOUrOQMWUd a k??$erwmborOf V@l%iCC.~~ine ChWtS

Thisdoes notmoanthatyouwillhaw to makethe dmily

Qntriea on a large rmmbn yartmlf al? through your .cmim?mt, foryow

TR$$wlwm9 lhgs4

JUDGINGTHE WIKE1BY TEGTSAND RESPONSES.

Next he tmtw out Steel, Tdepbne or Can in tho sam my. He

gat~ somefoULowingin Cam, a littlein Telephoneand nothiiigmuch in

Stiel. Them he triesout the utikL~ groupand getsa Mttie more em-

courqp#m@ltOP the bull side,

From $his seriesd? teatshe now knows

maxwethe marlmtby bullingCan. liefeell?lout

that he can b~st ad-

the other stocks that

sometimesr~spondti the loadarshipof Can so as to get help or at

laaatsupportfrom othorBectionsof the market. He f2ndsa little

mbre

gcml

most

avoids

hand.

rmponse in otherindustrialsend wlwm he has thesesizedup he

aheadand bullsthe ones that showthe N3st rwqxmse -- Want seem

to inflw$ncethe rest of the Lh3t.

Olwwre thathe followsthe

bullingthe railsMcauao he

He dm$ not want to take big

his way; Sonmlne elm am 40 that.

Une of leastresistance.He

wouldtherehAve to play a luno

~OCk8 Of StO&@ I?hi&h standin

He advamcss$ha ones that are easi-

est to put up whilerequitingthe mnlhst purchmes on MS part. After

a while the mnallMl&s whichhe has producedW MS testingopmations,

followed~ the mom activobiddingup of a Mm@@rnumbarof stocks,m-

ccnlregefloortradmraand the publicto get in on tho bull aide. Am

ixmwasing mwber of stiochadvame on expandingvolumeand a buU mlmg

of sub~tantialproportionsis underwqy.

The C. O, furtherencowagaJsthis bullishness~ helphg along

wharovorhe O*. If he w#s ca%ain stQckBor groupelsgging,he will

senda brokerinto thosecrowdsto bid themup. If wealmcssbrwdcsat

anywhere, he WJJJ1give support. As a good generalhe is alwaysemdaam-

ing to hold & $inesagairwt attaok and to advauaehis frontMnes (tops)

as far as he @mm.

@W%@t 1932 by RkWMWd IA Wywoff TR Section%0 Pago 2

Supptase the bull $vting has now Wan runningfor severaldays and

afterd.%ingup the situation~ a swi3s of tests,he findsthatthe

buyingpowerhas temporarilybecomesomewhatexhaustmd;thatis, most

of the peoplewho couldbo influcmcedto go in and buy imvedone so;

they csnnotwend that samemoneytwicennd thereis a scarcityof

otherbuyers to take theirplaces. Demandhas shrunk.

Ho rlOQ#SU@i$?Y WiWtWcX the marketwill take;hc WIUS fill

ho cxin around the top of the swingand on the way down. If the rise

in the cwra~s has amountedto 10 points,he may keep on sellinguntil

it has declined6 points;then

not by biddingup thasQstocks

he may beginto

but takingthem

buy backwhat he has sold--

as theynre offered. Out

of 1,000 sharesofferedat ,atort.ninpri,cehe may take 600 or 700l~i~v-

ing 300 stillofferedsnd the marketunchanged. His reaccumulationis

not apparent. Tho marketis stillhecvyalthoughhe is buyingback on

the reaction.

Aftera whilehe absorbsmost of the floating

abouthalf way back from the top. The sellingpower

supplyat a level

is now lessening;

in fact,he is unableto buy back all ho wants;so he drivesseveral

stocksdownwardto weakenthe marketso he can completehis purchases

on the reaction. Thesedrivesare alsohis txxjts.Whilothesestocks

are weak,othorsadvancea littleas a resultof his raisingbuyinglimi-

ts. Thus the averagesare scarcelyaltered. Peoplewho are bearish

pointto the few weak stocksand decidethat the marketis goingmuch

lower. They make some

to buy more. He takes

With the bears

ventures on the short side. Thesehelp the C. O.

theiroffarings.

makingno progressand no more stockpressing

for sale, the market is now in a position technically known as Itsold out!!

Copyright 1932 byl?iiahwd l?. Wyckoff TR Section10 Page 3

for 12M timebeing. AU the offerings of thosewho sold on the way back

from the top are now absorbed;h@nce,for the n~t five pointsup -- on

the averages-- thereis littleoppositionto an advance. The C. 0,

thereforeadds to his limos,b@ng as careM.ly as he can, to ae not

to advancepl?iCfi?S.

Afterthe averageshave recoveredabout3 pointsout of the 5

theylost,ha has replacedaboutQIl the stockhe wantsand beginsa

rapidbiddingup of pricesall aroundthe room. The marketadvances

to the levelof the previoustop. Here R lot of thosewho boughtat

thattime ,nndwho held throughthe reactionplacesellingordersso

they can get out evenor at a smallprofit. Thismakesa lot of activ.

ity and narrowswingsaro~d the old top and chartobserverssay: Here

is a doubletop;we shouldsell shorton this. But the C. O. finds

thatthe long sellingcombhed with the shortsellingis not sufficient

to stopthe advanceof the market. Thereis a latentbuyingpowerthat

appearsto intreaseon advunces. He bids certainstocksup to new highs

in orderto emcouragethisoutsidabqyingpower.

The strengthspreadsto otherissuesand the marketgoeson

throughthe old high for the averages;bears,findingtheyare wrong,

begin to cover; their stop~are caughtin many cases. BUUS who have

beenholdingback comein and buy. The bullprocessionwidensand

deqans -- more buyers,a greater numberof stocksdealtin, a larger

volumeof tradingall throughthe list.

And so the C. 0. continueshis operationson the bull side--

with the characteristicsof the marketin its variousphasesmuch likeone

anotherin principlelxztdifferingin detail-- untilthe bull wave has

Copyri&t 1934by Richard1).Vfyckotf

lusted SO long and atendmd to SO WUIY

buyersthatthe C. O.

his long stocks; hat,

the remaining demand,

throughthe &Lst. He

is able not otily

as his unloading

stocksand broughtin so many

to unloadeverylust shareof

sucha large9upplyovercomf33

he also beginsto put out a line of shortsall

keepson sellinguntilall of the aemandat the

high level i.s satisfied.The marketis now saturatedwith stocksend

thareis no buyingpowm left to lift thattremendousloadwhi.chwould

have to be movedin orderto advancepricesto a new Mgh lavol.

The C. O. seesthis situationand knowsthattho timeis ripe

for a break. He bids up severalleadinghigh-pricedstocksto new high

levc+ls,whiahcausesthe publicto say: The nverugcsare up into Q new

high. We shouldbuy xnora.

Meanwhile he has been sellingso many otherntocksthat their

prices are tmgging under the weight. He keepson selling,gettingout

of the ones he bid up, and gettingshort of thornalso. No~j~he is adding

everyhour to the supplyof stocks. The reactionhas broughtthe public

throughthe successivestagesof hesitationto cautionend theninto a

stateof fear. That is, theyfear the marketis goingdown but theyhope

it will racaverenoughto let themout. This emotionalconflicton thb

part of the public

The market

causespeopleto hang on and do nothing.

goes lowerand loworbecausothereare few buyersex-

ceptoccasionalshortscovering. Pricesare falling

Supplyis vastlyheavierthandemand. The C. O. has

a big profiton his shorts,to be sddedto the great

of theirown weight.

only to wtit to red.ize

profitho has already

gatheredon his longs. And with this vast sum at his commandhe knowsthat

he can buy a tremendousnumberof stocksat the bottomof the dd.ine, pay-

ing greatlyraducedpricmscomparedwith thoseat whichhe sold.

NOW I hav~ explainedall this so thatyou will get a clearidea of

...

Copyrightlq~~ by RkdmuwlD. Wyckoff TRS43ctdJ3nMI Page5b

what is goingon under the mrfsce in the stocksmrket. Thereis no

Compos$teOperator,but tha effectof the cmdxknedoperationsof bank-

ers$pools,la#$eopmators,floor tradersand the pub~c is$ whenbcdhd down an the tape,of the same effectas if it were produoedby

one mensOparhtiowl$.It is importentthatyou observethe marketfrom

this standpoint,end thatyour tradingoperationsare based,not on what

you formerlyNgarded as t~ marketlscharacteristicsbut on the ftuxk

meuatallaw of @upplyand dmemd$ whichis at the bottomof everymove

thatis made i~ eva~ stockin the marketat all times. Tlxislaw is

workingand will continueto work alwaysand forever. Therecan bQ no

gettingawsy ftomit. It doesriotmatterwhetherthe bufingand the

WLling$ or both,are gmuine or artificial;thatis, manipulative;

designedfor a purpose.

Studym applythiBlaw in the way outlinedhere,by meansof

tlw Wave Chartwhich showsthe comparativestrengthof the Supplyand

the Demand;by the TapeReadingChartswhichare a micro~cop$crepro-

ductionof the sesmIaw$soperations;and from the actionof the market

as it appearson the tapeof the StockTicker. All theoecan be turned

to your advsmtsgeif you will followthe methodexplainedin thisCour8e,

con@antly studyingand practicingit so thatyou will.becomehighly

efficientin due time.

***

The manketis QUJO oontinul,ly beingtestedby the variousnews

itemsand developmentsaffeoting$Znglestooks,groupsreprasemtingin-

dustries,the fdmncial or businesssituation,etc. A testof the

stm$ngthor weaknessof my stock,or any kind of a market,is frequently

affordsdby thase. For example, thwe were rumorsin June,1932,that

Copyrigh%1932hy RidMWd I).W@coff TR Section10 Page 6

bothAlliedChemicaland AmericanCm wouldpass theirdividends. 30@

stockswere heavy. Allied Chabxl made a low of 43-5/8em hour or so

baforethe divid~d was announced,and whn the reportcamethat the

r&piLardivi~md had been declared,therewas a half-heartedrallyto

47, a goodpm% of whichwas quicklylost. This affordedQ testof the

timperof the market,whichWLM bearish. Bullishnews had only a momentary

effecton Ws stockand littleor none on the rest of the list. The

tapereaderl$ cue wmld have been to selleitherthis stock,or others

thatrespondedpoorlywhUe the strengthstillappeared

One more word abmt thesetests$ No matterwho

the CompositeMan, a poolmanager,largeoperator,or a

in AlliedChlemical.

me.kmithem --

big floortrader,

the resultof the tewtsshowimmediatelyon the tape. You, sittingat

the ticker,@n observ~at oncawhetherthesetestsbringa bullishor

lmzrishrespanse;and you are just as free to act upon themm if you

M made th-yourself. Therefore,neverfail to observetheseand

othardetaildin Tape Reading. You can neverWll what thaynwy lead

to, or Bighi$. I have

tionswhichwst people

to be hi@ly observant.

darivedsomelargeptofitsfrom tapeix@Lca-

owerlookad.you CSll dO the Sm% Whi31!l YOU learn

copyright1932~lMLdWd D. V@dWMf

BEST STOCKSFOR ACTIVETRADING.

For this purposethereare two chiefrequirements:(1) Wid&

dailyswings${2) A closemarket-- tit enablesa traderto get in

and out closeto the last sale. A thirdmd less importantadvantage

is in a larg#volumeof shareslistedin a stock;thisis sortcd?a

guaranteetMtwham activitybeginsa largenumberof investorsand

traderswill participatein the campaignand thus aid in maintoAninga

C1OW market.

Wide dailyswingsare vital,for withoutthemthereis little

chanceto buy end sell,pay overheadtand.realizea profit.A stockwith

a dailyaverageswingof only a pointwouldbe of no use for our pur-

pose,for in orderto realizea half pointnet profitwe wouldhave to

buy at the bottomeighth,sellat the top eighthand deducta half point

for commissiam,etc. Such stocksshould,therefore,be avoided. As

the dailyswingswiden,a stockbecomm more attractiveas a trading

madium.

A clowemarketin a stockis greatlyaidedby its activity

becausethisattractsa largenumberof tradersin the officesand on

the floor;competitionis keen;fhor traderstry to get theirbids end

offersaheadof the restof the crowdso as to benefitby fractional

moves. AU thiskeeps the marketvery closeto the last sale. By %mrketf?

I mean the combinedbid and askedpriceat the moment. The last saleis

not the market;thntis markethistory.

Copyright193$?by Mdaixrd D, V&ckoff TR Smtion 11 Page 1

Most of the prinaipa,l dailypapercthroughoutthe countrycarry

in theirMonday editions a completelist of transnctlonsfor tho prevf.ouo

mx!k. Such a tableshowsquicklywhic!hstockhad tha widest SWin&l and

the grwatestvolumeof trading$ Thesewere the loadersfor tho pretious

mwk. This flheetcun be premrved as your wdcly recordand the fiveor

ton leadersn$arkedwith a blackor coloredpencil.

Leadershipis constantlychanging. Past rtico~dsaro no guar-

snteefar ths future. It is best to takeoffa list of the leaderseach

week in orderto hmne thembeforeyou for the comingweek but thisis

onlyyour background.Tha tapewill constantlyt~llyou which stocks

are affordin~the best tradingopportunities.Of coursethereare many

stocksout$iduthe lo:~derawhichhave closenarkets. Watchfor these.

Belov#isa Wxil@ion of the averagedailyrango (difference

betweenhigh and low) of fivel~adingactivestockshatingclosemarkets

duringfour mnnthsin 1932:

!wsdQL AA&4uMu &k?AwL Q#uaAil .Mi!aLMarch 3 2-5/8 2 l-3//4 l-3/4

klpril 2-3/4 3 2-3/8 ~ 1-1/2

May 2-1/4 2-3/8 l-7/8 L-718 1-3/8

June-Ma u&%!Q

4Mos. Average 2-3/4 2-5/8 2-1/8 1-7/8 1-1/2

The dtilyrangeof thesestockssometimesamountedto from4 to

7 points,whichmnde tradingoperationson thosedays more profitableif

a tradm were on the rightside. The dove averageshouldnot be con-

sideredan inucation of the future,but just e.comparison.

Duringthisperiodthcuwwem many days on whichthe nest active

Copyright193$! by RJ.chmd D. V&ckoff TR Section1.1Page2

of these,Tclaphone,quieteddown to a pointand a smallfraction. The

sameis trw af the other$tocks;someat timeswere dovm to less than

a pointbetweanhigh and low for the day. But on the averagethesefive

gavepbnty of activity-- enoughto enabletradersto get in and out,

oftenmore thqn onceon tha samedtny,with a profitaboveovdmad.

Auburnhas not been includedin this groupbecauseit is in a

clast3by it~ekt. At timesit has a fairlyclosemarkut-- in its per-

iods of preparationfor importantmoves,or in its restingBpells. But

one nevercan tellwhan the next saleis going to be 1/2$1, 2$ 3 or 5

pointsaway fron the last sale. It has the reputationof beinga dang@r-

ous stockto tradein. I considerit no more d.nngerousthan any other

if you Understandits peculiaritiesand regul.atoyour tradingto fit them.

The stockmerelyrequiresa differmt techniquefrom the otherleaders.

Everyone+is not qualifiedto tradein it. We cannotadviseanyoneto do

so withoutmuch practiceon paper. He will thusbwome accu~tomedto

the erraticchangesin tkds stock. These are clue to its smallcapit

In a word,

the tinder

fartherhe

Auburn

Al. Chin.

Am. can

Am. Tel.

con. (MM

U. S. Steel

Totah

Approx.%Ofltc)lopt. mhgs

1

1

1

tradewith the assurancethatit would go far enoughto

eventhoughthiswem not accomplishedin a singlesession,

permmtige of 3 to 5 pointswingsis worthwh?l.le.After

toks a position,if he estimates

ladonly to movo hia stopand let

Nmber of wings of from1 to 10cm the full figures,withoutafor abmt sightweeks in May

thatWly SwingshouldfJO

him profitrun.

consecutivepoints,1 pointrevwmil.,and June,1932.

Qi$t 2!#QuEMEaikE EMQiwlLik3L!3uEi&hli MJaQXwAadakuI&) 111 72 43 25 U 11 8 6 k 4636642 2912 3 1 1 - - - 154

59 25 1.4 9 4 - - - - - 111

58 36 22 12 5 5 3 2 -- U3

4726 Q 9 5 3 1 - - -lo5

JiLJL A-JL=LuL~~~ ~Ji4k

@J+ 253 159

K@ 25 15

With tie exceptionof

leadms are interruptedaftm

91 43 24 16 10 6 4 1030

9 4 2.4 1.6 1 .6 .4 100%

Auburn,most of the movesin the five

theyhave run five or six points. This

my be only a J.or 2 pointmverm move,and a tabulationof the swings

with one suchinterruptiontightmake anotherinterestingpicture.

For three

1932)attractive;

triggmr,and tiqy

who like to tradain a fastmoverAuburnis now (June,

thatis$ if theirtradingfacultiesare on a hair-

CUl qmmtii$ withoutfaar of havingStOp# caughtfrm

1 to 5 points away from thdx stoppricm. The tmblashowsthatin the

Copyright1932,,by RichardD. Wyckoff TR Section 11 Page 4

1 to 10 pointmovesAuburntravelledaboutnine timesas many points

as U. S. St@l; fourand a half timesas many as Can and Con. GM

and threeti#wsas many as Telmphoneand AlliedChemicalduringthe

pwiod mmtibmd. This cmnot alwaysbe expected,forhhiyand June

markedone @ it~ charactml,sticallywide swings.

STOPOIUERSAND OTHERVITALPOINTS.

QQ$m of ImQQJ@3xsa Stopordersshouldbe regardedas

inmuranceagainstlarge10s80s. They shouldbe placedimmediately

aftera tradeis made.

We amnnotemphasi~etoo stronglythe absolutenecessityof a

stoporderin wary caseJfor thiswholemethodof activetradingde-

pmds more om the limitationof risk and the controlof lossesthanon

any otheronm factor.

Sto~ can be: (1)placedon the floor;(2) leftwith the order

clerk,or (3)kapt in your own hands.

A strepon the floor nwms thatit will be executedthe instant

a tmnsactio~is made by anotherbuyerand sellcuat your stopprice;

your stipthm becomesa marketorder.

If yDu leavea stopwith the orderclerkin your broker~s

officesyou instructhim to executeit pt thq mwks$ , as soonas he

seeHa tranmction on the tickerat your atopprice. This form of

stop is a littleslower,but,in somacases,may work out more satis-

fadOIi&. ~ry it and SW.

If you keep the s40pin your own handstt is calleda mental

stop;thatis, you decidayou will give the orderto the orderclerk

whfmlthe priceon the tickerreachesa certainfigure. You must deter-

mine to carryout your dmcisionwithouthesitatingfor a moment$for

if you do th$ chancesamyou will Qithtm hed.tatetoo long or you will

Cc$pyri&ht1932 by R%chardD. Wyckoff TR Section3.2 Page 1

mm ywr mqtal atop MWwr away from the price at whioh you madetb trade. ?Mt is a fwlamental error in this form of tradtng, tha

whol~ purposq of which is to J&@& and H th risk. If you make

this error yqu will not M Utiting your r%$k, and you will be increas-

ing it.

At the first sign of danger, your stop should always be brought

clooe or tho trade closod out at #o market. If the danger pas$em and

you are kickdd mat, you can always get in again.

Stop# should Mwum room for normal rallies and reactions, so

-t the treds is opm fox furtbr pomible profit~. But if a rally

or mmmtim %$ more than ~omal, ym shmld mmisa your forecmt and

act ao@XCMn@y.

Hem? carxy a trade overn%ght without a stop. Yma may be de-

layed or be @aken ill the next morning and an adverse market might cause

a 10SH of smtwml points.

Am awtamatic ~top is cm in which you instruct your brokor to

mova it continually within a certain fraction or number of points from

the htghe$t cm lowest mmrltet price remmded.

In6tmuctycmr broker in writing and get his acknowlodgm$nt that

all of your atip~ are to M conaidmed good ti&l countermanded.

WnckrallConditiqml? play S?lfo. Do not see what chanms you can

telw without ,gmtting caught, but with what mall risk you can trade.

***

The objective in this form of trad-

ing i~ to mak@a lon$ smies of trades in uniform number of $hmm from

which we dwWa profi.t~ in mcms of losmes. We never know whcmwe make

a tradehow ~t is gcd.ngt@ turnout;we cen but we our

and continuallytry to imprmw our judgmentso thatthsi

net profitincraams atwlily.

best judgment

percentageof

The @mwming stickby whichgoodresultsor bad may be judged

is the perc~tage of profitout of each@O worthof ~

_ That mmM3 this: If you make two trades,one with a net 10ss

of $25 and tlw otherwith a net profitof $75,

i!!!75. You add the profitto the loss,making

your percentageof profit

$100,and three-quarters

of your total

pro~aming.

runningdowns

is on the profitside. By thismeansyou judgohow you are.

Wheneveryou findyour percentageof profiton clomd trades

or runninglow, go back to papertradingand studyyour

lossestillyour judgmentimproves.

***

All your commitmentsshouldbe for the

samemumborof shar~sin a~ch trade,so that the percentageof profit

and loss willnot be disturbmdby tradesin largeror smalleramounts

thanyour stendmrd.

Whan you increasethe sizeof your trades,the mm uniformity

shouldbe preflwrved,for the

Rewordswill hot be accurate

same reason. Mn.iltsare measuredin points.

unlesothe lots are the samein all cases.

-X--M*

Thaaeare now beimgpostedin many broker-

The ebb ad flow of pricesmay

in form similmrto tha Wave Chartin caseyour attendencoat

Copyri@t 193E by RichardD. W@mff TR Section

be recordod

the ticker

is interrupted.The hnlt-huurlyprioeswill.not, of course,corres-

pondwith tho hngth of thw buyingand sellingwaves, Thorof&e,

thasee,vwrag@Iare not a substitutefor the latter;but th~yhave a

cmtain advambge whioh it wouldbo WCLI.to test.

***

,,on MWW. Whenyou firstbegintradingon thisMethod,

do not use m@. mon~y. Trade on paperumtil.you thoroughlyunderstand

it* Whenyou dwide to mnke a papertrade,write it down

reoordjusta$ if ~ou ware givingan orderto your broker

fair prim, aooordingto the tqe$ at.whichthe ordorshoul~be ox-

@outWI. Giveyourselfthe worst of thesatrmsactians,in 03s0of

any doubt,so thatyour racordwill be conservativeand youwi.11not

be foolimgyaqrself.Rememberit is not importantthatyoumdm money

at first;but it is very importantto make a goodbaginningso that when

you Onoe

inoz%)ase

capital,

be at

stand

lwmi how to txvuhand realizenet profitn,

the #i$eofyourtredes withoutat enytim

you can go on and

jCq3mrdizingyWr

yrdiei,lirt M% m .

tb marlmt. A limited

+++(-+$

In nearlyeverycam your ordersshould

ordorehouldrawly be wed.

When W is tim to tako a poaiticmor closoa trade,

1233fractions~gti in or out at the market.

copyr*t lWW by Mdmrdl$. w@off TR %ction 12

never

why you

Page 4

shtmld stay h a iamdo

po@iti9nw am tdwm on

tdmld giva them tmta

which does not act rightor gotw std.e. Your

WM$$tratlgth

UJEitl!d t$lrw

?30t mtkh good, YOU Skdd

fmwd Y* stops up alme

wqy op43nfop more profit.

either

to the

of cC@xLn ln41catiowS and you

inwhiohtowwkolxt. If-

CMM tlmm out at the market,

market ~ZiC@, thm h!ci?ing the

indications shown on the Wave

you tit for theme to make

Do mot @i* $hmw

h daorti im@tectd

$Oidiifh??zjay.

Xtx? mMd

trodoandwlOyby

that Sitwlmm M

end hop#B* OIM,y the tape l If it %eU@ YOU YOU skuld

M MMq(get sort 08 a bulge. TM* m trgidmg

no opition when you are coxuatantly being told what

th~ ?lCt&OXl Of th mmrkd. hd WhOll tw ti~e SQYS

douMfM, clam out all WOB amd eit still in a

***

A maccfMMUL spmmlator poasemes sdf-

courage~ caution amd matal flexibility.

c)wmthimkhgj form your own Conolwions,

Never ask advice. The informationyou will durivcfrom the

tapeand from your chartsis far more v.?dLu3ble thanany thatyou can

get from any othersource.

It ie an old saying: The tapeneverlies.

Your judgmentshouldbe basedon soundprcxnises. You have cdl

the factsbeforeyou; assemblethesecnd make yourdiagnosis. Decide

what the sitw.ti.oncil.lsfor; thenUSQ cour:~gein actingupon your

decision. Be courageous,and somewhatbold,but with a certainmeas-

ure of prudence-- alertnessand watchfulnesscombinodwith caution,

Allowfor the Unforeseenand the incalculable.

Learn to thinkand act promptly. Your decisionbecomesa

commandto trade. Havingplacedyour order,neverfear to reviso

your opinion. You must have flexibility;the mereholdingof a cer-

tainpositionis no ruasw for your holdingit; ilev~~ be bullishor

bearishjust becauseyou are in a trade.

The ~rket tellsyou what to do; it continuallyconfims or

cancels its previousindications.It te~.ltiYOLI: Get in. Get out.

Move your stop. Closeout. Stayneutral. Wait for a betterchance.

All thesethingsthe marketis continuallyimpressingupon you, and you

must get into the frameof mind whcnwyou.are in re.ditiy takingyour

ordersfrom the actionof the marketitsdf -- from the tape.

Your judgmentwill becomepoorerfrom the very timewhen

you decidethatyou know more aboutthe marketthanthe marketic

tellingyou. From thatmomentyourresultswill be unsatisfactory,

for in this tradingbusinessthe tapois tho boss. You must l-camto

oboyits orders,doingexactlywhat it tellsyou. Whenyou can accomplish

this,you are on the highroad to successin your stocktrading.

Copyright1952 by RichardD. P&ckof.f TR Section12 Pago 6

When the priceof a stockis in approximateequilibrium,

your bid or offorat the marketwill have a tendmcy to raiseor

dqmma the priceam ei@th of a pointor more. Hence,if your

otieris to $u, you WIU maceive1/8 pointless than the priceof

the last trde; and if ywr order is to buy,you KU ~ l/8 point

more thmm th~ priceof * laat trada. Thisvazztmtionin priceis

(Wled the %nvialbleE&gbth.~~ W&n a atookis dxmdlng still,the

prioeis, W, 53+% bid$ cM#Qti at 1/4. 3f you buy,you uswally

have to pay thm offeredprioeMawe thereis someoneahead of you

biddtng1/8. If you hold it say W au hour and the bid and cmkod

am the WMNBtyou wouldMve to ueU it at 5>~8. Tkks combination

of bid and amod pticeis the realm@rkW. Do not Comfwe thisWith

the I.@stALiBJyou cannottradeat the last salebut only on the bid

and aakodm@k@% ptiO& For theserewnm, it is beat to allowa part

of your overkeadto coverthe imvM.ble 1/8.

++**

~ If a tradeonce goes againatyou, it proves

your judgmentwas wrongwhen you readsit. To averagathe trademeana

thatyou inm$stupon beingmorewrongthanyou were in the firstplace.

Co-@t 1932 hy Rl@ard D. Wgckdl TR Section 32 Page 7

Your profitd~es net dopkticm any one trade,but on the net aVEWage

of Q long Suqwmim of trades. W average.

***

UnlQssyou have a steadyincomefromyour

busirmss,pruf%ssionor your investxwnts,it is best to providein

advamoeand qot asideyoux livingexpensesso thatin trdingyouwlll

not be ccmcenne(iwith thiovitalmutterand your jud~ent thereby

impaired. It is a mistakoto attemptto make moneybocausoyou need

it, or Mve $o haveit for somespecialpurpose,for in such cases

your judgmentis nwar~ 03ways@o biumd by your necessitythatyou

do tha wrong thing.

It i8 betterto tradeon paperuntilyou are in suchftnencial

conditiontJW your mind 2s properlypoised. Itis betterto test

your judgmentwith 10 $harelots of actualstocksratherthanlarger

lotsif you have to use mqm+yrequiredelwxdwre. Allowfor the

pcmlbility af sevemiicqsecutive losses.

When you find thatyou have made many papertradesand

establisheds successfulrecord,beginin a smellway makingactual

trades,but, If you continueto make realmoneyon these,do not be

misledinto irmreasingtha si%eof your tradestoo soon. You are

buildingfor the future;therefore,make each stepwithcaution,par-

ticularlyin the matterof incrwwing the sizoof your trading.

Whenyou mah monay,do not put all of your profitsinto your

tradingfund. Use only half of thmj with the otherhalf pay yourself

baokyour ori~mil capitaluntilyour tradingftmdis sll.velvet.

Followthisidea continuallyso thatyou will alwqm have a reserve

over the monqyyou are using as margin.

***

Copyrkght193? My Makrd D. V&@knff TRs@ctioll32 Page 8

QC9W mm ts wa~ If you can realizean averageprofit

of $50 on 100 aharcmper d~y, the totalwill amountto $1,000in 20

tradingdays. I mentionthisin orderto show that when you are trad-

ing continuously,you do not need to secureve~ largeprofitsin

orderto makeyour eftortapay. Eut thereis no reasonwhy you should

comeout with wucha smallaverageprofitas 1/2 per day if you con-

tinueto study,practice,Wain your judgwentend dewlop your intuit-

ion. This?&Mod gets awqyfrom the big profitidea and teachesyou

to rollup snwllnet profitsuntil theyaggregatea largesum.

The way to increasothe averagesiseof your profitswill be

foundin thatpart of our Courseof Instructionwhichexplainshow

to tradefor the 10P 20 and 30 pointmoves. With thatincludedin

your tradingMnowledge~you can use the presentinstructionsin tuki.ng

your positional.md,whom indicationsfavor,hold thosepositionsfor

the ilnportuntswings. Your originalrisk of 1/2 to 1 pointtakenon

the basisof TapeWading Ohartindicationsmay thus resultin profits

whichare Iar@ein proportionto your risk.

Whenyou are able to judgethe approximatenumberof points

that a stock@houldtravalin a certaindirection,it givesyou the

courageto go in, ~ramid ad hold on untilthat stockmalwsgood,

or warm you ?@@ it

fap will do xore to

That part of

will mot. And this one factorof knowingthow

increaseyour averageprofitthan any other.

the Coursealso givesplansfor pyramidingat

certainlevelsand under certainconditions,by whichyou can derive

morenet profitsout of somemovesthan the totalnumberof points

fromhigh to 30W.

WMre,to ,- As soonas you can arrangeit, have a little

privateoffic~of your own whereyou can installa tickerand a private

oopyright1932~ M&lsadI).WyOkoii TR Section12 Page 9

tdephane to your brokerl~ordorclerk. It is bestnot to let your

friendsknow wherethey can findyou so theywill not botheryou dur$ng

the day and you cm concentrateon the tape in brderto get the best

results.

If yQu ccnnotdev~teall your time to the tapeduringmarket

hours,perhnpsyou can have a youngman or womanassistantkeep your

chartsfor yau so thatyou can go in at convenienttimesduringthe day

and find Wf@@lin~ up to date. You will find this nrr,nmgementvery

helpfulin gattingthe best results.

If tl&eamountof your tradingwarrantsit, your brokerwill

probablybe glad to provideyou with a smallprivateoffice,ticker

and telephonq. If not,you can make a startin his customers room,

end, as you WJd up your accountyou willundoubtedlyfindit profit-

able to get into a sacludodplacewhereyou will.not hear the board

room gossipand willnot he botheredby peoplewho want to giveyou

tips and so-aalledin~ormation.Of course,that sortof thingmay not

confhe you but it is a handicapto most people.

Keep as many chartsas your timawill permit,or your assistant

con keep for you. The largerthe numberofcharts,the greaterthe

varietyyou have to selectfrom,and the more opportunitiesyou can

takeadvantagoof if you have the necessaryworkingcapital. Thisis

particularlyadvisablewhanyou are tradingon paper. Ten chartswill

giveyou far more practicoand experiencethanone chart,and one

hundredchartsten timesmore than ten.

***

Ch~i(waof broker~ Your brokershouldbe able to giveyou

Copyright1932by RichardD. Wyckoff TR Sectioq12 Page 10

promptand satisi!a&rymecu~on of

halfminutesfromthe tiswyou place

orciem,within

the8eorders.

one or one and a

Executionstaking

longerthan thismmtimo$ xwsul.tfrom congestedconditionof the