TAPE READING AND MARKET TACTICS The Three Steps to Successful Stock Trading By HUMPHREY B. FORBES PUBLISHING COMPANY New York, 1931 I dedicate this book to my losses, with a deep appreciation for the experi- ence and knowledge which each loss has brought me. PREFACE (February, 1931) IN the making of this book, the tail literally has wagged the dog. The original plan was to col- lect in bound form a number of editorials written and published in a little magazine called if, As and When.
As I set about coordinating and edit- ing these various manuscripts, the thought pre- sented itself that every speculator has three steps to climb before he can expect consistent market success. These are: first, familiarizing himself with the power and the methods of the professional specu- lative groups which operate "behind the tick- ers "; second, learning the principles whereby he may interpret the maneuvers of those groups and the actions of the public; and third — and most important—attaining a mastery of himself: of his temperament, emotions, and the other vari- ables that go to make up human nature. In conference with the publishers, it was then —V— PREFACE PREFACE decided to make the main portion of this book can learn in a comparatively short time to tell from a treatise on the interpretation of the ticker tape, the tape what is likely to happen. inasmuch as there have been any number of in- Right here, however, I should like to inject my quiries about, and requests for, instruction in tape personal opinion, that anyone who attempts to reading and market tactics.
Consequently the catch the hourly, or even daily, fluctuations of reader will find this volume divided into three stock prices, is entering upon a risky, foolhardy parts, the first being a brief review of stock specu- enterprise. There may be some traders who have lation, the second the above-mentioned treatise, made, and are making, money from these so-called and the third a group of selections from what was scalping operations; but I have never met one to have been the whole: the plan being thus de- who was successful for long, and, in talks with signed to cover the three steps to successful stock brokers, I have been told again and again that trading. the " in-and-out" trader, speculating " for a turn," Candidly, I tackled the task with a fair amount lasts but a few months. The reader will find of stage-fright, realizing that for many years no arguments to substantiate this view throughout book had been published on the subject of in- the following pages.
terpreting market movements from the action as It must be recognized that there are methods revealed on the ticker tape, and, also, because I of gauging the manipulative and speculative forces have been told by many traders that what they in the market other than that of reading the stock learn from the tape comes to them only after years ticker tape. To many, the thought of tape read- of experience, which has finally given them a ing is sinister and reeks of gambling. These same " second sight," or intuitive eye. I am not in- persons, however, will listen to tips, and will scan sensible to this belief; but I am convinced that brokers' letters and the financial papers, in the any intelligent person, with, perhaps, an extra hope of hitting upon some commitment whereby grain or two of common sense and mental agility, they will reap a fat profit.
—VI— —Vll— PREFACE PREFACE The tape records the prices at which buyers broader objectives ahead, rather than have his and sellers have met and agreed upon exchanges eyes and mind glued on the confusion of near-by of stocks for money. This same record may be objects rushing past him. printed upon sheets, or grouped for a day's busi- The principles of analyzing market-action are ness and published in the newspaper. It may be the same, whether employed to interpret short- recorded upon charts.
What are the odds? Some term trading-trends, or followed in order to de- speculators — and everyone who buys common termine the extent of the jar safer intermediate stocks with the expectation of some time selling trends which last for anywhere from three weeks at higher prices is a speculator — may wish to to six months. draw their conclusions from the tape; others may There are any number of books published never have the time to look at a ticker and may which relate to other forms of market interpreta- depend upon other forms of records. There is tion: chart reading, statistical studies, fundamen- no quarrel here; each one must decide for himself tals, and other factors. All have their advantages from whence he secures his data.
and good points. It certainly is conceded that There is this to be said against constant tape one cannot have too much knowledge of the watching: unless the trader has secure control of forces which "make the market." Recent years himself, there is the grave danger of his perspec- have demonstrated that the public generally tive's becoming too confined and of his placing knows little of what actually happens within the too much importance upon minor details within realms of common-stock speculation. the various days' records. The middle road ap- The emphasis throughout this book is upon pears, without question, to be the most profitable the human equation as it relates to market-action.
for the average, conservative speculator. If he I have attempted to make stand out in relief the travels this path he will turn to the tape only upon difficulties besetting the speculator, and to dis- occasions, and will retain a clear head for the cuss informally many factors of stock speculation -VIII— —IX — PREFACE PREFACE which have been practically ignored in other their economic, statistical, and graphic studies. The principles are not new: in fact, I In particular, I tender thanks to Buchanan Tyson believe them to be behind the accepted practice of and Arnold W. Wetsel for many of the ideas ex- all successful speculators.
I hope, however, that pressed within these pages, and for their generous the presentation is helpfully different, and that it aid and suggestions at all times. will bring into sharper focus the important prob- To Richard W. Wol- lems which must be solved if we are to trade in cott, and Howard M. Cool, I am also greatly in- the market with profitable results.
debted, for their patient reading and constructive In accumulating and selecting the material for criticism of the manuscript. And I wish to ac- this book, I have drawn heavily upon the experi- knowledge with gratitude the work of Stanley W. ence of others; and I only wish that I might thank Mahon in drawing the charts and of Miss Char- each person individually for whatever share he lotte Quasebarth in correcting and typing the has contributed. That would be impossible with- manuscript.
out listing hundreds of men with whom I have To the reader, I acknowledge full responsibil- had the pleasure of discussing the market. Like- ity for the views and opinions expressed herein, wise, I am indebted in large measure to the thou- and hand him this book with sincere humility, sands of correspondents whose letters of inquiry knowing full well the danger which lies in offer- on investment matters I have read and studied. ing any text on " how to do it." No system of fore- These experiences have aided in the development casting the movements of stock prices ever can be of an understanding of the public's mind and of infallible. However, there are many pitfalls in how the public acts in the market.
speculation which may be avoided; and it is my I owe to my associates in business more than I hope that somewhere within these pages the shall be able to repay; but I thank them for the reader will find hints and suggestions which will privilege of absorbing much knowledge from enable him to " dodge the crowd " and forever —x— -XI— PREFACE resign his membership in that great club, The Public, after which title there is added, in stock market circles, the epithet " always wrong. NEILL — Xll— —xiii— CONTENTS CHAPTER PAGE PART ONE STOCK SPECULATION I. PART TWO TAPE READING ii. THE TICKER TAPE.
29 Behind the Tape: The Tape: What the Tape Shows iii. THE PRINCIPLES OF TAPE READING. 41 Tape Interpretation: General Principles iv. INCREASING VOLUME DURING A N ADVANCE.
TURNING-POINTS ON HEAVY VOLUME. 47 Heavy Volume But No Headway: Volume Indicating an Advance: De- tecting the Turn of a Trend: Various Turning-Points —xxii— —xxiii— CONTENTS CONTENTS CHAPTER PAGE CHAPTER PAGE vi. TURNING-POINTS ON LIGHT xi. SOME IMPORTANT OBSERVA- VOLUME.
113 The Struggling Market: A Sluggish Variances in Volume: Important, or Top "Good," Buying and Selling: With- vii. VARIOUS TYPES OF TOP- drawing Bids: Think in Dollars, Not in ACTION. 6 6 Points Tops More Difficult to Distinguish xii. THE EFFECT OF NEWS ON Than Bottoms: A Sharply Defined Top: MARKET-ACTION.
124 A Broad Top: American Can's July, 1930, Top xiii. THE TAPE-STORY OF LOEW'S 78 Resistance and Support Levels: Old A Day-by-Day Illustration: A Puzzling Highs and Lows Reaction: The Action of Loew's on Sat- urday, November 15: The Action of XIV. SUGGESTIONS TO SPECULA- Loew's on Monday, November 17: The TORS. 142 Action of Loew's on Tuesday, Novem- Be a Cynic When Reading the Tape: ber 18: Loew's Goes Through Use Pad and Pencil: Trade Alone: Do Not Watch Every Stock: The Use of ix.
STEEL, THE MARKET LEADER 91 Charts and Statistics in Conjunction Watch Steel: Watch for False Moves: with the Tape: Acting Contrary to the The Action of Steel in August, 1930: Public: Trend-Trading: Capitalization A Word About the Examples in This and Floating Supply: Patience is a Mar- ket Virtue x. TIPS ARE DANGEROUS. 103 Check your Tips on the Tape: The xv. THE RISE AND FALL OF Action of Electric Power and Light: STEEL DURING A NORMAL BULL So — Confirm It on the Tape MOVEMENT.
1 6 2 —XXIV— — XXV— CONTENTS CONTENTS CHAPTER PAGE CHAPTER PART THREE PAGE xix. ARE CHARTS OF ANY VALUE MARKET PHILOSOPHY IN FORECASTING THE MOVEMENTS OF xvi. FOREWORD TO PART THREE 173 STOCK PRICES?. 220 The Biggest Handicap of All is Our- selves: Market Philosophy (in which is xx.
FROM MY NOTEBOOK 224 included " Ten Ways to Lose Money in Wall Street") xvii. THOUGHTS ON HUMAN NA- TURE AND SPECULATION. 176 Trade on the Longer-Term Trends: Market-Poise: There is No Such Thing as "Position": Reflected News: The Market as Its Own Best Advertiser: The Time Element: How to Think, Market- Wise: Fundamentals versus Technical Action: Pride of Opinion xviii. MORE THOUGHTS ON HUMAN NATURE AND SPECULATION.
199 Greed: Look Upon Your Stock Certifi- cates as a Merchant Looks Upon His Merchandise: Do Not Believe Anything You Read: The Value of the Imper- sonal Viewpoint: The Public is Always Fooled: Never Answer a Margin-Call: The Danger of Too Much Nerve: Av- eraging to Satisfy Pride of Opinion —xxvi— —XXVll — LIST OF FIGURES AND CHARTS PLATE PAGE 1. SPECIMENS OF TICKER TAPE 35 2. UNITED STATES STEEL, August-Sep- tember, 1930. AMERICAN AND FOREIGN POWER, July- August, 1930.
GENERAL ELECTRIC, July-August, 1930 71 5. AMERICAN CAN, July, 1930. TICKER TAPE SHOWING LOEW'S. TICKER TAPE SHOWING LOEW'S.
UNITED STATES STEEL, August 12,1930 97 11. UNITED STATES STEEL, August 13,1930 99 12. ELECTRIC POWER AND LIGHT, Septem- ber-October, 1930. ELECTRIC POWER AND LIGHT, Septem- ber 29-October 5, 1930, by Half-Hours.
ELECTRIC POWER AND LIGHT, Octo- ber 6 , 1930. n o —xxix— FIGURES AND CHARTS PLATE PAGE 15. UNITED STATES STEEL, January-Febru- ary, 1930. UNITED STATES STEEL, M a r c h 1 - May 6 , 1930 .