- Stock Market Technique NUMBER ONE by RICHARD D. W YCK6FF Containing the principal articles, editorials, and correspondence originally published in the magazine Stock Market Technique from March 1932 to July 1933, inclusive PUBLISHED BY THE AUTHOR ONE WALL STREET N E W YORK Originally published in 1933 by Richard D. Wyckoff Copyright © 1984 Fraser Publishing Company All rights reserved. N o part o f this book may be reproduced in any manner whatsoever widiout permission in writing from the pub lisher, except in the case o f brief quotations to be used in critical reviews or articles.
Second printing, 1990 Third printing, 2004 Library o f Congress Catalog Card Number: 85-80545 ISBN: 0-87034-070-0 Cover design by David E. Robinson STOCK MARKET TECHNIQUE iii TABLE OF CONTENTS PAGE Flashes. 1,15,45,93 A Few Delightful Ways of Committing Financial Suicide. 5 How the Law of Supply and Demand Operates in the Stock M ark et.
6 Forecasting the Wide Swings of Auburn. 10 I — Obsolete **■ II — The Modern Scientific Method Editorial — Why W e Are Not in the Advisory Business. 14 The Public at the C ro ss ro a d s. 27 Why They Bought I t.
28 Charts and the Dow Theory .31 Inside Inform ation.32 Wall Street F allacies. That You Can Put a Stock in Your Box and Forget It The Wall Street M en a g erie.33 Editorial — The Purpose Behind this Publication.34 The Higher Development of the Dow T h e o r y .35 The Tape Forecasted the T u r n. 39 How the Technician Judges the Stock M a r k e t.41 Why Study S ta tistic s?. 44 Speculation as a Fine Art by Dixon G.48 Editorial — These Foregone C o n clu s io n s.
53 Judging the Market by Tests and Responses. 54 Wall Street F allacies. That Success Depends on Having Enough Capital Exploding the Dow T h e o r y .61 The Real Value in the Financial Page of Your Newspaper. 65 More Inside In form ation .68, 86 Philosophy of Jay G o u l d .70 Editorial — What Will Put this Market U p ?.
72 Analysis of 4J^ Years of Forecasting by 41 Advisory Services and Publications. 74 Run Your Own P o o l.83 Spotting the Turning Points.85 Maxims of Daniel D r e w .87 STOCK MARKET TECHNIQUE PAGE Figure C h a r ts.89 Don’ t Overvalue the N e w s. 91 Stock Market Prices Fluid .91 Why Stop Orders Are C a u g h t. 94 Never Put Up Cash on a Margin Call — Three Lines o f Defense Against L o s s.
96 M ore Profit in the Swings Than in the Long P u l l .97 Don’ t Lean on Your B rok er.99 Trading from the T a p e. 100 The Technician Debates with the Fu ndam en talist.101 The Best Stock — For Every Purse, Purpose and Personality. 1 0 4 Banker a Bear on C h a r t s .105 Advantages o f a Neutral Position .107 The Old Timer S a y s .108 Philosophy o f Famous O perators. 109 Letters from Our R eaders.
110 Editorial — Why Fundamentals F a i l .113 STOCK MARKET TECHNIQUE 1 Flashes JOOK for your money where you lost it. Losses are punishment for bad judgment. Are you riding a dead horse? Get off and get on a live one. When in doubt, stay out.
If you are in,,and grow doubt ful, get out. If insiders traded like outsiders the insiders would soon be outsiders. The moment your diagnosis is completed it becomes a command to trade. Would you step into the ring with Gene Tunney without taking a boxing lesson? A stop-order a few points away is insurance against a large loss in case you are wrong.
Do not operate for the sake of making trades, but only for the purpose of making money. How to have lots of money with which to buy bargains in slumps and depressions: Sell out in booms. The only fundamental factor that really counts in the stock market is The Law of Supply and Demand. How much could you have saved in the past few years if you had known how to limit your risk and when to sell out? When you realize that you are not beating the game you have prepared the way for your first step in learning how to beat it.
It is better to be out of the market for a week or a month than to make one wrong trade. Stay out and your judg ment will clarify. 2 STOCK MARKET TECHNIQUE Successful trading depends on a systematic control of losses and the securing of profits in excess of those losses. An investment position is a great handicap when you are trying to convince yourself that the money is on the short side.
Most men make money in their own business and lose it in some other fellow’s. Why not make stock trading your business? When asked whether the market was going up or down, the late J. Morgan replied: “ Young man, I think the market is going to fluctuate.” Livermore once said to me: “ I go long or short as close as I can to the danger point, and if the danger becomes real I close out and take a small loss.” How many battles would General Grant have won had he planned them with as little precision as most people use in their stock market operations? Let us be men. If we have losses in stocks, let us admit that it is because we didn’t play the game right.
Why? Because we didn’t know the game. Beethoven’s Sonatas are in any piano if you just happen to hit the right notes, and there is big money in Wall Street for anyone who learns how to play the market. The place to study the market is at home after business hours. All you need is your evening newspaper.
But do not read the financial news — only prices and volumes. Dividends are all right as far as they go, if, as and when they are declared. But there are ways in which the stock market can be made to pay far more dollars in profits than in dividends. STOCK M ARKET TECHNIQUE 3 How to avoid fifty and hundred point losses in stocks: Limit your risk to two or three points by using stop orders.
But first learn how, when and where to place stop orders. I’m looking for a man with an itch. His must be an itch for money-making. He must be dissatisfied with his present financial condition, and he must desire to remedy it.
After looking over a fine collection of low-priced and doubtful certificates, the broker said to hjm: “ You do not need a safe deposit box. Get a kennel and keep these pups in your back yard.” You can learn to profit by the great swings in prices from panic levels to booms and back again if you will abandon the methods that have in the past caused you to buy in booms and sell out in panics. Anyone who pretends he can make money by frequent trading in stocks without a complete knowledge of the technical side of the market might just as well claim that good pitching is not essential in baseball. Three men came to Wall Street.
The first always knew what was the best buy. The second knew why it was best to buy. But the third knew neither of these things; he only knew when to buy. He made the most money.
Successful speculation requires foresight. But most peo ple buy stocks because they are earning so many dollars a share; are paying a $4 dividend; their companies are doing a good business. That is dealing with the present. The speculator must calculate what is likely to happen in the future.
You may be many miles from a stock broker’s office, but if you can reach him by ’phone, telegraph, mail or on horseback, you can learn to operate successfully in stocks. I once met a man in the middle of the Atlantic Ocean, coming 4 STOCK MARKET TECHNIQUE back from Europe, who said: “ I live in Mexico and I re ceive your advices ten days after they are issued. I wire my orders to New York. Notwithstanding these handicaps, you make money for me.” A famous speculator, after making and keeping a big for tune in Wall Street, once said: “ I have done only what other people wanted me to do.
When they were determined to sell their stocks in a falling market at whatever prices they could get and clamored for buyers, I accommodated them by buying. When they were equally anxious to buy stocks at high prices, I agreeably permitted them to buy mine. Trading in Stocks is an ideal business when you know how to operate scientifically. Hours 10 to 3; 10 to 12 on Saturdays.
Stay away when you like. Take long week-ends. And frequent vacations. Travel abroad for months.
Go and come when you please. You are in business for yourself. Bank account increases steadily after you know how. You can learn at home in your spare time.
Weber and Fields used to say: “ A syndicate is a body of men entirely surrounded by money.” An Investment Trust is in that position, at least when it starts. But unless the management pays proper attention to the technical posi tion of the market, it will make the same mistakes as the average trader. No amount of money in the treasury, nor prestige of its directors will insure accurate stock market judgment. At the top of the boom, in 1929, a certain in vestment trust had in its employ an expert in stock market technique.
When he told the management it was time to sell out all long stocks, they fired him, saying: “ We are investors.” Why not let somebody else carry a stock while it is going down and while it is passing through that period of prepa STOCK MARKET TECHNIQUE 5 ration for an advance? You should have it only when it is ready to move. The bucket shops make money because the public takes small profits and big losses. This forces the bucket shops to take small losses and big profits. This practice has been in vogue since the first stock brokers assembled under the buttonwood tree in lower Wall Street.
The average man cannot judge which stock offers the most likely profit unless he is constantly analyzing its behavior, comparing its action with that of pivotal issues, and thoroughly understands the relative movements of all the leading stocks. Selecting the best opportunity simmers down to this: knowing just how, just which, and just when. Why take your friend’s tip that this is the best stock to buy? Has he compared its prospects with those of all the other hundreds of stocks listed on the Exchange? Will he come around and tell you when it is time for you to get out of that stock? Will it then be at the top of its swing? Wouldn’t it be better to learn how to do all these things for yourself so that in case your friend’s judgment is not 100% you can develop your own toward that point? A Few Delightful W a ys of Committing Financial Suicide: 1. Putting a stock away and forgetting it.
Taking 3 point profits and 30 point losses. Trading in stocks without limiting your risk. Buying on thin margins. Alw ays trading on the long side.