Wyckoff - Method of Tape Reading PDF

CONTENTS
Sect.
How to Proceed
Page
A-B
Foreword
1M
1-2
Basic Law
2M
1-4
Judging the Market by Its Own Action
3M
1-4
Forms of Charts
4M
1-27
Buying and Selling Waves
5M
1-3
Chart Records
6M
1-4
Determining the Trend of the Market - Composite. Averages
7M
1-35
Comparing Strength and Weakness - Group Averages
8M
1-25
How a Campaign is Conducted - Individual- Chart Studies - Part I
9M
1-10
How the Operator's Intentions may be Detected - Chart Studies II 10M
1-13
Figure Charts - Individual Chart Studies - Part III
11M
1-13
Figure Chart Studies - Individual Stocks - Part IV
12M
1-9
Figure Charts - N. Y. Times Average - Chart Studies Part V
13M
1-10
Market Technique - Volume Studies
14M
1-14
Significance of Trend Lines
15M
1-20
Vertical Line Charts - Chart Studies Part VI
16M
1-34
Vertical Line Charts - Chart Studies Part VII
17M
1-26
Selecting the Best Stocks - Position Sheet - Barometer
18M
1-19
How to Determine the Position of an Individual Stock
19M
1-14
Buying and Selling Tests
20M
1-7
Refinements
21M
1-10
The Wave Chart
22M
1-39
Stop Orders
23W
1-17
General Instructions - Cautionary Suggestions
24M
1-18
Market Philosophy - Cautionary Suggestions (Cont.)
25M
1-11
Addenda
A1-A7
HOW TO PROCEED WITH THE STUDY OF THE

RICHARD D. WYCKOFF COURSE OF INSTRUCTION
The following is recommended as a plan of study which should facilitate
your progress and enable you to get the most out of this Instruction:
1. Read through the entire Course casually without attempting to study any
part of it. YOU will find numerous cross-references in the text. Disregard
these for the present. Let your, first casual reading be for the purpose of
gaining a general idea of the scope and presentation of the subject matter.
2. Read through the entire Course a second time, again, ignoring the crossreferences. This time, weigh the meaning of each paragraph more carefully, but do not attempt to dwell upon any part or section for more than
a few minutes yet. Let the purpose of this second reading merely be to
impress upon your mind more firmly the ideas you absorb as you go
along.
If necessary, read the whole Course through a third time before you begin
to concentrate on any particular part. By these repeated readings you will
find that your memory will retain more firmly the ideas that are
presented in each section. Then, when you do begin to study and analyze
each paragraph intensively, you will have a clear understanding of the
way in which the various parts, fit into, the complete philosophy of this
Instruction.
Bear in mind that everything in the Course is important. Nothing is
superficial. Do not neglect those sections which are necessarily shorter,
than others. Every paragraph is as much an integral part of the Course
as any other paragraph.
3. On your second or third reading, mark any paragraphs that may not be
clear to you.
4. Now study carefully Sections 4M and 6M and practice making vertical line
and figure charts, as explained in Section 4M, until you are sure that you
understand how to construct them properly. Should you have any difficulty or doubts concerning the method of making the 1 or 3 point figure
charts or the vertical charts, consult our Coaching Staff that is send us
samples of the charts you have made in accordance with your understanding of the instructions and we shall be glad to check your work.
5. Next, study and analyze carefully Sections 5M to 25M, inclusive, again
marking any portions of the text which may not be clear to you. Make full
use of all cross-references and - footnotes as you go along. .The crossreferences are indicated thus: "Sect. , Pg. , Par. , which means that
when you come to one of - these references you should turn to the
Indicated section, page and paragraph and study it in conjunction with the
text in the part of the Course where you are at the moment. Note that
paragraph one begins on any given page, with the first indentation on
that page.
For instance, turn to Page 2, Section 3M. Paragraph 1 begins with the
Copyright 1937 by Wyckoff Associates, Inc.
Page A
fifth line from the top of the page, which reads "No one can deny, etc.";
Paragraph 2 begins with the words "Tape Reading and Chart Reading,
etc." The first four lines on the top of the page are the run-over from
paragraph 5 on the preceding page.
In all cases where charts are discussed, follow the instructions given in
Section 7M (Pg. 2, Par. 3) for studying them alongside of the reading
matter in the Course.
6. Review the portions of the text you may have marked as suggested in
items 3 and 5, above. If you still find that you do not understand them,
send us a list of these questions (referring to the proper section, page
and paragraph number) and any other questions, that I are puzzling
you, so we may clear up your difficulties.
7. Next, practice making up a Position Sheet and the Technical Position
Barometer, consulting freely the instructions contained in Sections 18M
and 19M.
8. You will now be ready to test your ability to apply the principles you
have learned from this Course by making a series of paper trades.
9. After you have completed the above steps, one by one, if you have trouble, in applying any of the principles, or if your paper trades do not develop according to expectations, you are urged to select a paper trade,
that illustrates your difficulty and submit it to us. Be sure to include a
statement showing when and at what price you bought or sold; where
you placed your stop, the technical position of the stock as you
understood it at the time you entered the trade; and an outline of the
reasoning you employed in arriving at your decision to make the trade.
10.
It will be advisable also for you to send us copies of your Position
Sheets and Records of Paper Trades for review and criticism. Please use
the short forms of these records which are furnished you for the
purpose of securing this additional instruction. Do not fail to accompany
these records with full outline of your own reasons for your decisions.
11.
As you gain proficiency in the application of this Instruction and acquire experience in the interpretation of market action, you will find an
occasional review of your Course extremely beneficial. As your
knowledge of stock market technique increases, your Course will acquire
increasing value as a reference work. Therefore, do not lay it away
but consult it often. It not only will refresh your memory of vital
principles, but by constant review will awaken you to the discovery of
refinements and principles that may have escaped your notice on earlier
occasions.
Page B
WARNING
Every paragraph - every line in
this Course is vital - it was put for a
very definite purpose.
Do not neglect any part of it and
do not attempt to operate in the market
by this Method until you have
thoroughly learned the whole of it.
FOREWORD
This is a method of judging the stock market by its own action.
It is intended for investors as well as for traders.
It has been planned and prepared for those who desire to safeguard their
investment capital against, and to make money from, the fluctuations in the
priced of stocks dealt in on the New York Stock Exchange or any other organized
exchange.
It is applicable as well to bonds, preferred stocks and the leading commodity markets.
Anyone who buys or sells a stock, a bond or a commodity for profit is
speculating if he employs intelligent foresight.
If he does not, he is gambling.
Your purpose should be to become intelligent, scientific and successful
investor and trader.
This Method is for those who have had either little or no experience
operating in the stock market, or for those who have had much experience but
who have never been shown the real rules of the game.
Out of the very limited number who really understand the inner workings
of the stock market, practically no one has been willing to show the public the
real inside. I believe it is time for someone to step forward and do this.
The appalling losses, in securities, suffered annually by millions of people,
are enough to make the angels weep.
These losses are the direct result of stock market plunging by people,
most of whom do not realize what they are risking, and who have an amazingly
small knowledge of the market.
That the American public needs help in its security market operations
there can be no question. I believe the best way to help people is to show
Section 1M Page 1
them how to help themselves; and so I am here offering the cream of what I have
learned in forty years of active experience in Wall Street.
By the methods herein explained, I have made a great deal of money for
myself and my clients and subscribers who numbered in excess of 200,000. By
making this available to those who desire to learn the business or trading and
investing in stocks for it is a business just like law, medicine, or any other I
hope to be of still greater service, not only to my former patrons, but to others
who have not had an opportunity to invest under favorable conditions.
After you have learned this Method, you can devote half an hour, an
hour, all day or as much time, as you like, to forecasting the market, selecting
the best stocks in which to make commitments and the best time to buy and sell.
You can learn from this how to develop independent judgment, so that you
need never ask anyone's opinion or listen to anyone's tips, or take anybody's
advice. You can so train your judgment that you will know just what to do and
when to do it. When you are in doubt you will do nothing.
I do not claim that you can be invariably right. No one could. What I aim
to do is to show you how to be right in the majority of instances. This will require
close study and self-training on your part.
I will teach you how to read the market from your daily newspaper; from
the tape of the stock ticker; from your charts, or any or all combined.
I will teach you to plan your stock market campaigns just as a general
plans his battles.
Section 1M Page 2
THE BASIC LAW OF SUPPLY AND DEMAND

I had been in Wall Street 20 years when I discovered that it was possible to
judge the future course of the market by its own action. In my book, "Wall Street
Ventures and Adventures Through Forty Years" (pg. 168) I stated my experience
and observations in 1909 as follows:
"I saw more and more that the action of .stocks reflected the plans and
purposes of those who dominated them. I began to see possibilities of judging from
the very tape what these master minds were doing. My editorial work was proving
a most valuable means of self-education. In gathering material that would benefit
my readers, I was actively searching out the stuff that would aid me personally.
While my subscribers were given the best of what I collected, there was much in
material discarded which helped to build up what I might call a code of enlightened
procedure for use in this greatest of all the world's games.
"I had a friend who had been a member of the Exchange and who was well
up on the technique of the market from the standpoint of the floor trader. We
often discussed the difference between reading the tape simply to follow price
changes (as most clients did) and reading the tape in order to judge the probable
action of stocks in the immediate future.
"Starting from the simple ground that the logical, action of a stock was to
decline when offerings exceeded the number of shares bid for and to advance when
the amount bid for was greater than the amount offered, we agreed that the
quantity or volume of stock changing hands in each succeeding transaction was of
great importance. Anyone who undertook to read the minds of the momentary buyers and sellers was able to measure, to a certain degree, their eagerness or anxiety
to buy or sell; also to measure the force of the buying power or selling power as
shown by the number of shares; and to judge of the purpose behind the action,
Copyright 1931 by Richard D. Wyckoff
Section 2M Page 1
whether it was to buy without advancing the price, or to force the price up, or to
mark it down, or to discourage buying or selling by others, as the case might be.
"Each transaction carried with it certain evidence, although it was not
always possible to interpret that evidence. All stocks no matter by whom they
were owned, bought or sold, looked alike on the tape. But the purposes behind this
buying and this selling were different and these might be fairly clear to those who
understood market psychology.
"Each transaction, although recorded only once, represented a meeting of
minds; those of a buyer and a seller. This meeting of minds took place at a certain
post on the floor of the Stock Exchange, even though the buyer might be in the far
west and the seller in Europe.
"Not all transactions were significant, but the interpreter must detect those
which were. He must see that some indicated a purpose. Some one or some group
was carrying, or attempting to carry, something through. He must take advantage
of that."
Continuing my studies of the tape, I realized, that the Basic Law of Supply
and Demand governed all price changes; that the best indicator of the future
course of the market was the relation of supply to demand.
The Law of Supply and Demand operates in all markets in every part of the
world. When demand exceeds supply, prices rise, and when supply is greater than
demand, prices decline. This is true not only of stocks; it is constantly being
demonstrated in markets for wheat, com, cotton, sugar and every other commodity
that is bought and sold; also in other markets such as real estate, labor, etc.
I demonstrated this further in a series of articles entitled: "Studies in Tape
Reading" which attracted wide attention as the first of their kind ever published
anywhere, so far as I knew.
My basic idea in this series was that the stock market, by its own action,
Section 2M Page 2
continually indicates the probable direction of its immediate and future trend, and
anyone able to determine this with accuracy should attain success in trading and
investing.
Coming events, I claimed, were foreshadowed on the tape because large
interests there disclosed their anticipation of advances or declines by their
purchases or sales. So, too, with the manipulator who was endeavoring to raise or
depress prices. If one were to become sufficiently expert, he could judge by the
action of stocks what was in the minds of these large interests and follow them.
The trend was simply the line of least resistance. When a stock met opposition in its rise, it must either be strong enough to overcome this resistance
(selling) or it must inevitably turn downward, and when, in its downward course,
sufficient buying was encountered to halt the decline, it would turn upward. The
critical moments in all these various phases of the market were these minor and
major turning points, or else the points where the price broke through the
opposition into a new field.
Further development of this method of judging the market from its own
action resulted in my using it as a basis for predicting the probable course-of-the
market, and this eventually led to my issuing weekly, "The Trend Letter" (first
published in 1911) which had a most successful career for many years. In fact,
the forecasts contained in this Letter were so accurate that a large following was
developed. As a result of a series of successful campaigns we were not only
overwhelmed with business but brokerage houses throughout the country passed
along these advices to their clients. So many followers were thus gained that an
undue effect was had on the quotations for the stocks in which we traded, and in
certain cases the effect on the market was important.
All of the above in much more detail, is described in my book "Wall Street
Ventures and Adventures Through Forty Years" which it is advisable for you to
Section 2M Page 3
read. My reason for mentioning these facts is to show that this method of judging
the market by its own action was highly successful, from the standpoint of profits
realized for subscribers who followed my advices, as well as for many thousands
of people who were not subscribers but who bought and sold when we did.
From the above you may judge how vital it is, in the stock market, as in
every other field, to get down to the right principles.
Section 2M Page 4
JUDGING THE MARKET BY ITS OWN ACTION

The business of Wall Street is to finance corporations and to sell the
securities stocks and bonds which result from this financing. Some securities are good; others not so good. Those who manufacture and sell them to the
public know their value best. The public has comparatively little idea of their
real value, except seasoned securities those which have been on the market
for a long time and which, therefore, have established earning power and intrinsic value.
In every case the banker who does the financing and the dealers who help
him distribute, have paid for their securities either in cash or in services, or
underwritten them.
prices as possible.
The object is to market these stocks and bonds at as high

This marketing is done through distributing houses and syn-
dicates, by private sale, by public offering, and by means of listing on the stock
exchanges.
In the latter case, the stock is advertised by making it active on the tape.
If the price be advanced, and the transactions made large, the activity attracts
buyers, and those who are handling the stock are thus able to dispose of their
shares.
Sponsorship is continued after the market is thus made for a companys
shares. The bankers operate for themselves, or others operate for them. After a
stock is floated, its sponsors try to create a stable market and support the price
as well as they can without taking back too much stock.
When it is thoroughly
distributed and enough people are interested in the stock to make a market which
takes care of itself, under ordinary conditions, the original banker, syndicate or
sponsor may discontinue operations and turn attention to some other which
affords a new opportunity for money-making.
Other interests may begin operations in that stock.
Generally speaking,
Section 3M Page 1
there are usually one or more sponsors or large operators working in every
stock. Sometimes there are many. These interests see opportunities for profit,
accumulate a line, mark up the price when conditions are favorable, and then
sell out. Or they may sell short, depress the price and cover.
No one can deny that in Wall Street the, big fish eat the little ones.
Large operators could not operate successfully without the large number of
people making up the public; that is, if there were only ten big interests in the
market and no public, these ten could only make a profit by dealing with each
other. It would be difficult for one crowd to deceive any of the nine others. But
when the public enters the stock market, the large operator's game becomes
easier for him.
Tape Reading and Chart Reading, enable one to detect and profit by
these inside operations or manipulation; to judge the future course of stocks,
by weighing the relation of supply and demand. This sometimes can be done
from price movement alone, but if you consider also the volume of the
transactions you gain an additional and vitally important helpful factor.
By accurately judging this supply and demand, you are able to decide
the trend of the whole market and of certain stocks; also which stocks to buy
or sell, and, what is even more important, when to do so.
You always aim to select the most promising opportunities; that is, the
stocks which are likely to move soonest, fastest and farthest. You make no
commitments without sound reasons, and you avoid undue risks.
Whenever you study the tape or a chart, consider what you see there
as an expression of the forces that lift and depress prices. Study your charts
not with an eye to comparing the shapes of the formations, but from the
viewpoint of the behavior of the stock; the motives of those who are dominant
in it; and the successes and failures of the buyers and sellers as they struggle
for mastery on every move.
Section 3M Page 2
The struggle is continuous. The tape shows all this in detail. The charts
enable you to pick the market apart and study whatever portion or phase of it
you choose.
Supply and demand may be studied on the tape of the stock ticker, and
to even better advantage from charts.
The tape is like a moving picture film. Every minute of the day it is
demonstrating whether supply or demand is the greater. Prices are constantly
showing strength or weakness: strength when buyers predominate and
weakness when the offerings overpower the buyers. All the various phases
from dullness to activity; from strength to weakness; from depression to
boom, and from the top of the market down to the bottom all these are
faithfully recorded on the tape. All these movements, small or great,
demonstrate the workings of the law of supply and demand. By transferring to
the charts portions of what appears on the tape, for study and forecasting
purposes, one is more readily enabled to make deductions with accuracy.
And now that you are undertaking to learn this Method it is best that
you prepare your mind for it by discarding most of the factors that you have
heretofore employed in forming your judgment and making your decisions,
such as: tips, rumors, news items, newspaper and magazine articles, analyses,
reports, dividend rates, politics and fundamental statistics; and especially the
half-baked trading theories which are expounded in boardrooms and popular
books on the stock market.
It is not necessary for you to consider any of these factors because the
effect of all of them is boiled down for you on the tape. Thus the tape does for
you what you are unable to do for yourself: it concentrates all these elements
(that other people use as a basis for their stock market actions) into the combined effect of their buying and selling. You draw from the tape or from your
charts the comparatively few facts which you require for your purpose. These
facts are: (l) price movement, (2) volume, or the intensity of the trading, (3)
Section 3M Page 3
the relationships between price movement and volume and (4) the time required
for all the movements to run their respective courses.
You are thus far better equipped than the man who is supplied with all
the financial news, statistics, etc. from the whole world.
I, therefore, claim that:
You need never read anything on the financial page of your newspaper
except the table of stock prices and volumes.
You need pay no attention to the news, earnings, dividend rates or
statements of corporations.
You need never study the financial or the business situation.
You need not understand railroad or industrial statistics, the money
market, the crop situation, the bank statements, foreign trade or the political
situation.
You can absolutely ignore all the thousands of tips, rumors, reports and
especially the so-called inside information that flood Wall Street.
You can discard all of these completely and finally.
UNLESS YOU DO THIS YOU WILL BE UNABLE TO GET THE BEST RESULTS
FROM YOUR MARKET OPERATIONS.
Section 3M Page 4
FORMS OF CHARTS
Most of the principal moves in the market are made by large operators,
well informed insiders, bankers and pools, whose work we must detect and follow. Practicably every stock has market sponsorship, although a stock's sponsors may not always be active in it (Sect. 14M, Pg. 12).
When important interests are accumulating a line of stock, a study of
the transactions will frequently disclose the fact; not in every case, but in the
majority. The more important the operations, the more easily are they discovered by studying the price movement, the volume, the activity and the behavior
of stocks as the transactions appear on the tape.
An experienced tape reader can, without memoranda of any sort, carry
in his head the movements of a number of stocks over many weeks and months
and is able to give an opinion as to the present stage of the principal sponsor's
operations. But there is a better way than this an easier, more accurate and
more reliable method of tracing these large, inside operations, so as to derive a
profit and capital appreciation for the individual investor. I refer to the use of
charts, or graphs, as some call them.
Charts are merely the tape transactions in graphic form. They record
market history. All transactions appear first on the ticker tape, from which
they are tabulated by the newspapers and printed in the morning and evening
editions. You, can, from the tape, or preferably from the newspapers and your
charts, secure all the information you need to study the market, and operate in
it effectively and profitably.
Charts have actual forecasting value because they indicate supply and
demand (pressure and support), the volume of trading and the time factor.
They form a concrete record of the forces lifting and depressing prices. There
is nothing so good for this purpose as charts. All the large interests in the
Section 4M Page 1
Street for decades back have kept records of the market and of individual stocks
in chart form. Whenever anyone says it is foolish to keep charts, or to use them
in judging the market, you may put that person down as uninformed and either
unwilling to learn or incapable of interpreting chart records intelligently.
Most of the popular prejudice against charts undoubtedly is due to the fact
that many people mistakenly attempt to use charts mechanically without
judgment. They endeavor to draw diagrams or imaginary geometrical patterns on
their charts, or apply arbitrary rules or systems such as oscillators and other
impractical notions. Such methods are wrong. They lead only to errors, losses
and discouragement. Therefore, you must remember this:- When you study charts
look for the motive behind the action which the chart portrays. Aim to interpret
the behavior of the market and of stocks not the fanciful patterns ("gaps,"
"horns," "flags," "pennants," etc.) which the charts may accidentally form.
One who understands how to interpret charts correctly can usually decide
whether the whole market, or any single stock, or group of stocks, is most likely
to advance, decline or stand still. Every market and every stock is always in a
bullish, bearish or neutral position (Sect. 18M, Pg. 4, Par. 3). The person who
can determine, with a high percentage of accuracy, the position in which the
market, or a group, or a certain stock stands, holds the key to success in trading
and investing.
Selecting the Charts Best Suited to Your Purpose: It may seem at first that
an unnecessary number of charts are herein suggested, but remember that I am
explaining this Method, without knowing just what experience, knowledge and
practice you have had in the market.
I am describing to you all of the records that may be used, and depending
upon your selecting therefrom what you find of most value for your individual
requirements.
Section 4M Page 2
It has always been my rule to reduce the number, of my own charts to

the minimum. When I was doing by best work I discarded everything but a
vertical line chart of the daily average of 50 stocks, with volumes, and the figure
charts of about 150 leading stocks, depending for the balance of my deductions
upon study of the stock ticker tape.
After you have studied and practiced with some or all of the charts I have
suggested, you can select those you need for your individual purpose. If you do
not have access to a stock ticker and desire to invest for the intermediate and
major moves, it would be best for you to keep both types of charts mentioned
below, together with the Wave chart of Tape Readings described in a later section.
In this Method we use three kinds of charts: Vertical Line Charts, Figure
Charts and a Wave Chart.
VERTICAL CHARTS are made by drawing a vertical line to indicate the
range of a stock, from high to low, in a single Stock Exchange session. This
includes fractions; that is, the exact high and low points are recorded on the
chart (see illustrations on pages 4 and 5).
The closing price for the day should be indicated by a short horizontal
line, and each day's closing line may or may not be joined to that of the preceding day. The day's transactions represent all the pulling and hauling between
bulls and bears for that session, and the closing price indicates the net result of
the day's battle a gain or a loss, therefore the closing marks (or lines joined,
so that they make a continuous line) indicate the net progress of the market.
Volumes for each day's trading are recorded by a vertical line extending
up from the bottom of the sheet, with a scale at the side. (See illustrations). On
Saturdays the letter S may be placed above the volume for that day so that the
volume of transactions for the two hour session may be distinguished from

Section 4M Page 3
Section 4M Page 4
Date
Jan. 2
3
4
6
7
8
9
10
11
13
14
15
16
17
18
20
21
22
23
24
25
27
28
29
30
31
Feb. 1
3
4
5
6
7
8
10
11
13
14
15
49
49
49
49
49
50
49
50
49
49
48
48
49
48
48
47
47
48
49
48
48
48
48
48
49
50
51
51
52
52
51
51
51
55
50
59
59
59
3/4
l/4
7/8
7/8
7/8
5/8
1/2
1/2
3/4
5/8
5/8
3/8
7/8
1/2
5/8
1/4
5/8
3/8
1/8
1/2
1/2
3/4
7/8
7/8
High
7/8
3/4
1/2
3/8
5/8
1/4
5/4
48
49
48
47
47
49
48
48
48
48
48
47
47
47
47
46
46
47
48
47
47
47
47
47
48
48
50
49
51
50
50
50
51
51
56
58
57
58
3/4
3/4
3/4
5/8
1/2
3/8
1/8
1/4
1/2
1/8
7/8
5/8
7/8
5/8
3/8
3/8
5/8
3/8
7/8
7/8
3/4
1/8
7/8
5/8
5/8
3/4
5/8
5/8
1/2
1/2
1/4
3/4
1/2
1/4
Low
1/8
Last
49 3/8
49 5/8
48 3/4
48 3/8
49 5/8
49 7/8
48 5/8
49 5/8
48 5/8
48 1/2
48 5/8
48 1/4
48 3/8
48 1/8
47 3/4
46 1/2
46 1/2
48 1/2
49
47 5/4
48 1/2
48
47 3/4
48 1/2
48 5/4
50 3/8
50 3/8
51 5/8
51 7/8
511/8
51
51
51 7/8
55 3/8
58 /2
59
58 3/8
59 5/8
Volume
31,000
21,100
9,900
18,900
20,200
37,100
14,500
20,600
5,800
9,900
13,400
17,800
16,600
10,600
5,300
13,000
10,600
13,100
18,000
12,000
10,500
12,500
8,800
15,800
31,100
47,200
25,600
36,400
21,700
36,000
12,100
18,600
9,700
66,200
82,400
44,400
30,300
19,000
DAILY PRICE RANGE AND VOLUME U.S. STEEL
Section 4M Page 5
Week Ended
Feb. 4
11
18
25
Mar. 3
18
25
Apr. 1
8
15
22
29
May 6
13
20
27
June 5
10
17
24
July 1
8
15
22
28
Aug. 4
11
18
25
Sept. 1
9
16
23
30
Oct. 7
14
21
28
High
58.81
57.90
55.68
52.43
51.63
59.93
57.92
54.08
53.52
56.93
64.03
68.63
73.01
75.41
76.43
83.86
86.30
86.70
89.60
88.43
91.27
97.94
97.86
98.O5
86.60
85.51
89.11
88.65
93.14
93.79
91.03
92.76
92.68
86.31
84.49
85.62
81.38
81.20
Low
54.30
53.92
51.47
47.02
47.03
55.32
52.92
50.44
50.19
53.75
54.14
61.36
67.60
67.80
71.43
71.42
80.66
82.23
78.46
82.47
85.82
91.00
92.37
76.53
81.42
78.57
82.24
82.76
86.79
89.55
85.96
86.87
82.29
79.15
78.99
80.38
71.91
75.06
Last
54.8O
56.65
52.86
47.63
50.50
57.04
54.07
51.06
52.95
56.02
63.47
67.90
69.53
73.14
72.82
82.86
83.12
85.39
81.10
86.03
90.68
94.82
94.81
79.90
84.31
83.08
87.06
86.61
92.96
91.51
87.12
90.99
86.16
81.58
83.67
81.82
72.97
79.71
DAILY PRICE RANGE AND VOLUME

(-000)
5,618
4,130
4,327
4,935
5,365
8,671
4,977
3,682
5,087
6,562
22,147
18,659
26,280
22,255
19,924
22,741
28,250
32,320
29,837
24,306
26,737
29,054
50,184
42,336
12,849
8,609
8,728
8,495
11,165
20,939
5,761
11,246
15,933
9,158
7,741
5,476
13,738
9,829
Volume
the volume of the five hour sessions. (Sect. 19M, Pg. 6, Footnote.)
Advantages of a Vertical Chart: It is easily made from the transactions
in your newspaper or from the data recorded on our Daily Stock Chart Reports.
These show the price movement highest, lowest and closing, and the volume.
From this -price movement alone we are able to judge the supply and demand,
the points of resistance and support, and the trend. The volume (number of
shares dealt in) indicates the intensity of the trading and the quality of the
buying and selling, and is a further essential aid in judging supply and demand.
The Time Factor is also important because it enables us to estimate the
speed of the advances and declines whether the buying or selling is urgent or
leisurely; whether it is slow or rapid accumulation, or distribution. The studies
which follow in succeeding sections will explain this in a practical way.
From the volume and the price movement we find the greatest aid: (a) in
determining the direction of coming moves; (b)deciding when to buy or sell, when
to go long or short; (c) when a stock is on the springboard, and (d) when a move
is culminating.
Daily Vertical Charts are made to record the daily movements and
volume of the averages, or groups or individual stocks. By the use of these
charts, we are better able, to discern accumulation, distribution and other
phases of manipulative (controlled) or uncontrolled moves in the market. By
condensing them into weekly, and monthly vertical charts we are able to
visualize the long time trend and to keep our perspective of the long range
moves. However, the daily chart is most generally used because of its greater
sensitivity and immediate historical value. In other words, weakly and monthly
vertical charts aid us to judge the market's present position in relation to the
general trend, that is, the major bull and bear cycles; but daily charts are more
effective for timing commitments advantageously and for recognizing turning
points.
FlGURE CHARTS are equally valuable, but it is best to use these in combination with vertical charts, so that all obtainable deductions may be made
Section 4M Page 6
therefrom. Figure charts take no account of fractions, nor do they take account
of time or volume. They represent the movement of a stock from one full figure
to the next full figure above or below, such as from 35 to 36 or 34. (See instructions for making figure charts, pages 9 to 14.) They are of great value in
estimating the probable extent of supply and demand and the points of resistance
and support.
From the general formations (not so-called patterns such as saucers,
baskets, fulcrums, etc., which are popular with some purely theoretical technicians) on the figure charts we are able to detect accumulation or distribution,
and we see clearly marked, the lines of support and supply. We can also identify
the marking up and marking down periods to excellent advantage by means of
these charts.
The most valuable feature of Figure Charts, however, is their horizontal
formations, which, in many cases forecast the approximate number of points a
stock, or a group, or the average should move.
(Sections 10M to 13M.)
It is in these horizontal formations, or congestion areas, on the figure

chart that we find the greatest aid: (a) in determining how far a stock should
go; (b) when it meets opposition, viz., when it has about reached the end of
its move; and with the help of the vertical chart (c) determining the trend,
and (d) when a stock is on the springboard.
Figure Charts may be made:
(1) From the fluctuations as they appear on the ticker tape.
(2) From the Report of Stock Sales on the New York Stock Exchange, a
sheet that is published after the close of each session.
(3) From the Daily Stock Chart Reports which we will mail, to you each
day, containing the one point fluctuations of more than 200 leading, active
stocks. This service will be furnished gratis for six months.
(4) From the opening, highest, lowest and closing prices which appear in
your daily newspaper; or from vertical charts.
Section 4M Page 7
The Tape shows every transaction that takes place on the Stock Exchange
floor. In order to build figure charts therefrom it is necessary to watch the
tape continuously for five hours on five days a week, and two hours on Saturdays, so that every fluctuation in the full figures will be recorded on your
figure chart. This is an easy matter if one is watching only a few stocks, but
as the number increases, you may find it necessary to have some assistance.
The Sales Sheet, or Report of Stock Sale's, can be procured from Francis
Emory Fitch, Inc. under authorization of a New York Stock Exchange member; it
is available about 2 1/2 to 3 hours after the market closes. These sheets contain
all the transactions that appear on the tape during the day, arranged so that one
can easily run through the different prices at which all the stocks on the list are
dealt in, beginning with the opening transaction and including all those that
follow, in the order in which they occur. This is the equivalent of reading the
tape one stock at a time. It requires but a few moments for each stock, to record
the full figure transactions for a day. These sales sheets serve the same purpose
as the tape when it comes to building figure charts. One can find them in his
broker's offices in New York and he can stop in and get what he wants from
them early the next morning following publication. Or, his broker will subscribe
to these Sales Sheets for him and mail them to him.
Our Daily Stock Chart Reports contain every one point fluctuation in a
selected list of more than 200 leading, active stocks; the New York Times, the
New York Herald Tribune and the Dow-Jones averages; the Wyckoff Group
Averages; and the principal commodities; together with the volume and daily
price range data. This makes it possible for you to keep Vertical and Figure
Charts on all or any number of the most representative stocks and averages with
little trouble and expense. A further advantage of these reports is their accuracy
and the prompt correction of errors which may occasionally occur but which generally are not corrected in other sources.

Section 4M Page 8
The Figure Chart, as we have stated, takes no account of anything except

the full figures. Fractions are discarded, as they are of no value in these calculations. If you start with a stock which is selling at 50, you pay no attention
to any fluctuations except those of a full point or more from that figure. Your
next entry after 50 would be either 51 or 49, and after the latter figure is
recorded, you would record nothing until the stock sells at 50 or 48. When any
full figure is skipped, that is, when there are no sales between say 50 and 53,
you would record 51, 52 and 53 just as though there were sales at each of
these full figures. But if it rose to only 52 7/8 you would not record 53 until it
sold there.
To Make a 1 Point Figure Chart, your procedure should be as follows:
The stock stands at 50. It goes to 52. You would, therefore, enter the 51 and 52
in the same vertical column as, and above, the 50, thus:
52
51
50
It then declines to 45, or even to 44 1/8, but does not touch 44. You would
enter in the next column to the right 51, 50, 49, 48, 47, 46 and 45, thus:
52
51
50
51
50
49
48
47
46
45
It rallies to 49 or to 49 7/8, but does not reach 50 therefore, you would

enter in the third right-hand column 46, 47, 48 and 49, thus:
52
51
50
51
50
49
48
47
46
45

49
48
47
46
Section 4M Page 9
A dip to 48 would call for an entry at that figure in the fourth right-hand column and a ral1y to 49 an entry of that figure just about the 48 thus:
52
51
50
51
50
49
48
47
46
45
49 49
48 48
47
46
Next a dip to 46 1/4, which calls for an entry of 48 and 47 in the fifth
column. A rally to 48 3/4 and another dip to 46 l/8 requires two entries in the
sixth column. And so on as per the illustration below, and in the charts shown
elsewhere in this volume:
52
51
50
51
50
49
48
47
46
45
49 49
48 48 48 48
47
47 47
46
The dotted lines drawn through the figures show the course of the market.
These lines, therefore, indicate how the chart should be made and how it should
be read.
Dates are indicated on figure charts as follows: On the last day of each
month a circle is put around the last entry which appears on the chart for that
month, and the initial of the following month is entered a few spaces below the
circle in the same vertical column. For example, turn to the 1 point figure chart
of Bethlehem Steel on Page 12, Section 11M, and you will see that a circle is
marked around the figure 69 in the second column which means that this was
the last entry for the month of October, and just below that the letter N
indicates that November begins here. A little further on there is another

Section 4M Page 10
circle with D under it. The circle indicates the end of November and the letter D
indicates that December begins here. Then the figure 51 is circled and below is an
entry J-31, which means that 51 was the last entry in December, 1930 and
January, 1931 begins here. The other months follow in the course.
When a stock sells ex-dividend this may be indicated by making all of the
entries for that day in red, or some such distinguishing color. The amount of the
dividend is then entered in the same vertical column below the graph. If no full
figure change occurs on the day the stock sells ex-dividend, the list entry on the
chart should be retraced in red, or some other distinguishing color.
To make a 1 point Figure Chart from your newspaper: Suppose you take a
stock which closed on Monday at 50. That would be your first figure on the figure
chart. Your newspaper records the fact that this stock opened today, Tuesday, let
us say, at 50 3/4 and went as high as 51 7/8; so you must record 51 on the
figure chart.. It does not go to 52. The lowest for the day was 45 3/4; hence after
it made the high at 51 it must have passed 46. You record on your figure chart
50, 49, 48, 47 and 46. The stick closed at 48 1/4, therefore it must have rallied
from the low of 46 to 48 and you would record 47 and 48 on your figure' chart
which would then look like this:
51
50
50
49 49
48 48
47 47
46
Assume that Wednesday's transactions will show that the stock opened at 46
1/2, made a high of 49 1/8, a low of 45 and closed at 47. Your figure chart
would call for an entry at 47 because the stock closed on Tuesday at 48, and to
open at 46 1/2 it must have passed 47, which is the same as selling there. You
find that the high of Wednesday was 49 1/8, the low 45, but you do not know
which occurred first unless you watched the tape sufficiently to tell whether the
high point of Wednesday occurred before the low point or vice versa. If you
Section 4M Page 11
have not watched the tape, it would be well for you to ask your broker to look at
his Sales Sheet and tell you when the stock was highest or lowest. Suppose the
high point of the market Wednesday was in the morning. You must assume that
your stock went to 49 1/2 after it touched 47. In this case you would make
entries on the figure chart as follows: 48, 49. Then as the low of the day was 45,
you must record 48 again, then 47, 46 and 45. And as the stock closed at 47 you
would record 46 and 47.
When completed, your two-days' figure chart would look like this:
51
50
50
49
49
48 48 48 48
47 47 47 47 47
46
46 46
45
This is not so accurate a method as watching the tape, or using the Sales
Sheet, or our Daily Stock Chart Reports; for your newspaper does not give you all
of the fluctuations back and forth when a stock is oscillating, say between 45 and
47, once or twice in the day's session. But it is a reasonably good method if other
means are not available.
How to make a 3 Point Figure Chart. The 3 point figure chart condenses the
history recorded on the 1 point chart-by discarding all reversals of less than three
points.
The following explanation will make this clear: Suppose we begin with a small
section of a 1 point chart which shows a stock rising from 25 to 31, reacting to
30, then moving upward again to 32, as in Example A. In this, illustration, the
rise from 25 to 32 is interrupted by a reversal of only one point.
Therefore, this reversal must be disregarded in making the 3 point chart
which will simply show the net or total rise from 26 to 32 in one vertical column
as in Example B.

Section 4M Page 12
Example A
1 Point Chart
Example B
3 Point Chart
32
31 31
30 30
29
28
27
26
25
32
31
30
29
28
27
26
25
Or suppose that the stock has moved straight up from 25 to 31, when its rise
is interrupted by a reaction of two points to 29, after which it recovers and goes to
a new high of 52, as in Example C. This reaction to 29 must be disregarded on the
3 point chart because it is a reversal of less than three points, so the 5 point chart
(Example D) should show only the full movement from 25 to 32, the same as in
Example B:
Example C
1 Point Chart
32
31
31
30 30 30
29 29
28
27
26
25
Example D
3 Point Chart
32
31
30
29
28
27
26
25
Developing our 1 point figure chart a little further, let us say it appears
as shown in Example E. Our 3 point chart would then appear as shown in
Example F, because after the stock has moved up from 25 to 31 and reacted to
29, its advance to 32 is followed by a three point reversal which forces us to
move over to the next right-hand vertical column on our 3 point chart.

Section 4M Page 13
Example E
Example F
1 Point Chart
3 Point Chart
32
32
31
31 31
31 31
30 30 30 30
30 30
29 29
29
29 29
28
28
27
27
26
26
25
25
Should the decline from 32 continue on the 1 point chart, without a swing
of three points, or more in the opposite direction, we must continue to extend our
entries in the second column of our 3 point chart until such a reversal of three
points or more does occur, when we would move over to the next right hand
column, as in the following illustrations:
31
30
29
28
27
26
25
Example G
1 Point Chart
32
31 31
30 30 30
29
29
28
27
Example J
1 Point Chart
31
30
29
28
27
26
25
32
31 31
30 30 30
29
29 29 29
28 28 28
27
Example H
3 Point Chart
32
31 31
30 30
29 29
28 28
27 27
26
25
Example J
3 Point Chart
31
30 30
29 29
28 28 28
27 27
26

32
31
30
29
28
27
26
25
31
30
29
28
27
Example J
5 Point Chart
31
30 30
29 29
28 28
27
26
32
31
30
29
28
27
26
25
31
30
29
28
27
26
Section 4M Page 14
For additional illustrations of the distinction between the 1 point and the 3
point chart compare the two graphs on Page 8, Section 9M, or remove Page 10,
Section 13M from your binder and compare it with Pages 7, 8 and 9.
The 5 Point Figure Chart is constructed in the same manner by disregarding all reversals of less than five points. A 10 point chart would disregard all
reversals of less than ten points.
It is VERY IMPORTANT that you learn how to make, read and fully understand a 1 point and a 3 point chart before you go any further with your studies,
because if you do not understand these forms of charts, you will not get the full
benefit from the forecasts that are possible under this Method.
We also wish to impress on you the importance of using your 3 point figure chart forecast to compare with your 1 point, especially in studying the more
important, that is, the long range moves.
The purpose of the 1 Point Chart is to indicate immediate or shorter
swing objectives. The 3 Point Chart is designed primarily as a guide to the
general trend to give you a broad perspective of the market and of individual
stocks and to indicate the probable objectives of the large swings.
As the small swings eventually build up into large ones (Sect. 5M, Pg. 1,
Par. 4), the objectives of the 1 point and of the 3 point charts frequently tend to
confirm each other, but hot in all cases. When you find a marked difference
between the indications of the two charts it is best to be guided by the more
conservative indication.
The 3 Point Chart is most generally used in conjunction with the 1 Point
Chart, but for very high priced or extremely volatile stocks, that is, the fast
movers, the 5 Point Chart may prove more satisfactory.
The Volume of Sales is not recorded on Figure Charts.
TREND CHARTS: The purpose of a Trend Chart is to enable you to keep in
harmony with the trend.

Section 4M Page 15
There are two Trends to be considered in trading, as here advocated:

(1) the Immediate Trend for active traders who endeavor to get in and out on the
email swings, and traders on the floor of the New York Stock Exchange who, not
paying any commissions, sometimes can make turns several times a day;
(2) the Trend of the Intermediate Swings of 5 to 30 or more points; these include most of the managed campaigns.
Trend Charts that is, vertical charts of the leading composite averages,
may be kept in such a way as to show, on separate sheets, the daily and weekly
or monthly movements in whatever group of average figures you may select. If
one lives in New York, or near enough to secure the New York Herald Tribune or
the New York Times every day, he will find his Trend Chart already made for
him each morning in the financial page of these papers. The Wall Street Journal
and other financial and daily papers in different parts of the country regularly or
frequently carry similar charts. But there is a distinct advantage in keeping
one's own records in a loose-leaf binder (this size or pocket size). As each entry
is made on the Trend Charts and others, you can study the effect of the change
you are recording their relation to the smaller and larger movements that are
under way and more particularly what they forecast.
The Trend is the line of least resistance.
It is the most important thing to know about the market or an individual
stock.
A bull market, or an upward trend, begins at the very bottom level of a
panic or depression. A bear market starts at the topmost point of a boom. This of
course, refers to the long trend, or the main swing in prices which, from bottom
to top and from top to bottom makes a complete cycle. The cycles since 1911 are
shown on the monthly Vertical (Trend) Chart of the hew York Times Average
herewith.

Section 4M Page 16

Section 4M Page 17

Section 4M Page 18

Section 4M Page 19
In between these extreme tops and bottoms of the main moves, there
occur a number of intermediate swings of 5 to 30 or more points. It is these
intermediate swings which afford excellent opportunities for trading and
investment profits; hence it is very important to know, first of all, whether a bull
market (Uptrend) or a bear market (Downtrend) is under way, and, second,
whether we are at the beginning, in the middle, or at the end of one of these
intermediate swings, or in a period of transition between the main swings.
The best way to ascertain the above is to keep a Trend Chart (vertical
chart of the averages), which is made up of the movements of a large number of
stocks, such as the following:
New York Times

New York Herald Tribune
Dow-Jones & Co.'s
Wall Street Journal
Standard Statistics Corp.
Industrials
25
70
Rails
25
30
Utilities
*
*
Total
50
100
30
50
20
20
20
20
70
20
In addition, it is desirable to keep a Wave Chart (as described in Section

22M) to enable you to make a detailed daily analysis of what you see on your
Trend Charts.
In a bull market most of your trades should be on the long side and in a
bear market on the short side. If this rule be generally followed, it should
considerably increase your chances for profit. If, in an up trend, you purchase a
stock on a bulge and it afterward goes against you, the chances are the upward
trend will give you a profit if you have patience. But if you go long in a down
trend, and the market continues to decline, you are likely to have, an increasing
loss.
There are, of course, exceptions to this rule. As is explained in Section
8M, all stocks do not move upward or downward together. Months before the
The Times and Tribune Industrial Averages include a number of

Public Utility stocks.
Section 4M Page 20
market-of 1929 culminated in September, many individual stocks began to decline; so that while the main trend was upward judging by the averages of a large
number of stocks, certain issues were being liquidated while others were making
new highs. These stocks which started down early were the forerunners of the
main turning point. Their down trends were clearly shown on the individual
charts and by the action of the various group averages. In much the same
manner, when a bear market is ending, some stocks and some groups of stocks
stabilize and start upward ahead of others, moving much faster and farther than
the average. Generally, however, stocks tend to move much more uniformly
downward in declining markets, than upward in advancing cycles. (Sect. 8M, Pg,
6, Pars. 1-3.)
My claim that the market itself tells you what it is going to do is made good
in the illustrations which follow in later Sections. By using the Figure Charts to
record the movements of the popular averages, such as the New York Times 50,
the Dow-Jones 30 Industrials, etc., we are able frequently to estimate how far the
whole market is likely to move. And by using the Trend (Vertical) Charts we are
able to judge what direction it will take. This claim is substantiated herein.
We gain an added advantage in estimating the direction and the probable
distance of the more important moves of the market, or of individual stocks, or
groups of stocks by condensing the figure chart movements into nothing less than
3 point reversals (Pg. 12, Par. 3).
The advantage of using these is especially illustrated in the 3 Point Figure
Chart which indicates the 1929 turning point in the market (Sect. 13M, Pg. 10)
Your charts from which you study the Trend should be made, first in the
form of vertical charts with volumes, then in the form of figure charts. Both are
good by themselves but they are much better used in combination. Both may be
on transparent paper, so that they can be laid over other charts when studying
the comparative strength and weakness (explained in Section 8M) of groups or

Section 4M Page 21
individual stocks; or you may easily compare them by laying one chart above another on your table or desk.
Individual stocks should be recorded on both vertical and figure charts,
but if your time is limited and it is necessary to reduce the number of your records, then a good plan is to keep the bulk of your graphs in figure chart form
together with a permanent file of your daily newspaper or our Daily Stock Chart
Reports. By filing these reports in order, as you receive them, it is a simple
matter to run back through the sheets for several days or weeks, scanning the
price range and volume data to observe significant changes in the volume of trading. This procedure is the same as building a vertical chart in your mind. Thus,
when you see that an interesting situation may be developing on one of your
figure charts, you can readily bring the equivalent of a vertical chart to bear on
it and thereby materially increase the accuracy of your deductions.
To give you a clear idea of the above method of forming mental pictures
of vertical charts, we suggest you turn back to the table on Page 4. Cover the
figures in the table (under the heading "Daily Price Range and Volume") with a
sheet of paper so that only the first line is visible. Make a mental note of the
price range and volume for this day, January 2nd. Then slide your paper down
so the next line of figures can be read. By continuing in this manner, making
mental note the impression you receive whenever there is a significant change in
the price and the volume, or both, you will presently discover that you are able
to visualize the action of the stock almost as clearly as you can by studying the
chart at the left which was made from the figures in the table. For instance,
observe in the table how the daily volume builds up while the price is rising from
January 29th to 51st and how volume promptly shrinks on the reaction of
February 6th to 8th. A little practice in scanning your newspaper or your Daily
Report sheets in this way will enable you readily to detect such significant
changes of behavior.
If the above procedure does not meet your requirements, another way of
Section 4M Page 22
conserving time is to keep as many figure charts as you can handle conveniently,
together with a file of your daily newspaper or Daily Stock Chart Reports as
previously indicated. You can then quickly and at any time make up a vertical
chart of any stock in your list, maintaining the chart until your interest in that
stock ceased or it may have completed its indicated move. Should you follow this
procedure you must record the history of the stock back for two or preferably
three months; or for a period sufficient to show its action- around the last
important supply or support level, in order to have an adequate background.
Vertical charts are essential for the proper timing of commitments and
especially for detecting the minor turning points because there are times when
figure charts may be unchanged, while the vertical charts at the same time show
persistent supply or demand within a small range. Or the vertical charts may
show an exceptionally large volume of shares changing hands, indicating the
completion of a move. Or the volume might be shrinking, which under I certain
conditions would indicate, at the top of the swing, a lessening of demand, or, at
the bottom of a decline, a lessening of pressure. None of these indications is
shown on the figure charts.
On the other hand, the figure chart may show many fluctuations on the
full figures, while the verticals are unchanged. For example, if the high full
figure of a stock on a certain day were 45 and the low 40, there might be sever
al fluctuations back and forth between 42 and 43 on the figure chart, but no indication of this would appear on the vertical chart.
For these reasons it is vital to keep both forms of charts.
To define the trend of the market or a single stock, therefore, both the
figure and the vertical chart (or its equivalent as suggested on the preceding
page) should be used.
In deciding when to act, the tape or the Wave Chart of Tape Readings is
the best guide. As indicated in "Buying and Selling Waves" (Sect. 5M), and as

Section 4M Page 23
fully explained in Section 22M, the tape shows the psychological moment to buy
or sell. If you cannot watch the tape, then you may use the Wave Chart to do this
work for you.
THE WAVE CHART OF TAPE READINGS wag designed and originated by
me, in 1916 in connection with my personal operations in the stock market. It is
made to provide a condensed picture of every vital development in every stock
market session. It gives a graphic representation of the day's tape action which
enables us to study the market's behavior at leisure, just as if we were watching
the ticker continuously and setting down every essential impression.
Thus, the Wave Chart is an invaluable aid whereby we may detect changes from technical weakness to strength, and vice versa, and so determine the
tumbling points not only of the minor but also of the intermediate swings,
frequently several days before the indications are given by the less sensitive
popular averages.
The method of constructing and interpreting the Wave Chart will be taken
up in a later section, as you must first complete your study of the next several
chapters in order properly to understand the principles of the Wave Chart.
GROUP CHARTS: In the selection of the best stocks in which to trade, and
invest Group Charts are of material assistance. These are made of about five
(more or less) leading stocks in each industry Oil, Steel, Motor, Copper, Sugar,
Tobacco,. Retail Trade (merchandising), Building, Railroad Equipment, etc. There
are so many different lines of business represented on the New York Stock
Exchange that these groupings can be made to include as many as you like.
The purpose of these charts is to show which industries promise to improve or deteriorate, and to warn you to search in those groups for opportunities.
A better or poorer outlook for the steel industry or the motors, utilities or
others, is immediately forecast by important operations of insiders, their
bankers, and the large operators having affiliations with them.

If the
Section 4M Page 24
oil business, for example, has been very bad for a long time and the outlook begins to improve, these Group Charts will give you the cue. They tell you, in
advance, whether ;or not the big interests are shaping their stock market positions for higher or lower prices in these stocks. When large interests begin to
accumulate or distribute, you can and should do the same.
You can get along without these group charts if you prefer, as our method
of detecting stocks in a bullish or bearish position (see "Position Sheet," Section
18M) covers the ground. A glance at the "Position Sheet" will show you whether
the Steels, Motors, Oils or others are lining up for a small or a large advance or
decline. This should serve your purpose.
The keeping of group averages involves quite a little clerical labor.
Therefore, if your time is limited, you may find it more expedient to make up
your group charts from the computations which you will find ready-made for you
each day on our Daily Stock Chart Report, List #2.
(See sample yellow, sheet
supplied with your Course.)

However, if you wish to make these tip yourself, you have only to select
the leading stocks in each group, enter their highest, lowest and closing prices,
and volumes, each day in separate vertical columns. Add up the prices and divide
by the number of stocks in the group. This will give you the average highest,
lowest and closing price for the group. The volumes should merely be added
together. They should not be divided or averaged.
Both Vertical and Figure Charts are used to record changes in the groups.
The Vertical Group Charts may be placed one above another, on your desk or
table, for purposes of comparison. Likewise, these Group Charts may be laid
above any individual Stock Chart and its comparative strength or weakness
instantly ascertained. (See illustrations, Section 8M.)
If some groups show greater weakness; than others, search these for the
stocks to sell short. Those groups which indicate the greatest cooperative

Section 4M Page 25
strength will show you where to look among the individual stock charts for the
best stocks to buy when the right time comes.
These few suggestions will suffice for the present to indicate how these
charts may be used to advantage.
________________________________
For convenience and future ready reference, we summarize what has
been set forth in the preceding pages, as follows:
VERTICAL CHARTS
What is Recorded
Deductions Therefrom
Supply and Demand.
Points of Resistance and Support.
Price Movement (high- Marking Up and Marking Down.
est, lowest, closing;
Lines of Supply and Support.
and opening if desired) Changes of Stride and Progress
of Movement.
Comparative Strength and Weakness.
Volume
Intensity of Trading.
Increasing or Diminishing Pressure
of Supply and Demand.
Buying and Selling Climaxes.
Time
Closing Prices
Speed of Advances and Declines.

Duration of Accumulation or
Distribution.
Indication
THE TREND, i.e.,
the direction of
the price
movement
WHEN to BUY.
WHEN to SELL.
WHEN to CLOSE
OUT.
WHERE to place
Stop Orders
Net Gain or Loss.

Changes in Pressure Up or Down.
FIGURE CHARTS
Price Movement
General Formations
Supply and Demand.

Points Of Resistance and Support.
Marking Up and Marking Down.
Accumulation or Distribution.
Lines of Supply and Support.
Marking Up and Marking Down.
Horizontal Formations Probable Extent or Importance of

Accumulation or Distribution.
The best opportunities.

Probable DISTANCE a stock,
or a group, or
the market
should move.
Section 4M Page 26
WAVE CHART OF TAPE READINGS

Price Movement of the
Market - Using Sensitive Leaders as an
Index
Supply and Demand.

Sentiment of Important Interests.
Toward the Market.
Critical Points of Resistance
and Support.
Development of Accumulation and
Distribution Areas.
Volume of Trading on
Alternate Buying
and Selling Waves.

Quality and Urgency of Supply
and Demand (by comparing Volume with Activity and Time) .
BEHAVIOR of the
market at
CRITICAL points
in the Minor,
INTERMEDIATE,
and MAJOR
Trends.
Activity or Intensity of Ability of Bull or Bear Forces to AtTrading.

tract Following on Advances and
Declines, Rallies and Reactions.
Time Or Duration of
Small Buying and
Selling Waves.
Speed of Advances and Declines,

Rallies and Reactions.
Character of Supply and Demand,
Whether Urgent, Leisurely, Timid
or Aggressive.
Price Changes from

Wave to Wave.
Net Gain or Loss.


TURNING POINTS
in the Minor,
INTERMEDIATE,
and MAJOR
Trends,
RESPONSIVENESS
of the Market to
Buying and
Selling Impulses.
Section 4M Page 27
BUYING AND SELLING WAVES

Every upward or downward swing in the market, whether it amounts to
many points, only a few points, or fractions of a point, consists of numerous buying and selling waves. These have a certain duration; they run just so long as they
can attract a following. When this following is exhausted for the time being, that
wave comes to an end and a contrary wave sets in. The latter may attract more of
a following than the former. By studying the relationships between these upward
and downward waves, their duration, speed and extent, and comparing them with
each other, we are able to judge the relative strength of the bulls and bears as the
price movement progresses.
All stock market movements, however large or small, are made up of
buying and selling waves. The market does not rise and fall like the water in a
tank which is being filled or emptied. It moves to a higher or lower level by a series of surges a good deal like an incoming or outgoing tide, with successive
waves higher or lower than those preceding.
The small buying and selling waves which occur during every stock market
session run so many minutes (see Wave Charts, Sect. 22M). They are caused largely by the restlessness of active professional traders, much like the ripples
produced by the wind upon the ocean. Traders must have activity; they make their
livelihood by trading on fluctuations. Therefore, they engage in a ceaseless tug of
war, trying to put prices up whenever the condition of the market is favorable, or
drive them down when they find that the bulls are weak or have overextended
themselves. The degree of success or failure attending their efforts enables us
determine whether the market is growing stronger or weaker.
These small waves are part of the larger waves which run several days,
and eventually make up movements of 3 to about 5 points. The 10 and 20 point
moves are made up of 3 to 5 point waves, and the bull and bear markets are com-
Section 5M Page 1
posed of many swings of 10 to 20 points or more.

You can easily confirm the above by examining any chart. It is important
that you do this so as to impress upon your mind these numerous waves of various sizes, inasmuch as this will help you to understand the market. You will
thereafter think in waves.
When you are looking for an opportunity to buy, watch for the down waves
in the market and in your stock. After you have bought, you sit through a number
of small, medium and good-sized waves, until finally you observe that it is about
flood tide in that stock. Then watch for an especially strong up-wave and give your
broker an order to sell your stock at the market.
The waves of the market furnish a clear insight into changes in supply and
demand. By learning to judge all sizes of market waves, you will gradually learn to
spot the time when a rising market or a rally, and the time when a declining
market or a reaction has halted and is about to reverse. These are the turning
points.
To be able to say when these turning points are occurring at the bottom
of a bear market, or at any important rallying point on the way down to the
bottom, or at the top of a bull market, or at any important reactionary point on
the way up, is a mark of ability in an investor as well as a trader.
Remember: The market itself tells us everything we need to know about its
probable future action. Every significant change in supply or demand is registered
on the tape. When you have learned to analyze the market by its own action, as
recorded on the tape or on your charts, then you will be proficient in the art of
operating in stocks.
Of all the things that are most desirable to know about the stock market,
these two are the most important:
(1) First, to be able to determine the final top of a bull market; and
second, to determine the top of the intermediate swings, and finally
the top of the minor moves.
Section 5M Page 2
(2) To be able to determine the final low in a bear market; the bottom of
the intermediate swings, and the end of the minor moves.
Master this branch of the subject thoroughly, it is vital.

But there is one step more: Your education will not be complete until you
can cover all your shorts and go long at the bottom of a panic, a depression or of
an intermediate swing, and sell out all long stocks and go short at the top of a
boom or an intermediate bull movement. This will be the result of practice,
training, and experience. It requires great flexibility of mind and absolute control
of your emotions. You can learn to do it if you will study and faithfully practice
this Method.
Section 5M Page 3
CHART RECORDS
For the purpose of studying the Buying and Selling Waves referred to in
Section 5M, we require a Trend Chart, or vertical chart of some representative
general market average each as the New York Times 60 stocks (illustrated in Section 7M), "supplemented by a Wave Chart (fully explained in Sect. 22M). Our
Trend Chart of a general market average is the medium through which we are
enabled to study the larger raves of the market. It is our large scale road map
from which we judge the market's present position in relation to its probable
ultimate destination. The Wave Chart is our local map which shows the detail of
the market's position in relation to these larger swings. Therefore, the Wave Chart
helps us to detect the approach of turning points of the large waves, (intermediate
swings) frequently two to four days in advanced
We cannot very well trade or invest in a total of 50 to 100 stocks simultaneously, and since all stocks do not move in complete harmony nor with equal
speed at all times, we require some means of breaking down our large scale market map (general market average) into its component parts so that we may determine which sections or groups afford the most promising opportunities. For this
purpose we must either employ the Position Sheet described in Section 18M, or we
must use Group Charts as explained in Section 4M (Pgs. 24 and 25) and more
fully explained in "Comparing Strength and Weakness" (Section 8M). Then, after
we have decided which groups offer the greatest promise, we aim to select out of
these groups the most desirable individual stocks.
In brief, we aim usually to trade in harmony with the trend of the market
as a whole and in the most promising groups of stocks (Sect. 9M, Pg. l,. Pars. 1 &
2). Having narrowed our choice down to the most desirable group, we next must
have facilities, for selecting the best opportunities from a large number of
individual stocks. These will enable us to operate in the stocks that will
Section 6M Page 1
move soonest, fastest and farthest, and to avoid being tied up in dull, dead
stocks.
The amount of time at your disposal for stock market purposes will, of
course, control the amount of work which you can do without over-working or
interfering with your regular business or profession. In general, it is much better
to limit your chart work so that the bulk of your time may be devoted to the
study and interpretation of your records, than to keep too many charts. In other
words, it is better to keep charts of 20stocks and study them thoroughly than to
try to keep 200 charts and consume all your spare time in merely posting entries
on them.
In any case, while you are acquainting yourself with the principles of this
Method, it would be best for you to confine your chart records to the 20 charts
supplied with your Course. As you gain experience and acquire proficiency in
reading charts, you will find that you can readily expand the number you are able
to maintain and interpret quickly.
For the average, and more advanced students, the following is recommended as a very satisfactory layout:
TYPE OF CHART
IN THE FOLLOWING F0RMS
N. Y. Times 50 or Herald Tribune 100

Dow-Jones 30 Industrials
Dow-Jones 20 Railroads
Dow-Jones 20 Utilities
One Point Figure

Three Point Figure
Daily Vertical Line With
Volumes
Wyckoff Group Averages

25 to 200 Individual Stocks
One Point Figure

Three Point Figure
Wave Chart of Tape Readings
One Point Figure*

Three Point Figure*
Ten Point Figure*
Continuous Line*
* The nature and method of keeping these charts are explained in Sect. 22M.
Section 6M Page 2
The above portfolio can be expanded either by increasing the number of

individual 1 point and 3 point figure charts from the minimum suggested number
of 25, to 200 or more, and by keeping part or all of these individual stocks in the
form of vertical charts also. At the start, however, if you will make up and
maintain vertical charts of a Trend Chart and the various most important group
averages such as the Rails, Industrials, Utilities, Steels, Oils, Motors, etc., you can
use these far the purpose of determining the trend of the market and of the
several groups. Then, when you find from your vertical Group Charts, a group that
offers promising opportunities, you may refer to your figure charts of the
individual stocks in that group to decide which of these appear to be in the best
position. Next, when you have narrowed your selection to the one or two most
promising stocks in the group, it will be a simple matter to make up a vertical
chart of those stocks, which you can study in order to time your purchases or
sales to the best advantage. When you find the move in the group and in your
individual stocks has been completed you may discontinue keeping the vertical
charts of these stocks until a new opportunity appears to present itself to invest in
those stocks (Sect. 4M, Pgs. 22 & 23).
In this way you can, if your time is limited and if you wish, save much of
the work that would be required to maintain vertical charts every day for a large
number of stocks.
However, the larger the number of charts you can keep., the greater will be
the variety from which to make your selections and the broader your perspective
of the whole market. Therefore, another good plan, if you can arrange it, is to hive
someone else do your chart work for you though you can learn more from your
charts if you make most of them yourself.
The keeping of charts is a clerical job which calls for painstaking accuracy, but it is not difficult work for any bright boy or girl after the purely
mechanical part has been explained. A student who is beginning to learn
Section 6M Page 3
mechanical drawing, for example, is receiving training in a school which demands

that he be mathematically accurate. You will find such students highly satisfactory
for chart work. They can be had at very small salaries.
If you have the time or the assistance, you may wish to keep your chart
records on a more elaborate scale. In that case, you may find it helpful to add the
following to your list:
Vertical Charts, with Volumes, showing weekly movements.
Vertical Charts, without Volumes, showing monthly movements.
The above should not be used exclusively (without daily charts) since they
are not sufficiently sensitive to permit accurate timing. Too much vital detail may
be lost in the condensation of the daily price movement and volume behavior in the
weekly chart. The principal value of the weekly and monthly vertical charts lies in
the historical background, that is, the perspective they afford of the long range
move and old points of resistance and support. But even for these purposes, the 1
point and the 3 or 5 point figure charts are quite satisfactory.
Both the vertical and figure charts may be kept in a loose-leaf note book, of
the size of this volume, or pocket size, or on larger sheets, say 11 by 16 1/2
inches, according to your individual preference.
Far most students, charts of the
size accommodated by a three ring loose-leaf binder holding sheets 8 1/2 by 11

inches, are most convenient.
Section 6M Page 4
DETERMINING THE TREND OF THE MARKET BY THE DAILY

VERTICAL CHART
of the
New York Times Average of 50 Stocks
As previously explained (Sec. 4M, Pg. 16, Par. 3, and Sec. 6M, Pg. 1, Pars.
1 & 3), the most important thing to know about the market is the trend. Since we
aim usually to operate in harmony with this trend, a study of our Daily Trend
Chart (daily vertical chart of a composite stock average) should be the starting
point of all our deductions.
No one has yet succeeded in devising a perfect average one which unfailingly represents the action of the market as a whole at all times. In other
words, it cannot be said that one average is consistently better than another.
Investing and trading is an art rather than, a science, hence you must not undertake to make precise calculations nor expect precision in a general market average. It is important for you to know this so you will exercise judgment at all times
in reading your Trend Chart, and so you will remember that the deductions you
draw from it must frequently be adjusted to conform with what you see in the
behavior of your Wave Chart, your Group Charts (or Position Sheet) and your
charts of individual stocks.
Subject to the above qualifications, you will find the New York Times
Average of 50 Stocks a generally satisfactory guide to the trend and position of the
market as a whole. The New York Herald Tribune Average of 100 Stocks is another good average. You may prefer to keep both. If neither is available, you will
find that almost any popular average, such as is printed in leading newspapers
throughout the country, will suffice. Or, if necessary, you can make your own
composite average by combining the three Dow-Jones averages (Industrials, Rails
and Utilities) into a total of 70 stocks, provided you are located at a place where
these averages are printed daily. To do this properly requires some adjustment of
the figures which we shall be glad to explain on written request.
Section 7M Page 1
Regardless of what average you use, the same line of reasoning as that explained herein should be followed in reading the indications given.
The accompanying chart (Pgs. 33, 34 & 35) includes the total volume of
transactions of all stocks dealt in daily, as indicated by the vertical lines rising
from the bottom of the sheet. These volumes must be considered in conjunction
with a study of the price movement. The element of time, as previously explained,
is represented by the daily additions to the chart from left to right. The closing
figure of each day is indicated by a horizontal line across each of the vertical lines
which represent the range from high to low.
A good way to impress upon your mind the principles involved in reading
the chart is to take the pages out of the binder and place them beside the text.
Then, with another sheet of paper, cover all but the extreme left side of the chart,
exposing only the first few days plotting. As you read the instructions which
follow, gradually slide the paper toward the right, revealing the price movement
and volume one day at a time. This will have the same effect as reading the
market just as if it were being recorded on the chart today and as if you didn't
know what was coming next.
The story told by this chart is as follows: We use the period from December
8th to December 17th as our starting point, and without regard to the market
history previously recorded. This interval of nine days marked a sharp
acceleration of the previous major decline, culminating in a widening spread of the
daily price range and a very marked expansion in the daily volume of trading as
the market reached its low point thus reflecting the panicky selling which takes
place under such conditions. (See Sect. 4M, Pg. 23, Par. 1, 4th Line; Sect. 8M, Pg,
6, Par. 3; Sect. 16M, Pg. 4, Par. 1; and Footnote on next page.)
The volume on the 8th was around 2,000,000. This increases to 5,000,000
on the day of the low point. Tape observers would have noted the fact that a large
part of this volume occurred as the market recorded the extreme low and on the
rally from the lows. This confirms the fact that the climax of the downward

Section 7M Page 2
movement (*) has actually been passed, and gives us the starting point for our
next forecast. (A Wave Chart would show the details of this tape action, including
the feverish activity around the day's low point.)
We must now assume, in view of the above, that the trend is tentatively
upward; but this is subject to confirmation by the appearance of higher support on
the next reaction; that is, if on the next down swing, prices should break
through the turning point of 135 1/2 recorded on December 17th, it would be
* The phenomenon of the Selling Climax is caused by the panicky unloading

of stocks (supply) by the public and other weak holders which is matched against
buying (demand) of (l) experienced operators; (2) the large interests and sponsors
of various stocks who now either see an excellent opportunity to replace at low
prices the stocks they sold higher up, or wish to prevent further demoralization by
giving the market support temporarily; and (3) short covering by the bears who
sense a turn.
Stocks thus become either temporarily or more lastingly lodged in strong
hands. An abnormal increase in volume is one of the characteristic symptoms of a
selling climax, since supply and demand must both expand sharply under these
conditions. But the supply is now of poor, and the demand of good quality; and
since the force of supply now will have been exhausted, a technical rally ensues.
If buying on the break (i.e., during the Selling Climax) was principally for
the purpose of supporting prices temporarily and checking a panic, or relieving a
panicky situation, this support stock will be thrown back on the market at the
first favorable opportunity, usually on the technical rebound which customarily
follows a selling climax. This, and other selling on the rebound, may increase
supply sufficiently to drive prices through the lows of the climax day and bring
about a new decline, that is, a resumption of liquidation.
On the other hand, should a secondary reaction occur after the technical
rally above referred to, and prices hold around or above the climax lows while
volume at the same time shrinks appreciably, we have an indication that liquidation was completed and, support is again coming into the market. Therefore, the
market's behavior on these secondary reactions is usually indicative of the next
important move.
In this connection, it should be noted that the same principles which apply
to the large swings also apply to the smaller moves and to the day-to-day buying
and selling waves. Thus, a careful examination of your Trend Charts, Group
Charts and charts of individual stocks over a period of time, will reveal numerous
examples of the above phenomena. These will appear on a small as well as a large
scale. However, you must allow for variations. That is, do not expect one selling
climax to look exactly like another. The same basic characteristics may be
observed; but the time and magnitude of price movement and volume, and the
extent and sequence of price movements almost invariably will differ.
For example, the abnormal volume may last either one or several days; or
the abnormal volume may precede the recording of the extreme low point one or
more days. In other words, a selling climax may be completed in one day or be
spread over a few days, and volume may reach unusual proportions on the day
the low point is made or some days ahead of the final low.
Section 7M Page 3
evidence that liquidation was not completed and that support which turned the
market upward on the 17th has been withdrawn. (See Footnote, Pg. 3, Par. 3.) On
the other hand, if, as happened to be the case, the buying support comes in around
or at a higher level than 135 1/2, we may conclude that demand is beginning to
overcome supply, (Footnote, Pg. 3, Par. 4) and that the next logical development
for final confirmation of an important reversal will be the market's ability to rise
above the top of the last rally, which was around 150, Dec. 18th.
On January 3rd these averages rise above 152, which gives final confirmation of an upward swing which might develop into a rise of substantial proportions.
In taking a position in the market, which, of course, would be a long
position, we have had, up to now, three opportunities:
(1) On December 17th when the market gave indications of having
completed a selling climax, and at the same time, as shown by the
entry on our vertical chart for that day, was able to rally vigorously
on increasing volume. This was the first time it had shown ability to
rally aggressively and the first time increasing volume had been shown
on an advance for sometime past. On the basis of these tentatively
bullish indications we are justified in establishing long positions if we
can get in near enough to the lows so that, when we place stop orders
(Sect. 23M, Pg. 3, Par. 1) on our commitments two or three points
under our purchase prices, our stops will be about 1 to 1 1/2 or 2
points under the danger level, that is, the lows of the climax day.
(Sect. 23M, Pg. 1, Par. 2 and Pg. 14, Par. 2.)
(2) Our next buying opportunity is on December 29th when the market
completes three days of lower support but the closing prices on each of
these days are between 140 and 141, showing that the selling pressure
is losing its force, since the net result of these three days pulling and
hauling is to leave the average almost unchanged following a
considerable reaction.

Section 7M Page 4
At the same time, lower volume on the reaction from the December
18th high, compared with the volume of the mid-December decline,
confirms the inference that selling pressure is losing its force; buying
power is overcoming it. As it now appears that the market has
completed a typical secondary reaction (see Footnote, Pg. 3) which has
the effect of broadening the zone of support around the 136-140 level
to sustain a proportionately more substantial advance than the first
recovery, we either buy on this reaction if we missed our first
opportunity, or add to our holdings; with stops on these new positions,
as before, under the danger, point, that is, the lows of December 17th.
The average is now "on the springboard" (see Sect. 14M, Last Par.
Pg. 4 and Pg. 5).
(3) On January 3rd the average goes into new high ground, overcoming
the previous tops of December 18th, 19th, 20th and January 2nd.
Volume tends to increase on the rally days, December 30th to January
3rd, an indication that is characteristic of a bullish trend. However,
this is the least favorable of our three buying opportunities so far,
since we would now be purchasing on an up wave, thereby, materially
increasing our risk, whereas previous commitments were established
on down waves, close to the danger point. (Sect. 5M, Pg. 2, Par. 2.)
Remember that we are now studying the average or composite price of 50
stocks, which is our chief guide as to the direction of the trend. It is impractical for
us to operate in all of these fifty stocks at the same time; therefore, we must
select, when we wish to trade or invest, the individual issues which are showing
the greatest technical strength at the time. For this reason we must turn to our
Group Averages or our Position Sheet which enables us to select the best out of our
list of individual stocks, in order to find the one, five, ten or more stocks which
promise to yield the largest profits in the shortest time. (Sect. 6M, Pg. 1, Pars. 2 &
3.)

Section 7M Page 5
Having decided that the trend of the market is upward we must thereafter
continue to trade on the long side until there are indications of a change in trend,
or until the trend is in doubt. We must always be on our guard against such
changes; and when the trend is in doubt we must take a neutral position, that is,
be out of the market.
For the next several days, until January 9th, the market makes further
progress an the bull side, recording 156 1/2 on that day; but observe that the
closing figured on the 6th, 7th, 8th, 9th and 10th are all within a range of about
one point. That means the market made no upward progress as a net result of four
days' activities following the 6th. The daily volume shows a tendency to taper off,
which may mean a lessening of demand at the top of the swing to January 8th.
(Sect. 4M, Pg. 25, Par. 1, 6th Line.) This conclusion is partly confirmed by the
shortening of the upward thrusts from the 3rd to the 7th, indicating that it was
hard work advancing the market from 150 to 155. Buyers now seem reluctant to
follow prices upward. On the day when the high of 156 1/2 is recorded, the
volume increases abruptly compared with the volume of the preceding sessions at
the same time that the price runs up to a new high only to close near the day's
low (*) and actually below, that of the previous session. All of the foregoing is
evidence of the approach of a corrective reaction, but we still hold our long
position because, as yet, we have had no indications of important distribution.
Such a reaction begins on the 12th and the low point of it occurs on the
* The action of the 9th is an illustration of a typical buying climax, which is

the reverse of a selling climax. On this day, a poor quality of demand is being
promptly overwhelmed by the superior force of supply of good quality. In other
words, the bulls, realizing that they are encountering resistance to the advance,
break the stalemate of the 6th to 8th by bidding prices up to attract those buyers
who were too timid to come in before the advance to 155, but who now fear that
the market may get away from them because it is "making a new high." Thus,
there is a concerted rush of public demand which gives the larger and shrewder
operators their opportunity to dump part of their lines on a broad and active
buying wave, made to order for the purpose.
Section 7M Page 6
16th. Volume on the reaction diminishes appreciably compared with volume on the
rise from the December 29th low, a bullish indication, showing that the selling
pressure is light. On the 16th, the closing is nearly at the high point of the day
a bullish indication which is the reverse of the bearish indication on the 9th. This
is our first sign that the reaction is nearly over. (*) So here we have a now buying
opportunity in expectation that the advance will be resumed. (**) Further
confirmation of this comes in higher support on the 17th and in an almost
complete drying-up in volume on a dip to the same low level on the 19th. The
closing prices on the 15th, 16th, 17th and 19th show support within a narrow
zone, mostly around 147-8. We must, therefore; look for the advancing tendency to
be resumed.
Then follow four days, in each of which we see higher tops, higher bottoms
and higher closing levels, accompanied by gradually increasing volumes bullish
behavior. This brings the market up within a fraction of the high figure of January
9th where, on the 23rd, a volume surge after four days almost perpendicular
advance warns us of a buying climax. But here, in any case, we way expect hesitation or reaction, due to the influence of the previous top January 9th.
Now observe that for the next thirteen sessions following the 23rd the market fluctuates within the range of 156-151, a very narrow range for the average.
This is because it is called upon to absorb offerings representing stock purchased
by over-anxious bulls who got hooked around the high level of January 9th, and
perhaps other quantities bought on the way down in 1930 during the period not
shown on this chart purchases made by people who are now eager to get out
even.
* Note that there is also an indication of a minor selling climax in the

somewhat marked increase of volume on the 15th.
** To insure proper limitation of risk on purchases made at this level, our
stops should be placed a point or so under the supporting points (lows) of the
16th. The stops on these new, and any previous, long commitments, should be
raised to within a point or so of the January 16th to 19th supporting level after
the rally of January 20th.
Section 7M Page 7
Such absorption is evidently completed by February 9th when after closing

almost at the top on the previous Saturday, an advance into new high ground, 160
5/8, is recorded. (*) Note how the speed of the advance tends to increase, the
average gaining 9 points in two sessions 9th and 10th. (This is the mark-up
forecast by item 3 in the footnote below.) See also how the volume increases to
4,000,000 shares and over on these two days, compared with a previous volume
of 1,000,000 or 2,000,000 a day for thirteen days past. The exceptionally large
volume of the 10th and 11th, plus the failure to record any material further gain
on the high volume of the 11th, as usual, is an indication of some distribution and
a setback. On the 11th the average makes a high of only 1 point above that of the
10th and closes at only a small fractional gain, on large volume a large supply
overcoming demand.
Now, as we watch the supporting points for the next five sessions (13th
to 19th), we find that they are all around the 160-162 mark. Meanwhile, volume
decreases promptly on the dip to 160. This says there is another advance coming;
the market is not ready to turn downward yet. On the 17th there is an attempt to
run the average up to a new high, which fails. The closing is almost on the
bottom and volume increases noticeably over that of the three previous sessions.
It looks at first as if this might be a buying climax (Footnote, Pg. 6), preceding
the end of the rise, so we bring the stops on our long trades up" within
* The probability that this lateral movement, or trading range, between

156-151 is an area of absorption rather than one of distribution may be determined: (1) from the fact that volume remains low on the reaction to January 29th
and takers off promptly on the reaction to February 2nd; (2) from the tendency of
the price movement to narrow into a comparatively small range instead of reacting
as much as halfway back to the January 19th low, which implies that stocks are
not being pressed on the market; and (3) from the fact that after the recession to
February 2nd, volume tends to build up consistently at the same time that there is
a lifting of the supporting points from February 5th to 7th behavior typical of
the completion of a period of accumulation or absorption prior to a mark-up. (Sect.
10, Pg, 9, Par. 1 and Sect. 16M, Pg. 28, Par. 3 & Pg. 29, par. 1).
After the mark-up of February 9th, we raise the stops on our long commitments; to a figure within a point or so of the lows of the Jan. 23 Feb. 7 trading
zone, inasmuch as the Feb. 9th rise enables us clearly to define the 151 level as a
new and critical line of support.
Section 7M Page 8
one point of the February 14th low as a precautionary measure. We have now
had a substantial advance, followed by six days lack of progress and comparatively high volume, which means that the market has reached a critical position.
But the average is immediately supported the next day and on the 19th
the closing is nearly at the top. It thus shows ability to rally away from a
possible danger zone and willingness to try to negotiate the resistance around the
tops of the range at 166. The lower volume under these conditions may mean
that the supply of stocks has become scarce; so we sit tight. Next day, the 20th,
the average advances again into new high ground, absorbing the overhanging
offerings on a volume increasing from around 2,500,000 to nearly 4,000,000
shares; on the 21st to a new high and a higher closing, with the volume up to
5,000,000 shares; thus far making progress in proportion with the expansion of
volume.(*) On the 24th (holidays intervening) it registers a further gain of 2 7/8
points in price and a little over a point and a half in the; closing figure, on a
volume of 5,300,000 shares. We now become very suspicious of this advance on
such large volume and particularly the failure (apparent on the next day) to hold
a quick upthrust to a new high on such a heavy turnover (which is characteristic
of distribution), suspecting that this volume surge may be climactic.(**)
Accordingly, we move our stop orders up within a point or two of the lows of the
24th.(***) Next day, February 25th, we observe a lower top and bottom and a
lower closing, as well as a loss of the two previous days' gain,
*The actual volume of Feb. 21st was 2,435,000 but in comparison with the
volume of recent five-hour, and recent previous Saturday sessions it is clearly evident
that this two-hour turnover is relatively large and consistent with the increase of Friday,
Feb. 20th. Hence, in order more fairly to reflect the relative magnitude of this particular
Saturday's volume in comparison with the full five-hour sessions we double the
actual total and find that we have the equivalent of a 5,000,000 share day. (See Footnote,
Sect. 19M, Pg. 8.)
** With volume running at the rate of 5,000,000 shares per day for three
consecutive sessions, we conclude that the market1 s advance is attracting an expanding public following. This increased public participation creates an active
demand (of poor quality) which facilitates unloading (supply of good quality) by
large interests at prices advantageous to themselves.
*** Meanwhile, following the mark-up of February 21st, our stops were brought
up under the Feb, 14th low point.
Section 7M Page 9
which indicates that supply is overcoming demand and confirms the previous indication of a probable reaction. If our stops have not been caught, we now promptly
close out all our long stocks; and select from our list of individual issues the best
five or ten that are in the weakest technical positions, and sell them short with
stops 1 to 3 points above the danger level, i.e., the high points of the advance.
After such a prolonged rise, we may expect a more substantial reaction
than any we have had since the December-February bull move started; and,
perhaps an important decline because there have been evidences of distribution
extending as far back as February 10th. On the 26th, the high, low and closing are
almost identical with those of the previous day. The market, therefore, is making
no further progress upside on heavy volume, but the demand is still enough to
hold it within the previous range 168-173. On the 27th, however, we note a
clearly lower top, bottom and closing, and some but not a very large
shrinkage in volume to about 3,700,000 shares. The significant feature of this
day's action is that it marks a pronounced change in the market's behavior. It is
the first time since early December that volume has remained so high on a
reaction. Heretofore, volume has been shrinking promptly oh setbacks.
The fact that prices cannot continue to advance into new high ground, combined with the comparatively high volume, leads us to conclude that the big fellows
are unloading. And the relatively large volume on the reaction of the 27th
indicates that they are filling up all the buyers on the way down from the highs
with what they were unable to sell in the range between 168-173.
We must bear in mind that prices have now advanced from 135 l/2 to 173,
37 1/2 points. This is a big rise in the averages, because such a rise indicates that
many individual stocks used in making up the averages have advanced nearly
double that amount. Also, the angle of the advance, as shown by placing a ruler
along the line of bottoms from February 5th to the 18th (see Section 15M) is such
that it is unlikely that this pace of acceleration of rise can be maintained.

Section 7M Page 10
This is emphasized by an even sharper angle from the 18th to the 24th, when the
supporting points were raised considerably away from the previously established
diagonal support line. This sudden whooping up of prices, after such an advance,
suggests the application of hypodermics which, combined with a high and expanding volume, increases the market's vulnerability to heavy realizing sales and
likewise increases the danger of a general withdrawal of experienced operators
who refuse to continue to buy at those levels. It is such conditions as these
(created, as they are, by large interests who are managing the market) that are
detected by floor traders and large outside professionals and recognized as indications of a turning point. The latter now add to the supply by getting out of
their long stocks and taking short positions, thereby not only helping to assure a
turning point but also placing themselves in a position to profit by that downward
swing. (*)
We must act in harmony with these shrewd operators and put out more
shorts, (with stop orders placed as before, above the Feb. 24th resistance point) as
the action of the 27th gives us a new selling point.
On March 2nd, after a little
rally, the average declines 6 points from the high of that day and closes nearly at
the bottom. If we have ignored all the previous warnings of a gradual weakening of
the technical position, we cannot ignore this decisive breaking of the very
backbone of the advance. This day's behavior shows definitely the heavy
*We should also suspect, when we see such "whooping up" tactics, that informed interests are in a hurry to wind up their campaign of distribution because
they see some bad news or adverse conditions in the offing, events not yet apparent to the public, which draws its conclusions from the emphasis placed on all
current "good news" and the befuddling atmosphere of bullish excitement in
boardrooms.
In your own experience, you must have observed that "bad news" very
frequently comes out, say a week or ten days, after a decline following just, such a
violent bidding-up of prices. Financial writers then "explain" the break as being
due to the bad news. But the logic of the situation is that large interests have
already sold out their long stocks in anticipation of impending bad news, thus
creating the supply which starts the market downward before the general public is
aware that any bearish developments are imminent. Insiders may, in addition,
take short positions in advance of the unfavorable news so they may have added
buying power with which to support the market when a frightened public begins to
sell in response to, and simultaneously with, the release of the "news."
Section 7M Page 11
withdrawal of bids underneath the market, and the volume (3,300,000) remains
high very high in comparison with the volume on all previous reactions since
December 8th indicating that very substantial lines of stock are still being
pressed for sale by large interests. Having accepted some or all of the bearish
indications of the foregoing six sessions, we conclude that the upward trend has
terminated (at least for the time being), after running the greater part of
December, January and February and that a change to a downtrend has begun.
That is to say, we are entering a substantial intermediate reaction which may
develop into a decline of major proportions. (*) It looks now as if we were correct
in our assumption that some distribution was accomplished as early as February
10th, but the main move upward was continued in order to facilitate unloading of
stocks which had not topped out at that time. (Sect. 8M, Pg. 4, Par. 4 and Pars. 1
to 4, Pg. 5.)
At this juncture we should be alert for opportunities to sell short more of
such stocks as are shown by their individual charts and group charts to be in a
weak position. These should be sold short only on bulges, and the fact that the
averages have declined from the top about ten points (although they may decline
further) is an indication of a part-way rally which normally is likely to fall slightly
short of the recovery of about half the recent decline.
The initial reaction of the downward swing ends on March 4th at around 159,
* Under the conditions now existing, we should liquidate investment as well

as long trading positions, for even though it may develop that the major trend will
turn upward again later on, by standing aside with our investment funds liquid
while the market is working out an important intermediate downward swing, we
avoid the danger of carrying some or all of our investment stocks through a bear
cycle. Thus we insure ourselves against serious depreciation of capital and the ever
present possibility that some of the stocks which we originally held might fail to
recover on the next or succeeding advances.
We shall have ample warning when the market is again stabilizing and preparing for a new bull movement. With buying power intact, investment positions
can then be reestablished. And most probably we shall find that certain of the
stocks we previously held will not be as desirable nor as responsive to the next
upward cycle as others which will become new leaders.
By such scientific handling of investment commitments, we may gain more
through capital appreciation than we might lose in dividends in consequence of
having stayed out of our stocks for as much as a year or more.
Section 7M Page 12
a point at which the market was previously supported on February 14th. Here we
have a reverse of the situation which existed on January 23rd. (Pg. 7, Par. 1.)
The sharp acceleration of the downward movement on March 2nd, 3rd and 4th
creates an oversold position (Sect. 14M, Pg. 3, Par. 3} at the same time that the
average touches a former support level, a condition that usually is conducive at
least to an attempt at a rally due to the buying of traders and others who may
believe that stocks are again cheap, and covering (buying in) of shorts on the part
of bears who wish to cinch profits and stand aside, waiting to see how the market
will meet a test of the former supporting level.
Our expectations of hesitation and a possible rally from this point are
fulfilled as demand from the above sources brings a fairly vigorous run-up on
comparatively light volume on the 5th. A further rally to a higher top and a higher
bottom next day tends to confirm our anticipation of a possible turning point for
more recovery; but the sudden increase of volume on the 6th may indicate the
climaxing of the rebound, so we wait for clearer indications. Another higher low
(marking the fourth day of no material progress on the down side) and a closing
near the high on the 7th says that the volume of the previous session was
climactic on the down, rather than on the up side. This demonstration of a change
from technical weakness to technical strength brings in sufficient new demand to
start the part way recovery we have been waiting for. However, we do not expect
this recovery to carry much above 165 because large interests would not be willing
to help the market far enough into the February distribution area to let the public
out even.
Stated another way, our reasoning is that a part way recovery would now
be a normal development; but the big fellows would be anxious to run the market
back to the February tops only in the event they saw an opportunity of pushing
prices far enough above those former highs to realize a profit on the offerings they
would have to take from the buyers who are "hung up" with stocks at these

Section 7M Page 13
levels. Even should they see such an opportunity, it is more likely that they would
prefer first to tire out, or shake out, this overhanging supply. However, we reason
further, that in view of the extent of the distribution as indicated by the heavy
volume and breadth of the February campaign, the greater probability is that they
will manage just enough recovery to discourage amateur shorts from selling and to
keep the February buyers locked in while they, at the same time, distribute more
stock on rallies to a lower top.
Meanwhile, we observe that the average, from February 24th to March
4th, recorded a total decline of 14 points from the high of 173. A normal recovery
of less than half of this would be five or six points in the averages; or to 164 or
165 (approximately) (Sect. 14M, Pg. 4, Par. 2.) On March 10th, the average actually recovers 7 points from the low, which is just halfway. Volume on this rally
is not measuring up to the standard of -the February rise; behavior which (1)
marks the rebound as purely technical, and (2) indicates the exhaustion of buying
power as a result of filling up all the buyers on the previous distributive
movement, thus (3) confirming the probable accuracy of our other deductions.
Around the top of this rally, therefore, we take our additional short
positions, selling at prices as close as we can to the danger points on the individual
stock charts, so that our risk is limited to a minimum in every case. Further
symptoms of progressive weakening of the market's position appear in the dip to
March 13th. The volume (*) again remains comparatively high instead of
shrinking appreciably as it did during the corrective reactions of December,
January and the forepart of February; and oh the 13th we find the average down
to 158, which is a point lower than the previous supporting point of March 4th.
This substantiates the correctness of our general bearish position and suggests
* In judging volume behavior, allowance must be made for the fact that
declining markets normally are accompanied by lower volume than advancing markets except, perhaps, at times when active liquidation is taking place. The reason
for this is that, bull movements attract a much greater public following than bear
movements. (Footnote, Page 25; also Sect. 8M, Pg. 6, Pars. 1, 2 & 3.)
Section 7M Page 14
further selling on subsequent rallies if we have not sold our full line.
In the following several sessions there is an irregular recovery to 166 with
no material nor consistent expansion of volume except for a sudden increase on
the 19th. But this has the earmarks of a climaxing indication, confirmed by
hesitation or lack of further upward progress on the next two days. We now
also note that the average is faltering about a point below the top of the rally of
the 10th, at a level where our previous deductions led us to anticipate just such a
probability. We watch carefully for further developments, realizing that the
average has reached a critical position. Should new demand fail to come in here,
we may anticipate a decline in proportion with the extent of the primary
distribution of February, to which there has now been added secondary distribution
on this March rally. (Stops on our short positions may now be brought down
within 1 or 2 points above the highs of March 10th to 25th.)
There is more lateral movement over the next three sessions, featured by
a weak rally on the 24th and 25th (note the relatively small volume), making a
total of six sessions during which the average has hesitated just under the lows
of the February 20th-28th trading range. The markets inability to overcome the
high of March 10th, and its failure even to equal that level is now clearly de
fined, affording final confirmation of the comparative safety of our short posi
tions; likewise a clear warning of the advisability of liquidation-by investors
who may not have sold out heretofore, since we now have all of the elements to
corroborate the prospect of a substantial decline.
On March 26th, the average starts downward, plunging toward the recent
line of 158-160 supports on steadily expanding volume over the next two sessions,
which tells us, in advance, that these former lows will not hold. (*) From here
*The volume surge of March 28th (4,200,000 shares if we consider this

Saturday's volume as doubled) should not be mistaken for a selling climax. The
distinguishing difference between this day's relatively large volume increase and
previous volume surges is that the latter appeared after an extended or well

Section 7M Page 15
on the down trend is unmistakable, continuing almost without interruption. A

brief rally on the 31st and a small two-day rebound from the old January 28thFebruary 2nd supporting level around 152, on April 4th and 6th, emphasizes the
weakness. (Note the immediate shrinkage of volume on these rallies.)
Next follow several days of holding within a narrow range from April 7th
to 14th inclusive, as the average approaches the January 15th to 19th supporting points, with no evidence of any selling climax nor convincing rallying pow
er. But as the average levels off and then drifts to a dead center on the 11th
(Sect. 10M, Pg, 1, Par. 5), we may reduce the stops on our short positions to a
point or so above the level of a half-way recovery from the April 7th low, mere
ly to guard against an unexpected change of trend. But instead of rallying vig
orously away from this dead center, after six days apparent support, the mar
ket tells us there is still no buying power by its inability to enlist higher support or
materially expanding volume when it tries to follow up the advantage of the April
13th bulge.
On the 15th, a breaking down into new low ground confirms the above indi
cations and affords an opportunity for increasing our short line by pyramiding
developed downward swing, whereas the comparatively high volume of March 28th
accompanied the penetration of the March 4th to 27th trading range, 153-166;
and therefore indicated a large increase in supply, stimulated by the breaking
down of the line of supports around 158-160.
To clarify this, we may set forth the following principle:- A sudden or
abnormal increase in volume, appearing after a given price movement has been in
progress, usually indicates the end or the approaching end of that particular
movement, up or down.
However, if unusual volume appears when the price is breaking through a
well defined trading range, or zone of congestion, in that event the abnormal
volume more probably indicates a continuation of the price movement in the direction of the break through. Thus, if the price works up to the top of a trading range and breaks out on large volume, the inference is that somebody is
willing to absorb all of the offerings overhanging around the previous tops in
the expectation of pushing the price to a higher level; and vice versa in the
case of a break out on the down side of a trading area. Whether he or they will
succeed in extending the movement and accomplishing the purpose intended will
depend upon the existing condition of the market.
Therefore, you must not attempt to apply the above principle in a mechan
ical way, nor as a fixed, or hard and fast rule; but consider it only in con
junction with other contemporary technical manifestations.
Section 7M Page 16
with more short sales of the some or other stocks which promise to exhibit the
greatest weakness. These sales can be protected by stop orders one or two
points above the highs of the previous day; and the stops on our other shorts may
now also be brought down to the same levels. The persistent increase-in volume
from April 11th to April 18th accompanied by declining prices is characteristic of a
liquidating market, and so long as volume continues at about this level, or higher,
there is little danger on the short side, with systematic stop loss protection, as
above indicated.
There are occasional sharp rallies, evidently made by short covering,
such as on April 30th and May 1st. This kind of buying kept the volume up to
around the 3 million share level but as will be seen by the performance of May
1st, such advances are quickly lost because when the numerous shorts have
covered no buying power remains to take the place of this demand, and the market
underneath proves to be hollow. (*)
* The volume surge of April 23rd implies a possible selling climax which
suggests that in- view of the extent of the decline to date and the fact that the
average has now come down into the important December support area, we might
expect a corrective rally to appear here.
A normal rally would be about halfway back to the April 14th high point
which, in this instance, would also be up to the small rally top of April 20th, or to
about 146. Because of the previous bearish behavior of the averages and the
likelihood that we are in a liquidating market, we do not regard this one day's
slender evidence (that is, the high volume of the 23rd) nor the possibility of a
corrective rebound as threatening to our short positions. However, if we wish, we
may reduce our stops to a level one or two points above the part way rally mark
while we watch to see what the market will do next.
When it fails to rally as might be expected but instead sinks back almost
immediately to close at the low points with no shrinkage of volume on the 25th, we
recognize that it is vulnerable to fresh selling pressure.
The sharp rally of April 30th puts us on guard again, however, for now we
observe that the downward thrusts have been shortening since the 28th that is,
between the 27th and 30th the bottoms show a tendency to rapid off or flatten out
i.e., the rate of declines diminishing. From the standpoint of the major trend,
the breaking of the December lows, plus our other indications, are still bearish. But
"the slackening of downward progress, on comparatively heavy volume, also
warns us to be on the lookout for a possible minor turning point, in other words, a
belated technical recovery which may later prove to be the beginning of a more
important change depending upon how the market behaves during and after the
indicated recovery.
Section 7M Page 17
Observe how the rally beginning May 2nd and running to the 4th and 5th is
accomplished on markedly decreased volume, showing that whatever demand
exists in the expectation of a recovery from the former December supporting level,
is not willing to follow prices up. Such support is more likely to be due to short
covering than the reentry of substantial buyers. The rally which begins May 7th
lasts only three days until the 9th and that day's close is around the low, which
shows that the bulls have exhausted their buying power. (*) From the 11th the
downward march of prices is resumed and the volume again increases on the down
side, showing a breaking out of fresh liquidation. (Note the complete failure of any
tendency toward hesitation or rally as the average touches the critical April lows.
Compare this action with December 26th to 30th, and see Footnote Page 3, Pars. 3
and 4.)
A low point is recorded around 113 on June 2nd, with the closing practically at the low. The only warning the average itself gave us of an upturn from
this point was the small downward progress made on June 2nd in comparison with
the previous day; the closing price on June 1st was 114 1/2 and on the 2nd, 113
3/8 notwithstanding heavy dealings 3,300,000 shares. This showed resistance
possible buying by substantial interests. Moreover, the market has now been
declining steadily since the high point of February 24th when the average-recorded
173. The price of 113 is therefore 60 points down, which means that prices have
shrunk about one-third from the high.
From our figure charts of the averages and the position of our group
* Additional indications of the weak character of this recovery are given by

the following:- (1) the volume surge of May 8th which is confirmed as a minor
buying climax by the prompt loss of that day's gain over the next two sessions, as
(2) the average runs into resistance just under the temporary supports of April
17th to 21st resistance created by the offerings of buyers who mistakenly
judged those lows to be a bottom and who are now anxious to get out even. On the
up-wave to May 9th, therefore, we have another selling opportunity in anticipation
of a resumption of the major decline on the secondary reaction to the April lows.
Section 7M Page 18
charts and of leading stocks on individual charts, and the action of our Wave
Chart, we may learn that a danger point to shorts is approaching. But for the
purpose of this explanation of the vertical daily Trend Chart, we will assume that
this is our only guide. So when the market suddenly reverses its form on June
3rd, recovers 9 points (from the low point) in the average and closes nearly at
the top, with the volume of trading equal with that of the two previous days of
heavy liquidation, we must, somewhere during the, session of June 3rd, cover
our shorts if we are still short. In any event this should be done at the next
day's opening. (*)
The overages have shown no preparation for a change in trend. This
sudden change is like a hypodermic or a heart stimulant, administered to a patient
who is dying. He suddenly revives. Of course, we all know that this change reflected the favorable sentiment due to President Hoover's plan of postponing reparation payments. But these things do not always show on the charts at the time
they occur and we cannot consider them. We are learning to read the market
without the aid of the newspapers. Having operated on the short side for the past
three months, we have substantial profits, even though we cover at the high prices
of June 3rd or around the opening of the 4th. We await developments in order to
ascertain whether this bullish factor is sufficient to turn the tide; that is, turn the
bear market into a bull market. With sufficient experience as a foundation for our
judgment we know that such violent changes in trend occurring within a few hours
are not a lasting basis for bull operations.
The closing at the top, June 3rd, in itself indicates a further rally. On the
4th, there is a gain of nearly 5 points (over the previous day's high), making
about 14 from the low point. The volume is still high, over 3,000,000. That
* Additional reasons for taking such action are that the pace of the decline
on May 27th and June 1st became so sharply accelerated as to create an oversold
condition which is dangerous to shorts; and the speed with which the market
recovers the latter day's loss (on June 3rd) suggests that this last phase of the
downward movement is probably in the nature of a shake-out. (Sect. 2M, Pg. 3,
Par. 1.)
Section 7M Page 19
is, we have good progress on high volume. But on the 5th the gain in the average
is only 3 points, and the volume decreases a little, showing that the buying power
is less; buyers are reluctant to follow prices after such a steep rise. The closing
price is below that of the previous day, which indicates that the day's net
pressure, or supply of stocks, was greater than the demand. This looks as if the
rally is over for the moment. On the 6th there is a further loss of nearly 8 points,
bringing the average down half-way from the top a normal reaction on reduced
volume. On the 8th, after a further small recession, the average runs up and
closes at the top, showing that the market met support at the 120 line. It recovers
to 125, which is about two-thirds of the reaction. Although the volume is
comparatively light, the speed of the rebound and the behavior just described says
the balance is in favor of the bull side.
From the 8th to the 15th a zone is established roughly between 130 and
120. On the basis of what this chart indicates, we are neutral (Sect. 19M, Pg. 3,
par. 3), waiting to see whether, when the market works out of this zone, it will be
on the up or down side. As the rallying days proceed, we observe a falling off in
the volume, which is not a bullish sign; also that on the 11th and 12th the net gain
(in the closing price) for the day on the up side is a point or less. The average
seems to be meeting resistance again where the June 5th rally was checked. On
the 13th the range of the average narrows until it is less than 2 points, with a
fractional not loss for the day. This is also a bearish sign the narrowing into
dullness at the top of a 17 point rally, on a volume of only 540,000 shares (or
about 1,000,000 if we double this Saturday turnover).
This bearish symptom is confirmed on the 15th by a little wider spread
(from high to low) meaning more activity (greater willingness to follow prices
down), a closing near the low and an increase in volume, showing slight increase in
pressure. The bearish signs, are then borne out by the following four sessions,
ending on the 19th, with the volume-remaining stationary around 1,000,000. How-

Section 7M Page 20
ever, volume does not increase on the down side, instead it tends to taper off as
compared with volume on the rally from June 8th to 12th indicating light
pressure; nor does the price break out of the 120 range, in fact it meets support
on the 19th at around 122, which is about two points higher than the support on
the previous low of the 8th. ()
All now depends upon what the market does in the next day or two. If we
have another downward session on increased volume, particularly if the average
price goes below that 120 line of previous support (June 8th), we must conclude
that chances favor a lower market (compare with behavior of May 14th and
15th); but if support continues around 122 on such small volume (compare with,
action of Jan. 15th to 21st), there may be a trading opportunity on the long side
with a close stop.
Next day, June 20th, removes all doubts as to the immediate tendency of
the average, for the market opens up a point and a half above the previous night's
close and on a greatly increased volume (**) makes a rapid advance nearly to 131,
putting the average into new high ground above the previous trading zone. The
heavy volume emphasizes the importance of this. (See Par. 2, Footnote Pg. 16.)
The gain in the average over the previous day's high is more than 7 points and
the close is near the top. If we have been watching the tape during the day, or
refer to our Wave Chart at the end of the day, we observe this sudden change and
we either buy during the session of June 20th with a close stop or we wait until
the price breaks through its former highs and buy around
Here we have a variation of the sequence of selling climax, technical rally

and secondary reaction referred to in the Footnote, Pg. 5. Considering-the action in
broad perspective, observe that volume diminishes appreciably on the secondary
reaction to June 19th, even more decisively than in the case of the secondary
reaction to December 29th and in marked contrast with the increasing volume on
the secondary reaction to May 14th which failed to hold. Also, the market on June
19th meets support well above the climax lows of June 1st and 2nd. Likewise
compare the greater speed, spread and sustaining power of the June 3rd to 6th
rebound with that of April 30th and May 1st.
** The volume is obviously large for this two-hour session and hence should
be doubled.
Section 7M Page 21
the closing price of that day-or the opening of the following session, June 22nd, as
the market's behavior to here tells us we may expect a-quick mark-up. We are not
justified in reestablishing investment positions, however, for as explained in
Paragraph 1, Page 19 we do not have the basis for a lasting advance.
June 22nd there is a higher opening and a gain of 7 points in the average,
most of which is held for the day. The volume runs up to 4,600,000 shares the
price is gaining in proportion with the rise in volume. A reaction on the 23rd
shows that most of the gain of the previous day was lost, but the bullish indication
therein is a shrinkage in volume to 2,600,000 shares nearly one-half the
activity of the day before. That is our warning to sit tight.
The 24th recovers the loss; the average advances 8 points for the day and
3 1/2 points above the June 22nd high, or to 141, and the volume is the highest
thus far, over 5,000,000 shares. We begin to grow wary of the bull side because
that volume in comparison with the trading of previous weeks indicates selling by
large interests. (That is a probable buying climax.) We move our stops up within a
point or so of the June 23rd low and await developments.
The 25th makes a further gain of 2 points in the average, then the price
slumps about 6 points, closing a point from the low, on volume of 4,300,000
shares large supply overcoming an excited public demand coming in, as usual,
on the top of the rise. This is distinctly bearish. (*) We therefore close out our long
trading positions and examine our individual charts for stocks which are in a weak
technical position so that we can get short on the next bulge.
June 26th shows a range of about 5 points a little narrower. Although
the closing is near the top, the volume has fallen off to about 3,100,000 shares
and the upthrusts are shortening. In the net these indications are bearish.
* Note the shortening of the upthrusts, that is, the tendency of the
high points to arch over, from the 24th to the 27th.
Section 7M Page 22
The outlines of a new trading zone have been tentatively established between 137
and 143.
On the 27th the average bulges over a point, narrows its range to 3 1/2
points and closes with a net gain of about 1 l/2 points on a volume of about
3,800,000 (Saturdays volume doubled). This looks like bidding up to a new high in
order to catch shorts; and selling on the way down. We therefore put out some
shorts, protecting our commitments with stops 1 3/8 to 2 or 3 points above the
high of June 27th. (Sect, 23M, Pg. 1, Par, 2 and Pg. 14, Par. 2.)
On the 29th the opening is lower and the price recedes from 144 3/4 (the
previous day) to 140, closing near the low. We now observe that the average has
spent four days moving sidewise, making no further progress after a steep rise
from the June 2nd low and, fallowing the 5 million share session of June 24th,
there has be ten a steady decrease in volume. In view of our previous deductions,
we interpret this to mean that there is a lessening of demand on the top of the
rise. We also note that any further lateral movement or reaction would definitely
break the upward stride established on the last phase of the advance from June
19th. (See Sect. 15M, Pg. 2, Par. 3, and Sect. 16M, Pg. 23, Par. 4.) Hence, we are
ready to sell more stocks short if we can get them off on bulges.
On the 30th, the average declines nearly 3 points to 137 on volume
(2,000,000) about the same as the previous day. The market is still in the 137143 zone but has now definitely dropped out of the sharp upward angle in which it
rose from June 19th to the 27th, showing exhaustion of buying power. Low
volume on the two-day dip to bottom of the range 137-143, however, suggests we
may anticipate an effort to rally back toward the high at 143. The way the market
behaves on the expected rally will probably help to confirm, or it may contradict,
our position; so we await developments.
July 1st there is a wider spread in the price, nearly 2 points higher
closing, but volume shrinks to 1,700,000: bearish. On the 2nd the market narrows to a 3 point range for the average and the closing is 1 1/2 points lower

Section 7M Page 23
on reduced volume increased dullness, lower close, and less volume indicate
less power on the bull side. On the 3rd there is another attempt to rally and
the average reaches the old 143 supply line at the upper edge of the trading
zone, closing about 3 points higher but volume is not measuring up to the standard of previous (late June) rally days. Nothing to be afraid of. (We sell more
stocks short on this rally which is the bulge we have been waiting for, placing
stops, as before, above the danger point, that is, the high of June 27th.)
July 6th a 2 point range for the average, closing nearly 2 points down on
1,000,000 shares. We read this as an indication that the rally of July 1st to 3rd
could not be sustained and that the tendency toward narrow swings, heaviness and
dullness is the result of the market's having become saturated with offerings. All
bearish. (*)
July 7th, a rally at the opening (which would be shown clearly by a Wave
Chart), then a 7 1/2 point break in the average on decisively increasing volume
(3,000,000). The market is now out of its former trading zone on the down side
and the volume indicates that liquidation is being resumed. Thus the rally from
113 (June 2) to 145 (June 27) has run its course after lifting the average into the
lower edges of the old December, 1930 - January, 1931 support area, and we must
assume that the next test of the market will be around the levels at which support
was rendered (122) on June 19th. If the large interests who bought on June 2nd
and 3rd, and who undoubtedly distributed their holdings during the high markets
of the last week in June are willing to take them back near or above the previous
low levels, it will be ah indication of their confidence in the future and a sign that
the bear market is over. If there is no such sign we conclude that the bear market
has been resumed and that the June recovery was only an interruption of the
main trend.
We are on the short side and shall occupy that position until we see some
reason for changing it, either to neutral or the bull side.
* The average is now on the hinge and on the "Springboard" for an

important slump. (Sect. 10M, Pg. 12, Par. 2 and Sect. 14M, Pg. 6, Par. 2.)
Section 7M Page 24
A 2 point farther loss oh July 8th, a small rally on a 1,500,000 share

volume during the 9th and 10th (as the average hesitates halfway back to the
June 19th low), then a dropping off until, on the 15th the average nearly touches
126 a 19 point decline from the top. On this day prices spread over 4 points
from high to low and close slightly above the middle of this 4 point range, on a
2,600,000 volume a minor selling climax. There is no follow through on the
down side next day; instead, a quick rally and a high closing. Thus we have two
indications which might lead to a rally. But that will be a normal occurrence after
a decline of 19 points. It should, in fact, amount to 7 or 8 points from the low if it
is to be a real rally. Halfway would be about 9 1/2 points, such a rally occurs from
the 17th to the 21st and amounts to 9 points, thus affording another good selling
level if we are not satisfied with the size of our short line. (*)
Now the rally is over, for, on the 22nd, prices drop off again after approaching the lower edge of the recent 145-137 supply zone a second time (the
first was on July 10th) and proceed toward the former low of 126, where we
watch to see if any real support appears. It does not. The average goes to about
122 1/2, recovers slightly, makes a new low August 10th around 120, rallies nearly 10 points after dipping briefly to the June 9th support point, narrows and dies out at the top (August 15th); swings back again to around 120
* So that you may understand better how to handle your investment funds
and may recognize the hazards in carrying stocks up and down through intermediate bull and bear trends a procedure that causes so many investors heartbreaking losses the following general observations are introduced at this point.
The relatively small volume on which the market is now declining tends to
lull the public into a spirit of indifference toward the market. But, contrary to a
popular impression, the low volume accompanying the steady downward drift is of
bearish and not bullish import.
This small volume is explained by the fact that the majority of people are
"constitutionally" bullish. They can always be induced to buy stocks after the
market has been advancing for some time, or when everybody else seems to be
buying. But, as pointed out elsewhere (Footnote, Page 14 and Sect. 8M, Pg. 6,
Pars. 2 & 3), they fear to sell short and hence will not participate in a bear
market as experienced operators do. Consequently, the volume of daily trading,
tends to grow smaller during the progressive stages of a bear market.
Section 7M Page 25
(August 24), recovers weakly and on small volume (under 1,000,000) from this
critical supporting level until August 28th and 29th, when it begins a new downward march at a very sharp angle. The volume rises to around 2,000,000 and
stays fairly constant at that figure after a break through 120, snowing that the
liquidation is again active and heavy. We have no reason to change our short
position, but plenty of reason to pyramid every little while. (*)
Beginning on September 18th, the volume increases to 3,000,000 shares
and on the 19th to nearly 5,000,000. This great increase in volume from less than
1,000,000 shares in late August to the equivalent of 5,000,000 shares on September 19th (Saturday's volume doubled) is our warning to move stops down close
to the temporary rally tops of September 15th to 17th and be on the lookout for a
sharp rally or turning point. Reason for this:
98 without serious interruption.
Prices have receded from 145 to
The abrupt extension of the decline, plus
To put it another way, the public which came into the market and bought freely
around the tops of the February, 1931 rise and the June recovery, is now loaded
up with stocks at the highs. Its buying power, accordingly, is exhausted. These
people will not liquidate until compelled by necessity -- because on the one hand
they fear the market might go up again and on the other they are wishing and
hoping that it will. Instead of recognizing the danger and philosophically adapting
themselves to the logic of the situation by cleaning house and accepting some
losses so that they may have buying power to repurchase profitably and
advantageously when the time comes to be bullish again, they merely hang on and
thereby magnify their errors. And those whose funds are not so tied up are too
frightened to buy and much too timid to sell short.
Consequently, volume shrinks and the market becomes a professional
affair, except when outcroppings of new weakness force the tied-up long holders to
liquidate from time to time.
Thus we have both an explanation of a little understood market phenomenon and an example of the risks involved in (1) failing to liquidate promptly on
the early warnings of danger to bull positions (which appeared in this case in
February); (2) refusing at least to protect long commitments with judiciously
placed stop orders; and (3) the folly of yielding to a natural impulse to jump into
the market when prices are away up and everybody else is excitedly buying.
_____________________________________________________________________________________
* Stops on our short positions, meanwhile, have been moved downward as
follows:- To a level even with our original, selling prices after the minor selling
climax of July 15th; to a little above the high of July 21st after the decline to July
24th and 25th; to a point or so above the Aug. 15th resistance point after the drop
to August 24th and 25th.
Section 7M Page 26
the unusually high volume of the 19th suggests that the market has reached an
oversold condition. A sharp rebound should not surprise us at any time how and it
probably is not far away for there has been no rally of any size since August
29th about three weeks. Seldom does the market run continuously in one direction for so long without a reversal of some sort.
September 21st the average loses 4 points more, making a low of 94, but
recovers 5 points by closing time and this makes it close above the previous day.
The volume is 4,400,000 again unusually high and almost equal to the day before. This action, combined with the 8 point spread in prices for the day and the
slightly higher closing leads us to cover our shorts with a view to putting them out
again on a further rally; or, we may prefer to sit tight and depend on our recently
reduced stops to keep our trades alive if the expected rally should fail to develop
material proportions.
On the 22nd the volume drops off to about 2,000,000 shares; the close is
slightly lower and the range has narrowed. The net result of these three sessions
is to leave the market practically unchanged at the third day's close. Downward
progress seems to have been checked and the small volume on the dip back from
the high of the 21st, on Sept. 22nd, implies a lifting of selling pressure. After such
a great decline within three weeks this is an indication of more rally. This comes
on the 23rd, and gives us an opportunity to sell short again while the market is
still strong or when we see the rally is failing. Such an indication is given by the
way it rallies on the 23rd. On this day the average recovers to nearly 107, closing
at 105 1/2, but the volume falls off to under 3,000,000 shares and we therefore
suspect that it is merely due to shorts who all tried to cover at once. Such a rally
is too effervescent. It is not likely to last because it removes buying power which
formerly existed, and leaves the market without support between the high point of
the rally and the previous low.

Section 7M Page 27
The market acts just that way on the 24th it loses 8 l/2 points from the
previous days close and ends 3 points above the extreme low of the 21st. The
constant volume, compared with the previous day, plus the rapidity with which
the average yields nearly all of the previous three days' gain, confirms the
fleeting character of the rallying power and the lack of important (good quality)
demand.
We conclude that the market's inability to enlist worthwhile support and its
tendency still to seek the lows will probably induce a fresh outpouring of
liquidation should it break the line of support at 95. The situation is still critical on
the 26th and 28th when a brief one-day rally (on light volume) and a dip back to
95 bring about a slab-sided, or downward slanting formation, judged by the tops of
the 23rd to 28th, which suggests the pressure is downward. Volume decreases to
under 1,500,000 on the 26th and 28th, but in view of the market's recent bearish
action this looks more like a swing to a dead center preceding new weakness, than
diminishing force of supply. Furthermore, the low closing of the 28th leaves the
average hanging on the edge of the 95 supporting line. If it cannot rally promptly
from here, there will be more decline ahead. Accordingly, should prices break
through the low point of September 21st at 94 on increasing volume, we shall
again sell more stocks short. We realize that after a big decline we may be taking
chances in trying to get what may prove the end of a bear market, but we do not
know when the real turn will come so we keep on playing the short side until the
market itself tells us we are wrong or that the trend is changing.
New lows are the rule until October 5th when the average touches 79, closing within a point of the low and the volume is more than 3,000,000 shares. On
the evidence of this chart alone, we find nothing that causes us to cover on this
day, although the decline is again becoming sharply accelerated which warns us to
become wary (refer to Footnote, Page 19, commenting on similar behavior May

Section 7M Page 28
27th to June 1st). The low closing suggests lower prices the following session but
the market fails to confirm this expectation, thereby giving us additional
warning of a change. Instead of sagging it opens slightly higher on the 6th,
then advances steadily all day (*) with only a 1 1/2 point reaction at the close.
The recovery in the average is about 11 points on that day, the most aggressive
rebound since the long decline from 145 started. Also, there is a heavy increase
in volume 4,500,000 shares; emphasizing the change. If we were not watching
the tape that day (which would have told us to cover), or we had no Wave Chart
to show us what the tape revealed and our other charts (if any) gave us no indication of a reversal, we must cover our shorts after we have had a chance to
examine the results of the days activities.
We realize that the average has now declined from about 312 in September,
1929, to 79 in October, 1931. We cannot expect this bear market to go on indefinitely. We do not immediately jump to the conclusion that a violent recovery is
occurring; that a bull market is under way. We wait and study the action of the
averages and our other records.
Over the next three sessions there is a strong rebound from 79 to 99
20 points. The rise to October 9th breaks the downward angle of the decline
from the August 29th high point as will be seen by placing a ruler across this
and the high of September 23rd. (See Sect. 15M.) On the 10th the market narrows; volume falls off to 800,000 shares. From what we have learned by our
preceding study of this chart, we recognize this indication as a sign of a
reaction which comes in the next two days when the average recedes to 88, a
point over a normal halfway reaction (Sect, 14M, Pg. 4, Par. 4). Observing on
the 14th that the market dips back to the supporting points of Oct. 7th and
8th on comparatively light volume, we decide that if it is able to hold at
* A Wave Chart, as we shall learn from the instruction in Section 22M,

would clearly portray and bring to our attention such significant changes in the
market's action as are occurring here.
Section 7M Page 29
this level or above the low of Oct. 1st and 2nd it will be completing a secondary reaction (Footnote, Pg. 3). Which would confirm the action of October 5th as
a shake-out. Thus the market seems to be forming the outlines of a supporting
zone with the low points of September 50th to October 14th (85-88) as its probable base.
Accordingly, we watch for an opportunity to establish long trading commitments with the idea that we may be able to make a play for a further recovery:
provided we can secure the proper limitation of risk with stops placed close to the
Oct. 5th and 6th, or under the Sept. 30th-0ct. 14th danger points. We do not take
an investment position, however, because we should like to see a period of dullness
in preparation for a real bull market which, normally, after such a decline, should
begin somewhere about this level. To say positively that it will begin would be a
pure guess. The market will tell us when it is time to take a long investment
position.
On the 15th, after rallying to the previous day's high, the average reacts
but a decrease in volume, higher close and higher low tend to confirm this
performance as completion of the secondary reaction from the October 9th rally
top, thereby giving the cue to venture trading purchases. Accordingly, we now
buy the few stocks we have selected for the purpose of catching the indicated
further recovery.
Diminishing volume on the rally of the 17th and 19th, followed by climaxing indications on the next two days as the average reaches the previous resistance point, all tells us to anticipate another setback. We wait to see whether it
promises to be brief or whether it may involve another test of the 85-88 support
level. In the next three sessions, the market swings to a dead center, coming to an
apex (Sect. 10M, Pg. 1, Par. 5) on the 24th. Four days lateral movement between
the 21st and 24th, meanwhile breaks the rather steep angle of the advance from
Oct. 5th. Apparently, buying power has been exhausted by the recovery

Section 7M Page 30
to 100 or buyers are not yet ready nor willing to follow prices upward
(Sect. 15M,. Pg. 2, Par. 2).
Also, there is no increase in volume on the rally
efforts of the 23rd and 24th. These indications are all bearish so we either
raise our stops close to the lows of Oct. 23rd and 24th, or we get out of our
long trades immediately and watch.
If our previous conclusions that a base of support might be forming
around the 85-88 level are correct, the market's behavior on the reaction which
now seems imminent may give an important confirmation of these deductions or it
will contradict them and perhaps indicate a resumption of the bear market. Or,
it may do neither.
That is, the indications may not prove to be clear, in which
case we shall have to maintain a neutral position (Sect. 19M, Pg. 3, Last Par.)
and expect a professional or trading market; in other words, a series of relatively
small swings up and down in a narrow range, say between the recent lows and the
recent tops, 79-100, until the market works into a position for its next important
intermediate move;
When, on Oct. 28th, the volume gives a minor climaxing indication after
the average has settled down to the former supporting line (around 88) with no
increase in volume on the way down, Oct. 26th and 27th, we conclude that there
is no further liquidation to worry about and that support is again coming in at
this level. This is confirmed by decreasing volume and no net change-in the closing
price, following a small further recession next day, which shows there is no followthrough on the down side.
The zone of support has now broadened to provide a foundation for a more
substantial recovery (though our other records still do not encourage us to take
investment positions) so on the 30th we buy again for trading purposes, this time
placing stops a point or so under the Oct. 14th and 29th lows. The average
then records a series of rising supports and higher daily tops-on moderate volume, until Nov. 9th when the appearance of climactic volume on a small further

Section 7M Page 31
upthrust to the vicinity of the Sept. 23rd rally top tells us to get out of our long
trades and go short; supply is overcoming demand as the average reaches the long
bear market supply line running through the successive highs of July, August and
September (see Trend Lines, Sect. 15M).
At the point where our chart ends, it appears at first glance that we are
getting a reaction on slightly diminishing volume which, if the market has not
exhausted the force of the demand stored up around the September-October lows,
should encourage another rally effort. No such effort materializes, however. On
the contrary, the average gives an indication of renewed weakness by dropping
sharply to 95 on Nov. 13th and eventually sinks through the October low with no
semblance of rallying power and nothing more than a period of nine days' hesitation in a five point range from the end of November to the 8th of December (none of this is shown on the chart).
Again we have an illustration of the vital importance of employing stop orders to protect investment as well as trading positions at all times. For instance,
assume we had mistaken the tentative formation of a base of support in October,
1931, as preparation for a red bull market, and had made investment purchases
around the logical buying points of Oct. 28th and 29th. Suppose also that we had
let our stops on these commitments remain undisturbed whore we originally placed
them, just under the 85-88 level. The worst that could happen to us now, would be
the automatic closing out of our positions at small losses about the middle of
November. Thus we would have our capital still intact and liquid, ready to take
advantage of the final turning point. But if we had no stops we might have carried
these stocks down for seven more months of deflation and loss.
And so we conclude our interpretation of a period of very instructive market movements with one further observation: You may now see why study of the
stock market cannot be reduced to rule of thumb procedure; why it is foolish to
seek mechanical short cuts and to draw fantastic diagrams on chart.

Section 7M Page 32

Section 7M Page 33

Section 7M Page 34

Section 7M Page 35
COMPARING STRENGTH AND WEAKNESS

GROUP CHARTS
Having completed our study of the composite average, our next step
should be to acquire an understanding of Group behavior because, in practice,
after we amine the position and trend of the various groups and, finally, select
from the best situated Groups those Individual Stocks which promise the best
moves. (Sect. 6M, Pg. 1, Pars. 2 & 3; Sect. 7M, Pg. 5, Par. 2 and Sect. 9M, Pg. 1,
Par. 1.)
If your Trend Charts are made on transparent paper they may be laid
over other charts of groups or individual stocks to show which groups and which
stocks are stronger or weaker than the general market, as represented by the
averages. Or you may make these comparisons by laying one chart above
another with the time scales in alignment so that each day of the week on one
chart will be opposite, and correspond with, the same date on the other chart or
charts you wish to compare. The illustrations which follow will make this clear.
One of the best indications of the future course of a group or a stock its
comparative strength when the rest of the market is weak, or its comparative
weakness in a strong market.
James R. Keene used to say: "Watch the stock that shows strong
resistance to pressure when the market is weak, and buy those stocks for all you
are worth." (Illustrated by action of U. S. Steel from Nov. 28, 1936 to Mar. 6,
1937. See chart oh Page 17 and note how Steel shows stubborn resistance to
every down swing in the market as represented by the N. Y. Times Average
and how it responds vigorously to every up swing until March 6th.)
The reason for this:
Someone is trying to buy while the market is weak.
He would not do this unless he has reason to believe that he can sell it later at a
higher pride.
So he takes advantage of the weakness in the rest of the

Section 8M Page 1
market by holding the bag for all the offerings of other people who are prompted
or compelled to sell.
When a stock is exceptionally weak in a strong market, we conclude that
somebody knows something to its disadvantage and is forcing his offerings on a
market that is otherwise strong. This may indicate need for urgency, based on
fear or necessity; or it may signify the taking advantage of a strong market.
(The chart of American Can, Page 18, illustrates the idea. From Nov. 17, to Dec.
12, 1936, the stock responds feebly to rallies and advances in the market but
sinks rapidly with every down swing. From Jan. 9, 1937 onward it is again
exceptionally weak.)
Large operators often test the market for a stock by buying 5,000 to
25,000 shares in order to see how easily they can buy it, or by selling a similar
quantity to ascertain how well the market will absorb their selling. Thus they are
able to decide which side shows the least resistance. If they find other people are
trying to buy it and that the stock is rather scarce, they regard it as a bullish
indication and take a long position. Or, if the price yields easily to pressure, they
regard it as a bearish indication and take a short position.
A small operator is unable to test the market in this way before he takes
a position, but by a close study of his charts, he is able to estimate the comparative strength or weakness of a stock and thus reinforce his judgment as to
whether, considering the trend, it is time to buy or sell it.
When large interests are planning a campaign, in a stock, they "lay the
foundation." That is, they accumulate or distribute a quantity according to the
size of their venture and the anticipated profit to be derived therefrom. This
quantity bears a relation to the estimated number of points profit. (Figure charts
afford a means of judging this relation and hence frequently indicate the
approximate objectives of such campaigns. See Section 9M, Page 4, Paragraph 3,

Section 8M Page 2
and Page 6, Paragraph 2; also Section 10M, Page 3, Paragraphs 1 and 2.)
If a stock is below value, and these interests see a large profit ahead, they
will take all they can buy at certain levels, then gradually raise their bid prices
until they get all they want (Sect. 9M, Pg. 9, between the letters A and R shows
this graphically). They buy preferably on reactions until such time as they are
ready to mark up the price. Or if a stock is above value, and they see trouble
ahead, they will sell all they can at certain levels, supporting the price on
reactions and unloading on rallies until they are ready to let it drop. (Sect. 10M,
Pgs. 10 to 12.) This is why these supporting points and the points of resistance
(a phrase originated by me many years ago), are so important for you to watch.
In brief, when you see strong support in a stock, with the rest of the
market weak, you know the buying is better than the selling that insiders are
probably doing the buying because they believe they can sell out later at a profit.
And when you see the reverse, that is, strong resistance in a stock with the rest
of the market advancing, you know the selling is better than the buying
insiders are selling because the outlook for that stock is turning sour, or because
they believe they can later reaccumulate at a lower level.
When you see these indications on the tape or on your charts, follow
them. That is, select, the best of them if there are many. To do this is to have the
insiders working with you and for you. You are then playing the game as they
play it. This is not a guarantee of profit, but if your judgment be good, and you
choose the right time for action, you will find that you can realize a profit in the
majority of instances.
Likewise, when an individual stock in any group is stronger than the
Average of that group, this is an indication that such a stock is likely to move
sooner and faster than the Average, provided its behavior otherwise confirms the
indication.
If it is weaker than its group, this'mayi signify that the stock is

Section 8M Page 3
preparing to decline more rapidly than the Average.

The fact that, an individual stock may, be moving against the trend of its
group does not destroy nor impair the value or effectiveness of the indications
given by the Average in which it is included. On the contrary, such action, of
itself, frequently conveys significant information which should not be ignored
with respect to the behavior and position of that stock.
In like manner, by comparing the behavior of the various Group Averages
with the action of the whole market the way they respond or fail to respond to
advances and declines, rallies and reactions in the Composite Average you may
gain valuable additional information on which to base your stock market
campaigns. (See charts on Pages 21, 22 and 23.)
These comparisons are especially important because they help you to select the best opportunities and to avoid the slow movers ("sleepers") thereby
keeping your capital working at maximum efficiency.
Bear in mind that all stocks do not move at all times in harmony with the
prevailing trend; nor do they all rise and fall together (see Sect. 4M, Pg. 20, Last
Par. and the chart illustrations herewith). Bull markets usually begin with
advances in the leaders, that is, the seasoned, higher grade, and higher priced
issues (Sect. 22M, Pg. 4, Par. 3). This is so because the big interests, who are
best informed as to prospects for approaching recovery, dominate these stocks
and hence reflect their sentiments toward the market by their operations in the
leaders. As the rise, in the leaders continues, large independent operators, taking
their cue from the action of the leaders, are encouraged to begin bullish
operations in the secondary issues and specialties. In due course, the public is
attracted by bullish demonstrations in various parts of the list and by the revival
of market activity, whereupon the lower priced and more speculative stocks come
into line. Thus demand rotates from group to group as, for instance, from Steels
to Rails to Coppers, etc., and from one stock to another.

Section 8M Page 4
As the rise progresses, individual stocks and groups of stocks that have
advanced too rapidly may rest and react while other stocks and other-groups are
brought forward. Thus bull markets are built up by a Process of Rotation. That is,
demand shifts about from week to week, day to day and even from hour to hour.
(A glance at the charts on Pages 19 & 21 to 23 will help you to grasp the idea.)
Price movements tend to become increasingly selective (mixed) after a
prolonged advance because when the big follows see that some industries have
about attained maximum prosperity, they will wind up their speculative
campaigns in those groups and turn to those laggards in which there is still room
for improvement.
When large interests are distributing at the tops of the intermediate or
major swings (or on the way down from the extreme highs), they sometimes fool
the public by rapidly marking up the prices of a few easily influenced stocks; or
by applying hypodermics to a few of the leaders. These whooping up tactics
maintain the atmosphere of bullishness so essential to keep the public in a buying
mood while other stocks are being unloaded. (See action of U.S. Steel in March,
1937, Page 17, which exemplifies this principle.)
An indication that demand is being exhausted may be given when the
majority of stocks respond sluggishly to such whooping up maneuvers; or when
they tend to fall back quickly on repeated attempts to continue the process of
rotation; or when the leadership of an advance shifts from the recognized leaders
to the secondary issues and to the "cats and dogs"; or when representative
stocks fail to follow the strength in a few hypodermically stimulated fast movers.
The Process of Rotation operates in much the same manner at the begining and during the course of a bear market. That is, supply rotates to break down
prices in one section of the list after another until offerings are finally exhaustted. Likewise, selling pressure rotates while the market is in process of forming a
bottom. Hence some stocks may reach their downward objectives sooner than
others. Therefore, when we see that the early leaders of a decline are re-

Section 8M Page 5
fusing to move materially lower, while supply is still rotating to other stocks,
we have an indication that demand is overcoming supply. This helps us to determine the levels at which accumulation is taking place.
Supply in a falling market rotates more rapidly than demand in a rising
market. This is explained by the fact that there is seldom (if ever) sufficient
buying power to lift all stocks at once in bull movements, whereas, in bear movements, fear, necessity, or both, eventually compel holders to liquidate all stocks
without regard to value. This characteristic difference may easily be seen by
reference to the accompanying charts. (*)
Another reason why stocks fall more swiftly and uniformly than they advance is that the public long interest is always greater than the public short
interest. Most people are willing to buy stocks but fear to sell short, although
intelligently conducted short selling operations often yield more substantial
profits and involve no greater risk than commitments on the long side. At any
rate, those who are long of stocks greatly outnumber those who are short. Consequently, upward price movements are retarded by frequent profit-taking on the
part of the numerous bulls, especially in stocks below the $50 class which attract
the largest outside following. But downward movements are not so effectively
retarded by profit-taking on the part of the relatively few bears.
And, because the public's attitude is unbalanced (leaning always toward
the bull side), actual and potential demand for stocks is greater when the market
goes up than when it goes down. In other words, the majority will buy while
* The bull market which began with the recovery from the 1929-1932
"bear' market lows might be cited as a partial exception to these characteristics.
Having been driven down to ridiculous extremes, stocks moved upward rapidly
and relatively more uniformly on the July-August, 1932 rise than in succeeding
years because the 1932 rebound was largely in the nature of a technical
correction of an excessively oversold condition in practically all stocks.
We must be careful not to confuse the beginnings of a bull market with ordinary technical rallies in a bear market, however. In the case of such, rallies,
which develop out of an oversold condition, the sensitive leaders and the faster
moving speculative types of stocks may rally sharply out of a selling climax,
whereas the majority of other issues are likely to rally sluggishly.
Section 8M Page 6
the market is strong but this demand fades away when it is weak. In fact, the
untrained trader and investor hangs on to his stocks through falling markets
until prices reach a point where hope suddenly evaporates. Then he sells out in apanic. The herd psychology that characterizes the Wall Street public often causes
unskilled investors to reach this panicky state of mind simultaneously. Thus
there is a concerted rush to sell which cleans out all of the weak holders at about
the same time, relieving the market of pressure and reducing the supply quickly
at that point. (See Selling Climaxes, Sect. 7M.)
The Principle of Rotation is operative also in group movements. Thus,
strength or weakness in the lending stock of a group influences traders to buy or
sell other stocks in the same group. This helps those who are conducting a
campaign of accumulation or distribution to work their stock to the lower or the
higher level at which they wish to acquire or unload their line. At the turning
point in a falling market, the continuing weakness in other stocks creates the
atmosphere of general pessimism, which induces the public to go on selling
around the bottom. This affords large operators an opportunity to buy what they
want without bidding prices up. Similarly, at the turning points in a rising market, the rotation of strength to other stocks in a group enables the large operator
to unload the one he has marked up to its objective under cover of the activity
and strength in the other issues, without forcing his offerings upon the market.
This explains why you so often see individual stocks in a group topping
out, or rounding out a bottom, one after another and why all stocks do not necessarily touch their highs or lows together, on the same day or in the same week,
or perhaps the same month. It likewise explains why some of the leaders of one
phase of a bull market may not lead nor actively participate in its later stages.
(Refer to the charts on Page 19 for an illustration of these observations.)
You must strive to take advantage of the above principles. Seek out the
stocks in the strongest position when buying and the weakest to sell short. Aim
to pick the leader of a group for your operations.

Section 8M Page 7
It is a mistake to trade in the laggards in a group simply because the

leader "is too high." (Compare the action of Crucible and U. S. Steel with
Republic and Otis, Page 19.) Some of these other stocks may be in preparation
for moves which will come after the leader is finished. (Illustrated by American
Rolling Mill between Oct. 24 and Nov. 14, Pg. 19.) That gives you an opportunity
to switch from the leader (when you see it may be near the end of its swing) to
the next best issue or issues, that is, to those which may not have come fully
into line with the advance in the leader. But in searching out these opportunities, you must be sure to weigh each situation carefully. The fact that a stock is
moving sidewise around a low point (see Otis Steel, Pg. 19), while others in the
group are going up, is, by itself, no assurance that this laggad must be under
accumulation. Study its volume behavior. Note particularly whether the price
shows a tendency toward rising supports (as in the illustration, Sect. 9M, Pg. 9,
between M and S, for example) after it has been in the range for some time. If it
does not show such a tendency, better leave it alone. A stock that persistently
hugs a low line of supports (stays near the bottom of an apparent range of
accumulation) and refuses to rally well when the rest of the market is strong, is
very apt to be subjected to a shake-out (see study of Anaconda, Sect. 16M, Pg.
17, Par. 3 and Pg. 18, Par. 1), or it may be in a weak position.
Therefore, bear in mind that even though a group may be in a strong position, every stock in that group may not be desirable nor in a position to-move
aggressively. Vice versa, in a weak group, some stocks may be in a relativelystronger position than others, while some may be neutral.
_________________________________________________
Some people endeavor to compare strength and weakness by working out
the relative daily gain or loss in percentages to secure a ratio or index number.
This not only involves unnecessarily laborious calculations but creates the danger
that you will acquire the habit of using mechanical methods thereby defeating

Section 8M Page 8
your purpose, which is to develop judgment. Moreover, such schemes are

neither sensitive nor reliable.
Judge the progress of stocks and compare strength or weakness directly
from your charts as herein explained and as shown by the more detailed instructions which follow. From your vertical charts you can see immediately, by casual
inspection, how a stock is behaving in relation to the general market averages
and in relation to its own group. Changes in its action become apparent at once
so that you can adjust your conclusions promptly. You do not have to wait until
some impractical, complicated mathematical formula is worked out. In any case,
your formula is likely to be upset or contradicted when it is too late for you to act
to the best advantage.
_________________________________________________
The correct way to spot a change from comparative strength to weakness,
or from comparative weakness to strength, and to judge whether a stock is
behaving bullishly, bearishly or indifferently in relation to the market as a
whole, is to observe how the stock responds to up and down swings in your
Composite Average and Group Averages (*) as you make new entries of its price
movement on your charts from day to day and week to-week.
For instance, turn to the chart of Electric Auto-Lite (Pg.20), covering the
page with a blank sheet of paper so that the plottings may be exposed one day at
a time as suggested in Section 7M, Page 2, Paragraph 3. You will observe that
this stock shows a strong advance to July 12th, during which it rises more
aggressively than the market as a whole, as represented by the Dow-Jones
average of 30 Industrials. This is followed by a period of consolidation and a normal reaction on July 25th (half-way back to the July 1st low). On Aug. 12th ELO
leads the market to a new high with a quick mark-up. A reaction to Aug. 20th
* The N. Y. Times 50 stocks and N. Y. Herald Tribune 100 are Composite

Averages. The Dow-Jones 30 Industrials, 20 Rails and 20 Utilities, are, in effect,
Group Averages.
Section 8M Page 9
brings the Average down to the lows of August 2nd and 8th, but ELO here gives a
significant indication of comparative strength by holding above the lows it
recorded at that time.
From here on until it reaches 38 3/4 on Oct. 21st the price rises consistently to new highs, with every up-wave in the Average. But what is especially
informative, from the standpoint of comparative strength, is the stock's refusal
to participate fully in reactions in the market as a whole. Note particularly the
ascending line of supports (low points) after it leaves the Aug. 20th low.
During the sidewise movement of Sept. 12th to Oct. 1st which, at first
glance has the appearance of a range of distribution, the stock signals further
strength to come by rising to a new high with an up-wave in the Average. Thus,
on Oct. 1st it moves into new high ground while the Average is rallying to a
lower top. This bullish indication is confirmed when the down-wave of Oct. 3rd
fails to follow the Average under the reaction low of Sept. 20th and the price
holds instead at a higher support (29 1/8 compared with 28 3/8).
On Oct. 21st a new phase begins. Here, after a quick run-up to a new
high, there are six days of hesitation and a narrowing of the daily price range,
followed by a quick dip (to Oct. 31st) which is comparatively more extensive
than the reaction in the Average to Oct. 30th. This change to comparative weakness is confirmed by a sluggish rally to a lower top on Nov. 7th in the face of
the rise to a new high in the Average. Electric Auto-Lite's responsiveness to
strength in the market then continues poor until Nov. 26th, at which time a
change to strength is indicated by the leveling off of the low points (Nov. 22nd to
Dec. 2nd) while the Average at the same time is recording a series of steeply
descending bottoms, day by day.
Now compare the graph of Procter & Gamble (PGM) with the Industrial
Average and with ELO. You will see immediately the contrast between a compara-

Section 8M Page 10
tively strong and a comparatively weak stock.

From July 1st to 23rd, PGM moves in harmony with the market. But,
after settling down to complete, a normal reaction (to 51) on Aug, 20th, it drifts
sluggishly in a small range without appreciable lifting power while other stocks
(such as ELO) and the market are steadily advancing to- the September highs.
Since July 23rd there has been little to indicate a decisive trend in PGM on the
basis of comparative strength or weakness except the fact that, following the
corrective reaction to 51, the stock has failed to behave as well as it did in
July, and now it is not responding readily to the bullish action, of the Average.
This at least cautions us to become wary on the bull side of PGM.
When the general market reacts between Sept. 18th and 20th, we observe
that PGM has developed a more definite symptom of weakness in that it responds
promptly by becoming active on the downside. (Note the widening spread of the
daily range from high to low.) Between Sept. 21st and Oct. 3rd the stock gives
another bearish indication because, whereas the Average, ELO and other leading
stocks complete this reaction well above their July and August supports, PGM
now is almost back where it started from at the beginning of July.
From here on PGM shows very little rallying power (Oct. 3rd to 23rd) but,
rather, a marked tendency to remain dull and sluggish around its August-September-October bottoms (at 51) notwithstanding a steady new advance in the Average. With the stock in this position, we must recognize that there is danger it will
develop new weakness, or it may be subjected to a shake-out. (See Pg. 8, end of
Par. 1). A brief, but weak, three-day bulge to a lower top (Oct. 21st to 23rd)
marks the final attempt to rally away from a danger zone and makes the picture
very ominous for the bulls in this stock. (Compare with action of N. Y. Times
Average, Apr. 7th to 14th; Sect. 7M, Pg. 16, Pars. 1 & 2). And the immediate
loss of this gain in the next two days in an otherwise strong market, says: "Get
out now if you didn't do so before; and sell me short if you are so inclined.

Section 8M Page 11
Applying the same line of reasoning to the chart of Commercial Solvents

(CV), we see that here we have an illustration of a stock swinging at random and
hence in a more or less neutral position. In other words, judged by the factor
of comparative strength and weakness, CV shows no evidence of developing any
consistent trend. Thus, after an abortive run-up (July 1st to 23rd), the stock
alternates from moderate weakness (July 24th to Aug. 8th); to stability (Aug.
9th to Sept. 4th); to mild rallying power; then to weakness, to stability and
back to temporary strength; and, finally, to a neutral position again in late
November and December.
In order to demonstrate how the principle of Comparative Strength and
Weakness may be applied in a practical way, let us now assume that it is early
August, 1936 and that CV, ELO and PGM are the only stocks we are keeping
under observation at this time. Assume also that we are just entering the stock
market and have decided to take a long position, say about August 1st. Obviously,
on the basis of what our charts show us, as above outlined, and without consideration of any other factors whatsoever, we would select ELO and PGM as logical
purchases but we would have nothing to do with CV.
As the days go by, our observation of the comparative strength and weakness of these stocks tells us to stay long of ELO until October 21st; to close out
and be neutral toward PGM not later than Sept. 19th because it is not acting
right; and to continue to avoid CV. (*)
* Two very common faults of most people which you should eradicate
immediately if you possess them are: (l) Failure to wait until a stock acts just
right before they jump into it, and (2) A habit of optimistic stubbornness which
causes them to become wedded to their commitments instead of cold-bloodedly disposing of them when they no longer act right.
The case of CV demonstrates what can happen to an investor or a trader
who is guilty of Fault No. 1. He may miss the whole of an important movement in
the stock market by a careless choice of commitments, or by inability to wait
until a contemplated issue behaves right.
The action of PGM is an object lesson in the folly of both faults. Grant that
we had bought this stock about August 1st on the basis of its comparatively good
behavior at that time and in the belief that it should advance as well as ELO.
Obviously, we should cast prejudice, inertia and pride of opinion aside by
Section 8M Page 12
From the above study you can see how the factor of Comparative Strength
and Weakness oftentimes is highly informative, aiding us: (1) to select the best
stocks for our purpose and avoid the wrong ones, (2) to detect turning points,
thereby enabling us to time our purchases and sales to the best advantage and
(3) to determine when preparation for a worthwhile move up or down is
about completed.
Our next set of graphs (Pgs. 21 & 22) should be analyzed in the same
way. But the particular point we wish to bring out in these illustrations is-the
Principle of Rotation. Thus, note how the Oil and Rubber Groups (Pg. 21) start
upward about Jan. 22nd, moving in harmony with the general market (Times
Average) until Feb. 11th to-14th. Rubbers then react while the rotation of
demand to other groups, as for instance, the Steels and Chemicals (Pg. 22) holds
the Times Average in the range 119-122.
Meanwhile, preparation for an up-move continued in the Steel Group a
week longer (to about Jan. 30th) while Oils and Rubbers were being marked up.
Next, as Oils and Rubbers begin to meet resistance to the advance, demand shifts
aggressively to Steels between Feb. 10th and 18th.
Oils and Rubbers complete their reactionary movement simultaneously, on
March 9th, four days ahead of the Times Average. We take particular note of
this, that is, the ability of these groups to hold around and above the low points
of Feb. 25th while the Times Average is still sliding down to the March 13th low
and a little under the Feb. 25th support, because such action not only gives
an indication of comparative strength in Oils and Rubbers, but implies
disposing of this stock the moment we see the subsequent change in its behavior.
By its own action, the stock has said "get out" as early as Sept. 19th (Par 2, Pg.
11). Common sense should warn us that we have nothing to gain by staying with
it any longer. On the contrary, we have much to lose. There is now grave danger
that the stock may decline. And even though it may not move against us, but
might remain dormant as did CV, there is still no advantage in allowing ourselves to become "hung up." The capital tied up in a stock that doesn't act right
can yield no profits. Worst of all, it is not available for use where it can be made
to produce a profit.
Section 8M Page 13
also that they are likely to be among the leaders in the market's next upswing.
(That is, provided their action otherwise is in conformity with the inference
drawn from this one factor of comparative strength.)
Likewise, refusal of Oils and Rubbers to participate fully in the setback to

March 14th, that is, their tendency to react relatively less than the market,
helps us to diagnose the break in the Average (from March 6th to 14th) as a
technical corrective reaction rather than the beginning of a bear trend. In other
words, our reasoning at this point is as follows:
The Composite Average did not
give indications of extensive distribution on the rise to 124 and our studies of our
other records generally do not indicate anything more than-the probability of a
corrective reaction in the market. Therefore, we conclude that the relative
strength in Oils and Rubbers should be interpreted to mean that these groups are
being supported or reaccumulated under cover of the rotation of offerings in
other, groups (as for instance, Steels) which are still being allowed to react. And
we conclude further that the comparative strength of these groups (March 9th to
14th) probably is the forerunner of a turning point in the market as a whole a
turn that is likely to come when other groups have completed their reactions in
sufficient number to place a predominating percentage again in bullish positions.
In late March and early April, there is a significant change the above
conditions begin to be reversed. Thus, Oils are failing to make appreciable progress as demand rotates in that group from Mar. 19th to Apr. 7th. A further indication of increasing pressure appears when they respond hardly at all to the
Mar. 31st-Apr. 6th run-up in the Times Average. Exhaustion of demand in the
Oils is confirmed when the Group Average starts downward (Apr. 9th) while the
Composite Average, the Steel, Rubber and other Groups, are still steady, strong
or advancing. But as demand continues to rotate, we observe that these other
groups also respond sluggishly to upward impulses bearish indications

Section 8M Page 14
(see Pg. 5, Par. 4). Steels falter and react a week ahead of Rubbers, having
meanwhile been subjected to what-looks like an application of hypodermics (the
fast mark-up from Apr. 1st to 6th), evidently designed to facilitate the
distribution elsewhere. (Pg. 5, Par. 3.)
Rubbers continue to make steady progress, rotating to a new high, a week
later than Steels and Oils and after those groups have already started downward.
This late strength in the Rubbers helps to hold the Composite Average well up in
the distribution range 126-123 to give the market the appearance of strength
when, actually, the support underneath has become hollow as a result of the
active rotation of supply from Oils, to Steels, to Rubbers, etc., successively. And,
finally, the increasing weight of this selling pressure precipitates a general
collapse, terminating April. 30th. Then the whole process starts over, again and,
by studying our charts carefully, we are able to single out the stronger from the
weaker stocks and groups of stocks, as before, by watching to see which ones
offer the strongest resistance to the decline. Thus we see that the Rubbers, for
example, react relatively much less than Oils, and Oils less than Steels, etc.
Additional charts are presented on Pages 23 to 25 in order to provide
some further graphic illustrations of the principles developed in this Section. It
is suggested that you use these as a basis for independent studies to test your
own ability, to apply what you have learned.
The graphs on Page 24 show the advantage of comparing the action of an
individual stock with the Average of the Group to which it belongs, as well as
with the Composite Average. In this instance, note particularly how Auburn's
failure to participate fully in group strength and its inability to respond as
aggressively as before to a fresh upward surge in the general market during the
week ended Apr. 4th, emphasizes the development of significant weakness and
the weak character of the final rally to 51 3/4. This marks a decisive change in

Section 8M Page 15
behavior, compared with previous performance.
About Apr. 4th, the stock is on
the hinge at 50 (Sect. 10M, Pg. 1, Par. 5) and the outcropping of acute, weakness becomes pronounced in the next four sessions, showing that the stock is on
the springboard (Sect. 14M, Pgs. 4, 5, & 6) for an important slump.
Distribu-
tion in the range 46-54 evidently was thorough since AAC continued extremely
sensitive to reactions and highly indifferent to rallies in its group and in the
market even after the excessively severe slump to Apr. 26th.
On Page 25 are presented two classic examples of weak stocks in a strong
market. Note especially how the factor of Comparative Strength and Weakness reflected the bearish behavior of Penick & Ford, in spite of its thin market and
small daily turnover. (Volume was generally less than 500 shares daily and only
reached or crossed 1,000 shares on three occasions during the six months period
shown on the chart).
As you study these charts, remember that they are intended only to illustrate some typical cases. They should not be regarded as covering all possible
conditions nor be used as exact standards of comparison. In brief, do not make
the mistake of attempting to classify chart formations according to mechanical
rules with the idea that you may discover automatic buying and selling signals
from similar "patterns." You are being deluded if you believe that a system of
drawing "triangles," "heads and shoulders," and similar imaginary geometrical
diagrams on your charts will produce results or relieve you of the necessity of
employing judgment and sound, practical reasoning.
One other word of caution: Comparative Strength and Weakness is a very
valuable means of determining a stock's position and possibilities but this principle must be used with due regard to the other contemporary technical manifestations to be taken up in following sections.

Section 8M Page 16

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Section 8M Page 25
HOW A CAMPANIGN IS CONDUCTED

INDIVIDUAL CHART STUDIES PART I
After we have determined the position and probable trend of the general
market and have examined the action of the various groups to see which are
most likely to go with and to lead the market as a whole, we must single out
those individual stocks which are in the best position for our purpose; which is to
operate in harmony, with the indicated trend. There may be times when we will
see an opportunity to trade in an individual stock against the trendof the market
as a whole. That is, we may find an issue whose action is so clearly indicating
weakness in an otherwise strong market as to justify our undertaking to sell it
short, and vice versa in a comparatively weak market, for, as we have seen from
our studies in Section 8M, all stocks do not move in harmony with the-prevailing
trend of the market at all times.
It requires a high degree of skill and experience to know when and where
it is safe to buck the general trend with long or short trades of individual stocks
and fully developed self-control to execute, maintain and carry such trades to a
successful conclusion. Therefore, it is best for you to operate in harmony with the
prevailing trend and not undertake to make commitments on both sides
simultaneously until you have attained proficiency by thoroughly learning all of
the principles taught in this Method and know how to coordinate these principles.
When you have learned to take a wholly impartial viewpoint, unbiased by
news, gossip, opinions and your own prejudices, you will realize that the stock
market is like any other merchandising business. Those who understand it buy
only when prices are low with the idea of selling when they are high; and they
operate only in the stocks or commodities which they can move best so they may
secure the highest possible rate of turnover of inventories.

Section 9M Page 1
For the above reasons, in addition to the factor of comparative Strength

and Weakness, we must learn how to judge the equally vital factors of Price
Movement and Volume behavior of individual stocks and all of the phenomena
associated therewith (see Sect. 16, Pgs. 1 & 2). To do this requires a knowledge
of what goes on behind the scenes.
A stock carries the earmarks of its chief sponsors. Its action usually
indicates the character, methods and ability of those who operate heaviest in it.
(Sect. 14M, Pg. 12, Pars. 2-4 and Pg. 13, Pars. 1-3).
Like individuals, stocks have certain characteristics with which one becomes more and more familiar as he studies intensively their past and current
movements. The market is made by the minds of men, and all the fluctuations in
the market and in all the various stocks should be studied as if they were the
result of one man's operations.
Let us call him the Composite Man, who, in theory, sits behind the scenes
and manipulates the stocks to your disadvantage if you do not understand the
game as he plays it; and to your great profit if you do understand it.
Not all of the manipulators moves can be detected. Not all of the moves
are made by manipulators. In fact it does not matter to the tape reader or the
chart reader whether the moves are real or artificial; that is, the result of actual
buying and selling by the public and bona fide investors or artificial buying and
selling by large operators. Most of the important, moves in the market are
prepared, executed and concluded, and it is my business to show you how a large
number of these trading and investment opportunities may be spotted in time to
take advantage of them.
The preparation of an important move in the market takes a considerable
time. A large operator or investor acting singly cannot often, in a single day's
session, buy 25,000 to 100,000 shares of stock without putting the price up too
much. Instead, he takes days, weeks or months in which to accumulate

Section 9M Page 2
his line in one or many stocks. He prefers to do this while the market is weak,
dull, inactive and depressed. To the extent that they are able, he, and the other
interests with whom he works, bring about the very conditions which are most
favorable for accumulation of stocks at low prices. (Pg. 9, between A & M.)
When he is ready to go forward with his campaign he waits for a
favorable market and then proceeds to mark the price up, gradually or rapidly,
as the situation warrants. (Pg. 9, from N to Y and Pg. 10, from BB to FF.)
If he knows of some favorable announcement that will appear in thirty or
sixty days, his operations will be timed so that the rise will culminate about that
time. You have often noticed that a stock will sell at the highest price for many
months on the very day when a stock dividend, or some very bullish news,
appears in print. This is not mere accident. The whole move is manufactured. (*)
Its purpose is to make money for inside interests those who are operating in
the stock in a large way. And this can only be done by fooling the public, or by
inducing the public to fool themselves.
When an operator washes to attract buying from the public he advertises
his stock on the tape by making many transactions, great activity, and by trading in a large number of shares. This creates what is termed a "broad market"
(exemplified on large scale by the Chart, Sect. 7M, Pg. 33, Feb. 10th to Mar. 2nd
and Sect. 9M, Pg. 10, between FF and NN; and on small scale by Buying Climaxes; Jan. 9th, Sect. 7M, Pg. 33). Great activity and breadth induces trading in
large quantities by big operators on the floor and outside. Such a market enables
the manipulator to unload a large line of stock. When he wishes to accumulate a
* Some people might object to this statement on the ground that regulation
of the stock market has eliminated pool operations.
Even though pool operations and old-fashioned manipulation are banned
by law, for our purpose in studying, understanding and correctly interpreting
market action, we must consider any operation a "manufactured" movement
wherein the buying or the selling is sufficiently concerted and coming from
interests better informed than the public as to produce the same effects as pure
manipulation.
Section 9M Page 3
line, he raids the market for that stock, makes it look very weak, and gives it the
appearance of heavy liquidation by sending in selling orders through a great
number of brokers (illustrated on large scale by Sect. 7M, Pg. 33, Dec. 16 & 17;
and Sect. 9M, Pg. 9, D to G. Sect. 9U, Pg. 9, at M and at U exemplify the idea in
the case of smaller scale maneuvers).
You say all this is unethical, if not unscrupulous. You say it is a cruel and
crooked game. Very well. Electricity can be very cruel, but you can take
advantage of it; you can make it work for your benefit. Just so with the stock
market and the Composite Man. Play the game as he plays it. I am telling you the
rules. I am giving you the inside view.
The large operator does not, as a rule, go into a campaign unless he sees
in prospect a movement of from 10 to 50 points. Livermore once told me he
never touched anything unless there were at least 10 points in it according to his
calculations.
A Typical Market Operation.
Suppose a stock is fluctuating between 30 and 35 and an operator believes
that it should sell at 60 in the next few weeks or months. And say he decides to
accumulate, if he can, 50,000 shares between 50 and 35. (*) First he picks up
what he can in the market by placing buying orders, say from 33 down to 30, on
a scale. Then he forces the price down to around 30 by offering large amounts of
stock and inducing floor traders and other people to sell their long holdings or go
short because the stock looks weak. By putting the price down, he may sell
10,000 shares and buy 20,000; hence he has 10,000 shares long at the lower
prices of his range of accumulation. By keeping the stock low and depressed, he
discourages other people from buying it and induces more short selling. He may,
by various means, spread bearish reports on the stock.
All this helps him to
* This number of shares would be a small amount for interests operating

in any important stock. It might apply to one of the less important issues in
which such a volume would have a marked effect. However, the quantities mentioned are merely for purposes of illustration.
Section 9M Page 4
buy. When he is thus buying and. selling to accumulate, he necessarily causes the
price to move up and down, forming the familiar trading ranges, or congestion
areas, which appear frequently on figure Charts. Finally he completes his line.
The stock now stands at 35, and, as he has absorbed 50,000 shares below
that figure and other operators have observed his accumulation and have taken
on considerable lines for themselves, the floating supply of the stock below 35 is
greatly reduced. At 36 the stock is prepared for the "mark-up." It is ready to go
up as soon as he is willing to allow it.
Its action on the tape, or on the vertical chart, reveals the operator's
intentions. The formation on the figure chart shows this, too, for reasons that
will be explained (Sect. 10M).
Next, suppose the above operator has, by means of his own manipulation,
aided by favorable market conditions, been able to mark the price of his stock up
to 50, and that he knows of the intention of the company's management to make
a favorable announcement five days hence. In these intervening five sessions on
the Stock Exchange, he will mark the price of that stock up with increasing rapidity. If the announcement is to be made after the close of the market on the fifth
day, he will run the price up from say 56 to 60 on that day and close it at the
highest point it has touched in the whole campaign, with great activity in the
stock and a large volume of trading.
The process of distributing calls for much publicity so that the attention of
the public will be attracted to the stock. The rise to 50 started a whole crop of
rumors. Brokers who are close to the bankers or the management of the
company have been trying to find out what is going on to make the stock so
strong. Insiders have hinted vaguely that "something good is coining out," and
without knowing just what this expected favorable news is, the brokers have put
their clients into it. Considerable outside public following has been gained during
the rise. The market for the stock is broadening.

Section 9M Page 5
When the announcement appears in the papers that evening and next
morning many people are thereby induced to place buying orders and the market
absorbs, that morning, 20,000 or 30,000 shares of the operator's holdings. After
this the price may recede a few points, but he, having sold a large part of his
line, is willing to take a small percentage of it back at 57 to 56, and after this
has been accomplished, and the activity has quieted down, he will mark the price
up to 60 or 61 again. At that point he either turns seller, and markets the
balance of his stock on the way down; or he works it up and down in a range of a
few points from the top, till he has completed his selling.
This process of working a stock up or down within a certain range means
nothing to most people, but to the tape readers and those who know how to interpret charts, it is evidence of important selling and in many cases, marks the culmination of the move. I will show you how this appears on some of the charts.
The operator has now disposed of his entire line and as the news, is now
known to the public and many people have bought and thus taken the stock off
his hands, the stock may be regarded as technically in a weak position, for it is
in what is called "weak hands." By this I mean it is held mostly by those who
have bought at the top of a 30 point rise, when the news was bullish; most of
these purchases being made on margin, the holders can be shaken out or tired
out.
The operator now sees a chance to make a turn on the short side, so while
the market is in this range of say 56 to 60, and after he has completed selling
his long line, he sells short, say 25,000 shares. In doing this he makes the stock
swing back and forth over this range, keeping good-sized supporting orders in
around 56 to fool the floor traders, the specialists and the public, who see on the
floor and on the tape evidence of his support on the reactions. Thus they are led
to believe the stock is going still higher.
When the operator has sold all of his 25,000 shares short, he cancels all
of his buying orders. The specialist in the stock then tells some of the more

Section 9M Page 6
important floor traders that the stock is in a weak technical position and that
there is no support for the next 8 or 10 points and they all get together and raid
it down to 50, at which point the operator covers his shorts.
Charts made of the stock's fluctuations during this period are shown on
the next three pages. These charts as well as those in Sections 16M and 17M will
help you to understand how a market campaign develops and how its various
phases are revealed graphically by charts. As you study the text in Sections
10M, 16M and 17M, which explains how to interpret these records, be sure that
you have the principles of this Section (9M) constantly in mind.

Section 9M Page 7

Section 9M Page 8

Section 9M Page 9

Section 9M Page 10
HOW THE OPERATOR'S INTENTIONS MAY BE DETECTED

INDIVIDUAL CHART STUDIES PART II
Let us suppose that we knew nothing about the stock in which the campaign was previously described and that this stock was merely one of the 100
stocks of which you are keeping figure charts. And suppose that you begin
keeping this figure chart at the same time that the manipulative operation
begins; that is, when the stock is selling in the lower 30's (see figure chart, Sect.
9M, Pg. 8).
As the days go by you note on your chart the rise from 30 to 31, 32 and
33 (above A); then the decline to 32, 31 and 30. This is just an ordinary
fluctuation within a range of a few points .and it makes-no impression on you.
Then the stock recovers to 31 and 32, then to 33 (B). So far it has
indicated more strength than weakness. Twice it has risen from 30 to 33. It is
now on the upper edge of the supply line, 33, having come-away from its
supporting line, 30. No preparation for an important move in either direction
seems indicated up to now.
The stock rises to 34, then to 35 (C). Demand is greater than supply. As
the stock's action on the figure chart has now attracted your attention, you make
up a vertical chart so you may watch further developments in detail.
Next, at E, it reacts 3 points to 32. After a rise of 5 points (30 to
35) this reaction is a little more than half-way, which shows that the pressure
for the moment has turned to the down side. At 32 it is about in the middle
of its range; 30 to 35. Now it rallies a point to 33, which brings the formation on the figure chart out to a sort of point. This will be clearer if you draw
a line diagonally from the second 30 out to the last 33 and from the top

Section 10M Page 1
of 35 down to the last 33 (under D). This gives the appearance of a wedge ending at 33. The appearance of the wedge, apex, or dead center, is made very clear
on the vertical chart, at the letter F (Sect. 9M, Pg. 9) by drawing a line from the
last 29 7/8 through 32 (E) and from 35 5/8 (D) to 33 5/8 (F). Past experience
tells us that the stock, as a result of having come to a dead center, is preparing
for an immediate sharp move which is likely to be downward because volume
shrinks on the weak rally from 32 to 33 3/8 (see vertical chart at E to F).
The price now drops to 30, at G, (29 1/8 on the vertical chart at H) which
is the former supporting level. It is still within the 30-35 range (figure chart). So
far, it has shown no conclusive indications of an important move either way.
Next it recovers a point to 31 (figure chart), goes back to 30, then it does
the same thing again, making three times it has recently been supported at 30.
Demand at 30 is strong enough to overcome supply. With this much of a formation on the chart we should rather buy than sell. Why? The line of figures at
30 and 31 shows the beginning of a fairly strong base and volume is tending to
shrink on these reactions to 30 (see vertical chart).
The last two 31s (figure chart) indicated that if this stock is being accumulated, the leading operator did hot want it to advance above 31. Why not?
If his object was to sell the stock he should have been glad to see it advance. But
when he continued on different occasions to stop it from going to 32, we must
assume that he is trying to accumulate. We decide that if he lets it go to 32 it will
be either because he wants to buy all there is between 31 and 32, or else he
cannot stop it from going to 32 without losing too much stock. This somewhat
confirms our bullish interpretation of what appears on the charts so far.
Now look at the figure chart formation (at J); especially the base which
rests on the 30s and broadens out on the 31 line (A to J).

Section 10M Page 2
These horizontal formations are very important. They not only show the
levels at which support and accumulation take place on the down side, but they
have a corresponding value in helping us to discover distribution at the top of the
swings. (The logic of this was explained in Sect, 9M; see also Sect. 4M, Pg. 7,
Pars. 1-3, and Sect. 8M, Pg. 2, Last Par, and Pg. 3, Par. 1.)
Observe that there are now five 30s and six 31s (A to J). If we were to
add to this the one blank space on the 31 line we would have seven 31s. Past
records prove that in many cases the number of times a figure is repeated on a
base line like this often indicates that the stock will advance 7 points from 30,
This is figured by adding the two blank spaces to the five 30s, making seven. As
7 plus 30 equals 37, this stock thus far has theoretically prepared for an
advance to 37. There is nothing sure about this. It is an indication which
frequently enables one to calculate roughly the distance, that is, the number of
points the stocky should move in the expected direction. I have found it to
possess great value.
We now decide that someone is accumulating this stock for a rise of say 7
points. We might buy 100 shares for a trading turn at, say, 30 1/2 (at the small
numeral 1 on the vertical chart) though we are not convinced that the operation
is very important because the big fellows do not go into a stock for 7 points. They
require a range of 4 to 5 points at least in which to accumulate, and a similar
range in which to distribute; hence, they have not room to turn around and get a
piece out of the middle of a move unless it extends to about 15 points or more. So
while we may have taken on a little of this stock at 30 l/2, on the strength of the
showing made thus far, we watch for further developments.
The stock does go to 32, then rises another point to 33. This is even more,
important. If this operator has bought all the stock he wants, it will go up. If not,
he will back it down again.
He throws over some of his long stock on the bulge to 35 7/8 (see K,

Section 10M Page 3
vertical chart) and thus backs it down to 30 (L). Here you watch closely because
you have placed a stop order under 28 on what you bought at 30 1/3 (Sect. 23M,
Pg. 1, Par. 1; Pg. 6, 7th & 8th Lines; Pg. 14, Par. 2), and you want to see
whether the operator takes all there is at 30. If so, he confirms the indication
that his purpose is to buy more. The stock rallies to 31 and 32 (figure chart).
The rally was 2 points after a decline of 3 points; that is, over halfway
another bullish indication. Then a slow sag ending in another quick dip back to
the old 30 supporting line (see vertical chart at M). The tape or your vertical
chart shows that very few shares are sold on this dip. The volume is lighter than
in any previous reaction to 30. You conclude from this that the operator has
about mopped up all there is between 32 and 30 (Sect. 9M, Pg. 2, Par. 6.) If you
did not previously purchase around 30 you buy now for a long move up as soon
as you see this dull, weak reaction, or add 100 shares more to your holdings (see
2 on vertical chart) with a stop at the same price as your first lot. You now have
succeeded in taking a position close to the danger point; that is, close to the
lowest levels at which it has been supported, therefore your risk is limited to the
minimum. Moreover, the stock is on the springboard for it has oscillated to a
dead center, or hinge, at 30 (at M, vertical chart), and appears to have
completed preparation for an important advance. Now if volume increases as the
stock recovers, you will have a final confirmation of the soundness of your
bullish position.
You are now long:
100 shares at 30 1/2 with stop at 27 7/8.
100 shares at 30 with stop at 27 7/8
The stock again rises to 33 (O on the figure chart). Counting from left to
right on the 30 line (A to N) you will find seven 30s and five blank spaces, an
indication that the probable immediate rise should amount to 12 points from 30,
or to 42. Your 3 point figure chart which is made up from the 1 point

Section 10M Page 4
movements, but which eliminates all reversals of less than 3 points, (Sect. 4M,
Pg. 12, Par. 3) now appears as follows:
35
34
33
33
32 32 32
31 31 31
30 30
34
33 33
33
32 32 32 32
31 31 31 31
30
30
Count the 30 line on this chart and you find there are seven 30s, including three blanks. Multiply this by 3, because it is shown on a 3 point figure
chart, and you get 21 as the indicated number of points which the stock should
eventually rise from 30. Thus you anticipate an ultimate advance to 51.
You do not know whether the operator has all he wants but you have seen
from the tape or your vertical chart that the stock is growing scarce. The price
dips to 32 on very small volume (see P, vertical chart) and snaps back quickly to
a now high, 34, showing that little or no stock is to be had under 33 and that the
operator has raised his buying limits by taking what there is up to 34. You now
raise the stops on your 200 shares to, say, 30 5/8 as the rise to 34 gives you a
chance to protect your trades at cost (Sect. 23M, middle of Pg. 6), and also
identifies the dip to P as a supporting point.
The operator next makes it react to 33 and when it again rallies to 34 he
checks it again and forces it back to 33. (Here is another buying point if you
missed it before.) The tape or your vertical chart shows that he apparently is
working hard to keep it down without losing any stock, but it bobs up on light
volume to 34 (R on the vertical chart). This is the old top made early in the
operation. It may be held here or made to react. You decide that if it goes to 36
you will buy another 100 at 36 for at that price the stock will again be on the
springboard for a sharp mark-up which should give you immediate action. The
operator cannot hold it down any longer unless he is willing to sell a loti of stock.
The price touches 36, at S, and you buy your third 100 shares at that

Section 10M Page 5
price (see 3 on the vertical chart). Because the stock has made a resistance point
on its last reaction to around 34 (vertical chart at right of R) you place your stop
at 32 7/8, and raise the stops on your first two hundred to the same figure.
You are now long 300 shares at an average of about 33, counting buying
and selling commissions; and the stock, judging by the chart, is in a beautiful
position. On increasing volume, it rises 3 points more to 39 (T on vertical chart).
Then it reacts 3 points to 36 a half-way reaction from 33 (figure chart), which
is normal (Sect. 14M, Pg. 4, Par. 2). You stand pat.
There is still a light volume on the tape (U & V on the vertical chart)
when the stock recovers the 3 point reaction, sells at 39, then goes to 40 on
increasing volume. In view of the fact that a rise to above 50 is promised, you
now raise your stops on all 300 to a fraction under 35. This assures you a profit
on the first two lots and a small loss on the third lot.
The stock makes a new high of 44 (figure chart), which is 8 points up
from the last low of 36. It is reasonable, therefore, to expect a 4 point reaction,
but as no distribution is apparent at 44 (W on vertical chart), you do nothing.
The reaction is only 2 points instead of a normal 4 points. This is an indication of
further strength to come.
The marking up continues. As soon as the price touches 46, you raise all
your stops to a fraction below 41, say 40 5/8. There is a brief 1 point reaction,
the smallest of all; and a quick run-up to 50. This is so close to the figure you
anticipate (51) that you sell out all your 300 shares; or you move your stop up
to 48 7/8, whichever you like, so that you can only lose a very small part of
your paper profit. Suppose your stop is caught at the numeral 4: You are out,
with about 16 points profit on 300 shares, and you watch to see whether the
operator distributes at 50 or under.
At first it looks as though he intended to do this. There is a quick

Section 10M Page 6
reaction of 4 points to 46. This is not surprising in view of the steep 15 point rise
with only 3 intervening reactions. The stock recovers to 50 (AA) and there
hesitates. Now let us suppose you take this hesitation, and the high volume which
appeared on the first rise to 50 (Y) to mean that the operator is distributing. So
you sell short 100 shares at 49 (see numeral 5 on vertical chart, Sect. 9M, Pg.
10) with a stop above 51. If you ask me whether that was a correct play or not, I
will say that considering the extent of the rise, the high volume and the
formation now appearing on the figure chart, your chances for profit or loss are
about even. Your figure chart shows a supply at 49 and 50 and a row of four
figures on the 49 line, which indicates another reaction to 46. The stock has
hedged itself within a range of 50 high and 46 low. It now stands at 49, and
looks as if it would have more than the 4 point reaction (50 to 46) which
recently occurred. It goes to 48, then 47. Now you have a formation on both the
1 point and the 3 point figure charts which looks like this:
50
49
48
47
46
45
50
49 49 49
48 48 48
47 47 47
46
This formation, at first glance, indicates a reaction of 12 points from 50

because there is a line of four of these 50s (including two blanks) on the 3 point
chart. But there is nothing sure about this indication. Remember this: A chart
indication means that a stock is probably going so far in a certain direction only
so long as its behavior continues to conform with the original indication. You
must always be on the alert for changes and be expecting your chart indications
to be reversed.
The stock recovers to 48, then oscillates to a dead center (vertical chart
at BB); 46 and 50 are the extremes of the range and 48 is the middle or apex.
Here it is again on the hinge and you decide, from its volume behavior that the
move is more likely to be up than down (compare with paragraph 5,

Section 10M Page 7
page 1). Therefore, you cover your short stock and go long 100 shares (see 6 on
vertical chart), reasoning that the operator either means to run it up again in
order to distribute more stock at and above 50 or he has been absorbing stock
around 46-48 for the purpose of marking it up to a much higher level. Thus,
whichever way the stock breaks out of the range 46 to 50, it should have a
considerable swing, either on the up or on the down side. Much depends on how it
behaves on the indicated rally back toward 50. You will probably not be long in
doubt.
The stock now rallies further to 49, then to 50. You raise your stop on
the lot you just bought to cover cost plus commissions and watch.
The next point or two either way is decisive. If it reacts again from 50 it
will tend to confirm your judgment that the stock is being distributed, and if it
should go to 47, that would make an additional downswing on the 3 point chart
which would indicate still lower prices than the 12 points down previously
indicated at 50.
It does not react from 50. Instead it goes on up in a quick bulge to 51 1/4
(vertical chart), a new high.
You may regard this advance to 51 as one of those
false moves which occur a point above the formation such as your figure chart
now shows that it is planned just to catch the shorts with 1 point stops above
the old tops. You are wrong. The price advances to 53 (at DD). Now look at your
figure chart and you will find that it show quite a different formation:
53
52
51
50
50
50
49 49 49 49 49
48 48 48 48 48
47 47 47 47
46 46 46
45 45
44
43

Section 10M Page 8
Instead of confirming the appearance of distribution, you find a series of

higher supports; viz., at 46, then at 47, then at 48 (45 5/8, 46 1/4, 47 1/8 and
47 l/4 on the vertical chart, Z to CC). These supporting points indicate the prices
at which the manipulator was willing to take, whatever stock was offered on the
reactions. Without much delay in any case, he has persistently raised those
supporting points. He now seems to be in a hurry. He is not trying to sell. He is
apparently willing to buy to support the price. If he had been trying to sell he
would have thrown over a wad of stock the second or the third time the price
touched 50. Instead he supports it around 47 (Z and BB), then drives it through
the old top to 51, 52 and 55.
Instead of indicating that the stock is going back into the 30s (as judged
by the 49-50 line), we must consider that on the reactions a line of four figures
was formed at 47 (5 point chart), which multiplied by three, means 12 points up
from 46 or 47, or an indicated objective of 58-59; and on the 48 line we have
five figures times three, which equals 15 points. Add this to 46-47 and you have
an indicated objective of 61-62. Thus the operator has again shown his
intentions, for his series of higher supports is now followed by a new high, and a
possible 12 to 15 points more on the up side from the reaction to 46. Therefore
you are justified in adding to your long position if you can buy on a reaction
anywhere near 50. A possible 8 to 12 points is worth going after.
Fortune favors you and on a dip to 51 you buy another 100 shares (at 7
on the vertical chart), placing your stop at 49 3/8. The operator does not disappoint you, because you have read his purpose correctly in the action of the
stock. He puts it to a new high at 54, then to 55. Now comes the quick mark-up
of 4 points from 56 to 60 (EE). You, realizing the move approaches culmination,
so far as your figures indicate, keep your stops say 3 points below the highest
figure it touches. So when the run-up to 60 comes you find yourself with a stop
under 57, which assures you about 7 points profit on your last two trades.

Section 10M Page 9
From the moment the stock touches 60 you see a very large volume appear on the tape or your vertical chart (at FF). A dip to 59 (58 1/4-on the
vertical chart), a rally to 60; more volume; big churning of the stock. You raise
your stops to a fraction under 58 and when the stock again rallies to 60 and you
see the large volume continuing, you either sell it out (numeral 8 on the vertical
chart), or let the stops stand, where they are caught on the third dip.
The large volume around the top is your indication that the operator is
getting out. That means he has concluded the marking up period. The stock has
reached the point he intended it should. The important announcement which he
anticipated when he went into the deal (at 30 to 35) has now been published and
the public who did not know anything about it 30 points lower is now buying the
stock on the "good news." It is this demand which he anticipated. That is why he
accumulated the supply of the stock away down and supported the price at 4647. His supply is now overcoming the public demand. It looks like a turning
point. (Sect. 9M, Pg. 3, Pars. 2 & 3.)
The line of four tops at 60, including one blank (FF to HH), now shows on
the 1 point figure chart that the stock should react four points to 56. You do not
sell it short. That is not enough for you to make a turn, as your possible profit
must be three or four times the amount of your risk.
The heavy volume continues for four days (vertical chart at FF) without
advancing the price. Then there is a quick reaction to 56 (at JJ). Support is met
at this figure and the stock quiets down for a while (shown on vertical chart in
the narrowing of the daily price movement and the shrinking volume). The line
of four on the 57 line (figure chart) gradually forms, which indicates a rally to
60 or 61. You do nothing. You reason that if the manipulator had sold out
completely he would not be interested in seeing it rally again; hence, there would
be no support at 56. You assume, therefore, that he has more stock

Section 10M Page 10
to sell, or the chart would not indicate 61.

The extent of the rise 30 points from 30 to 60 has attracted some
short sellers who sell on rallies with stops above 60. Quite a few stops
accumulate there. The stock runs up to 61 7/8 with a high volume surge (vertical
chart at LL) and catches all these stops, at the same time hooking the "sucker"
type of buyers, who operate mechanically on the theory that any rise to a new
high constitutes an automatic "buy signal." Then it reacts to 58, volume
remaining much higher than on previous reactions a distinctly bearish indication. Here your 3 point figure chart looks like this:
61
60
60 60
59 59 59 59
58 58 58 58
57 57 57
56 56
55
54
53
52
51
The line of tops at 60 (including the blank spaces in the second column)
counts four. Multiply it by three and you have 12 points as the indicated decline
from 61 or 60. In other words, the stock says it may go back to 49 or 48. Let us
see whether it tells the truth this time. Anyhow you have evidence from the
behavior of the stock, as recorded on your vertical chart, that this formation on
the figure chart represents the development of a sufficiently important supply
zone to justify your taking a short position. You wait for an upwave and you sell
it short around 60 1/2 (vertical chart at 9) with a stop at 63 5/8, about 1 1/2
points above the high point of 61 7/8.
The rally back to 61 (NN on vertical chart) is accompanied by another
peak volume after which the range narrows and the stock hesitates, with volume
shrinking at the top of the rally all bearish; so this is where you sell as
previously indicated. The next dip to 58 (PP) is a little quicker than the

Section 10M Page 11
first one and the volume is very heavy, indicating that the operator is now filling
up all "the buyers on reactions" with whatever stock he has left to unload.
A weak rally from the supporting level of 58 (PP) confirms the soundness
of your bearish position and gives you another selling point. The high full figure
on this rally is 60 (QQ). Now the stock is distinctly sluggish. This shows that
most of the buyers have-been filled up; there is not sufficient demand to rally it
back to 61 again. With such strong indications of distribution around 60, you sell
more (at 10, vertical chart). Your reasons are: The tops of the rallies have been
lower 61 7/8, 61 1/4 and 60, which is a sign of increasing pressure; volume
has been tending to increase on the down side; and the relatively light volume on
the bulge to 60 (QQ) has brought the stock to a dead center, approximately in the
middle of the range 58-61. Now your 3 point figure chart looks like this:
61
61
60
60 60 60 X
59 59 59 59 59
58 58 58 58
57 57 57
56 56
55
54
55
52
51
The x indicates where the

stock now stands on the 1
point chart and the dots
show how the chart will look
if the price falls to 58.
By placing an "x" on the 3 point chart at 60, as above, you see clearly
that the stock is on the pivot at 60, and so you conclude that if the price should
now start down again on increasing volume, the stock will have stepped on the
springboard for an important slump. (Sect. 14M, Pg. 6, Par. 2.) So when it
touches 57; you decide to sell more at once or wait for an upwave (as at the
numeral 11) to do so, for now you have all the symptoms of a substantial downward swing. The line of supply on the 3 point chart has broadened to six 60s,
forecasting a possible decline of 18 points. The tops of the rallies are con-

Section 10M Page 12
sistently lower and the support at 58 has faded away. At 56 (RR) some shorts on
the floor cover as the price touches the former supporting level (JJ) and this
brings the little rally to 58 on which you sell again. It is less than halfway from
the top at 61 to the low point so far, 56, and the volume is not at all impressive,
so this tends to confirm the weakness.
The price recedes again to 56 and after a couple of 1 point rallies 56,
57; 56, 57 it goes down again and makes 55. This puts what appears to be a
final clinch on your indications of a sizeable downward swing and gives you a
new selling point, 55, because this is below all the previous supports at 56 and
shows the stock is getting into new low ground, with promise of an important
slump. That is, it is on the springboard now for a fast mark-down.
You now move the stops on your short trades down a fraction above 58
(see vertical chart) because 57 is the last supply line.
The price steadily recedes to 50 where you see evidence of covering between 50 and 52, and as the movement levels off at 50 (TT) you bring your stops
down to 55 5/8, then to 52 1/8 (see vertical chart), or cover on further
weakness.
The above illustration shows how to read a 1 point and a 3 point figure
chart in combination with the vertical chart. The operation, from which these
charts are built, is purely hypothetical; it is not taken from the charts of a
campaign which actually happened in the market. Nevertheless, it is an example
of a typical stock market campaign. This is the only way you can study such an
operation from behind the scenes and recognize from other charts similar moves
made by large operators and "insiders."
In succeeding sections, other factors involved in such analyses will be
developed more fully; with particular reference to instructive refinements. (Sect.
15M, Pg. 6, Par. 2 to Pg. 8 and Sect. 19M, Pg. 5, Par. 5 to end of section.)

Section 10M Page 13
INDIVIDUAL CHART STUDIES PART III

FIGURE CHARTS
The figure chart illustrations which follow are taken from the actual
transactions as they occurred on the New York Stock Exchange. They were transferred from the tape and from the averages to these charts. In these illustrations, we shall consider only the figure charts without regard to other contemporary records or evidence.
The dates are indicated as explained in Section 4M, Page 10. The best way
to study these charts is to take the sheets out of the binder and place them beside
the text, covering each chart page with a blank sheet of paper which you will
slide from left to right to got the effect of reading the chart just as if you were
recording the changes from day to day.
The Bethlehem Steel Chart (Pages 12 & 13), showing the 1 point movements beginning about November 1, 1930, forms a very interesting study,
illustrating the basic principles involved in figure chart analysis. Within a range
of about 25 points there were a number of clearly defined manipulative
movements, with considerable forecasting value. (*)
* The question naturally arises whether, under governmental regulation of

the markets, the repression of manipulative practices (old time pool operations
are now unlawful) may have interfered with the workings of the age-old, natural
Law of Supply and Demand.
The answer, obviously, must be an unqualified N0. And the reason it is no
is that, while regulation may tend to reduce the total volume of transactions and
the market's activity, thus making the market thin such reduction cannot
affect supply to a greater extent than demand, or vice versa; nor can it eliminate
the cyclical swings; of prices from one extreme to the other.
In the long run, if demand is reduced, supply must be reduced proportionately. To cut off the one would be to destroy the other because there must be two
parties to every transaction a buyer as well as a seller. Unless someone buys,
no other can sell.
It makes no difference who the parties to a transaction may be whether
they are bona fide investors, speculators or dyed-in-the-wool pool operators. Price
fluctuations are not determined by the identities of the buyers and sellers but by
the unbalancing of the forces of supply and demand. As shown in Section 2M,
prices rise only when the force of the demand is greater than the force of supply
Section 11M Page 1
Starting the month of November at around the 70 level (A) and without
considering what preceded it, there is a perpendicular decline of 12 points from
71 to 59 (B), creating on oversold condition (Sect. 7M, Pg. 13, 3rd line; Sect.
14M, Pg. 2, Par. 4 & Pg. 5, Pars. 1 & 3). At 59-61 the price shows a tendency to
bounce up and down in a narrow range, an indication that the force of the decline
has been broken and the stock may now be preparing for a rally or a recovery.
After it touches 60 seven times (C) it begins to rally. Then it comes back to 60
for the eighth time, thus indicating a probable rally to 68.
After completing a normal correction of the decline, that is, a rally
halfway back to 71 (D), the price falls back quickly to 61 and recovers to 66 (E).
Here its tendency to level off and to go into a narrow range tells us that the rally
is meeting supply and the stock is probably being held within the 64-66 range
while the distribution is being completed. A line of eight entries forms across the
66 level and stretches out to a count of eleven on the wider line of 65s (including
the blanks), forecasting a slump to 58 and possibly to 55 should the support at
64 fail a distinctly bearish possibility since a break to 58 or 55 would carry
the stock through the previous supports at 60-59 to a new low.
At the last 65 (F) it is on the hinge (Sect. 10M, Pg. 1, Par. 5), so when
and contrariwise. To maintain a stable or unchanging price level, it would be

necessary to keep these opposing forces in constant equilibrium. Even a market
controlled wholly by simon-pure investment buying, and selling must still
fluctuate and be responsive to the Law of Supply and Demand.
You can verify the above by reviewing the record of the stock markets
since the advent of the SEC in 1934. Their behavior, in all vital respects, has
been the same as of old, notwithstanding the presumptive elimination of
manipulation, and the reduced average daily turnover (as compared with the
extreme activity of 1927-1929).
An understanding of manipulative, procedure, in any-event, helps us to
judge the motives, the hopes, fears and, aspirations of all the buyers and sellers
whose actions today have the same net effect upon the market as 30 many pool
operations would have. So if we are squeamish about the tern "manipulator" we
may substitute the words "Composite Operator" with the same force and affect.

Section 11M Page 2
the price slides off to 63 (G) we have an indication that the supply at 66-64 is
coming into effect, threatening a slump into new low ground.
Following a further reaction at the beginning of December, the influence of
the previous supporting point at 61 induces a brief rally into the range 64-66
which is immediately checked at a lower top (H). This spreads out the supply on
the 64 line to a count of 13 points, with possibilities of a 16 point decline inferred in the still broader line of 63s.
Insufficient support is met on the return to the former supporting level (I)
at 60-59 (indicated by failure of any rebound to appear at this critical point), and
the stock slumps through to its first indicated objectives around 58-55 (at J).
Here a brief lateral movement fails to induce any rally which tells us in advance
that we may anticipate a further drop to our next objective around 50 (66
minus the 16 points indicated at 63).
At the 50 level, a new phase begins. Hero at K, as at B, the steep pitch of
the decline from 66 (F to K), without intervening corrective rallies, brings about
an oversold condition (Sect. 14M, Pg. 3, Par. 3). Hence, when the price
movement begins to flatten out and then records a rally to 53, we read this to
mean that there is evidence of sufficiently good demand to bring a recovery to 55
possibly 56. Ability to carry out this indication would have the effect of
breaking the angle of the decline from H to J, thus giving a tentatively bullish
inference to be added to our other two indications, namely, (1) attainment of an
objective on the down side, and (2) a suggestion of preliminary support at K. (See
Sect. 20M, Pg. 3, Items 1, 2 & 4.)
The rally to 55 dies out after exhausting the force of the demand at 50
and meets resistance on approaching the former small trading range or shelf of
congestion at I-J. However, during the balance of December, the bag is held
practically at 50 (M) for all the bears and the income tax sellers.
A quick sell-off to 48, under the previously established line of supports

Section 11M Page 3
at 50 first implies the development of new weakness and a further decline. But
an immediate sharp recovery of this loss (the rebound to 52 at N), identifies it as
a probable shake-out (Footnote Sect. 7M, Pg. 19 and Sect. 21M, Pg. 2, Par. 3).
And as this dip to 48 exhausts the indication of the supply encountered across
the line of six 53s, on the rally to 55 (under L) we look for another rebound. The
stock has now been supported seven times at 50 with, one slip below that figure.
If we consider the figure chart alone, without regard to any other evidence, we
might regard this as indicating sufficient preparation for a rise of 13 points,
counting seven 50s and six blanks. For the sake of a complete illustration, let us
assume that we do regard the broadening formation in the range 50-55 as a base
of support for a nearby advance.
About the first of January, the stock seems to be on a hinge at 51 (Sect.
10M, top of Pg. 2). Then it rallies to 54. But here (at 0) the price movement
flattens out just under the previous high of 55. We conclude that if it is ready to
go up it will not fall back to 50 again. A normal reaction from 54 would be to 51
(midway between 48 and 54). However, from a bullish viewpoint we would prefer
not to see it recede even that much; its chances for overcoming the resistance
around 55 will be much better if the price continues to rally away from the
bottom of the small trading range 52-54, or higher.
Therefore, when it continues to hesitate, forming a line of six 53s and
next comes to a hinge at the last 53 (under 0) we decide that its position has
become critical and that a dip to 51 would imply weakness while a further sag to
50 would cancel our expectations of an early advance to 64. Hence, when the
price actually does come down to 50 again, we must conclude that preparation for
an advance has not been completed. Instead, there is a possibility that if the six
point reaction indicated by the line of 53s at 0 should be materially exceeded, the
next stopping places might be 44 and perhaps 40 objectives taken along the
wider line of ten 53s from M to 0; and fifteen 54s across the rally tops

Section 11M Page 4
from 55 (i.e., from L to the right of 0).

A steep drop to 46 (at P) and a prompt rebound which recovers more
than half the loss from 54 to 46 is confirmed as another shake-out by a brief dip
to the old supporting line around 50 (Q) and more rallying power, expressed in a
further rebound to 52.
So far there has been persistent buying around 50 with only two slips below that, both of which have the appearance of shake-outs (M and P), and now,
about February 1st (at R), we have a substantial line of figures at the 50 level.
If we take in all the loose ends and count the blanks it amounts to 25,
indicating a rise from 47, or 50, to possibly 72 and perhaps 75.
But are we sure that this is a range of accumulation? At 0 the advance
was checked at a price of 54, and then the stock fell off 8 points to a new low. At
first glance, the action between L and P seem much like that at D to J, so there is
a possibility the stock may be headed for an important further slump. The 54 top
was lower than the previous 55, and the 46 bottom was lower than the previous
48. Is this not a downward trend? It may be, but the chances are against it
because the indicated down swing at P, from 53-54, exhausted itself and was
immediately followed by a sharp recovery which wiped out considerably more
than half the loss. Since leaving K the stock has shown repeated tendencies to
rally vigorously after being forced down to, and temporarily under, the 50 level.
After the rally to 51 (left of Q) there is a dip to 49 (at Q) and a recovery to 52,
followed by a return to 50 (R), which is the main supporting line where (at R)
the stock again works into an apex. (Sect. 10M, Pg. 1, Par. 5.) Earlier at K, we
had indications of preliminary support (Par. 3, Pg. 3) which have been followed
by persistent rallies and reactions in an ever lengthening zone of congestion, or
trading range (K to R). We observe also that the downthrusts, of minor selling
waves, are being followed, by upthrusts (buying waves) of greater intensity and
sustaining power than previously at H and J.

(Review Sect. 5M, Pg. 1,
Section 11M Page 5
Pars. 1 to 5 and Pg. 2, Par. 1.)

We therefore conclude that the quality of the demand in this area is
superior, to the quality of the supply; that as somebody was steadily taking this
stock in the weak markets of December and January they expected to sell or redistribute it at a higher price, and that the sell-off to 46 was a deliberate shakeout for the purpose of giving the stock the appearance of weakness so as to
facilitate inside accumulation; also to discourage any bull following in the early
stage of the next manipulated rally and perhaps likewise to encourage the
building up of a weak public short interest on the break to a new low.
In view of the bullish conclusions we have reached as a result of our
interpretation of the action to date, and assuming we are employing only the
figure charts for our deductions, we now decide to make a purchase at or around
50 (R) with a stop either a point or two under the low of 46, or, if we wish to
limit our risk more closely, at, say, a little under 48. The latter would allow for a
possible normal correction of the rally from 46 (P) to 52 (where February
begins). As the one point chart shows a rather rapid lifting of the supporting
points on the recovery from 46 (P to R), we read this to mean that the supply of
stock has become scarce as a result of more than a month and a half of accumulation and reason that this rounding upward indicates it is ready to go into
the marking-up phase. That is, if our timing is accurate, we are not likely to see
it below 50 again.
Since we see possibilities of a move to 72 or 75, a long trade with a four
point stop would be a logical business risk; and this is a sensible time and place
to take a position because at R the stock appears to be on the springboard. (Sect.
9M, Pg. 2, Par. 6 and Pg. 3, Par. 1; Sect. 10M, Pg. 4, Line 17; and Sect, 14M, Pg.
4, Last Par.) Thus, we see that it appears to have completed a considerable
period of preparation for an upward move and at R it is on the pivot, or hinge,
from whence it should soon move in our favor.

Section 11M Page 6
Let us condense these 1 point movements into a 3 point chart and see
how it looks:
55
x
x
x
x
50
55
x
x
x
x
x
x x
x x x
x x x
50
50
x
x
x
x
x
x
50
x
x
x
x
50
x
x
x
x
x
50
x
x
x
Dots above 52
explained below.
The dots on the 3 point chart show how the chart would look if the stock
should confirm our judgment by rising to 55; and if it should make 56 there
would be no question about its being in a bullish position. Meanwhile, counting
the number of figures and blanks on the 50 line of the 3 point chart, we find that
they total eight. Multiply by three and we have 24 which practically confirms
the forecast of the 1 point chart.
The stock advances to 55 (l point chart), which means that it has recovered all of its recent decline and confirms our judgment that it is ready to go
forward. After a small dip to 54 it develops the second, springboard position at
56 (S) for a probable fast mark-up (Sect. 10M, Pg. 5, Par. 3). On a purchase
here, our stop should be, say, a little under 53 on the ground that if our
conclusion that the stock is now being marked up is correct, it should continue to
advance rapidly without falling deeply back into the upper limits of the range 5055.
The advance continues to 61 where it hesitates briefly due to the influence
of the former congestion area 59-60, on the way down from 70-71 in November
and December. Some of the buyers at this, former supporting level, who held on
and carried their stock down through the slump to 50 and the long tiring out
process thereafter are anxious to get out even on this February recovery. But
offerings from this source, evidently, are not heavy because the stock reacts
stubbornly (T) and is promptly supported on the dips to 58. (Sect. 7M,

Section 11M Page 7
Pg. 7, Pars. 1 & 2 and Footnote, Pg. 8.) The five point rise indicated by the line
of 58s (at T) is duly accomplished by a run-up to 63. Then the stock settles back,
meeting higher support at 60 while it consolidates the advance from 50. A line of
ten 60s indicates 68-70 as the next probable objective.
Now comes the rush up to 68 (U), support at 67, and another lift to 70. It
is rather hard work advancing the price to 70 and there is an ample supply
there all indicated by the shortening of the upthrusts from 68 and the tendency of the movement to flatten out in a narrow, range as the stock encounters
the resistance of the former (November) high. (Sect. 7M, Pg. 6, Par. 2, Line 7.)
Just below 70, the 69 line stretches out to eight, counting one blank,
which-says: "Get out and go short. I can't make 72 or 75 I am going back to 61."
Accordingly, we sell short with a stop, say two points, above the highest point in
the range.
It looks as if those who were handling this stock sold it down steadily
until it reached 64 (V), where, after several small rallies develop at the half-way
reaction mark, the price slumps off again and finally makes 60 (at W). So the
stock told the truth at 69.
Some demand comes in around 60 (W), probably from traders venturing
to feel for a bottom in view of the previous support at T (Sect. 7M, Pg. 12, Par.
2). This demand is sufficient to stimulate a quick rally to 65 where the price
falters at a lower top (X) and an apex forms. A break to 62 warns us that more
distribution was accomplished on the five point rally to 65 and the line of four
64s (at X) says another 61 is ahead with possibilities of a drop to 52-50 on the
basis of the wider line of 64-65 (V to X). When the stock fails to stop at 61 and is
able to recover only 2 points at instead of a normal four points, we must assume
that a further decline is coming and that it is probably headed for 52-50; possibly
44-40 on the basis of the even wider line of twenty-six entries across 64
(U to X).

Section 11M Page 8
Meanwhile, following the rally to 65 (X) we have reduced our stop to,
say, 66 5/8. The weak rally to 59 (Y) gives us a new resistance point for
adjusting our stops downward so, when the price falls to 56, we lower our stop to
a fraction above 60 (Sect. 7M, Pg. 16, Par. l). The stock next goes right down to
52 where again the best it can rally is 2 points (Z). It hangs above the old 50
supporting level (K to R) with no evidence of material rallying power; indicating
that, hew supply is coming in along the line of 53 (Z-AA), which promises a
further slump into new low ground, 44-43.
From here it is a rather steady march down to 40 without a 3 point rally.
Approaching 50 (BB)-and 46, (CC) there is some hesitation but the steadily
lowering bottoms (48, 46 and then 45) indicate virtually no support and the
downward slanting tops from the last 53 (AA) onward, show steadily increasing
pressure which implies, in advance, a probable break through the Dec.-Jan.
supporting area which is likely to uncover a rush of liquidation when these
critical old lows are violated.
Reviewing the operation from the 3 point chart (next page), we find that
those who were running this campaign held the bag for Bethlehem Steel around
50 in January and December, knowing that they were in a bear market, but that
there was a probability of a rally on which they could unload.
When more favorable market conditions prevailed during February, they
marked the price up to 70 and unloaded all they could. What they had left was
sold on the way down. In all probability they also sold a considerable quantity
short.
From the time the stock left 65 (X) on the lost down-turn it dropped like a
plummet 25 points without a 3 point rally, indicating a refusal to support the
price or to buy any of the stock until it reached the 40 level (see 1 point chart).
Note once more the forecasting value of the 3 point chart. On this chart
the last phase of the rise from 60 to 70 has the appearance of the application

Section 11M Page 9
of hypodermics since the quick bulge to 70 was not sustained but gave way immediately to a slump which cancelled the whole of the rise from 61 in short order. (Sect. 7M, Pg. 11, Line 3 and Footnote, same page.) Evidently the sponsors
of this stock felt that there was relatively little time in which to get out from
under, so they ran the price up in a quick thrusts above the main distribution
level 63-65 to catch as many shorts as possible and to load up the public, which
can easily be stampeded into buying on such apparently strong advances. (Such a
maneuver also creates an overbought condition see Sect. 14M, Pg. 1, Last Par.,
and Pg. 4, Par. 1.)
5 Point Chart of Bethlehem Steel December, 1930 to April 1931:
x
x
55
x
x
x
x
50
55
x
x
x
x
x
x x
x x x
x x x
50
50
x
x
x
x
x
x
50
x
x
x
x
50
x
x
x
x
x
x
x
x
60 60 60
x x x
x x
x
x
55
x
x
x
x
50
x
x
x
70
x
x
x
x
65
x
x
x x
x x
60

x
x
x
x
65
x
x
x
x
65 65 65
x x x
x x x
x x
x x
60
X
x
x
x
x
x
60
x
x
x
x
55
x
x
x
x
50
x
x
x
x
45
x
x
x
x
40
Section 11M Page 10
Count the number of crosses on the 65 level (the first solid line of supply
on the 3 point, chart) after the stock fails to rally above 65 again on its recovery
from the last reaction to 60. The total is five. Multiply by three and the result is
fifteen, indicating a decline to 50. But supply on the line of 63s stretches out to a
total of 24 points (8 X 3), indicating a further drop to around 39, should support
fail to appear (as the 1 point chart shows it did fail) at our first objective of 50.
This illustration serves again to emphasize the importance and significance of the 3 point chart. Note that the 1 point chart pictures a steady but
angular decline, checked only by temporary resting spells or small rallies (from
X down to 40) on which more stock was laid on the market, while the 3 point
chart (Pg. 10) shows a vertical drop from 65 to 40 and identifies the abortive
run-up to 70 as a terminal thrust. (A terminal thrust is the reverse of a terminal
shake-out; Sect. 21M, Pg. 3, Par. 3.)
This radical difference in the appearance of the two charts reflects emphatically the fact that the stock was unable to rally as much as three points at
any time during its decline and was totally unable to hold even momentarily at
former natural supporting points (T and K to R on the 1 point chart), on the way
down.
Thus the 3 point chart brings out a condition that is not always immediately apparent from a casual glance at the 1 point chart. It is important to
observe and remember in this connection that the inability of a stock to reverse
its trend three full points or more, or to rally emphatically from former
supporting levels, is often highly significant, and should seldom be ignored, but
should be carefully considered in connection with other contemporary technical
manifestations.

Section 11M Page 11

Section 11M Page 12

Section 11M Page 13
INDIVIDUAL CHART STUDIES - PART IV

FIGURE CHARTS
The next two studies are intended to illustrate additional principles involved in figure chart analysis without repeating the detailed points which were
covered in the preceding illustration. To test your understanding of what you
have already learned, and your ability to apply your knowledge, it is suggested
that you incorporate these previously explained details for yourself in the discussions which follow.
On Pages 7, 8, and 9, we have a 1 point figure chart of U. S. Steel covering the period from February to October, 1931. This chart begins with Steel
around 140 following the recovery from the low level of December, 1930; this occurred in the early part of 1931.
In February, Steel recovered from 138 to 152. A formation began at the
147 (A) level which indicated that the stock was running into considerable supply. (Sect. 11M, Pg. 8, Par. 1.) Distribution apparently began there, but having
sold a quantity, those dominant in the stock evidently believed they could attract
more buying by lifting it to a level of 150 and above, and so we see a
continuation of the line of distribution at the 150 level (B).
By early March, this price could no longer be sustained and the stock
dropped back to the 145 level again (C). Here there were increasing signs of
weakness. The first supporting point was 145, then 144, and finally 143 (D).
Taking first the width of the line across 149-150 as a basis (B to E), we find
that this totals 23, promising a decline to 129 (152 minus 23) and possibly
126 (149 minus 23). Next, considering that the stock distributed from 147
(A) up to 152 was all part of tie same selling campaign, we find that the 147
level is repeated 34 times (A to F), including the blanks. This indicates a

Section 12M Page 1
further possible decline to 118-115.

A 3 point chart of this formation (below) shows 148 repeated 12 times,
counting five blanks, which forecasts a decline to 112, and confirms the 1 point
chart.
x
E
x x
50 50
50
x x
x x
x
x
x x
x
x x
x x x x x x x
x x x x
x x x x x x x x x x x x
45 45 45 45 45 45 45454545
x
x
x
x x x
x
x
x
x
x
x
x
40
40
x
x
x
From the price

Deduct 12 x 3
Indicating decline to
148
36
112
As to the final bulge to 150 (at E):

It is usual after distributing a large quantity of stock at a certain level to
find a number of shorts attempting to take advantage of the expected
downswing and so it is customary for those handling such a campaign to give
the stock a run up in order to catch these shorts before allowing the downward
swing to become apparent. (Sect. 11M, Pg. 9, Last Par.) When this stock was
ready to break, the rise of 5 points from 145 to 150 (E) occurred (see 1 point
chart). After that the downward course was almost uninterrupted except for a
few small rallies until the price of 110 (J) was reached.
From the time the stock touched 140 (under F), the chart formation was
like a series of steps down to 110 (J). A trader who took a position on the short
side at 147-148 could have made 37 points profit on this decline. By pyramiding, this profit could have been greatly increased; (Sect. 24U, Pg. 16, Par.
2.)
After a weak 5 point recovery to 115 (K) the price dropped into new low
ground at 109 (M), and after a few more brief points of hesitation (N and 0)

Section 12M Page 2
around the 100 level, sank to 84 in June, 1931 63 points down! (*)
After such a long decline, we are naturally alert for signs of a possible
turning point. Therefore, when the price recovers to 94 (Q) early in June we
watch carefully to see whether a change may occur, as this is the first vigorous
rebound since the long downward movement started. Also, it has the effect of
breaking the angle of the last phase of the decline from 112 (L) to 101 (0) as
well as the angle of decline for the whole movement from the 150 level.
(Compare with Bethlehem Steel, Sect. 11M, Pg. 3, Par. 3; and Sect. 7M, Pg. 29,
Par. 2.)
Following the rally to 94, the stock settles back again but is twice supported above the early June low of 84 (R and S), moving in a range between 87
and 93. Gradually it works out a line of 13 in this range (R to S), coming close to
the apex of the range at the last 90. At 92 (T), the indication becomes positively
bullish and confirms a probable immediate rise of 13 points from 87-88, that is,
to 100-101. The stock makes 102, reacts and then narrows to a range of 100101. Reexamining the formation developed during the fore part of June, and
taking in all the blanks and loose ends across the line of 87-88 (P to S), we find
there is also a possibility of a further recovery to 107.
The stock rallies to 102 again (V), then makes 104 and finally rallies to
105. Note that the successive tops, 102, 104 and 105 (U, V, W and X), were
made under difficulties (Sect. 11M, Pg. 8, Par. 1); that is, the stock was being
forced or held up while it was being distributed in the 100 to 105 range, under
the May 110-115 congestion area.
The width of this zone of distribution is 10 on the 104 line (W to X); 16
on the 102 (U to X) line and is extended 4 more points on the 93 line. Thus
* Note the intermediate supply levels at 142-138 (G to H) in April; and118-112 (I to L) in May. Note also the tendency to overrun down-side objectives
and the inability to fulfill indicated objectives on rallies characteristics
symptomatic of a bear trend.
Section 12M Page 3
the indication is that the stock may go all the way back to 84, should support fail
at 94 and at 88.
At the last 103 (under X) it is on the hinge, so when the price breaks to
102 (Y), the stock tells us it is ready to go down. We now also observe that it
has given an additional bearish indication by stopping at 105 on the way up,
thereby falling short of making good the full objective of 107 indicated by the
support (P to S) in June.
The price breaks to 95, rallies 4 points (Z) compared with a normal 5
points, then falls back after this brief bulge to the 16wer edge of the distribution zone 99-105 (U-Y), and develops a new supply area, counting 11 points
on the 97-96 level, substantially confirming the 84 objective which it then
reaches, thus fulfilling its prediction.
At 84-85 (AA to BE) there is accumulation sufficient to indicate an 8
point rally. This is fully borne out by a recovery to 93. At 90 (CC to DD) a line
of distribution amounting to 14 figures and blanks across, indicates that Steel
next probably will recede to 76. It sinks to 80, meets a little support, then
drops to 75. Again the chart made a correct forecast in advance. Then the
foundation for a rally is laid with a line of four at the 77 and 78 levels, indicating a rebound to 81 or 82. The stock actually rises in a fast bulge to 84
where it encounters offerings. The straight drop back to 75 stands in evidence
of its continued weakness.
After two attempts to rally (to 78), the price finally reaches 79 (EE) on
the third effort, where it is arrested and turn3 weak again, this time going
through the old 75 supporting line. The weakness continues for another dozen
points until the low full figure of 63 is recorded in the first few days of October.
The rally from 63 is not based upon any substantial formation but appears
to be due mostly to an oversold condition and short covering accompanied by some

Section 12M Page 4
professional buying for a trading turn. This produces a recovery first to 71 (FF)
and, following absorption around this level, a further rally to 73. A formation is
built across the 71 line (FF to GG), amounting to 7, counting 1 blank, which
seems to indicate another decline to 64; but the stock stops short of this,
indicating that sufficient support is being met at 66-68 (HH) to produce another
rally to 72. Then follows a new formation on the 70 line amounting to 7, but
the lowering tops first 72, then 71, and the gradual development of a hinge
at 70, prepare us for a final decline to 63. This decline falls 1 point short of the
indication by stopping at 64 on the full figure. In the last few days of October, a
small base is made on the 65 line, sufficient to indicate another rally to 69.
The 3 point chart of this stock at the levels below, 75 appears as follows
up to November 1st:
x
x x x
x
x x x x
70 70 70 70 70 70 70
x x x x x x x
x x x
x x x x
x x
x x x x
x x
x
x x
65 65
65 65
x x
x
x
This formation, and the trading range developed on the 1 point chart,
may work out as a final base for the beginning of a substantial rise in Steel, or it
may develop into another downward swing of as much as 21 to 24 points on the
3 point chart 24 on the one point (FF to JJ) on the basis of the formation
thus far developed. The reason for this follows: From the low point of 63 there
was a recovery of 10 points to 73, these figures marking the lower and up-per
boundaries of a 10 point zone. Then from 73 down to 66 the next point of
support the zone narrowed to 7 points. From 66 to the top of the next rally,

Section 12M Page 5
the zone narrowed to 6 points. By declining again to 64, the zone widened two
points, making 8, but by its recovery from 64 to 69, the zone, or range of the
stock, narrowed again to 5 points.
Thus, within the month of October, 1931, this stock has gradually worked
itself out toward a point so that if its oscillations continue to narrow, it will form
a hinge, say about 66. It 3hould then soon tell us, by the way it behaves when it
tries to recover or-react from there on, which way it will go and how far.

Section 12M Page 6

Section 12M Page 7

Section 12M Page 8

Section 12M Page 9
INDIVIDUAL CHART STUDIES - PART V

FIGURE CHARTS
How the Figure Charts of the New York Times Average Foretold the Panic
of 1929.
The figure chart accompanying this discussion, pages 7, 8 and 9, shows
the 1 point movements in the average price of 50 stocks, according to the New
York Times, from June to October, 1929.
The first important formation to which I desire to call your attention is
around the 244-245 level (A-B). (The first figure of each number is dropped for
convenience in making the chart.) Here the average, after making a false move
up to 48, and another down to 42, gradually works out a horizontal formation at
44 and 45. When the market leaves 45 for the last time and works up to 47,
then 49 and 50, we have a clear indication, from the twelve times that the price
crosses the 44 level (including one blank space), that the average is likely to
advance to about 254-56 before encountering substantial resistance.
The 3 point chart of the range at this level would appear as follows:-
x
x
x
x
45 45 45
x x x
x x
x
x
x
x
45
x
x
50
x
x
x
x
x
45 45 45
x x x
x x
x
This shows seven entries on the 45 line, including two blanks, indicating a
rise of 21 points, or to 63-64. The market more than made good on both of the
above prognostications for the average rose to 80. In this connection the important fact is that the 5 point forecast calls for an advance into new high

Section 13M Page 1
ground above the top of the last substantial rally to the 54 level (not shown on
chart) early in May. (*)
The action of the average between 73 and 80 (E to F) indicates the probability of a considerable decline, for the 77-78 mark is recorded nine times, and
as this formation stretches out on the 75 line, we observe a weakening of the
support and an increase in the pressure, as indicated by the two rallies to 78
after the 80 top is made and the lowering bottoms from 75 to 74, then to 73.
On the final 75 (at F), the market is on the hinge, but instead of following out its previous indications, it contradicts them by refusing to break down to
the critical level of 72 (which would be halfway between the top of the advance
to 80 and the last important support level at 64 above D) and rises to 77, then
78 (G), thereby suggesting it may try for 84 (eleven 74s E to F added to
73). The rise continues to a new high at 8l; then 82 and 85.
Between 85 and 80 another formation begins which is broader than the
former one, 84 being recorded ten times (H to J) including the spaces; indicating
a reaction to 75-74. This is actually accomplished (K). However, the average does
not break through the important support level at 73 (the previous July low at F,
recorded on the setback from 80), and the market is thereby given a new lease of
life.
Then follows a sharp recovery, without building a base, to a new high of
88 (L), which holds only a very short time, because the rally was based mostly
on short covering and is promptly followed by a reaction to 80. Next a rally to
84 is followed by a slump to a new low at 72 (M) and an immediate sharp
recovery of
* Note that when the average fulfils the indication of the 1 point chart by
going back to this former (May) high at 54, its less than normal reaction to 51
(at C) and the brief hesitation there tells us, in advance, that it is likely to go on
and try for the higher objective of 63-64. Similarly, at this level (D) and again
when it exceeds the indication by advancing to 66, we are warned to expect a
further advance by the small extent of the supply and the strong support
indicated by the brief duration and extent of the reactions.
Section 13M Page 2
13 points. This break to 72 was the result of a determined professional drive

which might have started a general collapse, had it not been for the fact that
it failed to induce sufficient liquidation to accomplish this purpose. Furthermore, the drive succeeded in catching stop loss orders placed around the
former 74 level (K) in sufficient quantity to permit covering important lines of
shorts at a satisfactory profit.
Observe the angle at which the market rose from 45 (B) to 80 (above E).
Roughly it was an angle of more than 45 degrees, and see how the price began to
falter after it touched 80. Also note that it was much more of a struggle for
prices to gain the 5 points, 80 to 85 (at H), than for the average to rise from 45
to 80. Supply was increasing steadily.
The recovery from 74 (K) to 88 (L) was evidently forced, for that high
level was not long sustained. The whole of the rise, and more, was lost (at U),
owing to the professional activities above outlined.
Then came more hypodermics (N to 0) and a further gain was made to
90, then 93, 94 and 95 on successive bulges. The market worked within a range
of 88 to 95 for some time and finally went out of that range on the up side (Q)
after making a base formation of seven 90s on the 1 point chart, which is the
same for a 3 point chart, owing to the amplitude of the trading swings at this
level. Hence, the indication is for a further rise of 7 times 3, or 21 points above
the 88-90 level, to 309-311. (*) This eventually proved to be the final top of the
* The moment we have a clear indication that the market is headed

upward for a new advance, we check back on the 1 point chart to weigh the
implications of the July-August trading range (between I and N). On the basis of
figure chart analysis alone, this indication is given when the market stubbornly
holds (at P) the rise to 93, 94 and 95 in the range 88-95 (O-P). Since the two
slips below the July-August trading zone (to 74 at K and 72 at M) appear to be in
the nature of shake-outs, we conclude that absorption took place in this range
around 78-80 (I to N). Support evidently came in at the first 80 following the
reaction from 85, (H to I) and continued out to the last 80 or 81 (at N). The entries and spaces on the 80 line total 34, which, added to 278 gives 312. Thus we
have a close check on the objective of 311 indicated at the 290 level (under 0)
and again a little later on at the 296-300 level (Q to R).
Section 13M Page 3
market. (Compare the 1 point chart, Pages 7 and 8, and the 3 point chart, page
9, at these levels.)
Above the 90 level (P) the formation encouraged continued trading on the
long side, because tops and bottoms of the swings were successively higher. After
the average advanced to the 300 level it developed a formation between that
figure and 296, with a tendency to move higher (out to R). The line of ten at 96
(above Q), broadening to twelve and thirteen at 299 and 300 on the 1 point chart
(to R), indicated 306-311 and thereby confirmed the previous indication of the 3
point chart at the 290 level.
After reaching 307 (S) the market met sufficient offerings to force the
average back to 297 (T), but not through the support level (Q) at 296. A vigorous
short-covering rally carried the average to a new high at 308 (U) where the
supply of stock again arrested the market's progress, and a series of lower tops
on the rallies (U to V) indicated a down trend. The recession continued to within
a few points (V) of the critical level at 290. Then followed an 11 point rally from
293 to 304, a normal setback to 299, and a second spurt of 11 points to 311, a
new high record for all time (W). The bull campaign ended right then and there
at the 311 mark.
After the pinnacle was reached, and a brief rally occurred from 300 to
303 (at X), the whole picture became very ominous for the bulls. (*) The range
of the market from the last low, 293 (V) to 311 (W) was gradually swinging to
* Observe that beginning in July, the market began to exhibit symptoms

characteristic of important distribution. The amplitude of the swings in the
average is wide and the movements are becoming increasingly erratic, following a
long and sustained advance from the May lows. The frequent application of
hypodermics (K-L, T-U and V-W) seems required to maintain prices at the distribution level. But when the effects of these stimulants wear off, there are equally
violent relapses (L-M, U-V and W-Y). Also, price movements were becoming
extremely selective, that is, the upward surges in the average were brought
about largely by rotating demand from one fast moving, high priced stock to
another to keep up the appearance of great strength, but the main body of stocks
responded sluggishly and numerous other issues were topping out ahead of the
average. (Sect. 8M, Pg. 4, Par. 4; Pg. 5, Pars. 1-3 and Sect. 4M, Pg. 20, Last
Par.)
Section 13M Page 4
an apex at about 300 (under X). (This shows clearly on the 5 point chart,
Pg.10). From this level we should expect a very important move in one direction
or another, whichever way the market breaks out of that 293-311 range.
From the evidence thus far, the probabilities are distinctly bearish and
this is confirmed by the immediate return to 300 after the weak three point rally
to 303. (Compare the 1 point chart at X with the 3 point chart. The latter plainly
emphasizes this weakness, for a normal rally would be to 305 or 306 halfway
back to 311.) The count across the 307 line on the 1 point chart was now 28 (S
to W), forecasting a down turn to 283 or to 279 (311 minus 28 and 307 minus
28). Below 307 a series of broader supply lines at 304, 302 and finally 299-300
indicate successive objectives of 279 or 272, then 272 and 263, and next
across the full line of 300 (above the letter Q out to X) 47 points, down to 264
or to 253.
The 3 point chart, at the 307 level (S-W), confirms the last mentioned indication for the count across the 307 level is 16, which, multiplied by 3, indicates
48 points down.
For the sake of a complete illustration of figure chart principles, let us
suppose at this point that we were considering the alternative possibility of a new
advance, in the event that the market were to break out of the 293-311 range on
the up-side. On the 1 point chart we have a line of 33 across the 296-7 (August)
supporting level (Q-W) to sustain an up move to 329-30 and possibly more if the
line of 300 (out to X) should hold. With the corresponding line of 296-8 as a
basis, the indication on the 3 point chart is 69 points up (23 times 3) to 365 or
367; and perhaps 81 points (27x3) to 377-9 if we include the blanks across to
the last 300 at X.
In brief, though the chances were against an advance, the market was
saying to the reader of this 3 point figure chart of the New York Times Average
of 50 Stocks: When I leave this 300 level, I am going either to 377 or to 264 and

Section 13M Page 5
then probably to 227 for supply on the 300 line now amounts to a total of 84
points. Watch me when I start out of this range and go with me. The average was
unable to hold at the 300 level, nor at 293, instead, it started down from its
critical position and made 290. At 292 (Y), 291 or 290, we were justified in
getting out of all of our long stocks and taking the short side of the market. The
rally to 300 (Z) which followed, was quickly lost again and the market receded to
the 90 level almost immediately a second time. Here was confirmation that the
trend pointed downward. The rally to 300 (Z) added four more down units to the
down formation on the 1 point chart, and six on the 3 point.
When the first bad break come in early October, the average declined to
273 (AA). Then, as if to contradict all the chart had previously said, there was a
recovery of 28 points to 301 (BB), evidently engineered for the purpose of
scaring in all the shorts before the real decline. ( * )
The formation at 299 (BB) was very brief a line of only six on both the
1 point and 5 point charts but if we take into consideration the entire width of
the formation from the time the average first made 299 (at Q), we find that
counting across there ore 44 on the 299 line of the 3 point chart, including 18
blank spaces. Multiply this 44 by 3, and we have an estimated decline of 132
points from 299, which is the equivalent of 167 as the indicated objective point to
which the average would probably decline.
This was correct within 2 points as the panic culminated with the average
at 165!
* The relapse from W to AA is very pronounced; the patients condition is

growing steadily worse; evidently the last stimulant drew very heavily upon his
reserve strength. But Doctor Bull is not ready to give up yet so he resorts to one
more heroic treatment which brings the rally to BB and precipitates the final
relapse. In other words, the market having become so saturated with supply as a
result of heavy distribution during August and September, indicates theexhaustion of buying power by sliding rapidly down from 311 to 273. Here the
decline is checked with the aid of short covering and new buying induced by the
return to the old supporting levels of 73 and 74 in July and 72 in August. This
helps to engineer the recovery to BB where secondary distribution completes the
bull campaign.
Section 13M Page 6

Section 13M Page 7

Section 13M Page 8

Section 13M Page 9

Section 13M Page 10
MARKET TECHNIQUE
Volume Studies
As a preliminary to further studies, we sum up, in the following general

observations, what we have learned in preceding sections.
Supply and Demand. Always keep these facts in mind: Prices move up and
down in accordance with the Law of Supply and Demand. This is true of the stock
market as a whole, and of every individual stock which is dealt in on the exchanges. It is true of bonds and commodities.
When demand exceeds supply, the price rises.
When supply exceeds the demand, the price declines.
When supply and demand are equally balanced, the market or a stock, or
a commodity stands still. By this is meant: It fluctuates within a narrow range.
Traders and investors are influenced to buy and sell as a result of the
news, earnings, dividends, reports, hope, fear, and the tips and rumors that flood
Wall Street every hour of the session. Whatever the cause of the buying and selling, the result is added pressure on the market, of support under the market.
One's ability to judge the comparative support and pressure supply and demand is the measure of one's success in trading and investing.
Some of the supply or demand may be artificial a result of manipulation; but this is an advantage to the expert investor and trader because the manipulator, through his operations, helps to define the trend, which is the line of
least resistance.
Technical Position. A market (or a stock) is said to be in a weak technical
position on the bull side when the buying power has been exhausted, either in a
small or a large way. A campaign of distribution exhausts buying power in a
large way because much of the floating supply of stocks is then in the hands of

Section 14M Page 1
traders and the public. Sponsors and large operators have sold. Those of the
public who still hold these stocks are potentially bearish factors because, having
bought, they must sooner or later sell, and their selling will bring pressure upon
the market. (Sect. 9M, Pg. 6, Par. 3.)
This was the case in 1929. The whole market became saturated with
stocks held by those who were looking for profit. Public buying power was
exhausted.
When these holders started to sell, they found little market for their
shares. As prices of stocks declined, more and more were, obliged to sell, or were
scared into selling. The load of stocks on the market increased. Margins were
impaired all through the list. (*) Every seller helped to force prices down and
thus weakened so many hundreds of thousands of accounts. The effect of this
was cumulative. Increasing pressure bore down upon the market, which was
totally unable to absorb the gigantic offerings. The result was a collapse and a
panic that affected everybody in every line of business throughout the world.
A weak technical position occurs in a proportionately smaller way when
buying power is exhausted for the time being, as after an intermediate, or a
minor up swing. A common form of this condition (on a smaller scale) may be
seen in the examples previously referred to as overbought positions and buying
climaxes. (For typical illustrations see Footnote, Sect. 7M, Pg. 6, and 3 point
chart of Bethlehem Steel on the upthrust to 70, Sect. 11M, Pg. 10.)
A strong technical position develops when liquidation has run its course,
* This sort of thing can happen again despite present day (1937) margin
regulations. People can work themselves into panic regardless of whether they
own securities outright or hold them on 55$ margin. Moreover, a panicky condition which would sufficiently impair even these wide margins might produce the
same effects of cumulative liquidation as with lower margins, for when the point
of exhaustion of high margins is reached, few traders are able to raise the funds
needed to restore accounts to a sound marginal basis. They will then be compelled
to sell, precisely as of old, when conditions are at their worst for the sellers.
In any case, the automatic restriction of accounts, which occurs when today's trader allows the market to run against him, freezes public buying power
which is the same as impairing margins and capital under former requirements.
Section 14M Page 2
either for the time being or more lastingly. Those who could be induced to sell or
were obliged to do so, have sold. The majority of stocks are in the hands of
experienced investors, bankers, sponsors, syndicates and large operators. The
sellers are weak; the buyers are strong; that -is, able to carry what they have
bought through whatever further declines occur. Such a condition usually prevails at the end of a big decline, a panic or depression, as in June, 1932. Sometimes the finishing-up stages of a decline weak holdings being sold to strong
buyers require many months. The public, or such of it as has learned to operate on the bear side, is generally short at the bottom, just as it is predominantly
long at the top because the public operates with its ears and emotions instead of
with its thinking processes. These amateur shorts are potentially bullish factors
because they must eventually cover (buy back) what they have sold short.
The same conditions, though on a proportionately smaller scale, are prevalent when supply is exhausted on an intermediate or a minor down swing. It is
then that the market develops the characteristically oversold positions and selling
climaxes already discussed. (Sect. 7M, Pg. 3, Footnote; Sect. 7M, Pg. 12, Par. 2;
and Sect. 12M, Pg. 3, Par. 1.)
Oversold and Overbought Positions. As you can see from the immediately
preceding paragraphs, oversold and overbought conditions are corollaries, respectively, of a strong and a weak technical position. In other words, an oversold
position is substantially the same thing as a strong technical position; and an
overbought condition is akin to a weak technical position. No precise definition
can be given, whereby we may determine the exact points at which the market,
or a stock, is definitely oversold or overbought. This must be determined as
explained in previous references to these phenomena. The following loose
definition will, therefore, serve our purpose:
Oversold Position. We consider the market, or a stock, as having de-

Section 14M Page 3
veloped an oversold condition when, as a result of its failure to experience

normal corrective rallies or adequate resting spells during a down swing or
because of the too rapid acceleration of a reaction or a decline the price
reaches a position where it becomes highly sensitive to short covering and to a
general withdrawal of experienced sellers.
Overbought Position. We consider the market, or a stock, as having developed an overbought condition when, as a result of the too rapid acceleration of
a rally or an advance or because of the lack of intervening corrective reactions
or resting spells during a prolonged advance the price reaches a position where
it is vulnerable to realizing sales and subject to the danger of a general withdrawal of experienced buyers.
Rallies and Reactions as Indicators. When, a stock rises 10 points, a normal reaction would be one-half, or 5 points. This does not mean that a stock must
react 5 points after an advance of 10. It means that the extent of its reaction,
after a rally or an advance is checked, should be regarded as one of the indications of its technical strength or weakness.
Strength is indicated by a smaller reaction than one-half.
Weakness is indicated by a reaction greater than one-half.
That is to say, when a stock declines 10 points, a normal rally would be
approximately one-half, or about 5 points. A smaller rally would indicate technical weakness and a greater rally than one-half would indicate technical
strength.
These indications should be closely studied. The tape is full of them every
hour of the session and the charts reveal them from day to day, week to week,
and month to month.
When a stock is "on the springboard": On the bull side a stock (or a
group, or the market as a whole) is in this position following a period of preparation. This usually occurs at the bottom of a decline though it also oc-

Section 14M Page 4
curs after the price has been in a trading range, following consolidation of a
previous advance in preparation for a new mark-up. The greater the decline, the
more likely large operators will accumulate the stock and make it the basis for a
bull campaign.
Preparation for a considerable rise usually requires several weeks or
months, depending upon how much the operator wishes to accumulate and how
much may be had from the sellers at prices he is willing to pay. As he adds more
and more to his line, the floating supply of the stock (that is, the quantity for
sale at that level not locked up in investors boxes) becomes less; any substantial demand for the stock would, advance the price. The operator opposes an
advance (Sect. 9M, Pg. 2, Par. 6 and Sect. 10M, Pg. 2, Par. 3) until he has secured all the stock he believes he can got. His opposition consists of large selling
orders placed with several brokers and through them with the specialists; so that
it appears that a lot of the stock is for sale just above the present market. Floor
traders and outside operators who work on stock market technique make
inquiries before they buy any large quantity of stock such as: "How much is
offered in the next five points up?" And while the specialists are not supposed to
give out this information, it is often obtainable.
The day comes when the large operator decides that market conditions are
favorable, and he is ready to let the price advance if it will; or advance it himself
by purchasing more stock so as to complete his line. If he has completed his line,
he will bid it up and whatever he buys (net) in this process, he will sell on the
bulges so as not to increase his line above the desired number of shares. (Sect.
9M, Pg. 3, Par. 1.)
A stock is on the springboard on the bull side when the operator has completed his original line and is ready to let the stock advance (Sect. 10M, Pg. 4,
Line 17). Up to that moment the supply has been artificial. He is ready to allow
the demand to overcome supply. At this stage this is comparatively easy be-

Section 14M Page 5
cause he has mopped up all the floating supply at that level.

Of all the times to take a position in a stock this is the best. By waiting
for this psychological moment you avoid having your money tied up, paying interest on inactive long trades, and losing opportunities in other stocks. Nearly
every day some stocks are on the springboard ready for a sharp move up (this
may mark the beginning of an important rise), or prepared for a plunge
downward, which may be the commencement of a decline of 10, 25 or 50 points.
A stock (or a group, or the market as a whole) is on the springboard on
the bear side, of course, following a period of preparation, in this case distribution. This usually occurs at the top of an advance, but it also occurs after the
price has been in a trading range, following a decline, in which further distribution is taking place in preparation for a new downward plunge.
Some people regard a stock (or the market) in this (springboard) position
only when it breaks through an old line of resistance or support into a higher or
lower field. I claim that the beginning of the springboard move is at the bottom of
a range of accumulation, or in the upper levels of a range of distribution.
Examples of springboard positions have already been given in preceding
pages: Section 7M, Page 5, Item 2; Sect. 7M, Pg. 8, Par. 1 and Footnote; Sect. 7M,
Pg. 10, Par. 1, referring to action of the average Feb. 27th; Sect. 7M,. Pg. 15,
Par. 3; Sect.7M, Pg. 20, Par. 2; Sect. 7M, Pg. 22, Par. 3 and Pg. 23, Par. 1; Sect.
8M, Pg. 16, 1st line; Sect. 10M, Pg. 4, Line 17; Sect. 10M, Pg. 5, Par. 3; Sect.
10M, Pg. 12, Par. 1; and Pg. 13, Par. 1. Other examples of springboard positions
will appear in later studies.
A Study of Volumes. Much can be derived from a study of the volume of
stock bought and sold in the whole market, as well as in groups of stocks and
individual issues.
A small volume, that is, little activity in a stock, indicates that it is

Section 14M Page 6
being neglected by traders and the public (illustrated by Safeway Stores, Sect.
21M, Pg. 4, Par. 4). When this small volume occurs at the bottom of a considerable decline, or at the bottom of a reaction or small dip, it usually indicates a lack
of pressure; a drying up of the selling (illustrated by Times Average, Sect. 7M,
Pg. 35, Jan. 16th to 19th and U. S. Steel Weekly Chart, Sect. 4M, Pg. 5, Jan. 18,
20 & 21).
Dullness may be induced for the purpose of accumulation (see Electric
Power & Light, Sect. 17M, Pg. 25, Aug. to Nov.). Insiders may pull out all their
orders to see what the stock will do if left to itself (Sect. 9M, Pg. 9, right of L and
left of M). If they wish to buy, they take what is offered without bidding for it,
never taking all there is, but always leaving some on the offered side to keep the
price depressed: If 500 shares are offered at a certain price, they will take 200
or 300. They continue this process until they have acquired a substantial part of
their line, after which they may begin to bid for all they can get up to a certain
point (Sect. 17M, Pgs. 8 to 12, and chart Pg. 25) or until they see that they are
attracting an outside following. Then they will withdraw their orders (Sect. 16M,
Pg. 5, Par. 1) and let the stock sag and turn dull in order to deceive the public
into thinking there is no further interest in it.
A small volume may have a different meaning at the top of a rise, or a
rally, or a small recovery. This frequently is a bearish sign (Sect. 9M, Pg. 9,
under K and Pg. 10, at QQ). It indicates that demand has been filled, or has dried
up. The stock will probably go lower because demand is lessening and supply will
likely overcome it.
There are exceptions to the above indications, however. Thus a small volume and narrowing into small price movement after a rise may mean that the
stock is resting and digesting its previous gains, instead of reacting, prior to a
further advance (Sect. 17M, Pg. 14, Par. 1). Therefore, in .judging volume indications, we must always be careful to take into account the action preceding a par-

Section 14M Page 7
ticular volume indication as well as all of the other technical influences prevailing
at the time the volume indication is given.
Dull periods generally correspond to the end of a chapter in a book. A new
chapter begins sooner or later.
An increase in volume of trading is usually very significant. When volume
builds up fairly consistently on an advance (Sect. 7M, Pg. 35, Feb. 7 to 11; Sect.
9M, Pg. 9, Q to S), a further rise may be expected. On a decline, a tendency toward increasing volume or failure of volume to diminish materially usually forecasts lower prices (Sect. 7M, Pg. 33, Feb. 25 to Mar. 2 and Sect. 9M, Pg. 10, at
PP).
An unusual increase, that is, a sudden surge in volume, generally indicates the culmination, or approaching culmination, of a movement. (See Buying
and Selling Climaxes, Sect. 7M.)
Whereas bear markets generally terminate in narrow price movements to
the accompaniment of low volume and listless trading, bull markets terminate in
relatively wide price swings accompanied by high volume and more or less
feverish activity.
It is the change from dullness to activity (regardless of the absolute, i.e.,
the actual volume), or the reverse, which is important; and the manner in which
the change occurs. These changes put us on guard to watch for further indications which will either confirm or deny the direction of the trend in which the
change occurs.
Suppose a stock were traded in at the rate of 2,000 shares a day for
many days, within a range of 2 points. This would be merely a trader's market
in that stock. But if it should break down through its former supporting line, and
the volume should increase to 3,000 or 4,000 shares a day, this would be a
relatively large change, indicating an increase in the supply sufficient to
overcome the proportionately smaller demand. The volume of stock wanted by
buyers may not have shrunk, but the increase in the quantity coming to market

Section 14M Page 8
would be more than these buyers were able to absorb. So the price would decline,
and the effect of its declining under these conditions would be to induce more
people to sell, thereby adding to the supply.
If a stock advances 5 points on transactions of approximately 60,000
shares a day and on a two point reaction the volume drops off to about 15,000
shares, the indication is that comparatively little stock is for sale, and that it is
merely having a resting spell. Those who want to get out can do so. Indication of
a further advance would be a gradual dropping off of this volume during the
reaction until hardly any trades in that stock appear on the tape (or volume
becomes quite small on the chart). But when the volume again increases and the
price advances, particularly if it goes through the former high, a considerable
further upward move may be anticipated.
The above paragraphs are intended merely to give you the general idea of
what to look for when studying volumes. It is not feasible to lay down fixed rules
for interpreting increasing or decreasing volume. Such arbitrary rules would be
more deceptive than useful or reliable. They would have to be qualified by too
many exceptions. You will appreciate the reasons for this as you continue with
your studies, if they have not already become apparent from what you have
learned in Sections 7M and 10M. Remember: Stock market technique is not an
exact science. Prices are made by the minds of men. In drawing deductions we
must play the role of detectives, seeking clues by judging the psychological reactions of all of the buyers and all of the sellers weighing their motives
through observation of the circumstances leading up to and existing at the time a
change in volume occurs.
Therefore, instead of attempting to formulate rules for the treatment of
volume we shall develop this important subject more fully through additional
practical illustrations in succeeding sections.
First, however, let us consider the following useful, if homely, analogy

Section 14M Page 9
to further clarify the significance of volume behavior and the way to interpret it
properly. Thus, volume is to the price movements of stocks as gasoline is to the
automobile. If you step on the accelerator of your car, giving the motor more gas,
the car will start to travel faster. The more gas you feed it the greater will be its
momentum. Now, when your car has acquired considerable momentum, if you
throw out the clutch and coast, your car will travel a considerable distance on its
acquired momentum. On the other hand, should you merely give the accelerator a
temporary tap, releasing it immediately, you will not give the car a great deal of
momentum and hence it will not roll far if you allow it to coast.
This analogy applies to the stock market in the sense that, if volume increases temporarily, the price movement has been given little gas, hence that
particular move is likely to die out quickly because it has not acquired momentum. On the other hand, if volume begins to expand, continues to increase consistently, growing larger and larger, then we have an indication that the public is
participating; that the price movement is getting more and more gas; that it is
building up momentum. Under these conditions, the movement naturally tends to
perpetuate itself and does not reverse as rapidly or easily as in cases where the
volume increases are small, temporary or isolated.
It follows from the above that the daily volume of trading affords a very
good clue as to the extent of the public's participation or the willingness of
traders and the public to follow a given price movement; and to the probable
momentum of the movement. For instance, when the daily volume of trading in
the market as a whole averages around, say 700,000 to 500,000 shares or less,
the indication is that there is little public participation and that the trading has
become largely professional. Accordingly, should volume increase suddenly in one
day to, say, 1,000,000 or 1,250,000 shares, the strong probability is that this
abnormal expansion, being temporary, will mark a temporary or perhaps a more

Section 14M Page 10
important turning point. On the other hand, if volume tends gradually to build up
from, say, 1,000,000 to 1,500,000 and then to, say, 2,000,000 shares that is,
builds up fairly consistently then we have an indication that the public is
coming into the market; that the price movement then in progress is likely to
carry on for a considerable time; that the market is not likely to reverse its
movement sharply or suddenly until its accumulated momentum is checked by
the application of braking power, expressed in flattening out of the movement;
that is, no material further progress with volume still relatively large.
The figures mentioned above, of course, are not meant to be used as a
permanent standard of comparison against which you may measure the daily
volumes of future markets. They are used merely to emphasize the principle that
it is the relative change in the volume of trading, rather than the more
magnitude of the daily turnover, that is significant. Thus, if a condition should
arise wherein the daily turnover should run between 200,000 to 300,000 shares
over a considerable period of time and a sudden increase should bring a rise to
500,000 or 700,000 in one day, that would then be a significant change. And, if
volume should gradually build up to, say, 750,000 to 1,000,000 shares after
such a period of 200,000 to 300,000 share days, such a consistent increase
might indicate public participation, notwithstanding the fact that public participation in other years may have been measured in terms of four to five or more
million shares (as in 1926-29); or two to four millions (as in the early 30s).
The whole theory of supply and demand is briefly but clearly shown in the
above paragraphs. The principle is old; it is easy to understand. Very few people
apply it.
Always remember this: An increase or decrease in volume is significant.
Gradual or sudden increases or shrinkage will assist you in detecting turning
points; determining the trend; when to open or close a trade; when to change
your stops; when a move may be culminating or about to culminate.

Section 14M Page 11
Volume of Individual Stocks. What has been said above about the market
as a whole applies generally to the volume behavior of individual stocks and
groups of stocks. However, since the action of individual stocks reflects the
purposes of the interests who are dominant in them, we frequently find
individual issues exhibiting habits or characteristics peculiar to themselves. (Sect.
9M, Pg. 2, Par. 2.) We must study these habits so we may take them into account
when making deductions. For instance, some stocks tend to top out their moves
on heavy volume, others on relatively light volume, some tend to bottom out on
heavy volume, others on light volume. Again, there are many which may move
more or less independently of the market for long intervals.
Types of Sponsorship. Some stocks are actively sponsored while others
have passive sponsorship. Issues in the former category are those which are habitually active, tending to swing readily with rallies and reactions, advances and
declines in the general market and having relatively heavy daily turnover in
short the speculative favorites.
Passively sponsored stocks are those which are prone to swing in narrow
ranges, participating sluggishly or not at all in the swings of the averages for
long periods of time.
The actively sponsored stocks exert a considerable influence upon the
market as a whole because traders watch the action of these issues for cues to
the trend of the whole list. Passively sponsored stocks lack this quality of
leadership.
Now and then certain passively sponsored stocks may be brought to life
and whirled upward so that their sponsors can realize a quick turnover designed
to reimburse them for the cost of maintaining a satisfactory market between
moves but the objectives of such campaigns are apt to be limited as a passive
management is not so much concerned with speculative exploitation as with a
desire to maintain the investment status of stocks under its wing.

Section 14M Page 12
A stock may pass from one class to the other but it usually takes the
public at large a long time to sense the change. This explains why so many people
continue to operate in, and eventually find themselves hung up with, onetime
speculative favorites now become dormant. Sometimes also, a stock may pass
from one category to the other and back again. A change in the character of
sponsorship may be indicative of a change in the investment or the speculative
quality of a stock. (Sect. 9M, Pg. 2, Pars. 1-5.)
The alert investor, who makes it his business to keep abreast of significant technical developments, is able to read the intentions of these dominant
interests without prejudice; knowing that a stock, by its own action, by a change
in its habits and especially by its volume behavior, will usually disclose what may
be expected of it.
And, should he find it difficult to single out the individual stocks that are
most likely to move soonest, fastest and farthest when he has arrived at a
decision respecting the general market's trend, he will seek to secure a substantial slice of the indicated move by spreading his funds over five or more of those
issues which, by their recent habits, have revealed active management.
Chances are that a reasonable percentage of these will move, inasmuch as
an active sponsorship is likely to take advantage of the trend by pushing its
favorite into public notice.
Price vs. Quantity. The sponsorship of most low-priced stocks is passive or
inert because these issues attract the largest following. And this is so because the
public nearly always thinks in terms of price and the maximum number of
shares it is able to carry. Active managements dislike to move an issue in the
face of a large following they have nothing to gain by giving the public a free
ride. The big fellows prefer to let outsiders in when it will serve their purpose
best, namely, when they are actively marking up and distributing. If they see a
chance for a good move, but find too much company in their stock, they

Section 14M Page 13
will first try to shake out, or tire out the premature bulls.
Higher priced issues move more easily, as a class, than low-priced stocks
for the above reasons. The public is afraid of high-priced issues and doesn't like
them anyway because it can't load up with them.
Of course, experienced investors know that price alone is not a sound criterion of quality or value. A high-priced stock may not indefinitely remain a safe
investment. But, as you acquire understanding, you will recognize that your only
concern should be with the possibilities of a substantial change of price hence
with the number of points any stock may move. And so, instead of basing your
selections, as most people do, on the maximum number of shares you can fit to
your pocketbook, you will base them on the indicated maximum number of points
profit you can see ahead, as shown by your own analysis.

Section 14M Page 14
THE SIGNIFICANCE OF TREND LINES
To draw an analogy from the science of physics, we might say that when
a stock (or the market) is being accumulated, it is storing up a force (of demand)
which, when later released, provides the motive power for the ensuing upward
movement. And, when the force of this accumulative demand is finally released,
it gives the price movement a certain momentum which it tends to hold until it is
turned off its course by weakening of the original force or by a new force sufficient to compel a change of trend. An indication that the force of demand may
be dying out on a rise or encountering a superior force of supply is given when
the price movement evinces a tendency to flatten out or arch over.
Conversely, in a zone of distribution, a force of supply is being stored up
which eventually overpowers the weakening force of demand, driving the price
downward until the force of supply is exhausted or demand is revitalized and
builds up sufficiently to bring about a state of comparative equilibrium (trading
range). Thus, a downward movement also acquires a certain momentum which it1
tends to hold until it is turned off its course by weakening of the original force of
supply or by a new force sufficient to compel a change of trend. An indication
that the force of supply may be dying out on a decline or encountering a superior
force of demand is given when the price movement shows a tendency to level off
or round upward.
The stride (i.e., the momentum) of an upward movement is reflected in
the angular upward climb of the daily vertical bars on our vertical line charts;
and the pace of a downward movement by their angular downward pitch. The eye
may not always see the pitch of these angular swings clearly because of the
confusing effect of minor irregularities of the price movement as recorded on
charts. Therefore, it is frequently helpful to employ Trend Lines for this purpose.
Thus, examination of the accompanying charts will show how the angle of ascent

Section 15M Page 1
or descent of prices may often be visualized more clearly by drawing straight

lines through the successive tops or bottoms of the price path established during
the minor, intermediate and major moves.
Occasionally, the momentum produced by the forces of demand and
supply will become so plainly marked as to develop a well defined zone of
activity; that is, the alternating buying and selling waves form a price path or
channel whose upper and lower limits are easily identified by a series of tops and
bottoms confined within parallel, or nearly parallel, lines. (See Pg. 14.)
Lines drawn as explained in the two preceding paragraphs are called
Trend Lines. And for the reasons given on the preceding page, these trend lines
serve to define the stride of the price movement, thereby frequently directing our
attention either to possibilities of an approaching change of trend or to an actual
reversal. For instance, when it appears that a movement is beginning to level out
in the vicinity of an established trend line, such action may be regarded as a
gesture warning us to search for other possible indications of an impending
change of pace or a change of trend. In like manner, the intersection of an established trend line by the price path of a stock or an average may be one of the
symptoms of an actual reversal of trend.
To repeat the above in another way so you may grasp the idea clearly:
(1)
The threatened violation of a trend line often (but by

no means always) may signify that the force of
demand or supply which was formerly in effect is now
becoming exhausted. This may either mean that the
price movement is merely changing its rate of
progress, or it may mean that the trend is definitely in
danger of being reversed. Our decision either way must
depend upon the other factors which are pertinent to a
complete diagnosis.

Section 15M Page 2
(2)
The actual violation of a trend line often (but by no

means invariably) may signify that the previously effective force of supply or demand has been overcome
by a new force which is causing a new trend to
develop. However, as before, we must look to the other
accompanying symptoms for our decision as to whether
this one indication alone (i.e., the violation of a trend
line) may be accepted as true or false.
These instructions should be thoroughly understood because, unless you

are careful, you may find you have a tendency greatly to exaggerate the importance of trend lines and an inclination to employ them in a purely mechanical
way.
It is bad practice to buy a stock simply because it has penetrated an established supply line or broken out of an extended congestion area; or to sell it
merely because it has violated a line of support or broken through the bottom of
a trading zone, and for no other reason. Do not forget: The breaking of a trend
line, by itself, is neither a conclusive nor an all-inclusive symptom. The significant thing is HOW the line is broken; the conditions under which the change of
stride occurs. The behavior preceding such an indication must also be taken fully
into account.
In short, the quality of the buying or the selling at and around the point
of penetration determines whether the violation of an established stride may be
regarded as evidence of a further movement in the direction of the breakthrough,
or whether it means only temporary change. This admonition applies equally to
the violation of former tops and bottoms and old levels of resistance and support.
After an average or a stock has moved some distance in a given direction,
it may encounter sufficient resistance to that particular movement to cause it to
modify its pace, or to rest. During the resting spell (lateral movement or

Section 15M Page 3
trading range), the force that was originally operative may be renewed or even
greatly strengthened with the result that the move will be resumed with greater
momentum than before.
For instance, in the case of an advance, the angle of ascent may be leisurely for a time and then become pitched more sharply upward as the original
force of demand is renewed by fresh buying from the sponsors of the move and
the public, and perhaps by expanding enthusiasm of bullishly inclined traders
and investors. Or, a rapid advance may be followed by further gains at a slower
tempo.
Under these conditions it becomes necessary for us to relocate our trend
lines to conform with the newly established stride. Thus it is apparent why you
cannot accept the mere breaking of a trend line at its face value why it is
imperative for you to study contemporary technical manifestations in order to determine whether a conclusive indication is being given by the violation of the
trend line alone.
You must also be careful to avoid drawing trend lines indiscriminately,
especially on every minor move. The correct handling of trend lines calls for good
judgment. With bad judgment, the use of trend lines will produce confusion and
introduce fallacies into your reasoning.
The reason why you must be especially careful about trying to apply trend
lines to minor moves is this: Every congestion area (horizontal formation) which
develops on your charts cannot arbitrarily be regarded as either a zone of accumulation or distribution. Many of these formations may be nothing more than
trading ranges which might be extended indefinitely; they may represent zones of
comparative equilibrium; areas in which only small forces are at work, hence
minor dips and bulges (small rallies and reactions) tend to neutralize each other.
(See Sect. 14M, Pg. 12, Pars. 2, 3 & 5.) Bear in mind that a decisive price
movement cannot be expected to occur until there is evidence that the forces of
supply or demand have been built up, and then become unbalanced, sufficiently

Section 15M Page 4
to generate a sustained swing. Therefore, take care to analyze the behavior of an

average or a stock while it is forming these congestion areas to make sure that
such formations actually do signify accumulation or distribution.
With the above mentioned controlling and modifying influences in mind,
you will find an intelligent use of trend lines is frequently helpful in judging the
points at which you may expect the price:- (1) To be supported on reactions; (2)
to meet resistance on rallies; and (3) to approach a critical position in its travel
from one level to another. They will also help you to foresee possibilities of an
impending change of trend before it actually takes place.
Thus, as average prices, or prices of individual stocks, approach or touch
these lines, we are given a strong hint to search for additional clues of a turning
point. Special opportunities are frequently afforded the alert trader for buying or
covering near a support line or an oversold position line; or for selling out or
going short near a supply line or an overbought position line.
A Support Line is that line which identifies the angle of advance of a bull
swing by passing through two successive points of support (the low points of two
successive reactions). Example:- Lines A-C, E-G and N-P, Page 14.
A Supply Line is that line which identifies the angle of decline of a bear
swing by passing through two successive points of resistance (top of rallies).
Example:- Line J-L, Page 14.
An Oversold Position Line is that line which is drawn parallel to a supply
line and passes through the first point of support (reaction low) which intervenes
between two successive rally tops in a down trend. Example:- Line K-M, Page 14.
Note that K is the first point of support intervening between the two successive
tops, J and L.
An Overbought Position Line is that line which is drawn parallel to a
support line and passes through the first point of resistance (rally top) intervening between two successive points of support in on up trend. Example:- Lines
B-D, F-H, and O-R, Page 14.

Section 15M Page 5
Because of the greater sensitivity of vertical charts and the fact that the
extremes of rallies and reactions, advances and declines, are shown to the last
fraction on these graphs, it is always best to locate trend lines first on the
vertical charts. Then, by observing the points on the figure charts which most
nearly correspond with the more important of our vertical chart trend lines, we
are able to duplicate the latter correctly on the figure charts. A more complete
explanation of the relative merits of vertical chart versus figure chart trend lines
will be set forth presently (Pg. 11).
Meanwhile, the following will illustrate further how to establish trend
lines in a logical manner and how to use them in a practical way. For the purpose
of our first illustration, we reproduce a portion of the chart appearing in Section
9M, page 9. Referring to this reproduction (Page 15, this Section), it will be seen
that after the reaction to G, we are able to distinguish two well defined rally tops,
the first at 35 5/8 (D) and the second at 33 7/8 (K). Accordingly, if we draw a
straight line through the extreme tops of these two rallies the moment the second
high point (K) is distinguishable which would be when the price has reacted to
30 1/8, near L we find that the extension of this supply line to the right,
across the page, helps to define the approximate limits of subsequent rallies until
the price develops sufficient sidewise movement (out to M) to indicate an
impending change of stride.
To express this in a different way:
When we see that the lateral
movement beginning at L is stretching out to the right at M, we are able to decide

in advance that any material rally, developing out of this sidewise movement at
its right-hand extremity, would have the effect of pushing the price up through
our previously established down trend supply line D-K. Such a break-through
would imply a change of stride of some importance since the stock has been
hovering dangerously close to a critical support level (the line of 30s) and
appears now to have reached a position from which it must soon show ability to

Section 15M Page 6
rally, for otherwise it will be vulnerable to a bearish attack (Sect. 7M, Pg. 16,
Par. 1, and Sect. 16M, Pg. 13, Pars. 2-4). If, however, it is able to rise through
the supply line with some degree of power, that is, either with increasing volume,
or by a material gain in price, or both, we shall have a fairly conclusive indication that the force of demand generated in the range of 30-35 (A to M) is finally being released that a worth while upward move is probably beginning.
It is important to note that we are able to anticipate just such a breakthrough before its actual occurrence and to take a long position before the advance begins because our study of the stock's behavior in the formation A to M
has already led us to conclude that it was in preparation for a substantial rise.
(See Sect. 10M, Pgs. 2 to 4.) And the sharp shrinkage in volume on the last dip
to the supporting level at 30 (M), plus the quick rebound to 31 1/4 (N) tells us
that the available supply now has been largely exhausted offerings have
become scarce at this level the operator has succeeded in creating a set of
conditions which are ripe for springing the force of the demand that has been
steadily accumulating.
The advance to R enables us to establish the trend support line M-Q which
represents the angle, or rate of acceleration, of the first phase of the bull
campaign in this stock. Extending this line to the right, we find that after the rise
is temporarily accelerated by a sharp run-up to 40 (T), the price recedes for
three days toward this line of support in what we conclude is a normal corrective
reaction. We reason that if it recedes further, we may expect the price to hold on
or around this line of support. It does hold, for on the quick further dip to 35 7/8
(at U) there is an immediate rebound, marked by a closing at the high, as the
price almost touches our established trend line. Thus our trend line has given us
a helpful hint, in advance, as to the point at which we might reasonably look for
new demand (support) and the probable place where this particular reaction
should end.

Section 15M Page 7
After the mark-up to 46 7/8 (right of X), we must readjust our trend support line because the increasing momentum of the rise from X brings a new
phase of the advance which implies that the operator may now be in a hurry to
wind up his campaign. This new line, of course, runs from U to X, but, after
penetrating the extension of this line (left of Z), the stock reacts only a little
further and then quiets down, leaving us in doubt whether our trend line
indication is a valid signal of weakness or whether it merely is evidence of a
temporary condition requiring correction.
Meanwhile, we had an earlier warning that the swift pace of the advance
from X to Y might not be sustained when the reaction to 47 1/2 broke the minor
trend support line X-Y.
From Z onward we must wait until the stock gives some new decisive indications in the trading range 46-51 before we can again get any aid from trend
lines because we have no basis for establishing new ones until another series of
intermediate movements develop and we must avoid trying to establish trend
lines on small fluctuation. To use trend lines on minor dips and bulges will introduce fallacies and lead to deceptive inferences.
Referring next to the vertical chart of American Tobacco B, Page 16, observe that the decline from the May 11th high point at A to the May 21st low at
60 proceeds at a downward angle whose pitch may be represented by a straight
line drawn from A to the next rally top at B. Extending this line to C, we find
that it helps call our attention to a possible change of trend when the sharp rally
of June 14th penetrates this line decisively (at D).
Meanwhile, observe that after leaving 62 1/2 at B, the downward
movement of the stock is sharply accelerated so it becomes necessary to draw a
new trend supply line B-E to represent this change of pace. From the fact that
this new decline is pitched almost perpendicularly, we conclude that the stock is
dropping into an oversold position (Sect. 14M, Pg. 3, Par. 3). Hence, when the

Section 15M Page 8
line is penetrated at F by a vigorous rally on heavy volume, after the down move
reaches climactic proportions on June 1st, we have an indication that the force of
the supply is being overcome by a superior force of demand and we may now anticipate the appearance of the customary technical rally which usually follows as
a sequence of a selling climax (Sect. 7M, Pg. 3, Footnote). Note how this technical
rally is checked (at G) as it approaches our initial supply line A-B-C, that is,
within the limits of the initial down wave angle.
As shrinking volume is a normal characteristic of the technical rebound
which follows a selling climax, when the price begins to hesitate at G in the vicinity of our supply line A-B-C, we are put on notice that this rally may be
terminating. And so we are now prepared for the next normal sequence of
events, namely, the appearance of a secondary reaction which will test the
preliminary support around 44-45. This test may confirm the previous support
(show that a good quality of demand exists around these levels), or it may show
that support has been withdrawn (Sect. 7M, Pg. 3, Footnote). As volume remains
low or at least does not expand appreciably on the anticipated secondary
reaction (June 7th and 8th) and as the price makes no further progress on the
down side during the next two days, and since the stock tends to enlist increasing
volume on the rallies from higher support around 47 on June 9th and 10th, we
have a set of indications implying that a broader base of support (accumulation)
is forming: the force of demand is building up.
On our 1 point figure chart (pg. 17) there is now a base (across the 46
level) sufficient to sustain a possible 13 point recovery to 57-59. This indicates,
in advance, that the next rally is likely to penetrate the supply line A-B-C on our
vertical chart. If this expectation should be fulfilled, we shall have further
confirmation of a change from technical weakness to technical strength.
In the meantime, having established a tentative support line from H to J,

Section 15M Page 9
we note that the extension of this line is violated by the reaction of June 27th, at
K. Is this a valid indication of further weakness?
We are in doubt on June 27th
because the volume increases somewhat sharply on the break-through. But since
the increase is quite marked, we must consider whether this may prove to be a
minor selling climax rather than a case of volume increasing on a decline. So we
wait for a clearer indication. There is no follow through on the down side over
the next few days. Instead, the price movement narrows, recording higher tops
and bottoms; volume tends to increase on the rallies and decrease on recessions.
Accordingly, we must conclude that the demand is still of better quality than the
supply. Hence, when the price swings to a dead center on July 9th, having held
for two weeks previously well above the June lows, we conclude definitely that
the violation of our tentative support line H-J should be disregarded. The action
of the stock shows accumulating strength, thereby saying that our first support
line (H-J) merely represented a temporary rate of upward acceleration which
could not be sustained until more energy (force) could be stored up that is,
until more of the floating supply of stock could be absorbed. This action,
incidentally, again illustrates how other technical manifestations may deny the
inferences which might be drawn from purely mechanical interpretation of trend
lines.
After the confirmatory bullish indication is given by the rally of July 11th
(Sect. 10M, middle of Pg. 4), we establish a new trend support line, H-K. But,
meanwhile, note that if we have drawn a readjusted trend supply line through A
and L, we are able to visualize clearly that the lateral movement of late June has
had the effect of working the price into a broad apex, defined by the intersection
of the supply line A-L and the support line H-K. Thus, in swinging to a dead
center on July 9th, the stock is in a position to break away from this broad hinge
position in a quick mark-up; it is stepping on the springboard ready to release the
force of demand that has been accumulating in the range 44-54.

Section 15M Page 10
As previously explained (Pg. 6, Par. 1), trend lines should always be located first on the vertical charts. This is advisable because the three factors of
Price Movement, Volume, and Price Movement-Volume Relationships (Sect. 16M,
Pgs. 1 & 2) determine when and where trend lines may logically be applied} and
when it is inadvisable to attempt to apply them.
Sometimes, however, trend lines on the figure charts may direct attention
to significant developments more strikingly than on the vertical chart a. For example, on the 1 point figure chart of American Tobacco B (Pg. 17), the significance of the apex formed by the supply line A-L and the support line H-K is revealed more strikingly than on the vertical chart (Pg. 16). Hence, it is well to
duplicate your trend lines on the figure charts after you have determined their
proper positions according to the vertical chart indications (Pg. 6, Par. l). By
comparing the supply line A-L on the vertical chart, Page 16, with the similarly
lettered trend line of Pg. 17, and the support line H-K (vertical chart) with the
corresponding trend line on the figure chart, you will see at once how to do this.
In case your figure chart trend line seems to give a different indication
from that suggested by the corresponding vertical chart trend line, it is best to
be guided by the inferences to be drawn from the .latter. Thus, note that the
supply line A-B-G on the vertical chart of American, Tobacco B gives a correct
impression of the technical position of that stock on the early June rally to G.
The fact that this rally is checked in the vicinity of the supply line helps us to
identify it as a probable technical rebound out of a selling climax (see Line 3,
Pg. 9, through Par. l). On the other hand, the corresponding supply line on the
figure chart seems to give a much more positive, but misleading, indication
because on the figure chart the down stride line A-B-C is actually penetrated
apparently quite decisively.
Differences of this sort may result from the circumstance that figure

Section 15M Page 11
charts do not take account of the time factor as accurately as the verticals.
The charts of U. S. Steel (Pgs. 20 & 21) show additional examples of
trend lines, illustrating how price movements sometimes follow regular channels
as between the supply line A-C and the corresponding oversold position line B-D.
The latter is located by drawing a straight line through B parallel to A-C. In other
words, as soon as the down swing from 41 (A) has been sufficiently developed to
enable us to identify the next succeeding high point at 35 (C), we draw the
supply line A-C to mark the angle of downward acceleration. Then, at the same
time, we draw a second straight line B-D, parallel to A-C, taking this latter line
through the intervening low, or temporary support, point at 34 (B); extending
this line (to D) so it may thereafter indicate the points at which ensuing down
swings may cause the stock to become oversold.
Similarly, after the support line M-0 has been established, we draw a parallel through the intervening rally top at N. This second line (extended to the
right as at P), for sometime thereafter marks the limit of subsequent up waves,
that is, the points at which the stock tends to become overbought. Hence the line
N-P is an overbought position line.
In general, trend lines applied to major and intermediate price movements, of course, are more important than minor trend lines. Which is to say,
that a decisive violation of an intermediate trend line usually implies possibilities
of a relatively more extensive continuation of the move in the direction of the
break-through than in cases where a minor trend line is conclusively violated. A
notable exception to this presumption occurs when the market, or a stock, has
worked into a position where indications of a change in the minor trend would be
likely also to signal the beginning of a new intermediate or major trend.
The figure chart of American Tobacco B (Pg. 19) illustrates the location of
typical trend lines on a 3 point chart showing how the stride of intermediate and
major swings may be quickly and conveniently observed on this type of graph,

Section 15M Page 12
which condenses a great deal of history into a small space. On this chart, we
begin with a tentative trend support line A-B but later we must add the support
line B-C because of the increasing momentum of the next phase of the bull
movement. Similarly, the supply line D-E represents the initial momentum of a
bear cycle and the supply lines E-F and G-H the increased pitch of the angle of
decline in its later phases. The line a-b is the overbought position line for the A-B
advance, and the line m-n is an oversold position line for the M-N decline.
By studying the herein charts carefully, you will notice that when the
price movement exhibits a tendency to stop short of, or pull away from an established oversold or overbought position line, such action frequently conveys a
strong hint of an impending change of pace, or a change of trend. (See explanatory notes on charts, pages 32 to 35, Sect. 22M, for graphic illustrations of this
principle.) However, the probable importance and extent of the implied change,
as well as the validity of the indication, must be judged in the light of all other
technical factors influencing the behavior of the stock (or average) under
observation at the time the above mentioned action is observed.
Therefore, by employing discretion in the use of trend lines, taking care to
weigh all of the factors involved in a complete diagnosis of market action, you
will find that trend lines can be handled intelligently and to your advantage. But
their principal value is in affording you hints, or clues, rather than positive
indications.
Never undertake to draw conclusive deductions from trend lines alone.
Let other people employ them as mechanical panaceas if they wish. YOU
are studying the correct principles of market forecasting because you do not want
to be in that "sucker" class of calculating machine forecasters.

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INDIVIDUAL CHART STUDIES PART VI

VERTICAL CHARTS
As we have seen from preceding studies, the four principal phases of a

market campaign are: (I) Accumulation, (II) Marking Up, (III) Distribution, and
(IV) Marking Down.
When a stock is in phases (I) or (II) it is said to be in a bullish position
and when in phases (III) or (IV) it is in a bearish position. Or, its behavior may
be such as to indicate that there is no active interest in it, that is, no campaign is
underway or in preparation, in which event its position is neutral. (Sect. 14M,
Pg. 12, Pars. 2 to 5 and Sect. 15M, Pg. 4, Par. 4.)
Our object is to determine the technical position of all of the stocks in our
list, that is, which of the above three positions each may be in, and to just what
degree. (Sect. 18M, Pg. 4, Par. 3.) For this purpose we have to deal with three
basic factors: (1) Price Movement, (2) Volume, and (3) The inter-relationships
between Price Movement and Volume.
Under the heading of Price Movement we have such collateral or related
influences as:
(A) Comparative Strength and Weakness.
(B) Previous Points of Support and Resistance.
(C) Rate of Acceleration, or Angles of Advances and Declines Trend
Lines.
(D) Shake-outs, Terminal Thrusts, Oversold and Overbought Conditions.
Thus, from our analysis of Price Movement alone, we are able to gain
much valuable information concerning the present technical position and probable
trend of each stock.
However, the Volume, on intensity of trading, may exert an important
confirmatory, modifying or contradictory influence upon the indications given by
the price movement.
Section 16M Page 1
The Volume factor is vital in:

(E) Identifying Buying and Selling Climaxes.
(F) Judging the Quality of supply and demand around previous points of
resistance and support, or around previous supply and
supporting levels.
(G) Judging the Quality of supply and demand (pressure and support) as
the Price approaches established trend lines.
(H) Identifying Shake-outs, Terminal Thrusts (see Sect. 21M, Pg. 3, Par.
3), Overbought and Oversold Positions.
(J) Identifying Zones of Accumulation and Distribution; and Judging
when a stock is drifting, i.e., when it is in a Neutral Position or
in a prolonged Trading Range wherein alternating rallies and
reactions tend to neutralize each other.
(K) Determining whether a trading range represents Absorption (new
demand) in preparation for a further advance; or Renewed
Distribution (new supply) in preparation for a further decline.
(L) Judging the Character of the Action when a stock reaches indicated
minor and major objectives up or down.
From the Inter-relationship between Price Movement and Volume, we are
able to judge:
(M) When a move is Beginning and When it is Culminating, thus determining the best Time to Act.
From the above we see how vital it is to study volume behavior and why
vertical charts aid us to increase the percentage accuracy of our deductions.
Vertical charts record Volume as well as Price Movement. Hence they enable us to study all three of the basic factors mentioned in Paragraph 3 on the
preceding page and the related influences enumerated under items (A) to (M).
(Sect. 4M, Pg. 26.)
Figure charts record Price Movement only. As was shown by the studies
in Sections 10M to 13M, figure charts are exceedingly helpful in measuring the
probable force of accumulation and distribution, or demand and supply. Thus
they afford a reasonably dependable means of forecasting the distance a stock, or
a group, or the market as a whole, is likely to travel; that is, the objectives of the
moves. (Sect. 4M, Pg. 26.)
Section 16M Page 2
Figure charts are best for determining the objectives of a campaign, although a fair approximation of the importance and extent of accumulation or
distribution can be made from vertical charts if no figure chart is available, by
observing the length of time the price remains in an area of preparation. A move
which consumes three months in preparation is likely to have a more ambitious
objective than a move that is prepared in only three weeks; and a campaign of
accumulation extending over one or two years, obviously, has a stronger, more
enduring foundation than one that is prepared and carried into execution within
one or two months.
While it is frequently possible to judge the direction of coming moves from
figure charts alone, there are many times when the figure chart leaves us in
doubt, or we have to wait too long for a clear cut indication, as was probably
apparent to you when following the illustrations in Sections 11M to 13M. This is
especially true when the figure chart is building an extended congestion area.
Unless we carefully study volume behavior while these horizontal formations are
developing we cannot be sure whether they represent accumulation or
distribution, absorption or supply, or simply neutral positions. (Sect. 15M, Pg. 4,
Par. 4.)
In brief, figure charts are not efficient for determining the probable trend
except perhaps in the hands of experienced, highly proficient, students.
Accordingly, we require the vital assistance which vertical charts afford of
bringing the Volume factor to bear on price movement phenomena. Vertical
charts (or their equivalent Sect. 4M, Pgs. 22 & 23) are necessary to determine
which way the market, or a group, or an individual stock will go. They are
likewise more effective than figure charts for comparing strength and weakness;
and for establishing trend lines. Also, vertical charts are best for anticipating the
turning points of minor moves the swings of from 3 to 5 or, say 8, points; and
for interpreting the action of very low priced stocks.
In the illustration to follow, we shall apply the above principles first
Section 16M Page 3
to the vertical chart alone, as in Section 7M, and then coordinate our studies of
individual figure and vertical charts by considering the two in combination (Sect.
17M) as was done in Section 10M. First, however, you should review the
principles set forth in Sections 9M and 14M so you will have them firmly in mind
as you proceed.
Our next study begins with Anaconda in a small trading range, 14 1/4 15 1/8, out of which it broke on increasing volume, Monday, July 16, in
sympathy with liquidation in the general market (see Page 32). Pressure
continues with no sign of rallying power until July 26th, when we see evidence of
a selling climax in the abnormally large volume accompanying a sudden, sharp
acceleration of the downward movement to $10 a share. We conclude from this
that demand is now overcoming supply; and with the stock in an oversold
condition by virtue of the precipitous drop from 14 1/4 to 10, we may at least
anticipate a technical rally. (Compare with Sect. 7M, Par. 5, Pg. 2 to last Par. Pg.
4, including Footnote Pg. 3 and Par. 2 Pg. 12; see also Sect. 14M, Pg. 2, Par. 4
and Pg. 4, Par. 2.)
If we have been keeping records of Anaconda prior to this, we will know
that there was a heavy congestion, or supply level, between 14 and 17, formed
during November, 1933 and the intervening months to July, 1934. Also, there
was a supporting point around 10, (0ctober, 1933) which was the low point
reached on the decline from the high of 22 7/8, July 1933. (See figure chart, Pg.
31.)
With this background to guide us as of July 26th, 1934, we can hardly expect an enduring advance to develop out of this selling climax without substantial
preparation. That is, giving consideration to the probable number of buyers who
were locked in between 14-17, we must assume that the sponsors of this stock
are not likely to run it immediately up into this former distribution level merely
to bail out all these frightened bulls. Rather, if they plan to begin a bull
campaign, they will wear down the overhanging resistance by allowing the stock
to remain sluggish and depressed, thereby tiring the public out. Or they will
Section 16M Page 4
endeavor to shake then out; (Sect. 21M, Pg. 2, Par. 3 & Pars. 1 & 2, Pg, 3) or
perhaps they may lay the foundation for a later advance by using both devices.
An experienced operator knows that he can most easily force the public
out of his stock by allowing it to remain dull and weak for a considerable period
of time. Most market followers, at least the less informed variety, are notoriously
impatient. They crave action, seeming to think a stock ought to go up
immediately merely because they have bought it. Especially when a bull market
is developing or well under way, there are many such people constantly jumping
into anything that gets active. The tiring-out process is very effective in
discouraging these emotional buyers into selling if it fails to keep on moving. If it
rests a while or sags, they become disgusted and hop into another stock that
"will move" and again get hooked on the top. Very often, the stock they have
just sold will start up once more because its sponsors have shaken off the
unwanted, premature bulls. Meanwhile, managers of the second issue, which is
now strong, peddle out a little on the bulge to these flighty chasers-after-things
that "look" good.
Therefore, with these principles in mind and seeing the selling climax in
Anaconda, we conclude that the stock is not yet a logical purchase for a large
advance because a proper foundation has not been laid to overcome the old ceiling. We may try for a part-way recovery to 15, but other stocks which do not
have the barrier of an old supply level to contend with, are likely to offer better
opportunities, at least at this particular juncture.
The above observations show how important it is for you to know
something of the past history of a stock, or a group, or the market before you
make a commitment in it. However, to illustrate how you must handle your
purchases or sales when your selections fail to work out as anticipated, let us
assume that we had none of this past history to aid us in making our decision.
Instead, assume we had bought Anaconda, July 27th, on the day following the
indicated selling climax: First with the idea of making a trading turn on a
possible normal correction of the total decline from 15 to 10;
Section 16M Page 5
second with the further object of keeping this trade alive if, subsequent action
shows that it is building a foundation for a worth while advance. Should its action
turn out the second way, we can let our profit run at little risk, as we already
have established a long position with a stop very close to the danger point in
this case say at 9 3/8 or about a half point under the July 26th low. (Since this
is a low priced stock a half-point stop would be reasonable here.) Therefore,
assume that we are long at about 10 l/2.
The stock rallies a little further next day, (July 28th) but the rally is
sluggish, as shown by the very small volume and the small spread. This leads us
to expect a reaction. Another reason for expecting a recession is that at the high
point of Saturday's rally, the price touches the supply line A-B-C. This line is
drawn through the high points of July 20th and July 23rd and thus approximately represents the angle of decline, or downward stride of the stock after it
left the small trading range 14-1/4 15-1/8.
We now observe that should the price begin to move laterally between 10
and 11, or should it rally say to 11-1/2, such action would have the effect of
breaking the downward stride previously in effect, thus tending to confirm the
action of July 26th as the development of preliminary support. Note carefully
that the only purpose of the line A-B-C is to help us to visualize this possibility
of a change of stride. (Sec. 15M, Pg. 13, Par. 2.)
On July 30th and 31st, the price dips toward the climax low point, but
the light volume tells us there is no renewal of the pressure which was in effect
previously hence the low is not likely to be violated. When the price recovers
next day to 11-1/2, we conclude that the downward stride A-B now has been
broken; that the dip back to 10-1/2 (July 31st) has tested the previous low and
that, since this reaction died out at a higher support, the five days sidewise
movement (July 26th to 31st), represents the formation of a sufficient base of
support, or the development of sufficient demand, to induce a further rally.
Section 16M Page 6
However, volume remains constant and very small as the rally continues to
August 3rd, indicating that the few buyers are timid and unwilling to follow
prices upward.
If we were observing this action today, without knowing what actually
happened next, we should have to take the stand that everything will now depend
upon how the stock behaves, either on an attempt to rally further, or on the way
it behaves if it should start to react again, as the small volume up to August 3rd
suggests it will. In other words, observing that the rally from July 31st to August
3rd has been relatively weak in point of distance covered with relation to the
July decline; and seeing that this rally failed to enlist any increase in volume, we
are suspicious of the bull side. Such a weak rally, by dying out so close to the
danger point at 10, creates the possibility that any outbreak of fresh pressure or
a determined selling drive might easily force the price through the critical low
point of July 26th and thus release fresh liquidation. (Sect. 15M, Pg. 6, Par. 3.)
Accordingly, as of August 4th we should have to be very alert, ready to
run quickly with respect to the stock we are holding for the short swing trade.
On the other hand, if we bought this stock primarily to try for a large advance,
then and in that event we would be content to sit tight depending upon our stop
at 9 3/8 to take us out if it should develop new weakness. But on the short
swing operation we must cut our losses very short because we are trying for only
small profits.
In brief, everything now depends upon how the stock behaves when it reacts. Meanwhile, we have decided, in advance, that if the price recedes we may
reasonably expect it to attempt to hold around 10 1/2, where it was supported on
July 31st. Failing that, we might expect an effort to hold if it should return to
the low point of July 26th. Ability to hold around 10 l/2, however, would be more
to our liking. Therefore, depending upon the way the stock dips, we shall decide
either to stick to our long trading position, or to get out forthwith re gardless
Section 16M Page 7
of any small loss we might have to take. It is much better to take a small loss
than risk a large one if our stock does not act right.
However, on August 6th, (Monday) after reacting to 10 5/8, the price immediately rallies to close at the day's high. Thus we have a rather vigorous
rebound from a previous supporting point; a rebound which follows promptly on
the completion of a normal correction of the rally from 10 to 11 3/4 (July 26th
to August 3rd); and a slight increase in volume which, under the circumstances,
appears to be occurring on a rally thus indicating that the stock is developing
technical strength.
Now, if we look at our Composite Average and compare the action of Anaconda up to this date with that of the market, we note also that since the climax
day Anaconda has shown comparative strength because, on completing the
reaction to August 6th, the price met support more promptly than the general
market. We therefore conclude that it has successfully met a test of the support.
In other words, it has shown by its action that there is still a good quality of
demand between 10 and 11; and this buying has now spread out the demand
area around 11 sufficiently to sustain another upward push it has probably
completed the secondary reaction which usually follows a selling climax.
The next two sessions bring higher bottoms, higher tops and higher closings with volume improved over that accompanying the rally to August 3rd. Also,
by comparison with our general market average, the stock is strong. (See study
of ELO, Sect. 8M, Pgs. 9 & 10.)
The recovery continues on August 9th but we do not like this sudden
whooping up of the price nor the abrupt increase in volume which accompanies
it. This looks too much like a case of hypodermics: as if the support stock taken
on the July 26th selling climax is being thrown back on the market on this rally.
(Sect. 7M, Pg. 3, Par. 3, Footnote.) We must now decide whether we prefer to (1)
close out our long trade, or, (2) wait and see whether the subsequent action of
Section 16M Page 8
the stock will confirm the bearish implications of this sudden whooping up
maneuver.
At this point let us digress again for a moment to observe that, had we
acted on the indication of a buying climax (August 9th) by closing out our long
trade immediately we should have lost little or nothing because, within five,
weeks, the stock was right down where it had started from on July 26th and we
should have gained nothing by attempting to get the last point or half-point at the
top of the move to August l3th, even though it stayed around the high point for
two weeks thereafter.
However, assume we had not sold out immediately after this bearish indication but had waited for more evidence of a turning point. The prompt shrinkage
in volume on August 10th and 11th, accompanying a narrowing down of the
price movement as the stock recedes from the high point of the 9th, says that it
will probably try to rally further. It does, but on the 13th a shortening of the upward thrust (Sect. 21M, Pg. 3, Par. 3.) accompanied by another rather
pronounced volume surge indicates bearish behavior. The stock has now
completed a better than normal correction of the July decline from 15 to 10; both
the speed and sharp angle of the advance from August 6th to 13th suggest that it
has developed an overbought condition. Accordingly, we are prepared for a
reaction which develops as anticipated.
On this reaction (August 14th to 18th) volume is very small, at the same
time showing a distinct tendency to taper off as the price falls back halfway to
the previous support point of 10 5/8 (the low of August 6th). This says the stock
will probably try to rally again. In the meantime, remember we have not disturbed the assumed long position which we took in July, that is, the long position
which we took to try for an important advance. But now, when the price rallies
abruptly toward the previous (August 13th) high at 13 1/2 and volume increases
suddenly on the top of this bulge to August 22nd, we again become suspicious
Section 16M Page 9
of the bull side and watch carefully to see what the stock may do next. It reacts
on diminishing volume next day then rallies toward the previous high points over
the next two sessions. But volume continues to shrink, thereby indicating
exhaustion of buying power. It lacks the momentum necessary to overcome the
resistance around 13 1/2.
Here we are also impressed by the fact that the stock has made almost no
progress since the volume surge of August 9th. Likewise, though it was relatively
stronger than the general market for a time, since August 13th it has fallen out
of step because the average has continued to register gains whereas Anaconda,
instead of moving with the market, now is going sidewise. Consequently, when
the average reaches its high of August 25th, Anaconda is merely rallying back to
the point where it gave indications of meeting supply on August 9th and 13th.
Meanwhile, the price seems to be working into a hinge position. The development
of this apex may be seen clearly by drawing a line of support, F-H, through the
successive low points of August 6th and 20th, as indicated on the chart.
Obviously, with the price hedged between the trend line F-H and the flat line of
tops across 13 1/2-13 3/8, it will not take much of a downward thrust to break
the angle of the support line F-H.
Also, reviewing the whole operation since the stock recovered from the
July 26th low point, we are impressed with the fact that there has been little
consistency in the expansion of volume on price advances. Rather, successive up
waves since August 9th present the appearance of hypodermics engineered to fill
up the few buyers who can be coaxed to rush in on such made-to-order bulges;
and whatever demand previously existed has died out completely by August 25th
as shown by the marked shrinkage of volume around this rally top. With so
many bearish symptoms, we conclude that the stock has exhausted its
possibilities on the up side, at least for the time being. Therefore, it is best for us
to close out our long position if we have not previously done so, both the one
taken for trading purposes only and the one taken for a possible longer rise. The
Section 16M Page 10
stock so far has been held in the range 12-13 1/2 for two weeks. If it should
start down now the setback may be fairly important. Hence we do not wish to
lose what little profit we have; much less let the stock run against us when we
have such plain warnings that it is not acting right. (Sect. 8M, Pg. 12, Footnote.)
Increasing volume as the price starts to react, Aug. 27th, confirms our
bearish convictions. On returning to the last preceding support point around 12,
we note two days' temporary hesitation (Aug. 31st & Sept. 1st) which is also
taking place as the price comes to rest on the trend support line D-F, drawn
through the low points of July 26th and Aug. 6th. Here we are entitled to expect
a rally, or an attempt to rally, out of respect for the previous support point and
the influence of the stride line D-F. That is, if the stock is technically strong, it is
likely to indicate the fact by rallying to 12 1/2 or better, for that would be
normal at this juncture. But, should it fail to rally where a rally might
logically be expected such action, of itself, would signal acute weakness.
Therefore, when it breaks the Sept. 14th low simultaneously (and markedly) violating our trend line, we stay bearish despite the continuing low volume.
The stock's price action says plainly: Don't let this small volume fool you. I'm
declining, not so much because of pressing liquidation, but because demand for
me is of poor quality nobody wants to support me.
A quick upthrust (Sept. 5th) on very small volume followed immediately
by a downthrust which cancels the bulge, emphasizes the weakness. So we look
for more decline, involving a test of the previous supporting points around 10
1/2 and, if that fails, a test of the critical July 26th low.
The price now sags steadily with no sign of support over the next nine
sessions. On Sept. 17th and 18th it comes to rest where it was supported previously around 10 1/2 (July 31st & Aug. 6th). There is nothing in the volume
behavior to tell us that the move may be climaxing here beyond a relatively
Section 16M Page 11
slight increase on the 17th. But, in view of the consistently light turnover on the;
way down from 13 l/2 we should already have concluded that the July lows are
in little danger of being violated because that low volume shows the price is
falling as a result of poor demand rather than because of active or increasing
supply. In other words, it begins to look as if the sponsors had pulled out their
bids and were allowing the stock to slide downward in hope of discouraging public
interest, that is, in hope of discouraging outsiders from accumulating; and for the
purpose of inducing long holders to unload "because the stock looks so weak."
Therefore, somewhere during the week ended Sept. 15th, while the stock
is still receding on small volume, we decide that the moment the price comes to
rest around the old supporting points we will venture a long commitment with a
stop under the critical July low. Our reasoning now is that if the price comes to
rest around these former bottoms there is a good chance that a broad enough
foundation will have been built to permit another substantial recovery which
might better the first August rise. However, we must remember that our
indications are always subject to change or reversal. Hence we cannot hold
stubbornly to this viewpoint but must be ready to get out of our long commitment
promptly if the stock's subsequent action either contradicts or fails to confirm
our present conclusions.
Accordingly, observing that volume tends to shrink on the rally to 12
(Sept. 19th to 22nd) and that the price movement flattens out there over the
next five sessions, we employ precisely the same reasoning as in the week ended
Aug. 4th (See Pg. 7, Pars. 1 to 3). A small recession to Sept. 29th brings the
price to a dead center. If it should now react further, either under the temporary
supporting points of Sept. 24th and 25th, or beyond the halfway reaction mark
(i.e., halfway back to 10 1/2), we shall have to be prepared to close out our long
position immediately. Another reason for doing so is the bearish
Section 16M Page 12
implication of the stock's failure to participate fully in the rally of the market as
a whole from Sept. 17th to 27th.
On Oct. 1st, the price falls beyond the limit we have set and volume increases on the reaction (being appreciably larger than the volume for any single
session in more than three weeks). This says definitely: Get out. We must now
conclude that if accumulation is taking place, preparation for an advance has not
been completed; furthermore, the stock's tendency to hug the low points of July
and September is inviting either to a shako-out or to the development of liquidation.
In other words, reviewing the whole history of the stock since late July,
we conclude that the consistently low volume witnessed while the price has been
traveling in the long trading zone 10-12 with one temporary advance above that
zone, has the characteristics of a campaign of accumulation. But this accumulation evidently has not proceeded far enough to exhaust the floating supply of
stock, for otherwise the price would not show a tendency repeatedly to seek the
low points of the range. Rather, if offerings were becoming scarce as a result of
consistent accumulation, the price should begin to show resiliency, that is, a
lifting of its supporting points, or a rounding upward of the bottoms, and it
should also show ability to participate in rallies with the general market average.
(See Sect. 9M, Pg. 9, at M to Q and Sect. 17M, Pg. 25 at A.)
Instead of that, volume tends to build up on recessions, beginning about
Oct. 1st; rallies are repeatedly checked at lowering tops; and with each new
setback in the general market, Anaconda tends to fall to lower and lower levels
until, in the week ended Nov. 3rd, the price is hovering exceedingly close to the
July 26th danger point.
Here the stock is in a very critical position. Unless it can rally promptly
away from this old low, there is again a strong probability that it will either be
subjected to a shake-out or develop new weakness for a further decline. Hence we
are unwilling to take a long position at this point.
Section 16M Page 13
On the other hand, in view of the upward trend of the general market we
are unwilling to take a short position: (l) because the stock has been in a long
down wave and so we do not wish to risk selling on this weakness and (2) because if it turns out that new weakness should develop here, the possibility of
this proving to be a shake-out would mean that if we did sell short, we might be
caught in the rebound which follows that phenomenon. Of course, a third reason
for avoiding the short side is that the stock, having come down to the critical
July supports, might rally immediately. And this rally might be quite swift because, by Nov, 3rd, the price movement has formed a distinct apex or hinge.
Here, then, we have a very excellent illustration of a situation in which
we should be distinctly neutral. At the same time, we must not lose sight of the
fact that the stock up to now has been showing many symptoms typical of
accumulation. Thus, since its August rally, the price has been kept low and
depressed and the daily volume of trading has remained fairly constant at a very
low level. Furthermore, the price has now been moving laterally around the 1011 range for more than three months. These conditions should by now have
resulted in tiring out a substantial number of the buyers who are hung up in the
stock at higher levels.
For the above reasons, we keep it under close observation watching for
the buying opportunity that will develop if and when its future action finally confirms our tentative assumption that accumulation really has been taking place.
On Monday, Nov. 5th, the stock completes four days in a narrow range,
on low volume, around the support point at 10. Its ability to hold thus for several
sessions increases the chances for a rally. We estimate in advance that if a rally
does develop it is likely to meet resistance first at the high point recorded in the
week of Oct. 13th and next around the rally top of late September.
Therefore, when the price runs up abruptly in the next trading session,
we are not surprised. But we do not regard this rebound as a bullish sign because
Section 16M Page 14
its abrupt character gives it the appearance of a short-covering movement,

hence an effervescent rally. In any event, if the stock is really ready to go into
an advance it will give us clearer indications by the way it behaves when it tries
to negotiate the September and October rally tops.
It shows weakness next day by failing to follow through the advantage of
the previous session, on the same volume. Then it reacts, but volume falls off
and the price closes up, near the high, indicating that the recession of Nov. 9th,
was a technical setback. So we look for another rally effort. Over the next two
sessions volume falls off as the price approaches the October rally top and the
closing on the 13th is near the low, marking this day's action as an upthrust
which has failed. (See Page 9, Par. 2, Line 5.) Apparently, its sponsors do not
want the stock to go up yet and are checking the rally.
We now watch carefully because if the price should react normally toward
the low at 10 with volume tapering off promptly, such behavior would put it in a
good position to take off for another upward swing which might prove to be the
beginning of a fair sized advance for remember we have tentatively reached
the conclusion that accumulation may have been taking place since the July
selling climax. Hence, we are all set to buy if the stock behaves right.
But instead of receding halfway back to 10 on small volume and then leveling off as it should do to give us a clear bullish indication the stock starts
downward rather easily on Nov. 14th. Volume remains comparatively high a
bearish indication confirmed by a steady downward drift over the next several
sessions, which returns the price again to the critical 10 level. Next, an abrupt
rally accompanied by climactic volume on the buying side, Nov. 26th. Then a
week's reaction on diminishing volume. (This is the sort of behavior we were
looking for around Nov. 10th to 17th.)
Once more, merely for the sake of a clearer illustration, let us assume
that we take a long position, this time around 11 (Dec. 5th). We might do this
Section 16M Page 15
on the basis of the following tentative bullish symptoms:- The price, having been
supported at a slightly higher level on the reaction to Nov. 22nd and again on
Dec. 4th, is beginning to evince a tendency to round upward; and during the last
three weeks volume has tended to build up, running to somewhat larger proportions than during August, September and October. This relative increase suggests reviving interest on the bull side. As we can now purchase around 11 with
a stop once more close to the danger point at 10, we regard a long commitment
as a good business risk. For, if an advance should get under way here after
nearly five months preparation, it should be sufficiently substantial to be worth
going after.
Note that this assumption of a purchase is again made only to illustrate,
and to emphasize, the importance of cutting possible losses short immediately
and of running quickly when you find that you have made a premature decision
or an incorrect diagnosis; or that you have overlooked some important
contradictory evidence; or that the action of your stock subsequently fails to
shape up as anticipated.
Actually, we are not ready to buy even yet, because while many of the
symptoms of accumulation are present, other confirmatory indications which
would give us the "go ahead signal" thus far have not appeared. For instance,
the reaction to Dec. 4th over-ran the halfway mark. And an indication that is still
notably lacking is the stock's ability to respond convincingly to strength in the
market as a whole. Thus, whereas the Average has been recording progressively
higher tops and higher supports since mid-September, Anaconda is still repeatedly falling back to or toward the supporting level. Since Aug. 13th, every
rally has stopped short of the previous upswing, as at 13 3/8, 12 5/8, 12, 11
3/4, 11 1/2 and 11 3/8.
Under these conditions we must recognize that if it tries to advance now,
in December, it probably will have serious difficulty contending with the old
Section 16M Page 16
resistance area, 14-17, to which has been added the additional resistance created
by the supply generated between say 12 and 13 l/2, in consequence of the
abortive August rise. Therefore, we should have to be prepared promptly to close
out a position, taken around $11 on Dec. 5th, if the action of the stock
subsequently shows that its sponsors are unwilling to carry it through these
overhanging offerings.
The appearance of climactic volume as the stock strikes the old September
resistance point on Dec. 6th and 7th, makes us wary of the bull side. The gain in
price is not in proportion with the expansion of volume a bearish indication
strongly confirmed when the stock falls back sharply, Dec. 8th, to wipe out that
Dec. 7th peak-volume price-bulge. Assuming we wish to wait for further indications of weakness we might allow the stock to fall back halfway to its last low
point, namely, 10 1/2, to see how it will behave after a normal correction of the
preceding rally. But when it shows confirmatory weakness in reacting beyond the
halfway mark we must get out of our long stock, if any, without further ado.
During the next several weeks behavior is inconclusive, continuing about
as it has been heretofore. Volume increases abruptly, but only spasmodically,
from time to time, invariably coming in on the top of rallies after which the price
promptly sinks back, staying persistently and suspiciously close to the supporting
line of 10 to 11 notwithstanding a steady advance in the general market.
Again reviewing the situation broadly as it stands around the latter part
of February, our impression of its action is that the stock's sponsors have been
quietly accumulating, occasionally bidding the price up to get what quantities they
cannot acquire around the extreme bottom, promptly checking all rallies produced by such demand in order to keep the price low and depressed. And, after
each such buying flurry, the bids are pulled out. The stock is allowed to settle
back and turn dull thus discouraging, public interest and the boardroom and
Section 16M Page 17
other traders who are hooked in on these and former bulges. Expressed another
way, we reason that an outside following evidently is attracted on the occasional
rallies because volume increases suddenly on every upward surge, but the
sponsors easily succeed in getting rid of this unwanted company by allowing the
price to sag repeatedly thereby wearing out the premature bulls (Sect, 9M, Pg. 2,
Par. 6).
On Feb. 18th there is another of these abrupt rallies accompanied by peak
volume, a rally manifestly induced by the sudden rise of the general market. But
after that the stock shows acute weakness by drifting downward rapidly until
Feb. 23rd where an almost complete lack of rallying power warns us the long expected shake-out may be imminent. And on Feb. 26th it noses downward sharply,
as anticipated.
We cannot be sure this drive is merely a shake-out because the price has
now broken through all established supports. Also, we must take into consideration the fact that the general market has now become acutely weak and gives evidence of a downward trend of some proportions. It is unlikely that Anaconda will
go against this trend decisively all by itself. So we wait to see what this new
weakness may portend.
At first, it looks as if the Feb. 26th slump might really prove to be a
shake-out since, over the next four sessions, the stock immediately climbs back
into the 10-11 range, recording a series of higher bottoms, higher tops and higher closings, though on gradually diminishing volume.
Meanwhile, the rally in our Composite Average has been very feeble, cautioning us to expect a further slump. Therefore, considering that Anaconda, up to
March 2nd, has had the equivalent of a part-way recovery during which volume
has been falling off; and that by running into the lower fringes of the long
trading zone of 10-12, this rally has brought it into a strong resistance area, we
continue to hold off awaiting further developments.
Additional weakness is indicated by inability to develop any rallying
Section 16M Page 18
power after the price has returned to the former supporting level,. Mar. 12th.
This warns us to anticipate another downward plunge which is likely to carry it
to a new low. But early in the week ended March 16th, the decline is sharply
accelerated and on the 13th there is an indication of a minor selling climax.
Now observe how, over the next several days, the price holds in a very
narrow range around this low point thereby inferring that downward progress
has been checked. On the 15th, it rallies rather vigorously, closing at the high on
relatively large volume. A very significant feature of this behavior is that while
the Composite Average continues to record a series of lower bottoms during these
three days, Anaconda is no longer participating in the market's weakness (Sect.
8M, Pg. 1, Pars. 3 to 5 and Pg. 10, end of Par. 3).
Here we reappraise the whole situation in its broadest aspects once more,
concluding that the down swing from Feb. 23rd to Mar. 13th may, in fact, have
completed the accumulation which seemingly has been under way ever since
September and possibly as far back as the selling climax of July 26th. Viewed
thus broadly, we reason further that the slump to March 13th very probably was
in the nature of a prolonged shake-out which has now placed the stock in a
strong technical position, marking the culmination of Phase I (Sect. 16M, Pg. 1,
Par. 1) of a market campaign. Phase II should begin presently.
Since July the price has declined about 7 points, a very substantial
shrinkage for such a low priced stock nearly 50%. The speed of the drop
through 10 was such as to frighten even the most rugged holders into unloading,
especially those who were lulled into a false sense of security because the stock
so often heretofore rallied from that critical level. Also, chances are that a lot of
stops were caught on the break-through thus cleaning out more weak holders.
Hence, if our interpretation of the action to date is sound the stock must now be
in strong hands.
On the basis of the above general and detailed deductions we decide that
Section 16M Page 19
now, at long last, we have a complete set of bullish symptoms and hence good
grounds for taking a long position without qualifications or delay. Additional
reasons for so doing are that the bag holding for frightened sellers (indicated by
three days' lateral movement in a half-point range on relatively large volume,
March 13th to 15th) in the face of general weakness elsewhere, puts the stock in
the springboard position. That is, it will require only a small rise to break the
downward stride in effect since Feb. 18th, in other words, the supply line K-M-0.
Also, the precipitous decline from 11 3/4 to 8 has probably created an oversold
condition; and around 8 the price is pulling away from the oversold position line
L-N.
The strong probability now is that having engineered a terminal shakeout, the interests who have accumulated the stock will not give the shorts any
opportunity to cover nor the sold-out bulls any chance to get back in on reactions
again. Which is to say, they are likely now to move the price upward rather
steadily and persistently in order to lock in the shorts and lock out potential
buyers so that after the advance has run far enough to encounter resistance,
they will have this potential buying power available to aid them in furthering the
marking-up phase of their campaign. (Sect. 17M, Pg. 8, Par. 3.)
Accordingly, if we did not buy on the evidence of the selling climax
around 8 to 8 1/2, we do so either between March 18th to 20th, or around 9, at
the point where the stock comes out of the down trend supply line K-M-O. Our
stop on any one of these trades, of course, should be at about 7 3/8, approximately 1/2 point under the extreme low point. We are taking a very small risk
because if our analysis is correct, the stock should start upward without material
delay or reaction (Sect. 9M, Pg. 3, Par. 1 & Pg. 5, Par. 1); and if we are wrong,
the loss involved in being stopped out will be too small to bother us or 'prevent
us from trying again at the next favorable opportunity.
However, we are not wrong. On the contrary, the stock's behavior fully
Section 16M Page 20
confirms our position by recording a series of persistently rising supports and

rising tops accompanied by higher closings from March 18th to 23rd. Thus it
advances as we expected it would. The light volume does not alarm us. Instead, it
serves to strengthen our bullish conclusions because, under the circumstances as
we reviewed them from the top of Page 19 onward, this light volume most probably signifies a scarcity of supply rather than a poor quality of demand; and past
experience tells us that such light volume is a normal characteristic at this stage
of a bull campaign. The managers do not want activity in the stock now. They do
not wish to advertise it and attract an unwanted public following at these low
levels. The public will be coaxed to come in later.
Briefly stated, the vigor of the rise from March 18th to 23rd contradicts
our first natural inclination to believe that the price is rallying on small volume
(which would be bearish), and warns us to reconsider this volume manifestation
in the light of the conclusions we have otherwise drawn. So reconsidered it is
apparent that the stock is advancing because offerings have become scarce, hence
the inference is bullish. This, in turn, strengthens our convictions that the stock
has been thoroughly prepared for a very important advance inasmuch as
tentative symptoms of accumulation have been present for eight months. If our
deductions are correct and the advance is really starting, volume should begin to
build up after the price has risen some distance away from the low point (Sect.
10M, Pg. 5, Par. 2 to middle of Pg. 6; Sect. 19M, Pg. 13, Last Par.). Likewise, it
should move in harmony with or faster than the advance now getting under way
in the market as a whole. The stock has been properly groomed to take a
leadership position in that advance whereas heretofore, it wasn't ready.
Again it justifies expectations by recovering to 10 1/2, March 28th.
Volume, formerly erratic, now builds up more consistently. We sit tight as the
price reaches 10 1/2-10 5/8, anticipating a little resistance here because it is encountering the offerings created by .premature buying around the old supporting
Section 16M Page 21
level at 10-10 1/2. But at this point there is only a brief three-day setback on
which volume immediately shrinks to very small proportions distinctly bullish behavior. Those who want to get out may do so but the sponsors, obviously,
are not selling. On the third day of the setback the price bounds away from the
low point to close near the high for that session, confirming the strength. This
gives us a new buying point if we wish to add to our line.
Then the advance is resumed with volume again building up steadily as
the upward movement progresses. On returning to the old highs around 12 to 12
1/2, in the week ended Apr. 20th, the range again promptly narrows and volume
immediately falls off during a shallow recession, telling us in advance that the offerings around those old tops were either dislodged in the Feb.-March slump, or
they are being absorbed the stock is in the second springboard position from
whence we should expect the marking up phase to develop actively. (Note how it
stays well above our trend support line P-R-S. Compare, its behavior on the two
small setbacks, to Apr. 3rd and 18th, with U. S. Steel in Jan., 1937, Sect. 8M,
Pg. 17. Compare also with observations in Footnote, Sect. 7M, Pg, 8.)
Therefore, instead of regarding the abnormally high volume of Apr. 25th
as a climaxing indication, we read this to mean that the sponsors are taking all
of the offerings encountered on the way up from 12 to 13 1/2 (Sect. 7M, Pg. 16,
Pars. 1-3 of Footnote). Our reasons for this interpretation are: (l) The price
movement shows a marked increase in spread from high to low, almost 2 points,
and so by comparison with previous performance registers a gain in proportion
with the expansion of volume; (2) In view of the extent of previous preparation
it is unlikely the managers of the stock will be satisfied to distribute after a rise
of only 5 1/2 points from the low; (3) Having reached the active marking up
stage-of the campaign they are now "wading through" all resistance in order to
get the stock up to its objective.
From here on volume runs to much higher proportions than during the
Section 16M Page 22
period of accumulation, since public interest is aroused by the sudden burst of

strength, April 25th, and by the great activity. (Sect. 14M, Pg. 10, Par. 1.) These
outside buyers and the boardroom traders who have jumped in on impulse, as a
result of seeing Anaconda "all over the tape," are given a dose of discouragement
when it flattens out more or less over the next ten sessions. At the same time,
the shorts and the bulls who missed the boat in March and earlier April are still
given no chance to repair their blunder. That is, while the stock is resting to
discourage the more recent buyers on the run-up to around 14, it is not allowed
to react enough to let the second crowd (locked-in shorts and sold-out bulls) get
aboard on a worth while reaction.
And so the marking-up phase continues with alternating fast upthrusts
and resting spells until May 16th when a peak volume tells us to be on the alert
for a possible change. The advance may be culminating, at least for the time being. A 10-point rise has more than doubled the price within the comparatively
short space of two months and the advance is now pitched at a steep upward
angle observe the readjusted trend lines R-T-U and V-W.
Having raised our stop to keep it about one point under each of the successive reaction lows of Apr. 3rd, Apr. 18th and May 8th, we must now decide
whether we wish to close out our long position on a strong up wave, or bring our
stop up to a point a little under the halfway reaction mark (between the high of
18 and the last point of support at 15 1/8, recorded May 15th) while we watch
for confirmatory indications of distribution or evidence of unimpaired strength.
On May 17th, we witness an upthrust which fails, the closing for that session being on the bottom. Volume remains comparatively high but the total gain
in price is less than 1 point and the net gain only 1/8 point compared with
nearly 2 points the day before: the advance is losing momentum supply is
overcoming demand.
A small two-day reaction accompanied by marked shrinkage in volume
Section 16M Page 23
forecasts another rally which will give us the up wave we have been waiting for
to close out our long position. Three days' higher bottoms, tops and closings bring
the price into new high ground but only by a small fraction and volume no longer
is measuring up to the former standard, showing that demand has been pretty
well exhausted. Looking back briefly, we see the stock has now spent six days
around the 17-18 level without making material progress on relatively large
volume. The weakening force of demand and the increasing force of supply are
causing a lateral movement which means that any pronounced reaction at this
juncture would break the sharp angle of the last phase of the upward stride.
(Sect. 15M, Pg. 2, Par. 3; Sect. 7M, Pg. 23, Par. 2.)
On May 27th the stock is on the hinge, having reached a dead center in
the range 18-16 1/2. If we did not sell short on the last bulge to 18 and a
fraction, we do so here with our stop say one point above the extreme high of
May, figuring that the advance is over for the present and there is likely to be a
fair-sized reaction to correct the March-May advance, if not a more important
change of trend.
Extremely heavy volume on the reaction May 28th indicates that the
sponsors of the stock, having worked it up to a high level and distributed part of
their line around the high points, are now completing their distributive campaign
by unloading on the way down. That is, they are filling up all of the buyers who
wait for just such reactions, buyers who believe that because the stock was
recently around 18 it ought to be cheap when it reacts a point or so. These last
minute bulls, having failed to get in around the logical buying points in March
and having feared to buy it on the way up, now erroneously assume they are
finally getting aboard on the very reaction which is designed to take advantage of
just such disregard for indications that should .be plain to any trained observer.
Meanwhile, we, observing that the setback from 18 is proceeding rather
Section 16M Page 24
rapidly (May 28th to June 1st), conclude the stock is falling into an oversold
position (Sect. 7M, Pg. 12, Par. 2). Hence, we look for support either in the upper
fringes of the little trading shelf which developed early in May, or failing that
next around 13 and a fraction where the stock was supported twice before, April
29th and May 8th.
Sharply diminishing volume, May 31st and June 1st, indicates lessening
of the selling pressure. A closing at the top, June 1st, marks the failure of a
further downward thrust which brings a quick rebound after the decline (or reaction) has been extended into the early May congestion area between 13 1/8
and 14 3/4. This action warns us of a probable minor turning point; the reaction
is over and a rally is coming. A quick, two-day run-up, June 3rd and 4th,
completes a normal or 50% recovery of the preceding loss (from 18 to 14).
Volume remains constant at a comparatively low level on the rally (to June 4th)
identifying it as a technical rebound. During the next three sessions falling
volume on a dip back to 14 5/8 says there should be another rally effort, though
the setback to June 7th carries a suggestion of weakness in running slightly
beyond the limits of a halfway reaction. A sharp return to the high point at 16
1/8 is accompanied by a relatively large volume for a short Saturday session. So
we conclude this sudden bulge is in the nature of a buying climax on the ground
that, had the market been open for a full 5-hour session, volume on the basis of
the two hours' turnover would have been approximately twice as great (see
Footnote, Sect. 19M, Pg. 8.) Hesitation on the 10th and increased volume next
day, on which the stock is unable to make further progress through the
resistance at 16 1/8, imply that the recovery movement from the June 1st low is
meeting a superior force of supply. A small recession over the next three days
followed by small recovery to a slightly lower top on diminishing volume,
confirms our expectations of a setback saying, as it does, that demand is dying
out around the rally tops. Furthermore, the stock appears to be working out into
Section 16M Page 25
a hinge position again. In view of the bearish price movement and volume relationships, a down turn out of this hinge must be anticipated which is likely to
afford us a test of the June 1st support.
Reaction over the next four days is very abrupt. Hence, the stock
develops an oversold position as the price touches the former June 1st supporting
point, foreshadowing another rally effort. Also, observe that the volume surge of
June 20th accompanied by a high closing after the stock reaches a new low on
this recession, helps us to recognize this behavior as the climax of the reaction
(see Pg. 25, Par. 1).
Having reduced the stop on our short position to a fraction above the midJune rally top (when the stock slumped on June 17th) we now reduce it again
say to 15 5/8 in order to allow for another 50% recovery of the immediately
preceding decline. Lower tops on the rallies since the 18 level was reached
suggest the stock may be in a down trend, brought about by the distribution in
the range 17-18; likewise it is no longer responding well to a new advance in the
Composite Average. But it has now been supported a second time around 14 and
climactic volume on the reaction to June 19th indicates that the bag is being held
for whatever selling is coming in here.
Accordingly, we must consider whether the reaction from 18 to 14 really
represents a down trend or merely a correction of the long rise from 8 to 18. It
may be that this reaction is a less than normal setback on which the stock is
being reabsorbed, that is, consolidating its position in preparation for a new
advance with the rest of the market. The way it behaves during the next few
rallies and reactions should tell us what to expect.
A normal rally, June 22nd and 24th, dies out on low volume, cautioning
us to look for more recession. A great deal now depends on how the stock acts
when it returns to the supporting level. So when the 3-day recession, to June
26th, dies out with volume tapering off we read this to mean that there is not
Section 16M Page 26
sufficient new supply, of pressure, on the stock to break the old supporting
points. And, since the price now appears to be working out into another hinge
position where it would require only a small rally to break the downward stride
in effect since the May top was reached, we cover our shorts and reestablish our
long position anticipating the development of a new springboard position,
reasoning that the stage is all set for a new advance. As we can buy on a down
wave here at a point where our risk can be limited with a close stop under the
low points of May 7th, 30th and June 9th, we have an ideal buying opportunity.
Climactic volume on a further downward thrust, which is promptly
checked around the former lows, June 27th, confirms the bullish indications.
Prompt narrowing of the price range (June 28th & 29th, and July 1st) along
with extreme shrinkage in volume, substantiates the change to strength and
gives us our chance to buy almost at the bottom, around 14, on the extreme
dullness here, dullness characteristic of the ending of one phase of a movement
and the beginning of a new, i.e., the end of a chapter on the down side (Sect.
14M, Pg. 8, Par. 1).
If our previous conclusions are correct, and reabsorption has been occurring around 14-16, this drift into dullness means an almost immediate resumption
of the advance and the simultaneous breaking out into a springboard position.(*)
* It is important to recognize that, in a leveling-off movement of the sort
now occurring in Anaconda, the behavior of the stock or an average in such a
trading zone is what enables us to gauge its probable meaning. In other words, it
is highly unsafe to jump at conclusions and to say that the stock will go up
merely because you guess it is forming a base, or to say it will go down because
you guess it is developing a new zone of supply.
For instance, note that the action of Anaconda during and after the distribution around 16-18, in many respects, is similar to the action of the N. Y.
Times average as discussed in Section 7M, Page 10 through the top of Page 14.
But, whereas the behavior of the average continued bearish after the decline to
March 4, 1950, we now (June 26, 1934) see many symptoms in the behavior of
Anaconda which tell us that instead of preparing for a further decline, the stock
more probably is being groomed for another advance.
Though a considerable quantity of stock was distributed on the rise to 18,
the interests operating in Anaconda have seen an opportunity to reaccumulate
and begin a new bull campaign or perhaps the first operator is out of it and
another crowd is absorbing the stock, believing it can be lifted through the previous 18 level to a still higher objective.
Section 16M Page 27
The late buyers who were loaded up with stocks in the range 16-18 have been
scared into unloading on the dullness and (as they think) weakness of June.
Moderately increasing volume on a comparatively vigorous rally, July
2nd, clinches our bullish conclusions. Reaction to a fractionally higher support is
followed by a prompt recovery next day, as indicated by the high closing
bullish performance.
Another settling into extreme dullness, narrow range and narrow volume,
July 5th, 6th and 8th, says the stock has become scarce, since it holds easily at
a higher support. The weak holders are all out. This view is confirmed rather
decisively, July 9th, by a quick run-up, a closing at the top and increasing volume. If, by any chance, we should mistake this for a buying climax, by waiting
another day or two for confirmation, we would see that our first impression was
erroneous because the price continued to advance immediately. Also, the stock is
again responsive to bullish action in the Average. Shortening upward thrusts and
a slight decrease in volume, July 10th to 13th, prepare us for probable hesitation and possible reaction when the price returns to the June rally top around
16 and a fraction.
However, the demand here seems fairly persistent as denoted by a series
of higher tops and higher bottoms in a very narrow price range. Then, on July
15th, there is a sharp increase in volume which we take to mean that the
sponsors are absorbing whatever offerings remain around the 16 high point. If
we are in doubt about this interpretation and inclined to regard the volume surge
of the 15th as a buying climax, we may raise the stop on our purchase at 14 to
cost and wait for further indications. A further edging up brings the price
movement out to a very distinct point or apex, July 17th. Three days' lack of
progress here suggests a reaction which comes as anticipated on the l9th and
20th but volume immediately shrinks, a bullish sign. Accordingly, we hold our
long position though we do not know that this reaction is over yet. But when the
Section 16M Page 28
price starts up again, July 22nd, and in the next two days edges still higher with
volume building up once more as it rallies, we are able to look back and see that
the reaction (to the 20th) was extremely shallow, much less than normal. Hence
the high volume of July 15th was indeed absorption of overhanging offerings and
so, in retrospect, it becomes apparent that our indications are all consistently
bullish to date. During the next several sessions there is more hesitation.
However, volume increases on rally days and shrinks on reactionary days while
the price is held stubbornly against the old distribution range, 16 1/2-18, where
the stock, of course, is called upon to absorb offerings from the buyers who are
now anxious to get out even.
But up to August 3rd, the narrowing range and shrinking volume again
tell us the stock is ready for another upward movement and since it has now
spent three weeks or more absorbing the offerings which were existent around
the May tops, the next maneuver probably will be an active mark-up. (Sect. 7M,
Pg. 7, Par. 2 and Pg. 8, Par. 1 including Footnote.)
Henceforth, the indications are all obviously bullish, gradually expanding
volume indicating a revival of interest in the stock. The rise is temporarily
checked by a three-day buying climax beginning Aug. 20th, but the ensuing reaction (to Aug. 31st) is accompanied by a prompt shrinkage in volume and the
down swing levels off about where we would expect it should, namely, in the vicinity of the May high points between 17-18. From here on it is a steady upward
march to 30 where the advance is interrupted by a corrective reaction and reabsorption in the range of 26-30. This reabsorption eventually carried the stock up
to 39 3/4 in April, 1936, where the move culminated temporarily with the topping out of the general market.
The above illustration demonstrates how you should read a vertical line
chart and how volume studies should be employed in conjunction with price
movement phenomena. It will be noted that the method of reasoning is identical
Section 16M Page 29
with that used in the case of the trend chart of a general market average (Sect.
7M). But we especially wish to emphasize here how volume studies and the factor
of comparative strength and weakness aid us to judge WHEN a stock is ready to
move and WHEN it has completed its preparation for a move. The skilful trader
and investor, by exercising patience and avoiding commitments in stocks until
they are thus ready to move, materially increases the percentage of accuracy of
his trades, reduces the risk of loss and, above all, avoids being tied up in stocks
which will not move even in the strongest bull market. Failure to recognize the
vital importance of proper timing and proper selection of stocks is probably a
more productive cause of disaster to the majority of investors than any other
Few people understand how to read vertical charts properly. That is decidedly to your advantage because if you will take the time and trouble properly
to learn the principles outlined herein, you will be playing the game as large
operators do with and not against the insiders; and against instead of with, the
public and the vast majority of uninformed boardroom traders.
Furthermore, you will be able to develop that flexibility of mind and
capacity to anticipate the changes from strength to weakness and weakness to
strength which occur at vital turning points, before the change of trend has
developed to such an extent that you are no longer able to buy or sell with close
stops. Operating in the way herein advocated, using good judgment, you should
find that even though three out of five of your commitments may be started incorrectly and result in loss, you will still be able to make substantial profits
because on the three losing trades your loss will have been limited to very small
proportions; whereas, on the two successful ones you will let your profits run
until you have extracted the maximum possible gain. Thus, even though your
judgment might prove to be only 40% accurate, still with proper limitation of
risk, logical timing and careful selection, it is no exaggeration to say that you
should be able to secure a net return of from 20% to 45% or more per annum
on your capital.
Section 16M Page 30
Section 16M Page 31
Section 16M Page 32
Section 16M Page 33
Section 16M Page 34
INDIVIDUAL CHART STUDIES PART VII

VERTICAL CHARTS
Our study of Anaconda by concentrating on the one type of chart

was intended to focus your attention upon the principles to be followed in the use
of the vertical chart alone; as well as to show how you can make an intelligent
analysis of very low priced stocks for which it is usually impractical to employ, a
figure chart because, for such issues, the figure chart is apt to be much too
insensitive to give clear cut or timely indications. As a matter of fact, for reasons
given elsewhere (Sect. 14M, Pg. 13, Par. 4) and popular belief to the contrary
notwithstanding, relatively more experience, care and skill are required for
successful speculation in very low priced stocks than in the actively sponsored
higher priced issues as, for instance, old stand-bys like U. S. Steel.
At any rate, best results are secured when vertical charts and figure
charts are used in combination. Figure charts afford a valuable insight to the
probable distance a stock will move and hence provide the means of enabling us
to make a complete and coordinated diagnosis hence more effective forecasts.
The method of coordinating the study of both charts is the subject of our
next illustration. For the purpose thereof we shall begin by assuming that it is
now early June, 1936. Our trend chart (N. Y. Times Average, Pg. 20) shows the
market to be headed for a strong further advance and we, having just arrived
upon the scene, are searching out the stocks that may have been resting or those
that have not yet participated fully in this phase of the bull market cycle.
From our 1 point chart of the Utilities Group (Pg. 23), we observe that
this average appears to be on the hinge at 30-31, having ended the month of May
with a rally to 31 after meeting support around the December 1935 absorption
Section 17M Page 1
area of 28-29. Our Utilities Trend Chart (Pg. 20) shows the same thing, but
brings out other conditions which are not apparent on the figure chart. Thus, the
vertical chart reveals that the down trend from 35 (figure chart, Pg. 23) was
initiated with a well defined buying climax, Feb. 17th, after which rallies were
repeatedly stopped around the 33 level. By Apr. 30th, the group had worked out
the force of this supply (four points across the 33 level) and mild symptoms of
bag-holding for panicky sellers appeared in the period Apr. 27th to 30th
synonymously with more decisive (indications of a turning point in the general
market (see vertical charts, Pg. 20).
Around this level the 1 point chart of the Utilities Group formed a line of
three entries at 30, indicating a rally to 32 which was made good May 27th (see
vertical chart). Price movement and volume indications were bullish from May
2nd to 26th. On the latter date, a buying climax developed. But how (June 6th)
we see that volume has been shrinking to very small proportions on a shallow
recession still bullish and this brings the average to a dead center, forming
the hinge previously mentioned, at 30-31.
With this much background, we now (June 6th) decide that the group is
all set for a further quick move upward. Reexamining the 1 point chart, we find
a line of five entries across the 31 level (March to June) indicating 34-36 as the
next objective, and possibly 36-38 based upon the wider line of seven 31s (Jan.
to June), provided no contradictory evidence appears in the meantime. Going
back a little further and considering the line of ten 29s from November to May as
a supporting level, we discover reasonable confirmation of the 38 objective. (*)
* As a matter of instructive interest, it is worth noting that if we treat the

drop from 22 to 15 (July, 1934 - Jan., 1935) as an extended shake-out, (Sect.
21M, Pg. 2, Par. 3) and hence consider the line of fourteen 22s (May, 1934 to
Aug., 1935) as the main supporting level here, an optimistic estimate would give
56 as the maximum objective of this old accumulation area. The later absorption
zones of 28-29 and 29-31, above mentioned, thus have done nothing more than
substantially to confirm but not materially raise this originally indicated
objective.
Section 17M Page 2
As of June 6th, with other stocks and groups of stocks in much better
positions, we see little in this promised five to seven point rise to inspire great
enthusiasm for Utilities as a group. At the same time, we recognize the
probability that such a rise means some individual utility stocks are very likely
to advance considerably more than the average. So there may be an opportunity
here provided we can discover an issue or issues in preferred positions.
Accordingly, we thumb through our figure charts and by casual inspection
single out Electric Power & Light (EL) as a stock that so far has shown relatively
more strength than weakness. We study this chart (Pg. 23) in order to get a
proper perspective of its recent behavior and background.
In March, 1936, it advanced to 16, thereby exhausting the indication of
the base formation at the 5 level, 1934 to 1936, (14 points across added to the
low point at 2). Since then, however, the price has not carried out the implications of heavy distribution around 15-16 (see vert. chart, Pg. 24). Despite the
broadening formation in the range 14-16 (figure chart) the price has receded
stubbornly and even during the April slump in the market and its group, the
stock refused to react as much as halfway back to the last supporting point at 8.
Likewise, when its group rallied to a lower top at 32 in May this stock showed
comparative strength and hence a tendency to follow the general market,
breaking away from the sluggish influence of its group by returning to the previous high point around 16. From this we conclude that the lateral movement (on
the figure chart in the range 13-16) may turn out to be reabsorption, or consolidation of the advance from 2 to 16, instead of a supply zone.
Therefore, we keep EL under observation for confirmatory bullish symptoms. So far, as stated, it has behaved well, exhibiting more strength than weakness. As of June 6th, it appears to be on the springboard (vertical chart) but a
review of volume behavior since March tells us that large offerings are likely to
be encountered around 16 it probably will have difficulty negotiating the
Section 17M Page 3
resistance there. So while our preliminary studies have led us to select the stock
for a possible purchase, we decide our choice may be premature we may have
to discard it, depending upon what develops in the next few sessions.
An abrupt volume surge, June 9th, admonishes us to become increasingly
careful: if it is going through on the up side to make good immediately the 8 point
advance which seems promised by the figure chart, the apparent marking up
should continue forthwith on sustained volume, or at least it should not react
enough to lose its momentum. An additional reason for distrusting our first
bullish impressions is that the small spread from high to low on the abnormal
volume of June 9th suggests lack of buoyancy, in other words, heavy churning
without proportionate progress hence an effervescent bulge rather than the
beginning of a legitimate advance.
The probability that this is another false start, like that of Apr. 15th, is
strongly confirmed when volume immediately fades away over the next few days
and the stock then becomes sluggish, although the rest of the market is advancing aggressively.
Accordingly, we decide that until its action becomes more decisively encouraging, we shall have to search elsewhere among better behaving groups for
stocks that are likely to experience worth while moves. Our reasons are, that in
view of the number of times EL has approached the 16 level and failed to
overcome the resistance there, and in view of the repetition of peak Volumes on
each of these approaches, we should require pretty convincing evidence of a
change in its habits to convince us that it can get going on the up side, despite the
fact that our 1 point figure chart now shows nine entries in the 14-16 range.
For the purpose of this study, however, assume that we continue to keep
our vertical chart up to date daily. As the days pass there comes a reaction to 14
7/8, June 25th, which is a little more than we should like to see if the
Section 17M Page 4
stock is to make another nearby assault on the barrier at 16. Also, volume shows
a tendency to expand on the dips, June 18th and 25th. July 1st brings a sudden
increase on a recovery to the 16 level. Then volume expands gradually as the
price rises to a new high at 17 5/8 (Pg. 25). Though it may seem as if this puts
the stock on the springboard we doubt it because: (1) the turnover from July 1st
to 9th is relatively light for EL (22,000 to 33,000 shares a day compared with
40,000 to 90,000 on the Jan.-Feb. advance), indicating that the rise to 17 like its
predecessor of Juno 9th may not have enough momentum to overcome offerings
generated on culmination of the rise in March when a turnover of approximately
92,000, 74,000, 73,000 and 71,000 shares occurred over four successive
sessions, March 12th, 13th, 14th and 16th; (2) because on a volume of about
35,000 shares July 9th, the stock recorded a smaller relative gain than on
25,000 shares the previous day, the smaller gain on increased volume indicating
disproportionate progress, that is, supply overcoming demand; (3) inability
promptly to follow up the advantage of the breakthrough into new high ground
with a vigorous mark up either in harmony with an aggressive advance in the
general market, or in harmony with further upward progress in the Utilities
Average which is now evidently endeavoring to make good our forecast of a rise
to 36-38 (Pg. 2, Par. 2).
On the basis of these conditions, the volume surge of July 9th must be
construed as a buying climax. Diminishing volume and narrow range over the
next five sessions indicates a lessening of demand at the top of the rally all of
which foreshadows a reaction aid warns us again to avoid this stock. If it will not
move upward in sympathy with a strong market, there is danger: it will react;
decline more than the average if and when a reaction overtakes the market as a
whole; or it may individually move counter to the main trend. In any event, we
do not wish to take a position in any issue until, by its own action, it tells us
plainly that it is ready to move decisively.
Section 17M Page 5
From July 14th to 24th a series of lowering tops and bottoms, generally
lower closings, and very narrow swings, indicate a lack of aggressive support and
a disposition to let the stock drift. Volume diminishes steadily as the price
recedes. This at first glance might be interpreted as bullish behavior but for the
fact that bulges to the 16-17 level have repeatedly climaxed on abnormal volume
surges (April 15th, May 27th, June 9th and July 9th). Hence we must conclude
this light volume represents discouraged selling on the part of a public following
which has been disappointed by the repeated failure of numerous abortive rallies
to follow through. Or, to look at the stock's action in another light, its sponsor's
wish to shake off an unwanted public following acquired in the March upward
push to 16 by dumping stock on every subsequent bulge (Sect. 16M, Pg. 4, Par. 3
and Pg. 5, Par. 1).
A quick small rally to a lower top accompanied by a sudden volume surge,
July 27th, is not sustained the next day, confirming this viewpoint. Observe now
that volume remains comparatively large as the price starts downward and
continues to sag during the next four sessions supply is increasing.
From hereon, we see nothing unusual in the action of the stock beyond
the fact that the price comes to rest around the old supporting level of AprilJune, at 14 (see figure chart) where the movement narrows and for several
weeks the price swings in a two point range on generally small volume.
Occasional rallies to the top of this zone(at 16) are accompanied by sporadic
volume surges after which demand immediately fades out and the price recedes
with activity lapsing into extreme dullness.
On Oct. 7th, however, our interest in EL is revived by the appearance of
unusual activity. A volume of 22,000 shares with only a small net change in
price, after eight to ten weeks' exceptional dullness, since the recession from 17,
challenges our attention. The 1 point figure chart shows the stock was held to the
13-17 range nearly seven months with no recent slip below the 14 line
Section 17M Page 6
(which has now stretched out to a count of 13 points) and still no evidence of a
normal, halfway correction of the last advance from 8 to 17.
Meanwhile, the bull market campaign has been resumed with a sharp
mark up to a new high in the Composite Average. (Pg. 21.) EL has now passed
through the phases of: (l) decline from a high point (at 17) in July; (2) narrow
swings and apparently persistent support at the bottom of a broadening trading
zone on (3) very small daily volume; (4) over a sufficiently long period of time to
tire out all of the weak long holders; and (5) ability to hold stubbornly to the 14
supporting line instead of breaking to new lows as successive corrective reactions
have swept over the market. Here is a set of conditions which may mark
preparation for a worth while advance (Sect. 9M, Pg. 2, Par. 6 and Pg. 3, Par.
2).
We do not immediately act upon the indication of initial activity given Oct.
7th, however, because this volume surge means the stock has been very active
on the tape during the day and thus probably has attracted a considerable
company of boardroom traders. If the activity was started by inside bidding for
all available offerings around this level, the sponsors probably will wish to shake
off this unwanted following by allowing the stock to react and quiet down again.
Or they may yet engineer a shake-out. Or, if they have all they want they will
push it through the resistance at 16 promptly, whereupon there will still be time
for us to get aboard. If it is not ready to go, we do not wish to be "hung up" for
possibly several days or weeks, running the risk of being caught in a possible
shake-out. So we wait patiently for further bullish indications.
The activity promptly quiets down and the price sags the next two weeks.
Then on Oct. 22nd, there is a new flurry, or small rally, which looks like good
buying. But the price fails to move upward appreciably, hence we conclude the
supply of stock has not yet reached a condition of sufficient scarcity to mark
Section 17M Page 7
the beginning of a move.

Looking back on the vertical, chart, observe that since the minor selling
climax of Aug. 21st, there have been four fairly distinct volume surges which
have lifted the price to or toward the 16 level where rallies have been promptly
checked. On the last two dips (Oct. 14th & 28th) following such rallies, the price
has shown a tendency to hold at higher supporting level, 14 5/8, compared with
14 in August and September. These are tentatively bullish indications. Following
the last dip, Oct. 28th, volume shrinks to unusually small proportions showing
there is little stock for sale on reactions.
We might decide that this is the time and place to buy as the price has
now moved to a dead center, almost to the middle of the range 14-16, and because the extreme dullness, or lack of activity, seems to mark the end of a
chapter on the down side. (Sect. 14M, Pg. 8, Par. 1.) That would be the correct
play in a stock whose previous habits were such as to indicate that it possessed
continuously active sponsorship and hence the ability to move readily and
promptly. In the case of EL, however, its recent habit has been to move
sluggishly and to die out quickly after small rallies, while the behavior of the
group, in failing repeatedly to follow the strength of the market as a whole,
makes us treat all utilities with caution lest we become "tied up." Hence, in this
particular case we prefer to wait for more convincing indications. Our reasoning
is that since there has not yet been any evidence of consistent or sustained
demand, there is danger the stock may again falter on a return to the ceiling at
16, registering another false start.
On Oct. 29th, a fairly vigorous rally lifts it out of the dead center or hinge
position. The range this day is 1 1/8 points on a volume increasing to about
10,000 shares. Thus the price seems to bob up rather easily on comparatively
light volume (Sect. 10M, Pg. 5, Par. 2). This seems to confirm our previous
conclusion that the supply of stock around the low points is becoming
Section 17M Page 8
scarce. But are we sure that the managers have all they want, and may not this
prove to be another minor buying climax like those of Oct. 7th and 22nd? The
next day or two should give us the answer, so we continue to wait. If accumulation has been under way and a marking up phase is beginning, the stock should
push vigorously through the overhanging resistance at 16; or if it reacts again it
should not fall back to its starting point at 14 1/2 because assuming accumulation has been completed, a logical maneuver now would be a fast mark up to
lock out potential buyers and to trap any sleeping short interest. These trapped
shorts for some time will refuse to cover, hoping for a sizeable reaction to extract
them from an untenable position. Prospective buyers, having missed getting in at
the bottom, will reason likewise: that they will wait for a good sized reaction on
which to climb aboard. Chances are the "good sized reaction" will not occur until
both crowds give up the idea of waiting for one. (Sect. 16M, Pg. 20, Par. 2.)
Therefore, when volume rises abruptly to more than triple that of the previous session and the range shortens next, day as the stock strikes the barrier at
16, notwithstanding a closing at the top we conclude the rise must continue
without further delay, otherwise this peak volume means another flash-in-the-pan
rally is climaxing. On the other hand, if this heavy volume means that the overhanging offerings are being absorbed, that the marking up is underway, the
stock should not fall back again.
Here then we may enter an order to buy EL on stop (Sect. 23M, Pg. 9,
Par. 4) at 17 1/8 on the ground that if the marking up phase actually is begining
we would prefer to buy on an up wave under the particular set of conditions here
existing, because a break out of the long 14-16 trading range up side would put
the stock on the springboard following 10 weeks preparation and we should still
be getting in close to the bottom, paying a modest premium for reasonable assurance that the move is really starting. But if the price should fall back, we will
Section 17M Page 9
be free to await further developments.

A small recession and marked shrinkage in volume on the 31st leaves us
in doubt whether demand is lessening at the top of the rally or volume is
diminishing on a reaction. The next day settles this question for the stock
continues to react, volume remaining constant. It is quite apparent now that the
action of October 30th was a buying climax. The ensuing setback to 15 may be a
normal reaction, but in any event it is a little too much to keep alive our
expectations of an immediate mark up so again we wait to see what the stock will
do next. It may hold at or above the critical 14 level, or be subjected to a shakeout. Nov. 3rd brings a quick further reaction to the 14 supporting line with a new
volume surge. The run off from the last rally top has been abrupt so this may
mean the down move is climaxing in an oversold position at the bid supporting
level. If so, the chances are somebody is holding the bag for the sellers on this
setback. The next few sessions, or the next day, will tell whether this increase in
volume represents liquidation, that is, new weakness preceding a break through
the bottom of the range.
There is no follow through on the down side, however. Instead, an immediate rally (which recovers nearly 75$ of the three previous days loss on comparatively large volume) tells us to get ready for action there is more strength
than weakness here. Now, a3 we quickly scan the recent behavior of the stock we
are impressed with the fact that it has entered a new phase. Despite the daily
irregularity of volume turnover, the stock has become much more active during
the past week than for nearly three months. Volume is more consistently large
and price movements show resiliency, i.e., more frequent and wider daily ranges.
This change from dullness, to activity is significant. Moreover, reviewing its
action in comparison with our Trend Chart (Pg, 21) we find that while EL so far
has shown no tendency to respond to strength in the general market, on the
other hand, after being depressed from 17 to 14 (July to Aug.)
Section 17M Page 10
and held in a range with little activity, it has repeatedly refused to break under
the 14 supporting level during periods of reaction in the market, as we would
expect it to break if supply were constantly increasing on the rallies to 16. The
Utility group (Pg. 21) still shows no clear evidence of ability to break out of its
state of equilibrium. In fact, the group action alone is uninviting to participation
on either the long or short side. But as we have just seen, notable differences are
to be found between the action of EL and its group. Whereas the latter has
apparently stabilized in a narrow zone between 34-36 after advancing from the
30 level, EL was run down from the 16-17 tops where the resistance formerly
was too strong to be overcome and in recent weeks has disclosed numerous
symptoms of preparation for an important advance through this old barrier.
(Sect. 16M, Pg. 27, Footnote.)
This study would serve no helpful purpose if it failed to recognize the
reactions which we normally would have, were we viewing the action of the
market and these situations just as if the future were before us and we did not
know what might happen next. Also, we are assuming that our first impressions
are based on the figure charts before considering the vertical charts. In that case,
with the general market starting up in a strong new advance (October), we at
first might jump to the conclusion that Utilities, having rested in a range 34-35
for three months, now have built a foundation for a possible 4 point further rise
(Pg. 23). Reference to the vertical chart, however, would tend more to contradict
than confirm this expectation for the group's behavior indicates only spasmodic
volume surges; and no consistency in either the price movements which remain
narrow, nor any apparent disposition to follow the general market upward in
successive advances.
At the same time, we are impressed with the fact that the apparent supporting line in EL, cross the 14 level (Pg. 23), has now stretched out to a total of
14 points implying possibilities of a rise to 28, provided the indications of the
Section 17M Page 11
vertical chart should become sufficiently convincing to mark this long lateral
movement as reabsorption or reaccumulation following the July retreat from 17
to 14. Also, recognizing that a persistently advancing general market tempts
large operators and sponsors of various stocks to search out laggard issues,
grooming certain of these individual stocks for distribution to the public; .and
remembering that we must constantly be on the alert for such made to order
opportunities, we would certainly study Electric Power carefully once again as we
did in June. For so long as the action of the group is not contradictory or adverse
to a campaign, an individual issue in such a group may do much better than its
average. And, if we were making it our practice to scan the volume transactions
of all stocks in our list of 200 from newspapers or our Daily Reports even
though we kept no vertical charts continuously for all of them we should
presently be placed on notice to examine the action of EL because of the "initial
activity" indication given by the volume surge of October 7th.
From the standpoint of comparative strength and weakness, EL, and particularly its group, still promises nothing encouraging. But our analysis of the
stock individually has now (Nov. 5th) become sufficiently convincing of bullish
possibilities to justify venturing a long position if it shows any further symptoms
of a bullish character. We do not know what form these may take, or whether
they will materialize at all. The rally to Nov. 7th dies out on small volume.
Nothing decisive next day; a fairly pronounced volume surge on the 1Oth which,
in view of the low closing, looks like a buying climax; then a sag back to 14 1/4,
on the last two days of which the range narrows to fractions and volume shrinks
decisively.
Now we "sit up and take notice" for that gives the up signal and invites
immediate purchase because our stop, which should immediately be placed at say
12 7/8, will involve a very small risk. This last dip adds two more points to the
Section 17M Page 12
formation at 14 and another week's accumulation to the possible preparation in

the range 14-16. The indicated 16 point move to 30 is well worth trying for.
Little damage will be done if we are wrong or premature since our stop will cut
any possible loss short at less than two points so the odds are 8 to 1 in our
favor. And, in view of the almost complete drying up in pressure revealed by
very small volume and narrowing price range on the dip (Sect. 10M, Pg. 4, Line
7), chances are the worst that can happen is the stock will rally enough to let us
out even if we don't like the way it behaves when it attempts to recover from
this last recession.
A sharp rise on expanding volume almost immediately rewards our taking
this logical business risk and confirms the accuracy of our timing. This day's
performance, on first thought might be mistaken for another buying climax. We
can afford to wait and see, for if that should prove to be the case, we can get out
the moment the stock shows signs of falling back to the starting point again.
However, chances are against this because the price spread now is much wider
than on previous upward thrusts showing progress in proportion with the rise
in volume. This says the mark up is at last starting; that the increase in volume
represents willingness to take all of the offerings encountered near previous rally
tops around 16; and that the fast run up of nearly two points is a locking out
movement (see Pg. 9, Line 7) designed to sew up the shorts and catch potential
buyers asleep. The stock is on the springboard. (Sect. 7M, Pg. 8, Par. 1 and
Footnote; and Sect. 16M, Pg. 22, Par. 1.)
Volume expands still more next day and the range narrows, but this is because the sponsors are called on to absorb more of the offerings around the tops
of the range. So, instead of considering this a climaxing indication we look for a
further advance. In case we did not buy before, but preferred to wait for just
such a clear indication of a springboard (preceding the marking up process) we
would go in now. Our stop in this instance should be at say 14 5/8 or 15 3/8
Section 17M Page 13
on the ground that if we are correct in expecting a mark up the stock should no
longer fall back deeply into the area of accumulation nor beyond the part way
reaction mark.
From here on, the bullish characteristics are unmistakable. The marking
up continues aggressively with no reactions sufficient to let shorts cover or
potential bulls purchase without bidding the price up, thereby helping the
sponsor's marking up campaign along. Note how the price range narrows and
volume tapers off promptly after the successive new upthrusts. These resting
spells take the place of corrective reactions: The stock quiets down to digest its
gains, showing its mettle by lapsing into dullness and holding stubbornly to the
narrow range in the face of a sharp reaction in the general market, Nov. 23rd.-In
fact, the upswing started (Nov. 16th) at the very time when chances of attracting
an unwieldy public following around the lows would be negligible. (Note how U. S.
Steel behaved similarly during Nov. 1936; Sect. 8M, Pg. 17.)
EL continues comparatively stronger than the market and much more aggressive than its group until Dec. 16th, when, following the first appreciable
setback during the steep advance from 14, high volume fails to lift the price to a
new high. This marks a distinct change of behavior. A quick upthrust next day
and a closing near the low, volume diminishing, warn us to be on guard supply
is overcoming demand.
Having raised our stop after each successive previous mark up to bring it
a point or so under the lows of the resting areas (Nov. 23rd; Nov. 30th to Dec.
8th; and December 11th) we now raise it to within a point of the Dec. 16th support and watch to see whether distribution will develop or the stock will digest its
advance, as before, and then attempt to make good our figure chart objective of
30. A new phase may begin here. (Dec. 16th) since the activity is now feverish,
as indicated by the heavy volume, widening daily range, and the price movement's tendency to level off with deeper reactions than heretofore. Our trend
Section 17M Page 14
support lines, A-B and B-C help us to visualize the bearish implications inherent
in any further sidewise movement. (Compare again with U. S. Steel, Sect. 8M, Pg.
17, around the March, 1937 top.)
A sharp reaction in the Composite Average induces only a shallow recession in EL to 23 1/4 around Christmas time. This breaks the angle of the
advance from 18 5/8 (Dec. 8) to 23 3/8 (Dec. 19) but volume diminishes
promptly and the reaction dies out above the main supporting line A-B. These
developments say the stock is being supported and probably will rally again.
Much depends upon how it recovers.
The 1 point chart now has a line of six 24s which seems to confirm the
original objective of 30. However, volume on the Dec. 30th rally back to 25 1/2 is
less than half the daily turnover on the preceding advance. In the light of our
other tentatively bearish symptoms, (Pg. 14, P^r3. 2 and 3), we read this to
mean that demand may be exhausted hence an additional bearish indication
causing us seriously to doubt the inference of our figure chart.
Meanwhile, the utility group has given the operators in EL no support; the
average stays in that 33-36 range with no evident inclination to break out on the
up side. Accordingly, we now either decide (l) that 12 points profit in six weeks
is enough and that we prefer to let the other fellow" play for the possible last
four points of the move in EL by closing out our commitment at the opening next
day, thereby nailing down our profit; or (2) we may let our stop stand at the
level to which we last raised it (say 22 1/8) until we can size up the stock's
action a while longer.
An abrupt dip to 23 1/4, Jan. 2nd, encourages us to look for another
rally since volume falls away sharply. Next three days, the price creeps upward
on comparatively light volume suggesting the selling pressure has lifted, but on
Jan. 7th, volume rises abruptly. We become very suspicious of this sudden run
back, for the price is up around the previous tops and the volume is below the
standard of the December advance. Next day, no material progress on almost the
Section 17M Page 15
same volume turns our suspicion that distribution is being completed to conviction. If we fail to sell on the ensuing up wave (Jan. 9th) which brings an
upthrust to a fractional new high with an immediate reversal and a closing near
the low, we must do so at the next opportunity. A two days' reaction on comparatively large volume, followed by another quick upthrust to 26 5/8 on Jan. 14th
lets us out. The action is becoming increasingly bearish. Thus the stock has spent
seven days in the 24 l/2 - 26 5/8 range, without material progress (note the
series of closings in an almost level range) on relatively large volume, in the face
of an aggressive new mark-up in the general market and relative strength in its
group. Twice it has been shoved up to a new high only to slide back and finish at
the day's low Jan. 9th and 14th.
All this says it has lost its stride can't make 30 and increases the
chances for either a substantial reaction or a decline. We might now also sell it
short with a stop one point above the January 14th high because, in addition to
the above symptoms of change from strength to weakness, the evidence of preliminary supply around the December tops has been tentatively confirmed by the
breaking of the upward stride from A to B and on Jan. 16th a rally effort falls to
enlist any volume bringing the stock to a hinge position. From this point a
reaction back to about 20 would be a normal expectation in view of the 12 point
November-December rise.
The ensuing down swing, Jan. 18th - 30th, falls short of this expectation
and repeated sharp shrinkage in volume on dips back to the 22 level early in
February warns us to cover our short commitment. We do not consider the stock
as a logical purchase again, however, until a line of seven 22s on the one point
chart suggests that-there may be another attempt to carry out the old objective of
30, and a few weeks' churning in the 22-24 range (see vertical chart) may have
tired out the buyers who were hooked on the December-January advances.
Accordingly, when the stock works into a hinge position again on March 5th, we
Section 17M Page 16
might venture to make another play on the long side, though we recognize that
the spasmodic volume surges through February, and the comparatively large
volume days in between, lack the characteristics of accumulation such as
appeared during August to November, 1936. Furthermore, behavior of the Utility
Group average, since topping out on heavy volume in January, has been
distinctly bearish.
However, it will do no harm to emphasize again the business wisdom of
cutting out of a bad situation instantly when you see you are wrong, in place of
stubbornly wishing and hoping you will eventually be vindicated, and of
recognizing the danger of sticking to one indication (in this case the figure chart
objective of 30) to the exclusion of other controlling, modifying or contradictory
indications. So let us assume that we purchased EL around 23 l/2, March 6th,
with a stop under the January low point. We thus went long immediately
following the low volume indication on the dip of March 5th, where the price
comes to a dead center midway of the previous trading range. We are relying on
the rounding upward of the supporting points since Feb. 22nd as a further
indication that the stock is being worked up for a test of the former top, at 26.
A marked increase in volume on the rise to 24 5/8, March 8th, gives us
encouragement. A slight extension of the gain and a closing, near the top on
increasing volume March 9th, also looks promising. But the 26 level is a critical
resistance area and we do not quite like the suggestion of whooping up tactics implied in the volume, which is mounting to unusually large proportions, nor the
perpendicular angle of the advance. This smacks too much of an effervescent run
up or secondary distribution engineered perhaps to catch shorts or unload more
long stock which could not be distributed at the primary distribution levels of
December and January.
We decide that if a new marking up campaign is underway, the stock
should hesitate and perhaps react after striking the old tops, but this reaction
should not be much if it is going to be pushed on through that old supply level.
Section 17M Page 17
That is, we figure in advance, that should the price start to slip under 24 either
here or after a further run up, we had better get out of our long position,
forthwith. On March 10th, it makes 26. The volume is still very heavy, the range
narrows, the upthrust is short, and the closing is at the low. This increases our
suspicion that the rise from March 6th is a case of hypodermics, but we wait for
confirmation in the way the stock behaves when it reacts. Volume is still too
heavy as it slumps rapidly below 24 and finishes near the bottom. We have made
a bad commitment. There is nothing to do now but get out if we failed to become
sufficiently alarmed to sell out on the whooping up to 26, March 9th.
We do not sell short immediately, however, because having come down as
fast as it went up the stock may now be temporarily oversold just as it was overbought in consequence of the previous violent three days bidding up to 26. After
falling back to 22 7/8 on small volume, March 12th, the price recovers to close
near the high. We conclude, from this quick reversal, that it is ready to rally out
of the oversold position. A narrowing into small range and small volume over the
next three days confirms the lack of follow through on the down side and
strengthens the chances for a rally which comes on schedule, but develops fresh
climactic indications and dies out well under the 26 high point.
Our Trend Chart, meanwhile, shows general weakening of the whole
market's position, following a series of distributive movements as far back as
November, 1936. Accordingly, we now decide to sell EL short for, while there is a
limit to which lower priced stocks may fall, i.e., not so much room for low priced
stocks to fall as higher priced ones, price alone is not our first consideration. We
derive our profits from number of points movement up or down. The initial
distribution in EL, according to our 1 point figure chart across the 25 line,
implies a possible drop of ten points from 26. This is confirmed by secondary
distribution across the later top March at the 24 line. Our stop above 26
limits our risk to less than two points if we sell short on the upwave accompa-
Section 17M Page 18
nying the climaxing indication around. 25, March 19th. Whether it will make
good the promised ten points down to 16, fall short of the indication or perhaps
develop further supply and eventually exceed it, we must judge by subsequent
behavior.
Section 17M Page 19
Section 17M Page 20
Section 17M Page 21
Section 17M Page 22
Section 17M Page 23
Section 17M Page 24
Section 17M Page 25
Section 17M Page 26
SELECTING THE BEST STOCKS

The Position Sheet - Technical Position Barometer
There are two processes of reasoning by which we may arrive at a conclusion: (l) The deductive method which proceeds from the general to the particular
and (2) The inductive method which works from the particular to the general.
In our previous studies we have explained the first or deductive method of
arriving at our decisions. That is, we have shown how to determine the bullish or
bearish possibilities of individual stocks by determining first the position and
trend of the general market; then the position and trend of the various group
averages; and finally the position and trend of individual issues, separating those
which might be expected to move more rapidly than, or in harmony with, the
market as a whole from those which seem likely to move against the trend or not
at all.
We may, if we wish, employ the reverse of this procedure, namely, the inductive method of reasoning from the particular to the general. That is, we may
form our conclusions by first analyzing the positions of individual stocks. Then
by classifying these individual issues under their proper group headings, we can
determine the position and trend of the various groups. Next, after we have decided whether the balance of probabilities in the groups is bullish or bearish, we
are able to forecast the trend of the market as a whole.
Either approach is good by itself, though reasoning from the particular to
the general requires the exercise of more skill and judgment and takes a little
more time. It is best to employ both methods if possible, for then one will serve
to check the other.
In any case, you must learn how to select the best individual opportunities, that is, the stocks which will move soonest, fastest and farthest if you would
attain success in trading and investing. Therefore, it is necessary for

Section 18M Page 1
POSITION OF 100 LEADING ACTIVE STOCKS.

Position
12
RAIL
x Atch
x xB & 0
Can Pac
N Y Cent
x x Ches & 0
x Penn R R
Union Pac
New Haven
RAIL EQUIP
Amer Loco
Baldwin
Gen Ry Sig
Gen AmTank
Pullman
ELEC EQUIP
x x Gen Elec
x Weshouse
Position
3 4 12
MOTOR
x x Auburn
Gen Mot
x x
Chrysler
TIRE
Goodyear
x x
x x
TRUCK
Mack
x x
x x
x
x
TOBACCO
x Am Tob B
x
x Lig Myers B x
x x Reynolds B
x
x
Position
3412
SUGAR
Am Sug
C Aguirre
So P Rico
AIRCRAFT
Un Aircraft
x
x
COPPER
Anaconda
Kennecott
STEEL
x
Am Ro Mills x
x
Beth
x x x
U S Steel
x x
OIL
Atl Ref
x xS 0 N J
x x S 0 Cal
x Tex Corp
11 7 TOTAL
1st Col.
TEL & CABLE

x x Am Tel & Tel
x
Int Tel & Tel
x
West Un
xx
TRACTION
x Bkn Man Tran x
GAS & POWER

x x Am For Power
AmWater Wks
x Bkn Un Gas
Col Gas
El Pow & Lt
x x Con Gas
x x No Amer
Nat Pow & Lt
x x Pub S N J
x United Corp
x Un Gas Imp
x
x
x
x
CHEMICAL
Allied Chem
Air Reduc
Col Carbon
Un Carbide x
x
x
x
x
x
CHAIN Stores
x x Drug, Inc.
Kroger
x
x Macy
x
x x Safeway
x Woolworth
x
MISC IND
Byers Pipe
U S Pipe
duPont
Eastman Kod x
Warren B Pav x
x x Radio Corp
OFFICE EQ
x x Burroughs
Int Bus Mach
Nat Cash Reg
BLDG
Am Radiator
Johns-Man
x
x x
RESTAURANT
Childs1
Shattuck
8 4
TOTAL
6 2
4th Col.
x
Position
Position
1 2 SUMMARY 3
11 7
1st Col.
12
11 12
2nd "
11
11 17
3rd "
14
8 4
4th "
6
41 40
TOTALS 43
4
7
0
1
2
10
THE TREND
1
3 4
Averages
x Indicate
x
Summary
x Indicates
X
Position should be:
Long
Short
Neutral
MACH & MFG

x Misc Mining
Am MachFdry x
x AmSmelting
Allis Chal
x
x x Int Nickel
Fos Wheeler
x
Vanadium
x
Worth Pump x
12 7 11 12 TOTAL 11 0 11 17 TOTAL 14 1
2nd Col.
3rd Col.
Date Oct. 10 Hr.

x
x
x
x
x
MOTOR Access
x x Bendix
x x El Auto-Lite
Stew Warner
Timken
x
MAIL ORDER
x x Montg Ward
x x Sears Roe
Position
3 4
FARM MACH
Case
Harvester
THEATRE
x Loews
Paramount
x Radio-Keith
CAN
Am Can
FOOD
x Borden
Nat Bis
x Corn Prod
x x Gen Foods
x x Gold Dust
x Hershey
x Nat Dairy
x x St Brands
Position
3 41 2
3 P.M.
Section 18M Page 2
you to study and acquire an understanding of the inductive method of judging the
general market situation, as herein explained.
For this purpose we require a Position Sheet (sec specimen, Page 2). As
will be seen, this sheet is drawn up in such a way that you may quickly and easily record upon it your analysis of each of the individual stocks for which you are
keeping records. By listing these stocks on the sheet under their appropriate
group headings, you can determine at a glance how the various groups stand
after you have concluded your daily studios and made your entries on the
Position Sheet.
For study purposes, a Position Sheet of only 20 stocks is ample. Later on,
when you have progressed to the point where you have a good grasp of this
Method and are ready to apply it to actual market operations, it will be best to
keep a Position Sheet covering at least 50 individual stocks and, better still, a
hundred or more. Far, in order to select the best opportunities, it is desirable to
have a wide choice; and in order to judge the trend of the market as a whole by
means of the Position Sheet, it is advisable to have a sufficient number of stocks
to provide an adequate sample, that is, a representative cross section of the
whole market.
If your time is limited, you may later on (when you thoroughly understand the market) decide that you can dispense with the Position Sheet since you
can accomplish the same results through the use of Group Averages as
previously explained (Sect. 4M, Pg. 24, Pars. 4 to 6 and Pg. 25, Par. l). But with
an hour or more available each day, you can easily keep up a Position Sheet in
addition to your other records and if you have the time, it should be kept. The
Position Sheet is a very valuable aid in (a) forecasting the movements of groups
of stocks; (b) selecting the best opportunities; (c) judging the turning points of
individual stocks; (d) the trend of groups representing the various industries; and
(e) the trend of the market as a whole.

Section 18M Page 3
I devised this Method about fifteen years ago, (1916) and have since used
it with great success.
To make up and maintain a Position Sheet, you may begin your analyses
with the figure charts. Each day, as you receive your Daily Stock Chart Reports
by mail, you can enter the changes in 50 to 100 or 200 stocks (or only 20 while
you are learning) very easily on your figure charts, observing from these charts
as they are extended by the addition of new entries, the technical position of each
stock. Then, when you see by casual inspection of your figure charts, that some
stock is working into what seems to be a promising position, make up a vertical
chart of that issue, following the procedure outlined in Section 4M, Pages 22 and
23. This will enable you to observe its behavior in detail, applying all of the
factors involved in a complete analysis.
Every stock is always in one of three positions: Bullish, Bearish or
Neutral, but it is necessary to know to just what degree.
Decide by methods herein explained, which of these positions applies to
each stock for which a chart is kept. Before you make a commitment, decide
whether the position of the individual stock is in harmony with the trend of the
general market. If not, look for others which are in line with the prevailing trend
(Sect. 9M, Pg. 1, Pars, 1 & 2),
As you arrive at your conclusions respecting the positions of the individual stocks, place a cross or a check mark in the appropriate vertical column of
your Position Sheet, opposite the name of that stock, as indicated in the specimen, Page 2.
Thus, your Position Sheet will record your analysis of each stock after
you have decided, from your charts, whether it is in any one of the following five
positions:
Position 1: The stock should have a short upward swing a rise, roughly, of
1O% to 15% of its present market price, that is, a rally or a
minor move up.

Section 18M Page 4
Position 2: The stock should have a long upward swing an advance, equivalent in points to more than 10% or 15% of its current market
price.
Position 3: The stock should indicate a short downward swing that is, a
drop equivalent, roughly, to 10% to 15% of its present market
price a reaction or minor move down.
Position 4: The Stock should indicate a long downward swing a decline
amounting to more than 10% or 15% of its current market price.
Neutral
Position,
or Position 5:
No definite indication of a move in either direction; therefore,

its position is neutral. No space has been provided on the
Position Sheet for recording a neutral position; whenever a
blanc space appears in all four columns, we consider the stock
neutral.
Another way of designating Positions 1 and 3 would be to consider a

stock, or the market, in these positions if it shows indications of a minor move,
that is, a rally (Position 1) or a reaction (Position 3). In the case of a low or a
moderately priced stack, this would ordinarily be a swing of from 5 to 5 or about
8 points, depending upon the habits of the stock.
Positions 2 and 4 might also be defined by saying that these positions exist when a stock shows indications of having an advance.(Position 2) or a decline
(Position 4) amounting to 10, 20 or 30 or more points, that is, an inter-mediate
move.
The percentage method of designating positions is preferable because a
high priced stock (in the range, say, of $150 to $250) may have swings of from
10 to 15 points which would only be equivalent to trading rallies and reactions in
that stock, hence a 1 or a 3 position, whereas a swing of as much as 10 points in
a lower priced stock (in the range, say, of $50 to $70) would be the equivalent of
an intermediate move, hence a 2 or a 4 position. As you make your decisions,
enter them on the Position Sheet daily, as above described, or every two or three
days, but at least once a week. Every day is best, because no matter what
position a stock is in, it may change at any time. (Examples showing how to do
this will follow.) Always be expecting a change.

Section 18M Page 5
Sometimes a stock will be in a bullish position for a short upswing and in

a bearish position for a long move down, such as American Radiator in the 4th
column of the Position Sheet on Page 2. This means that its main trend is downward but it is due for a rally.
Westinghouse is in Positions 2 and 3 on the sheet (see first column under
heading "Elec. Equip."), which shows that it indicates a long move upward, but
at the time our entry was made on the Position Sheet, the stock was entitled to a
reaction.
When a stock is in Positions 1 and 2, this means that we expect it to advance more than 10% to 15% of its present market price, without any material
reaction; how many point1 depends upon what the figure chart indicates, but you
should not go long unless, as explained elsewhere, there is a prospective profit of
several times the amount of the indicated risk.
When a stock is in Positions 3 and 4, this means we expect it to decline
substantially without any material rally.
A stock may be in Positions 1 and 2 simultaneously; or in Positions 3 and
4 at the same time. It may also be in Positions 3 and 2 simultaneously, as this
would indicate: short move down before long move up; and it may be in Positions
1 and 4 simultaneously, indicating: short move up before long move down. But a
stock cannot be in Positions 2 and 4, nor in Positions 1 and 3 simultaneously because these two combinations would be contradictory.
When a stock is in a neutral position with respect to its longer term indications, it may give evidence of small swings (rallies and reactions) which
would cause us to place it alternately in Positions 1 and 3. Or, it may be in
Position 2 or 4, but temporarily neutral with respect to its minor trend (positions
1 and 3) indications.
Positions 2 and 4 are the most important as they show which stocks
promise long moves, that is, moves which promise a sufficiently large swing to

Section 18M Page 6
justify the expectation that an intermediate swing is in preparation. These are

the ones in which the most money can be made. Likewise, these are the ones
which the average trader and investor should seek to capitalize. By average
trader and investor is meant those who are not in a position to watch the market
constantly all day long.
Positions 1 and 3 are less important but their value lies in telling you
when rallies and reactions are coming, so that you can buy or sell to advantage.
As your purchases should be made at the bottom of reactions whenever possible,
and your sales at the top of rallies (Sect. 5M), these indications of short moves
will aid you in selecting the right time to take a position. You can draw this to a
fine point by watching your Wave Chart (Sect. 22M) in conjunction with your
vertical line charts for the psychological moment. In fact, as already explained,
(Sect. 16M, Pg. 3, Pars. 2 & 3) vertical charts are practically indispensable for
determining the 1 and 3 positions because the volume indications afford the best
means of judging the turning points of these minor swings. When you have
attained proficiency, you may find that you frequently are able to trade for quick
turns on these small swings, even though you may not be studying the market all
day long nor trading from the tape. However, it is better not to venture short
swing trading until you have had long practice and ample experience.
The Trend of the whole market may be judged from the Position Sheet in
this way: Consider first the long moves as indicated by position 2 on the bull side
and position 4 on the bear side, as these are the most important. For example,
according to the entries made on our specimen Position Sheet, Page 2, we find
that in the first vertical column we have 7 stocks in position 2; in the second
column 12; the third column 17; and the fourth column 4. Entering these
individual totals in the fourth column of the sheet, under the heading "Summary," we find that we have a grand total of 40 stocks in position 2.
On the bear side we find a total of 10 stocks in position 4, that is, in

Section 18M Page 7
a position for a long downward swing: 7 in the first column; none in the second
column; 1 in the third column; and in the fourth column 2.
Thus our grand total shows 40 stocks in a bullish position and only 10
bearish, or 4 to 1 in favor of the bull side. Therefore, we enter in the lower righthand corner of the sheet: "Summary indicates" up by placing a cross mark under
the sub-heading which indicates position 2. Having previously consulted our
Trend Chart of the averages, we have learned therefrom that the indicated trend
is up and so we enter a cross mark under the heading for position 2 in the
proper space, opposite the line reading: "Averages indicate." As both of these
sources agree that the trend of the market is upward, we decide that our position
should be long, and so we indicate this in the lower right corner of the sheet by
crossing out the words "Short" and "Neutral" which appear opposite the line:
"Position should be."
Incidentally, if, when you make up your own Position Sheet, you should
find that your Summary indicates an advance (Position 2) while your conclusion
respecting the Trend Chart is that the market will decline (Position 4), or vice
versa, you had better re-check your deductions carefully. Such a flat contradiction between the indications of the Position Sheet Summary and the Trend
Chart is not likely to occur.
Having determined that we should operate on the long side, we next
examine all the groups (as recorded on the Position Sheet) in order to find which
group, is most unanimously displaying an upward trend. They stand as follows:
RAILS. This group is so evenly balanced that it does not invite any commitments.
RAIL EQUIPMENTS. These are mostly in a bearish position. American
Locomotive and Baldwin indicate a long down swing; four out of five show a
probable 3 to 5 point down swing. All this is contrary to the trend of the
market, so we avoid taking positions in this group.

Section 18M Page 8
ELECTRICAL EQUIPMENTS. General Electric is in the best position to buy,

because both its short and long swings point upward. Westinghouse should react
before it advances.
CANS. Cans are represented by only one stock, American Can, which
offers only a short up swing.
Thus we follow along through the groups, finding in the Oil Group,
Standard of New Jersey and Standard of California; in the Motors, Auburn; and
in the Tobaccos, Reynolds B all in positions 1 and 2 and, therefore, we regard
them as possible candidates for purchase: But we do not decide which are the
best purchases until we have gone over all the groups, selecting first the
candidates and then the best of these after consulting the individual charts.
A glance at the Food Stocks shows us that seven out of eight are in a position to have long up swings. The same is true of a majority of the Gas and Power
Stocks, 7 out of 11 being in position 2. Motor Accessories have 2 out of 4; and
Chain Stores 4 out of 5 in Position 2. Both the Mail Order Stocks are also in that
position.
Having gone through the entire list, we find that the groups in the
strongest position are the Food, Gas and Power, Chain Store and Mail Order. So
we decide to confine our operations to these groups because we thus get the benefit of what may be called group strength, explained thus: If seven stocks out of
eight are in a very bullish position and indicate a long move, all or most of these
are likely to respond to buying waves, and should tend to resist reactions, in the
market, and if we buy the stocks in that group which seem in a position to move
soonest, fastest and farthest, preferably one or more that may be on the
springboard, we benefit by the lifting power inherent in the group.
We now make a list of the stocks in the above groups that are in positions
1 and 2. We find these to be as follows:
FOOD STOCKS: General Foods, Gold Dust, Standard Brands.

Section 18M Page 9
GAS AND POWER STOCKS: American & Foreign Power, Consolidated Gas,
North American, Public Service of New Jersey.
CHAIN-STORE STOCKS:
Drug, Inc., Safeway.
MAIL ORDER STOCKS:
Montgomery Ward, Sears, Roebuck.
If we desire a wider selection, we can include among our candidates the

following: General Electric, Standard Oil of N. J. and Standard Oil of Calif.,
Auburn Motor, Reynolds B, International Nickel, American Tel. & Tel., Bendix,
Electric Auto-Lite, Radio Corporation and Burroughs Adding Machine, because all
of these stocks are in Positions 1 and 2 although their groups are not in so
strong a position for the long upward swing as those mentioned above.
Bear in mind this is not the position of these stocks today, but one which
prevailed a long time ago and has since changed. It is used for illustration only.
Next we take the charts of all these twenty-two stocks and favoring the
four strongest groups, select whatever number of the very best we wish to purchase. We consider each stock in turn. Suppose we wish to buy five or ten stocks:
After comparing them with each other and with our Trend Chart (following the
principles outlined in Section 8M) we discard the weakest until only the five or
the ten which represent our final choice remain. If we are keeping the Group
Averages in vertical line chart form, a further comparison of our individual stock
selections with these averages will materially aid us in making our final choice
(Sect. 8M).
Having decided which stocks to buy, we make our purchases according to
the condition of the market at the time we arrive at our decision as shown by a
Wave Chart, and the technical position of each stock as shown by our individual
vertical line charts. Our aim is to time all of our purchases so that we will be
buying on the down waves in the general market in any case (Sect. 5M). But we
may find, from our individual vertical charts, that the day to buy some of these
stocks is not-the best day to buy others (Sect. 8M, Pgs.19, 20, 21, 22 & 23,

Section 18M Page 10
comparing group movements), so we must also aim to time each individual

commitment to the best advantage. If there is a stock ticker available and we
have attained proficiency in tape reading, we may draw our timing down to a
very fine point by watching the small hourly buying and selling waves for the
right moment (fully explained in "Tape Reading and Active Trading" Division
2 of this Course). However, the average trader and investor should not concern
himself with such refinement. He will do much better by religiously remaining
away from the stock ticker and avoiding brokers' offices (Sect. 24M, Pg. 7) since
he can employ the Wave Chart very effectively for this purpose, making decisions
in the quiet of his home in the evening or early morning, on the basis of each
day's action as revealed in detail by a Wave Chart of Tape Readings (Sect. 22M,
Pg. 2, Par. 3).
If our studies show the market is temporarily weak, or some of our individual selections show indications of receding before they advance, we wait for the
reaction to run its course and then buy. But, if it appears that the market is
gaining in strength and volume, and we judge that delay might cause us to pay
higher prices, we buy at once at the market prices for these stocks.
In making changes on the Position Sheet, the simplest way is to rub out
those which require alteration instead of making a new sheet. For that reason the
crosses should be made in pencil and not in ink; hence, a single sheet will last a
long time. However, before making any alterations in the individual positions or
the summary for any given day, it is wise to tabulate this summary or make a
chart of it for a permanent record, because this record may be used as a very
valuable trend forecaster. For instance, consider the following tabulation, or
record, of a daily Position Sheet summary which was kept during 1929. The
figures in this table show how many stocks were in Position 1, how many in
Position 2 and how many were in Positions 3 and 4 for each one of the dates
indicated in the extreme lefthand vertical column of the table:

Section 18M Page 11
DATE
1929
RALLIES
(Position 1)
ADVANCES
(Position 2)
REACTIONS
(Position 3)
DECLINES
(Position 4)
Mar. 1
2
4
5
6
7
8
9
11
12
156
125
100
97
105
101
89
86
98
106
149
143
132
130
132
132
130
127
120
111
63
68
110
110
81
81
96
106
104
100
10
11
12
12
13
14
15
16
17
18
From the above, it is readily apparent that by setting down the totals as
they appear on our Position Sheet each day, in the fond of a table, these summarized totals will reflect our forecasts of changes in: the trend. For instance,
scanning the third column of the table above and reading from the top (March 1)
down (to March 12) we see at once that the number of stocks in a position to
have a large move upward was gradually diminishing. At the same time, the
number of stocks in position to have a long downward swing (see last column,
representing Position 4) was tending to increase somewhat. This tendency to
change affords a most significant picture of our constantly revised judgment of
the present position and probable trend of the market as a whole. Thus, in the
case of the above tabulation, the diminishing number of stocks in Position 2,
together with the tendency toward increase in the number of stocks in bearish
positions warns us to become wary of the bull side of the market as a whole, and
especially so with respect to the individual stocks that are developing Position 4.
The second and fourth columns of our tabulation show how the number of
stocks in Positions 1 and 3 are changing from day to day. These figures, of
course, are also taken from our summarized totals as recorded upon the Position
Sheet each day. They represent our judgment with respect to the probabilities for
minor moves up and down (rallies and reactions) in the various individual stocks
on which our completed Position Sheet is based. These totals, naturally, will
change more frequently and less regularly than those representing positions

Section 18M Page 12
2 and 4. But by scanning our table as before, and observing the effect of new
daily additions, any tendency toward a persistent increase or decrease in potential rallies and reactions may be noted and from this we are able to judge
whether the market's technical position is growing stronger or weaker. For example, in our illustration, note how the number of stocks in a position to rally
(Position 1) was persistently diminishing; from March lst to 12th and how the
number of stocks in a position to react (Position 3) tended persistently to increase, thus giving us advance warning of an impending setback in the general
market.
As the Chinese say, "One picture is worth a thousand words." Thus, a
chart or graph will reveal any significant trend in a series of related figures
more readily than a tabulation. Therefore, instead of setting down our summarized Position Sheet totals in the form of a daily table, we prefer to plot these
figures in the form of a chart, constituting what may be called a Technical Position Barometer.
Such a Barometer may be constructed quickly and conveniently on an
ordinary sheet of cross section paper ruled ten squares to the inch, as illustrated
by the specimen on the next page, which also shows the proper method of
dividing the sheet into two parts. The upper half of the sheet should be used for
plotting the figures which will form the curves representing the number of stocks
in positions 1 and 3. The lower half of the sheet provides space for plotting thecurves which will represent positions 2 and 4. The vertical scale at the extreme
left of the sheet may be adjusted to conform with the number of stocks you are
covering in your Position Sheet. For example, if your Position Sheet covers 100
stocks, mark off the scale of your Technical Position Barometer as shown in the
specimen sheet, laying out the scale representing positions 1 and 2 to read
upward from the zero (or base) lines, and downward for positions 3 and 4. If
your Position Sheet covers, say, only 25 stocks, these scales should read upward
from 0 to +25 and downward from 0 to -25.

Section 18M Page 13

Section 18M Page 14
A sample of a Technical Position Barometer, constructed as above explained, is shown on Page 19. This Barometer is based on the daily analysis of
360 individual stocks during the period of late February to early August, 1929.
The dates are indicated by the horizontal scale across the bottom of the chart.
The changing totals of stocks in positions 1, 2, 3 and 4 are represented by the
curves which run across the sheet from left to right.
These curves are drawn through the points on the graph paper where the
vertical line, representing a given date, intersects the horizontal line corresponding with the number of stocks in a given position. So you will understand
this clearly, turn back to the Table on Page 12. On March 1, our Position Sheet
indicated there were 156 stocks in position 1. Now turn to the chart on Page 19.
Find the date March 1 on the time scale running across the bottom of the chart.
Then run your pencil up from the bottom of the chart to the upper base line
above which you are to plot your curve representing the number 1 positions.
Pause there a moment. Now move your pencil upward again until the point comes
opposite the level which most nearly corresponds with the figure 156 in the scale
of numbers at the left-hand margin of the chart. Put a dot here. Proceed in the
same way to locate the dots for March 2nd, 3rd, etc. By connecting these dots
you will make a curve which gives a graphic picture of the daily changes in your
summarized total of stocks in position 1, as they appeared originally on your
Position Sheet.
The curve for position 2 is located in the same way, that is, by placing a
dot each day in the proper position on the graph paper, above the lower base
line. But bear in mind that you must measure down from the upper base line to
locate the curve for position 3 and down from the lower base line for position 4.
A comparison of the dots on the Technical Position Barometer graph, Page 19,
with the figures in the Table on Page 12 will illustrate the idea fully.

Section 18M Page 15
The indicated number of rallies (curve 1) are plotted above the upper or
minor move-base (6-0) line, and the indicated number of reactions (curve 3)
below the same base line. In like manner, the indicated number of advances
(curve 2) are plotted above the lower or major swing base line, and the indicated
number of declines (curve 4) below the same base line. Thus we have a set of
four curves which graphically indicate the daily changes in the number of stocks
developing potentialities for minor and major moves as they are forecast by our
Position Sheet. From these curves we can see at a glance whether the total
number of stocks in positions for minor moves (Positions 1 and 3) or major
swings (Positions 2 and 4) is increasing or decreasing from day to day, and
thereby conclude that the market's position is becoming either stronger or
weaker. We should be influenced in our trading or investment commitments
accordingly. (Compare the indications of the Technical Position Barometer, Page
19, with the Trend Chart on Page 18; note how effectively it forewarns us of
impending minor and intermediate moves in the market.)
The record of your Position Sheet nay be expanded, if you wish, by adding
duplicate columns for each of the Positions 1, 2, 3 and 4, in which figures are
inserted to indicate the number of points you expect each stock to move. The
advantage of this procedure is that one can see at a glance which group and
which stocks afford the greatest number of points probable profit on either side
of the market, for either the minor or major swings.
A variation of this plan would be to indicate in red, or some other color,
the probable number of points that a stock is likely to move, substituting these
colored figures for the conventional check mark, or "x" which is used to
designate the direction only. This would eliminate the necessity of the additional
parallel columns.
As your Position Sheet analysis is adjusted from day to day, these figures
indicating the probable extent of the moves should be changed to show the
number of points remaining out of the original objective in each individual fore-

Section 18M Page 16
cast. That is, the figures should be reduced (or increased if necessary) to show
how many points advance or decline remain to be accomplished. Thus, your
Position Sheet will constitute a continually readjusted record of the latest
probabilities.
The easiest way to keep the Position Sheet in the least time is to have it
before you when you make your daily entries on your charts. After noting the
changes on the charts of each stock, consider for a moment whether that stock is
in Position 1, 2, 3 or 4, and note it on the Position Sheet. If its position is neutral
you, of course, make no entry at all on the Position Sheet. Thus, when you have
finished entering the day's changes your Position Sheet is up to date. You then
study the effect of these changes according to groups, noting whether any of the
stocks you are in, long or short, are developing a stronger or weaker position.
You note also whether any of the other stocks promise possibilities for timely
long or short commitments.
Next note the total number of positions in each of the four vertical columns of the sheet and record these totals in the Summary. Then plot these totals
on your Technical Position Barometer (as previously explained). It will require
but a few moments to decide whether the trend shows a tendency to alter. If you
are not keeping the Barometer, compare the grand totals in your Position Sheet
Summary with those of the previous day and note the changes. You will readily
see, by these means, whether the day's alteration has had any effect on the
tendency of the whole market whether it is more bullish or bearish; or if it is
working into a doubtful position, which would mean that you should be neutral on
the market, and out of all stocks.

Section 18M Page 17

Section 18M Page 18

Section 18M Page 19

Section 18M Page 20
HOW TO DETERMINE THE TECHNICAL POSITION

OF AN INDIVIDUAL STOCK
The Position Sheet described in Section 18M requires the determination of

the technical position of as few, or as many, stocks as we wish to include therein.
In Section 18M, Pages 4 and 5, we explain the five different positions in which a
stock may stand; or it may be a combination of these positions. The following
examples will show how to determine in which (one or more) of the five positions
any stock, or an average, stands at any time. In order to study these it is advisable to remove the charts from the binder.
In deciding these positions we must bear in mind the principles brought
out in Section 14M and Section 16M, Pgs. 1 to 4, so it would be well for you to
review these sections carefully before proceeding further.
As you will appreciate from this review, the turning points of the minor
moves can best be judged from vertical charts. The figure chart, being less sensitive, is apt to develop indications of ah impending minor move sluggishly, or too
late for you to anticipate the actual turning point; or, a substantial part of these
minor moves may tie over before you can arrive at your decision. Therefore, you
should determine Positions 1 and 3 by means of your vertical charts (or the
equivalent Sect. 4M, Pgs. 22 & 23).
Preliminary decisions may be made with respect to Positions 2 and 4 from
your figure charts alone. As you acquire experience, you will find that you are
able to judge these positions more and more accurately from the figure charts.
But even then it is advisable to check your conclusions with the aid of vertical
charts (or their equivalent).
On the Bull Side: In order to get into Position 1 a stock (or an average)
must give indications of ability to develop a minor move upward. This may be:
(l) in the nature of a rally from a low point; (2) at a level where the indicated

Section 19M Page 1
minor move is the forerunner of a large advance; or (3) at a level in a trading

range where the stock, by its own action, indicates the probability of a small
move up through the previous tops of the range.
In order to get into Position 2 a stock (or an average) must give indications of preparation for a large advance. This may be: (l) at the bottom of a
downward movement whore it gives evidence of being under accumulation; or (2)
in a period of rest following a previous advance whore it gives evidence of
absorption (reaccumulation) in preparation for a further advance. A stock may
also be placed in Position 2 when, by its own action, it shows ability to advance
persistently recording a series of higher tops and bottoms on successive minor
moves even though there has been no apparent evidence of previous
preparation for the advance (Sect. 21M, Pg. 3, Par. 4).
On the Bear Side: In order to get into Position, 3 a stock (or an average)
must give indications of a probable small move downward. This may be: (l) in the
nature of a reaction from a high point; (2) at a level where the indicated minor
move is the forerunner of a large decline; or (3) at a level in u trading range
where, by its own action, the stock has shown inability to rally and thus indicates
the probability of a small move down through the previous supporting level.
In order to get into Position 4 a stock (or an average) must give indications of preparation for a large decline. This may be: (1) at the top of an advance where it gives evidence of being under distribution; or (2) in a period of
rest after a previous decline where it gives evidence of meeting new supply (redistribution) in preparation for a further decline. Or, it may logically be placed in
Position 4 when, by its own action, it gives indications of ability to decline
persistently recording a series of lowering bottoms and tops on successive
minor moves even though there has been no clear cut evidence of previous
distribution (preparation) for the decline.
In brief, we assign a number 1 or 3 position to a stock whenever our judg-

Section 19M Page 2
ment of its behavior leads us to anticipate a small move up or down provided

the extent of the indicated movement meets the requirements of the definitions
given on Pages 4 and 5, Section 18M. Likewise, we assign a 2 or a 4 position
whenever our analysis of a stock's behavior leads us to anticipate a large move
up or down provided the extent of the indicated movement fulfills the requirements of the definitions given on Page 5, Section 18M.
It is important to note that Position 1 may build up into Position 2 and
Position 3 may build up into Position 4; but the reverse is not true. It may become necessary: (1) to cancel an established 2 or 4 position, or (2) to (change
these positions to Neutral, or (3) to transfer a stock from Position 2 to Position
4, and vice versa. But these positions should not be reduced to 1 or 3. For
instance, suppose you have placed a stock in Position 4 in the expectation that it
will decline 23 points. If it subsequently declines 18 points, do not reduce the
originally established 4 Position to Position 3 simply because the stock may have
only 5 more points to go. Leave it in Position 4 until you have reason to believe
that it cannot fulfill the original indication; or until its action becomes doubtful
(when you should change it to Neutral). Or, if it accomplishes its objective,
continue to let the originally established position stand until the stock's action
otherwise warns you of an impending change of trend.
The advantage of this last mentioned procedure is that, should a stock
merely go into a resting spell after it has attained one objective and then show
that it intends to extend that original objective, your previously assigned 2 or 4
position will continue properly to reflect its possibilities.
A Neutral Portion develops, as already explained, when there is no definite indication of a move in either direction; or when we are in doubt as to
the ability of a stock to move decisively either way. This may be: (l) when it
gives tentative, but not wholly convincing, indications of having exhausted its
rally (Position 1) or reaction (Position 3) possibilities, that is, when it

Section 19M Page 3
leaves us temporarily in doubt as to whether it may rally or react further, or

reverse; (2) at a point in an advance (Position 2) or a decline (Position 4) where
the price begins to hesitate or otherwise gives tentative, but not wholly
convincing, indications of a possible change of trend; (3) when its price movement and volume indications are so contradictory or inconclusive as to leave us
in doubt; and (4) when extreme dullness prevails in a narrow trading range, or
the price is swinging up and down in a trading zone without giving indications of
developing any well defined trend.
Contrary to what most people believe, a neutral position is important. It
has advantages as fully as any other position because it is just as vital for you to
know what stocks to avoid as it is to know which to buy or sell: to know when to
stay out as well as when to go in.
It is a mistake to suppose that you must be in the market (long or short)
all of the time. It is also wrong to believe that you must always be able to arrive
at a bullish or a bearish conclusion and that you have no choice except between
these two positions. (See Sect. 25M, Pg. 7, Par. 2.)
To take a position when you are in doubt, or when the indications are not
clear, is to invite almost certain loss. It is true that there may be times when a
neutral position may lose you an opportunity, but there are plenty of other opportunities coming along daily, weekly or monthly. Have patience to watch
and wait for these. Learn to bide your time so that, when you do make a
commitment, you can do so with your stop order placed where the risk will be in
proper proportion to the indicated probable profit. Should you miss a logical
buying or selling opportunity, stay neutral until you get another chance to
establish a logical position. In other words, do not run after a stock if it should
got away from you merely because you fear it will never again give you a chance
to get in. Let somebody else take the risk of playing with that stock while you
wait for the next opportune moment to get into it or search for another
opportunity.
Most people take positions merely because they think they are missing opCopyright 1931 by Richard D. Wyckoff
Section 19M Page 4
portunities; because they fear the market may get away from them; or because
they feel that a neutral position is a reflection upon their judgment. Those who
operate in that way are running unknown and unnecessary risks.
There are situations which make it impossible for anybody to see the outcome with certainty (though you probably can find plenty of people who are willing to guess it for you at your expense). A neutral position is always best in
such periods of doubt and uncertainty. Do not fear to be out of the market
entirely at such times. Such periods are frequent. The big interests do not attempt to force the issue when conditions will not favor their plans so why
should you? They frequently let the market rest to see what it will do when left
to itself.
Nothing clears the mind like a shift to a neutral position after the completion of a campaign. (Sect. 25M, Pg. 4, Par. 3.)
Do not permit prejudice in politics nor prejudice due to personal commitments to bias your judgment. Never, under any circumstance, take a position in
the market merely because you feel that you must make some money now, right
away, because you need a new car or a new suit of clothes. If that is your only
reason, you are likely to find yourself without a spare tire or a shirt.
Purchases and sales should be made only when they are indicated by technical
considerations. Let the market be your boss. Obey its dictates. It will not be
swayed by what you and I may want by what we hope or fear.
Let us now endeavor to apply the above to our purpose, as expressed in
the first paragraph of this Section:
Turning to the charts on Pages 8 to 10, Sect. 9M and reviewing the text in
connection therewith, Section 10M, Page 1, Pars. 2 and 3, we see that this stock
is in a neutral position during the first two weeks of the movement recorded on
the vertical chart (duplicated on the figure chart by the first two columns of
figures at the left of the page). It is neutral because, as yet, we have had no
clear indications of a move in either direction; so far as we can tell from the

Section 19M Page 5
limited background on our charts, th stock seems to be in a small trading range

between 30 and 34.
However, when it rises to 35 1/2 (at C on vertical chart) we have some
basis for formulating a conclusion. Thus, we note that the price has now been rising steadily four successive days and on the last of these days there is a marked
increase in volume which suggests a buying climax. The following session seems
to confirm this, for, after making a fractionally higher top of 35 5/8 the price
reacts, wiping out all of the previous day's gain and the closing is near the low.
We therefore conclude the stock is due for a reaction. Accordingly, we may reflect
this expectation by placing the stock tentatively in Position 3. We put it in that
position tentatively, but not 'positively because we still have insufficient evidence
to judge how much it might react. A normal reaction would be to about 32
(halfway back to 30). The one point figure chart (at C-D) shows a line of two 34s
which confirms this, but to get into a definite 3 Position we should have grounds
for expecting a setback of at least ,5, and preferably 4, points since the latter
would fulfill our requirements of an approximate 10% shrinkage in price. (Sect.
18M, Pg. 5, Par. 2.)
After completing the more or less expected normal reaction to 32, the
stock shows it is still in a weak technical position. That is, instead of rallying
easily, the price goes into a narrow range with volume shrinking as it tries to
rally. It has now worked into an apex or dead center (at F), as explained in
paragraph 5, page 1 (Sect. 10M) which you should read over again at this point.
Obviously our tentative Position 3 has now become definite for the reasons given
just above and in the previous text. Moreover, our figure chart now shows a line
of three 33s, forecasting a dip back to 30.
At G we prepare to cancel our 3 Position, but without actually doing so.
Reasons for being ready to cancel it: (l) The last phase of the drop from D is
precipitous, creating the possibility of an oversold position as the price strikes a
previous supporting level; (2) volume has increased rather sharply on the drop

Section 19M Page 6
to 29 5/9 thereby suggesting the possibility of a minor selling climax; and (3)
next day, although the price makes a hew low (at H) and the closing is on the
bottom, the downward thrust has shortened with volume still comparatively
heavy, indicating that on this and the previous day somebody is holding the bag
for the sailors a large demand is overcoming large supply the buying is of
better quality than the selling; (4) the reaction has fulfilled the figure chart objective.
If the above reasoning is incorrect, that is, if it should later turn out that
the increasing volume to G should have been interpreted to mean that liquidation
is breaking out, we probably will be warned of this by the stock's inability to
rally convincingly from the critical supporting level around 30. We are not likely
to be long in doubt. Should it rally poorly, as it did previously at F, or should the
price continue to decline on increasing volume, we must let our 3 Position stand.
But if it quiets down and tends to hold, we must conclude that this means the
break to a new low is failing to follow through.
Volume is low over the next two sessions and the price moves laterally in
a narrow range. This looks as if the selling pressure were lifting volume is
diminishing at the bottom of the reaction. At first glance it might seem that the
action at G is the same as at E. But the important difference is that the situation
around G is much more critical since the stock is now at the bottom of a trading
range where it has twice previously been supported, so if the support comes in
here again we would have presumptive evidence of possible accumulation.
Moreover, it may now be considerably oversold and hence in a position dangerous
to shorts. The more expert of these shorts will be disposed to cover quickly if
they find that no further offerings are coming into the market. Note also that the
three days' sidewise movement (or lack of further progress on the downside
right of G) has put the stock in a position to penetrate the minor trend supply
running from the high point at D through F. If it should begin to rally it will
break the angle of this downward movement from 35 5/8.

Section 19M Page 7
With the indications thus finely balanced between bullish and bearish possibilities, we decide to cancel our 3 Position and change it to Neutral, while we
wait for further and more definite indications.
Our one point figure chart now shows a line of five 30s, (A to G) but we
are not justified in accepting this as a basis for a recovery to 35 because, as our
vertical chart analysis shows, too much still depends on what the stock will do
next. If the demand around 30 is of better quality than the selling, chances are
the stock will first stage a part-way (50%) recovery of the loss from D to H. This
is not enough to put it in Position 1. Furthermore, we can judge better what its
possibilities are by the way it rallies and by what it does if and when it reacts
after such a normal technical recovery.
Next day it confirms our first suspicions (see Par. 3, Page 6) by rising
through our minor trend supply line D-F. Volume is almost as large in the twohour (Saturday) session as on the two preceding days. Relatively, therefore,
volume has increased on the rally a bullish sign. (*) We expect the rally to
continue. It does next day, but a volume surge warns us to be on the lookout for
another change, especially since (at I) the stock is close to completing the
anticipated part-way recovery. It may rally further or react at once. We shall
have to watch this next reaction carefully because the price is still close to the
critical 30 level and, unless it continues to meet support, we shall have to restore
the 3 Position. *
* While it is not well arbitrarily to double all Saturday volumes, situations

of this sort frequently arise where mentally doubling the actual volume of a twohour session will indicate the relative change of Saturday volume more clearly
and afford a more significant basis of comparison with the full five-hour sessions.
A good way to do this is plot Saturday volumes on your vertical charts as
they actually occur. Then place a small letter "s" above the vertical bar. Locate
the "s" so that the top of the letter will come to the level where the vertical line
would end if you doubled it. Or, you may prefer to use only the vertical bar to
indicate Saturday volume, making the lower half solid to show the actual volume
for that day, and the upper half dotted to show what it would be if doubled in all
cases.
The first mentioned procedure has been followed in constructing all of the
vertical charts in this volume. (Footnote continued on next page.)
Section 19M Page 8
A quick reaction from I, cancelling all of two days' previous rise, before
the stock can recover fully 50% of the loss from D to H, puts us on the anxious
seat if we have been inclined to become bullish. Volume is less, but not decisively
smaller and the low closing leaves the price hanging perilously hear the former
lows. We are still Neutral but on the alert to swing with it whichever way it goes
next.
Two more session pass and we now (at J) decide to become bullish and
place the stock in Position 1. Our reasons: If it were the intention of the operator
in this stock to drive it lower, instead of supporting it, he most probably would
have followed up the advantage of the less than normal rally (to I) at once, utilizing this weak rally indication to frighten holders so they would be driven to
liquidate on a drive through the previous low points G-H. Instead of following
through on the down side (at J), the price comes to rest at a higher level; and on
fairly constant volume it begins to move sidewise, with the low points (around J)
tending to edge upward. This looks like good buying rather than good selling.
Between G and J the stock has been nine days moving laterally around the
bottom of the range 30-55. Thus it has laid a base which should support a more
aggressive rally than the previous one (to I). On the one point chart, this
The advantage of the above methods, as compared with arbitrarily
doubling all Saturday volumes, may be seen by considering the two examples at F
and at 0 on the vertical chart, Sect. 9M,; Pg. 9. By first considering the actual
Saturday volume at F, our attention is immediately brought to the fact that the
stock has worked out to a dead center or pivot, on impression that might be lost
if the volume were arbitrarily doubled. Second, if we consider the volume as is,
we see that it was very light on a rally. And third, on the other hand, if we
consider the volume as being doubled, our reaction is still bearish because, on the
basis of the doubled volume, we see that the price has recorded practically no
gain on volume that is relatively high compared with the several preceding
sessions. In other words, the price on this day has risen only an eighth of a point
above that of the previous day and the range has narrowed as it tries to rally,
denoting a shortening of an upthrust on relatively large volume.
Again, between 0 & P, note how by first considering the actual volume we
get a clear impression of the true significance of the volume indication, which
would be lost if the Saturday volume had been doubled arbitrarily. Thus, the
actual volume shows a continuing and sharp shrinkage on a reaction, showing
that there is little stock for sale on the setback (no pressure). These impressions
and the appearance of another dead center, might be destroyed if the volume had
been doubled as a matter of iron clad rule.
Section 19M Page 9
amounts to a count of three 30s at J; and, if we take in the full width of the
supporting level across 30 (A to J) we find it stretches out to a; total of 7 which
would qualify for a Position 2. (Sect. 18M, Pg. 5, Par. 1.)
However, we do not put the stock definitely in Position 2, yet, because, as
our studies so far have indicated (reread Sect. 10M, Par. 2, Pg. 2 down through
Par. 3, Pg. 3) we are not convinced that the campaign of accumulation has been
completed. Until there are additional indications of preparation and until we have
reason to believe that tie period of preparation is nearing completion, we do not
wish to become too enthusiastically bullish. We must recognize that there may be
a number of tracing swings before the psychological time comes to buy, and we
cannot be certain at this early stage of the campaign that a worth while advance
may get under way. Should the stock immediately fulfill the limited 7 point
objective we now have on the figure chart, that might be the end of the move and
we should prefer a more substantial opportunity. Under these conditions Position
1 sufficiently reflects its possibilities.
On the day following J, the price rallies easily (indicated by the wider
spread between high and low) on comparatively light volume, indicating .that the
previous accumulation has created a scarcity of offerings. This rise takes the
price out of the downward angle represented by our readjusted supply line D-I. It
shows more strength by following through on the up side next day, with no
hesitation around the previous (I) rally top.
But at K we cancel Position 1 and put it in Neutral again. It gets into
Position 3 here because: (1) the rise from J to K has been abrupt, creating ah
overbought condition; (2) the price is running into a resistance area the
former top between 34-35 at C-D; (3) the upthrust to 33 7/8 (K) cannot be
sustained as indicated by an immediate reversal of this day's bulge note the
low closing; (4) volume is climactic on what appears to be the top of the rally;
and (5) the stock has accomplished its Immediate (G-J) figure chart objective.
We have no indication as to how far it will react, except to estimate that

Section 19M Page 10
it may go halfway back to 30. However, as we suspect the stock is under accumulation, we surmise the operator is more likely to let it go all the way back to 30
or thereabouts that he probably will prefer to let it appear dull and weak for a
while in order to shake off any outside following attracted by the run up to K. On
this basis, we may, if we wish, put the stock in Position 3 instead of merely
Neutral.
At L it goes into Neutral Position again, having fulfilled our surmise of a
reaction back to 30. It stays in this position until it reaches M where a two
weeks dull sagging movement exhausts itself in a quick dip to the supporting
level without bringing out any quantity of offerings, (as explained in Sect. 10M,
Pg. 4, Line 7). You accordingly put the stock in Position 1 here on the strength of
these bullish indications, reasoning that it is now ready to go up without further
material reactions. You also put it definitely in Position 2 at this point.
The base on the one point figure chart has stretched out to a count of
eleven on the line of 30s, including four blanks. The rally at N, next day, increases this to twelve 30s, including five blanks and the three point chart
promises a rise of 21 points. With the stock in Positions 1 and 2 and on the
springboard, ready to go, you, of course, buy as already explained in Sect. 10M,
Pg. 3, Par. 1 and Pg. 4.
With the above detailed explanation as a foundation, you should have no
difficulty in identifying subsequent changes of position. We will indicate these for
you as they appear from here on with the recommendation that you determine
the reasons for them yourself in order to get the necessary practice and thus
firmly implant the principles above developed in your mind. Before doing this,
review the preceding discussion carefully. At the same time, mark the various
positions directly on the chart as you reread the text. Then mark the rest of the
chart in the same way as you follow the further movements of this typical
campaign from N onward.

Section 19M Page 11
At
At
At
At
At
At
At
At
At
At
O, minor trend Neutral, intermediate trend Position 2

P,
"
"
"
"
"
Q,
"
Position 1,
"
"
"
R,
"
Neutral,
"
"
"
S,
"
Position 1,
"
"
"
T,
"
Neutral,
"
"
"
U,
"
Position 1,
"
"
"
W,
"
Neutral,
"
"
"
X,
"
Position 1,
"
"
"
Y,
"
Position 3,
"
"
" (unchanged)
The stock gets into Position 3 at Y because of: (l) The excessively large
volume appearing after a steep rise which (2) has brought the price up to the
indicated 3 point figure chart objective and (3) the quick reversal on heavy
volume, plus inability to make further progress in proportion with this heavy
volume. Position 2 is allowed to stand for the time being as we cannot tell yet
whether the operator will elect to complete his campaign by distributing the balance of his stock on the way down from 5O 3/4; whether he may support it on a
corrective reaction and then finish distributing on rallies back to or around the
50-51 level; or whether he or some other interests may reaccumulate for a
new advance.
Also, our figure charts do not, as yet, show any evidence of a top forming
which leads us to conclude that the 2 Position should be allowed to stand, pending
further indications.
Volume continues very heavy as the stock starts downward from Y. At
first this looks like a case of distributing on the way down from the high point, in
which event it is possible the stock might drop some distance without first
developing a congestion area (or horizontal formation) around the high point on
the figure chart. Therefore, on the basis of what the vertical chart indicates
we either cancel Position 2 and call it Neutral but net Position 4; or, if we
prefer, we may leave it in Position 2 but with a question mark behind this entry
on our Position Sheet (thus:- x?) to show the doubt in our mind. Having

Section 19M Page 12
taken profits on our long stock (see Sect. 10M, Pg. 6, Par. 4), we are quite willing to stand aside while we wait to see how it behaves on a further reaction. Our
Position 3, meanwhile, will take care of the possibilities of a further setback.
As the reaction continues to 45 5/8 (at Z) and volume dries up there,
showing the reaction is over, we look for a rally back toward the previous high
so: At Z, the minor trend indicates Position 1 and Position 2 still stands.
At AA, the minor trend indicates Position 3 and Position 2 is changed
definitely to Position 4.
At BB, it goes back into Position 1 and Position 4 is cancelled, becoming
Neutral.
The support coming in at Z and again at BB suggests that the trading
range 46-50 may turn out to be an area of absorption for a new advance of 12
points, see figure chart and review Sect. 10M, Last Par., Pg. 7 through Par. 3,
Pg. 8. If you will now turn the vertical charts upside down and hold them against
the light so you can see the picture in reverse, you will appreciate the reason for
this more readily. Looking at the charts in reverse like this gives the clear
impression that the minor moves to Z and BB merely mark-a resting spell
preceding a further important swing in the direction of DD. You will find this
plan of looking at your charts in reverse, so that a down move takes on the
appearance of an upswing, and vice versa, frequently is very helpful in judging
turning points. It enables you to see both sides of the, market without the
prejudice which leads some operators to develop either a "bull complex" or a
"bear complex" from always looking at things through the; same eyes.
At BB, the tendency of the bottoms of the daily price movement to round
upward indicates that the market for this stock is now sold out. Hence the
light volume means light demand is putting the price up, a condition that frequently is characteristic of such situations, where the short interest suddenly
wakes up to the fact that it has sold itself "into the bag." These shorts first

Section 19M Page 13
try quietly to cover without bidding the price up against themselves. But this
cautious bidding finds offerings scarce and the price inclined to "sneak" up.
Result: The shorts become apprehensive. Other traders, sensing the sold out
condition, begin to buy quietly also, thereby increasing the anxiety of the shorts
until the stock's manager takes advantage of their dilemma to run the price up.
Thereupon, a scramble to cover ensues; demand become brisk end volume
increases but not until the rise is partly underway. Hence:
At
At
At
At
At
At
At
At
CC, we place our hypothetical stock in Position 1 and Position 2.

DD, the indications are that it is in
"
5 "
" 2.
the numeral 7 "
"
" "" "
"
1 "
" 2.
FF,
"
"
" "" "
"
3 "
" 5.
KK,
"
"
" "" "
"
1 "
" 5.
LL,
"
"
" "" "
"
3 "
" 5.
MM,
"
"
" "" "
"
5 "
" 5.
NM,
"
"
" "" "
"
3 "
" 5.
With the above illustrations before you, you should next practice assigning positions to the balance of the chart and to the situations discussed in
Sections 7M, 16M and 17M. By reading the text of these sections over again, you
can decide what positions are developing. Mark these on the charts as you go
along. This will help to fix the idea of determining positions still more firmly in
your mind. If you have any difficulty, consult us and we shall be glad to help
you.

Section 19M Page 14
BUYING AND SELLING TESTS

Coordinating Your Studies
In reading over the preceding Sections, it may seem to you that the
analysis of the market's action and the behavior of individual stocks is quite
complex, requiring a large expenditure of time and effort. This is a perfectly
natural reaction and one that is common to all students taking up a new subject.
Therefore, we caution you against any inclination to grow faint-hearted and to
wish for short cuts. Only perseverance can bring understanding and ultimate
success.
Instruction must necessarily go into detail in order to properly equip
students. Even so simple a subject as arithmetic seems difficult to the novice
after early enthusiasm wears off and he strikes the more complex phases of the
science. But by constant study, practice and everlasting stick-to-it-iveness, he
presently discovers that it all boils down to a matter of routine reasoning. The
detailed steps of his early training become simple, sub-conscious, more or less
automatic, mental procedure. Thus, he finds that it is no longer necessary to
work out every little step in a problem nor to labor painfully from A to Z.
Constant repetition so fixes the various principles in mind that he is able to
function instinctively. And so he skips easily over intervening stops, from the
outline of the problem to its solution, without undue effort.
In a word, from constantly applying the same basic principles and from
practice in coordinating them, the novice becomes a proficient mathematician.
The same is true in the stock market.
We now illustrate this by setting forth a condensed summary of the principal steps we have taken heretofore in interpreting our chart records. This
Section 20M Page 1
summary also shows how to coordinate your reasoning processes. It will be explained by applying it to a specific case.
BUYING AND SELLING TESTS
These buying and selling tests outline in a general way the successive
steps to be taken when determining the most advantageous buying and selling
points with respect to the market as a whole and with respect to individual stocks
or groups of stocks.
BUYING TESTS
Indication
Determined From
1. Objective Accomplished on Down Side

2. Activity Bullish volume increasing
normally on rallies and decreasing on
reactions
3. Preliminary Support
4. Stronger Than Market responsive to
rallies and resistant to reactions
5. Downward Stride Broken, i.e., supply lines
penetrated
6. Higher Supports
7. Higher Tops
8. Base Forming
9. Estimated Probable Profit Exceeds Indicated
Risk
Figure Chart
Vertical Chart
Vertical and Figure Charts
Vertical Chart
Vertical or Figure Charts
Figure Chart
Figure Chart for probable
objective. Vertical Chart for
placing stop.
SELLING TESTS
1. Objective Accomplished on Up Side
Figure Chart
2. Activity Bearish volume increasing

normally on reactions and decreasing on
rallies
5. Preliminary Supply
4. Weaker Than Market responsive to
reactions and sluggish on rallies
5. Upward Stride Broken, i.e., support lines
violated
6. Lower Tops
7. Lower Supports
8. Crown Forming (lateral movement)
9. Estimated Probable Profits Exceed Indicated
Risk
Vertical Chart
Vertical and Figure Charts

Vertical Chart
Vertical, or Figure Charts
Figure Chart
Figure Chart for probable
objective. Vertical Chart for
placing stop.
Section 20M Page 2
The above buying tests would ordinarily be applied to an average or to a

stock after a decline and the selling tests after an advance.
Before making any commitment, always make sure that the estimated
probable profit as determined by the figure chart objective, is at least three times
the risk involved in employing a properly placed stop. The vertical chart must be
used to determine the logical points at which to place stop orders.
The charts of Atchison, pages 6 and 7, afford a typical illustration of: (1)
The application of these buying and selling tests, (2) How to coordinate figure
chart studies with the vital information given by vertical charts, and (3) The
application of the principles explained in previous sections.
The charts are keyed to correspond with the comments below wherein the
various indications, given by Atchison in its recovery from the oversold position
of 1932, are briefly listed:
1. The speed and severity of the decline from $1 1/2, June 16th, to
17 7/8, June 28th, occurring without intervening corrective rallies,
creates an oversold condition (Sect. 14M, Pg. 3, Par. 3).
2. The sudden or precipitous breaking of the previous supporting level
around 24-25 has the appearance of a shakeout (Sect. 21M, Pg. 2, Par.
3), later confirmed by a rapid recovery as revealed by the 3 point
figure chart.
3. An abnormal expansion of volume, appearing June 28th, after the
sharp extension of the downward movement (Sect. 7M, Pg. 3,
Footnote) indicates the climax of the movement and the development of
Preliminary Support Buying Test No. 3.
4. On the one point figure chart, the stock at 18 has fulfilled the objective
indicated by supply across the line of 29s Buying Test No. 1.
Under these conditions, 1, 2, 3 and 4 above, the stock should be placed
tentatively in Position 1 on your Position Sheet (Sect. 19M, Pg. 1, Par.
5) and if you have acquired sufficient proficiency to recognize these
preliminary symptoms of a turning point, you may now venture a
purchase somewhere around the low point, say at 19 with a stop under
the danger point, say at 16 5/8. (Sect. 23M, Pg. 14, Par. 2.)
5. A quick rally to 20 3/8 on comparatively light volume implies a
scarcity of offerings and confirms previous indications of a change
from weakness to strength by breaking the downward stride from B to
C Buying Test No. 5. (Sect. 15M, Pg. 3, Par. l.)
Section 20M Page 3
The stock is also showing a tendency to rally easily in relation to the

performance of the general market. Note the lifting of the low points
from June 29th to July 1st while the Times Average is still responding
sluggishly to the lifting of pressure Buying Test No. 4. (Sect. 8M, Pg.
10, Par. 1.)
6. Evidence of preliminary support now becomes more clearly defined on
the 1 point figure chart, so when the price reacts to) 18 5/8 on very
light volume we either buy another lot with a stop as before, or, if we
missed our first chance, we buy now. Also, we put the stock definitely
in Position 1 on our Position Sheet.
7. Another fast rally on increasing, but still comparatively light, volume
adds to the accumulating evidence of increasing strength Buying
Test No. 2: The stock is now more clearly stronger than the market
which is still making new. lows. (Sect. 8M, Pg. 9, Last Line.)
8. The rally from 17 7/8 is checked by continuing weakness in the
general market; it is chocked also as the stock touches the down trend
supply line A-B. If it now reacts toward the supports around 18-18 l/2
on diminishing volume we will have another buying opportunity, with a
stop placed as before, around 16 5/8. We cancel our Position 1 to
reflect our anticipation of a probable setback.
9. Volume promptly tapers off on the reaction and the price holds at
higher supports. The stock again is relatively and quite noticeably
stronger than the market. Support on the line of 19 has stretched out
to a count of five and on the line of 20s to six. The stock is again in
Position 1.
On July 9th the stock develops a perfect apex (note how the price
movement and volume have narrowed into extreme dullness). A rally
out of this hinge position will easily penetrate the supply line A-B
(Buying Test 5) and put the stock on the springboard at 21 for still
another buying opportunity if we have preferred to wait for all our
indications to be fulfilled.
10. Here the price bobs up on comparatively light volume bullish;
penetrates the supply line A-B; responds promptly to an upturn in the
market; adds one more point to the indicated immediate objective on
the figure chart; and fulfills Buying Tests 6 & 7 by recording higher
tops and higher bottoms, volume relationships meanwhile remain
bullish. Also, the stock is now in Position 2 (Sept. 19M, Pg. 2, Par. 1)
thus fulfilling Buying Tests 8 and 9.
Thus we have ten distinct buying signals around the low point. By comparing this study with previous ones, and applying what you have learned to
these charts of Atchison, you will find numerous other significant symptoms in
the action of the stock here and on the way up from the low point. (For instance,
note how the stock rallies promptly on July 14th after completing a normal corCopyright 1937 by Wyckoff Associates, Inc.
Section 20M Page 4
rection of the two days' rise from the July 9th support. See also how volume
builds up consistently as the price advances out of the supporting area, July 9th
to 15th.
Continuing bullish indications develop as follows:1. Prompt shrinkage in volume on a brief and less than normal recession
from the resistance level around 25, July 18th and 19th; and similar
behavior all the way up to Aug. 6th, which is as far as the vertical
chart goes.
2. By the time the stock recovers to 25, July 21st, it is apparent, from
reference to the 3 point chart, that the last phase of the drop, June
24th to 28th, was a terminal shake-out. (Section 21M, Pg. 2, Par. 5.)
Hence, taking the line of 24-25 as representing the probable extent of
accumulation we have, on the 3 point chart, indicated longer range
objectives of 48-49; then higher up across the 28 to 30levels,
possibilities of 60 to 64.
3. On the 1 point chart, meanwhile, we have indicated local objectives (or
possible points at which the stock might be expected to encounter
resistance to its advance) first at 28 on the basis of ten 22s added to
18; then thirteen 24s, indicating 37 as the next critical point to watch
on the upside; and next twenty-nine 24s, including all the loose ends
and blanks, indicating 54. Later, in the absorption area 45-49, new
support across the line of 45 indicates an objective of 58, etc.
With the preceding comments as a foundation you should have little difficulty in applying the Buying and Selling Tests outlined on Page 2 to other situations as you encounter them from time to time in actual practice.
Section 20M Page 5
Section 20M Page 6
Section 20M Page 7
REFINEMENTS
In this section we discuss briefly certain stock market phenomena which

you are likely to encounter at various times.
The first of these is the shake-out to which reference frequently is made
in preceding pages. There are two types of this phenomenon: (1) What might be
termed an ordinary shake-out and (2) the terminal shake-out.
A good example of a terminal shake-out appears on the chart of Anaconda
Copper, Section 16M, Page 33, Feb. 26th to March 13, 1935. The text accompanying that chart (Pgs. 18 to 21) explains how to recognize this action as a terminal shake-out. Another typical illustration is given in the case of Atchison,
Section 20M, Page 3, Item 2 and Page 5, Item 2. A third example is given by the
accompanying figure chart of Allied Chemical (Page 6) which likewise shows:
Accumulation with a Terminal Shake-out. Accumulation in this stock
evidently began around 55 in April, 1932 and continued on a scale down until the
latter part of June when there was a sharp downward drive from 55 to 43.
There were four support levels through May and June from 50 to 47. Then,
support was raised to higher levels 48 being the prevailing figure until the
final shake-out which occurred after the rally to 55.
That this was a shake-out was indicated by the fact that the stock, in
rising to 55 had broken through the angular formation which was characteristic
of it during the decline from the March, 1932 top at 87 (not shown on chart),
About the middle of May the stock began to edge up through the upper boundary
of the liquidating formation that prevailed theretofore and for several weeks
after that the formation was practically, horizontal in the range 47-55. Preparation for a bull movement was completed by the terminal shake-out from 55 to
43. The bag holding for necessitous and panicky selling continued into July. This

Section 21M Page 1
exhausted the available supply of stock with the result that the price thereafter
edged steadily upward.
Thus, the selling climax which ended at 43 was followed by relative dullness; by raising of the supporting points and drying up of volume on minor reactions. The last low point of 44 was due to the stock selling ex-dividend. Very
shortly after that it got on the springboard at 47, then bulged to 49 and had a
three point reaction which gave a splendid buying opportunity with a close stop.
The springboard position was confirmed by ability of the stock to rise to 50 and
above on increasing volume. Thereafter there was no doubt as to its prevailing
trend and by July, 1933, it made good the best objective forecast by accumulation
across the 55 level on the 1 and the 3 point charts by rising to 135.
From the above and preceding examples we may formulate the following
general definition:
A Terminal Shake-out is a rapid or precipitous downward movement,
occurring at or near the end of a period of preparation for an advance. In the
case of deliberate manipulation, the purpose of the terminal shake-out is to scare
holders of stock into selling out; to catch stops which may have been placed on
long positions below the previous line of supports in the accumulation zone, in
other words, mop up as much cheap stock as possible; and to encourage short
selling around the bottom on the part of the public. After the bag has thus been
held for the weak holders and amateur shorts, the strings are pulled to lock in
these shorts and to shut out the sold out bulls. This may be done either by a
gradual or by a rapid recovery in the price.
It makes no practical difference whether a shake-out is due to manipulation or panicky selling on the part of distressed longs. In either case, the selling
that forces the sharp downward acceleration of the price movement is due to
supply of poor quality. And the ensuing recovery is caused by the superior
quality of the demand which is taking advantage of frightened sellers.

Section 21M Page 2
An ordinary shake-out has substantially the same characteristics as the

terminal shake-out. The principal difference is that the word "terminal" is used
to distinguish a sharp downward thrust which occurs after extensive preparation
for a rise and the similar phenomenon which appears at other points in the price
movement as, for instance, an exaggerated selling climax (Sect. 7M, Pg. 53, Dec.
16th). A minor selling climax terminating a reaction, such as shown at "U" on
the chart, Sect. 9M, Pg. 9, likewise is in, the nature of a shake-out.
As the earmarks of shake-outs have been thoroughly explained in
previous studies, the above discussion will serve our purpose here, which is to
provide you definitions for future ready reference.
A thrust movement is the reverse of a shake-out. Thus, a sharp run up
out of an area of distribution; or a temporary bulge through the top of a trading
range, which fails to hold, is sometimes described as a thrust movement, upthrust or perhaps a terminal mark-up. For examples see the price movements recorded on the vertical charts, Sect. 7M, Pgs. 33 to 34, on these dates: Jan. 9th
June 27th & 29th and Sept. 23rd & 24th. Note how inability to hold these
various quick bulges or upthrusts, were indicative of weakness in each instance.
The next type of action we wish to call to your attention is the phenomenon of a sharp rally or advance out of an oversold position without the customary, or at least without immediately apparent, evidence of accumulation. A good
example of this is found in American Telephone & Telegraph (Pg. 7). The figure
chart alone will serve to illustrate our study, although the accompanying vertical
chart (Pg. 8) reveals numerous symptoms of the change from weakness to
strength which will be apparent to you from comparison with our previous
review of Atchison (Sect. 20M).
The particular feature of the figure chart action of this stock is that
unlike Allied Chemical, no long, compact horizontal trading range was formed before the recovery from the July lows got under way. Telephone's decline into

Section 21M Page 3
the 70s was one of the striking events of the 1929-1952 bear market. The last
phase of the liquidating movement had continued for many months prior to July
since the stock left 135.
Then, in the lower 70s a formation began which, on surface appearances,
indicated nothing more than a rally of 9 points from 71-73, or possibly 19 points
on the basis of the broader line of 75-76. But the valuable feature of these
indications (coming at a time when the averages and the majority of other stocks
were lining up for big advances) lay in the fact that even the 9 point advance to
80-82 would, if it occurred, take the stock out of that diagonal, liquidating
formation if it succeeded in touching 80 on the way up.
Therefore, it was not the width of this particular formation around 72-76
but the fact that the stock indicated a break through on the up side of that long
bear market trend line which was the significant feature. And with such a possibility in mind, one would be justified in reappraising the whole formation down
from 83, at the beginning of June and back up to 83 near the close of July, as a
probable zone of support, with accumulation beginning on a scale down from the
first 83 to the final low at 71. The stock made good the most conservative forecast of the 1 point chart, namely, 49 points (counted across the line of 83s), up
from 71 by advancing steadily to 121 in September, 1932.
The 5 point figure chart gave a count of four on the 73 line, indicating 8385; six on the 76 line, indicating 89-94 and twelve on the 83 line, indicating an
optimum objective of 119. Previous formations on the 3 point chart did not break
out of the bear market stride line, but a break through finally did occur when the
stock reached 83 on the way up from the July, 1932 low. Further confirmation
of the change in trend was given in the fact that for the first time in many weeks
the stock was able to rally vigorously on increased volume.
The chart of Safeway Stores (Pg. 10) illustrates the vital necessity of
studying volume behavior when attempting to judge the implications of figure

Section 21M Page 4
chart formations. Observe how an uninformed or calculating machine type of

"chart fiend" might easily mistake the long horizontal formation on the one point
figure chart (Pg. 9), in the range 37-42 during Jan.-Sept., 1955, as a "beautiful"
base for a tremendous rise. Yet any intelligent student who took the precaution
of making a real analysis of that formation by constructing a vertical chart,
would immediately be put on notice that the stock was not acting right. Its
behavior was not at all such as to confirm the mere figure chart presumption of
"important accumulation."
Proper analysis of the vertical chart, on the contrary, plainly marked the
figure chart formation (37-42) as an extended trading range wherein small
changes in the forces of supply and demand were neutralizing each other for a
considerable period (Sect. 15, Pg, 4; Par. 4) until, finally, supply gained the
upper hand and brought about an abrupt collapse. Note how the characteristically
sudden volume surges accompanying occasional rallies in this trading zone, plus
the lack of consistency in price movements clearly forewarned an alert observer
to forego long commitments in this stock, particularly as it remained persistently
unresponsive to strength in the rest of the market after nearly eight months'
supposed accumulation (that is, accumulation according to a purely superficial
reading of the figure chart).

Section 21M Page 5

Section 21M Page 6

Section 21M Page 7

Section 21M Page 8

Section 21M Page 9

Section 21M Page 10
THE WAVE CHART
The determination of the trend of the whole market is the starting point
of all our deductions and all our Commitments. As explained in Section 5M, this
trend is built up by the alternating small buying and selling waves which follow
each other in endless succession throughout each day's trading. These little
waves merge into medium sized waves and the latter, in turn, merge to make up
the large swings, that is, the movements of 10 to 20 or more points.
Therefore, it is obvious that the market's behavior on the small waves
must afford a very valuable indication of the future intermediate and major
trends. (Sect. 4M, Pg. 27.)
One who is a proficient tape reader has an advantage in being able to
watch the market all day long because such a person can study the interplay of
the forces of supply and demand as reflected in the market's action on every one
of these buying and selling waves. That is, he (or she) is able to judge what
measure of success is attending the efforts of the floor and professional trader to
advance or depress prices (see Sect. 5M, Pg. 1, Par. 3); judging also how
individual stocks and groups of stocks respond to these buying and selling
impulses. (Sect. 3M, Pg. 3, Pat. 3.)
The professional operators' success depends upon the extent to which
they may be able to attract a following on these small waves. Their attitude is
wholly impartial. It makes no difference to them whether the market moves up
or down. They swim with the tide and if they catch a strong current, they ride
along to its crest. You must learn to do the same. If they find the market responds sluggishly to demand, they will promptly sell and try to force prices
down in order to bring out sufficient offerings to enable them to cover at a
profit. Or, if the market resists pressure, they will follow the line of least
resistance and buy, depending upon the sheep-like tendency of untrained board-

Section 22M Page 1
room traders and the public to come in after the move has started and force
prices sufficiently higher to permit them to unload with a profit.
As a result of this ceaseless struggle between bulls and bears, the market
eventually reaches a position in its broader swings where these professional operators will uncover vital weaknesses or strength. When such a critical condition
is reached, the crisis is usually revealed by significant developments in a
comparatively short series (few days) of small buying and selling waves. Thus,
when a period of accumulation is about completed, a study of the small waves of
the market will usually disclose the growing scarcity of offerings which precedes
the active marking up stage. Or, when a period of distribution is about ended, a
study of the small buying and selling waves will usually reveal the imminence of
the active marking down phase.
The tape reader is able to detect these critical stages at their very beginning and thereby gains the advantage of (l) greatly increased accuracy of timing of purchases and sales and (2) consequent reduction of risk. Those of us who
have neither the time nor the inclination to study the tape five hours daily
require some method of attaining the tape reader's proficiency by equally effective but more convenient means. This we can do very easily by the use of the
Wave Chart. (Sect. 4M, Pg. 24, Pars. 1 and 2; Sect. 6M, Pg. 1, Par. 1.)
The Wave Chart has the following very important functions:
(1) It enables those who are not in a position to watch the market constantly throughout each stock exchange session to secure a condensed, easily
understandable record of significant changes in supply and demand. This record
can be studied at leisure, at whatever time is most convenient.
(2) It provides an instrument through which you may enlarge your
understanding of the market's behavior at important turning points; develop tape
reading ability if you wish; and acquire the skilled operator's intuition whereby
he frequently senses the turns without conscious reasoning.

Section 22M Page 2
(3) It gives certain vital information by means of which you may attain
proficiency in judging turning points in the minor swinger. This is a great aid in
determining the technical position (number 1 and number 3 positions Sect.
19M) of the Composite Averages; and in timing commitments to best advantage.
(4) It supplies essential information about the market's behavior by
means of which you can detect and forecast turning points in the intermediate
and major swings frequently warning you of coming changes two, three or
four days and sometimes a week before they become apparent in the popular
averages, such as the N. Y. Times 50, Herald Tribune 100, Dow-Jones, etc. This
is a material aid in determining the number 2 and number 4 positions (Sect.
19M, Pg. 2.) of the Composite Averages; and in strengthening your decisions as
to the best time to act when making commitments for the long moves.
(5) In short, it provides the means whereby you can substantially
increase the accuracy of your judgment and the timing of your purchases and
sales, enhance your understanding of the market's action at important turning
points and hence your ability to forecast coming changes of trend before they are
already well under way; and it affords an effective means of detecting the critical
points in the market's travel from one level to another.
Even if you plan to become an active, day-to-day trader, it is better at
first to learn to analyze the market's tape action from a Wave Chart rather than
from the tape itself. The chart teaches you how to become a sound judge of the
market, for by its use you become familiar with all the elements necessary in
successful trading: judging the lifting power as compared with the pressure; the
market's responsiveness or lack of responsiveness to the rotation of supply and
demand; the speed of the advances and declines as measured by the net price
change and the duration of the buying and selling waves; the character of the
buying and selling as revealed by proportional changes in activity and volume on
advances and declines; and more especially, the changes from strength to

Section 22M Page 3
weakness, from weakness to strength, and back again.

All of these factors are revealed by the Wave Chart. It is the pulse of the
market.
Practice with such a chart. Learn to judge the small daily movements and
then you will be able to apply the same reasoning to the 3 to 5 point swings; to
the 10, 20 and 50 point swings, and finally to the great swings that run over a
period of years. In time you will become proficient in all kinds of markets.
As the waves of the market cannot be studied from the action of any one
stock, and as it takes too long to compile and strike an average of a large group,
it is best to use the aggregate price of five leading stocks as a basis for study of
these buying and selling waves. There is an additional advantage in observing the
behavior of these leading issues because the market seldom goes contrary to the
trend of the leaders for a great while, though it may sometimes do so
temporarily: They are used by large interests to influence the market toward
higher or lower levels. In most cases such movements start with these stocks.
Practically no important move starts without these leading stocks being
immediately affected. (See "Comparing Strength and Weakness," Sect. 8M, Pg. 4,
Par. 4.)
The selection of these five leaders depends upon which stocks were the
most influential issues over the past several months. U. S. Steel is almost invariably one of these. Other good ones usually include stocks such as Allied
Chemical, American Can, American Telephone, Chrysler, duPont, New York
Central and Westinghouse Electric. But this group of five should be adjusted from
time to time to meet changing market conditions, the object being to select those
which are continuously active and which indicate real leadership. Changes in
this group can be made as often as desired, without affecting the barometric
value of the chart, by changing the scale, at the side of the chart. If a certain
group of five leaders totals 390 and a substitution brings a new one which

Section 22M Page 4
reduces the total price to 375, the whole scale can be shifted 15 points, and the
picture of recent fluctuations will then bear its proper relation to those that
follow.
How to Make a Wave Chart. Take a sheet of paper ruled in small squares,
or an ordinary sheet of cross-section paper ruled 10 squares to the inch. Consider
each vertical line a twenty minute interval in the time scale and each horizontal
line one point in the price scale, which should be at the right of the chart. (See
illustration, Figure 1, Page 6.)
At the opening of any day's session, figure the total price of the first
sales of the five leaders, that is, add the prices of all five. Mark this opening
price by a dot on the 10 o'clock line. Then watch these leaders until they have a
small swing upward or downward. When that swing exhausts itself, put a dot on
the chart at the proper time that is, 10:10, 10:15, or whatever the time may
be to the nearest five minutes. As soon as you have done this, add the price of
these five leaders say at the top of that swing, and then draw a diagonal line
from your opening figure to the figure at which the first wave ended and at the
proper place for that hour and minute on the chart. (The chart and explanation
which follow will make this clear.)
In figuring the aggregate price of the five leaders on an up wave, you take
the highest price each of them reaches on that wave when you add up their
prices, including fractions. In the same way, on a down wave, you take the lowest prices each stock touches on that wave and add them together. You may find
that only three or four of these stocks respond to a buying or selling wave, while
one of them declines on an up wave or advances on a down wave. In that case,
you may carry forward the price this stock recorded on the immediately
preceding wave and add it into your new total; or, if it responds to the movements of the others in a little while, you may regard its previous momentary
movement against the trend as in the nature of a delayed transaction, whereupon
you wait until it establishes a price in line with the prevailing trend. Then

Section 22M Page 5
add this price in with the others; that is, adjust your total to reflect the true
trend.
If the prices of the five leaders total at the opening, say 380, put a dot on
the chart at the point where the vertical 10 o'clock line intersects the horizontal
price line representing 380, that is, at A on Figure 1. Suppose that the market
then swings upward for a period of
twenty minutes, hesitates, and begins
to react. You now add the highest
prices reached by the five leaders on
that upswing, and find that your total
is, say, 383. Accordingly, you place a
dot on the chart where the 10:20
o'clock line crosses the price line at
383 (B) and draw a line diagonally
upward from A to B. Next watch how
long it takes for the reaction to run its
course and note how far down the
leaders go. Then add the lowest prices
they touch on this down wave.
Assume your new total is 381 and
that the reaction lasted 15 minutes.
You put a dot on your chart at the
proper place on your chart (C) and draw a line diagonally downward from B to C.
Continue in this manner until the closing of the market when you add the last
prices of the day's session, placing a dot on the 3:00 o'clock line (0) on the
accompanying chart. This closing price then becomes the starting point from
which you carry forward your chart of the buying

Section 22M Page 6
and selling waves for the next and succeeding days. Thus you will have a continuous, zig-zag line which portrays the market's price action from one session to
another, minute by minute and from hour to hour; and from this chart you are
enabled to judge the factors of:
(1) Price movement number of points advance or decline.
(2) Time elapsed in each movement up or down.
(3) Comparative lifting power or pressure on each up and down swing.
Applying these factors to the chart on Page 6, Figure 1, the up wave from
A to B was 3 points and the time elapsed was 20 minutes. The down wave from B
to C is only 15 minutes and the decline 2 points, indicating that the buying power
is greater and more sustained than the selling power. Demand is therefore
greater than supply.
Suppose the next upswing (C to D) lasts 45 minutes and carries the total
price of the five leaders to a higher level than the first advance say to 385;
this indicates an increase in the buying power because the rise was 4 points (C-D)
compared with 3 (from the opening at A to B) and the buying wave C-D was
sustained 45 minutes compared with 20 minutes (A to B). As the next reaction
(D-E), 20 minutes, is only 5 minutes more than the first dip and amounts to only
1 1/2 points compared with the previous reaction of 2 points, you have a
confirmation of the strength.
Follow these indications along and you find that the E-F wave lasts 40
minutes and lifts the price 4 1/2 points. Next, the F-G dip lasts 30 minutes a
little longer than the previous one (D-E) and amounts to 2 points. This reaction
shows a slight increase both in time and distance 30 minutes and 2 points
compared with the preceding reaction of 20 minutes and 1 1/2 points. This
warns you to be on the lookout for a change.
Merely to emphasize how the chart should be interpreted, let us now
suppose that you are a day-to-day trader. When the rally G-H, only 1 1/2 points,

Section 22M Page 7
begins to die out (in 10 minutes) you decide to act because this 10 minute bulge
lasts only about one-fourth as long as the previous rise of 40 minutes and the
price is not lifting as before. This shows that the buying power has practically
exhausted itself on the preceding up-swing; the market is now failing to attract
followers on the advance. You thus have a clear indication that supply is
overcoming demand and the trend is turning downward.
Therefore, as the decline H-J begins on the tape, that is your cue (assuming you are an in-and-out trader) to sell out your long stocks, if any, and go
short all of the five leaders (at X) with a stop on each about 2 points above.
We must assume for the sake of a clear illustration that the stocks you
trade in are all of the five leaders. You should sell an equal amount of each of
the five, but if you like for simplicity let us assume that it is one of the five.
The decline (H-J) runs 50 minutes 20 minutes longer than the previous
decline and amounts to 3 1/2 points compared with 2 points (F-G). The short
rally (J-K) lasting only 10 minutes emphasizes the weakness, because it amounts
to only 1 point compared with 1 1/2 points (G-H) in the previous rally the
shortest so far, showing that there is practically no buying power left. If you did
not go short as above stated, you should do so now, immediately after the market
hesitates at K and begins to sag. If you did go short before, you might now sell a
second lot at the point marked XX just below the bottom marked J which
occurred at 1:50 P.M. at a price of 384.
Reduce your stops on the first lot to a price fractionally above the high
made at 12:20 P.M., and stop your second lot at the same figure.
The decline (K-L) runs 20 minutes, but carries the aggregate price of the
five leaders down 4 points. A 15 minute rally (L-M) says, when it dies out, that
you are safe. Then there is a 20 minute decline of 6 points more (M-N).

Section 22M Page 8
The price at the low point of the decline N which ends at 2:55 P.M. is 377.
Here you may cover at the market price if your studies indicate that somewhere
about this level the market should turn up again. If there is no such indication
and you do not cover, your stops should be moved down so that most of your
profit will be assured without shutting off the possibility of more profits.
This illustrates how the daily Wave Chart should be read from the standpoint of Price Movement, Time Elapsed and Comparative Lifting Power or
Pressure; and how it may be used as a valuable aid in timing your commitments
advantageously when you are looking for the logical buying and selling points on
which to open or close your positions for the 10 to 20 or more point swings.
(Sect. 7M, Pg. 2, Par. 5; Sect. 7M, Pg. 29, Footnote; Sect. 18M, Pg. 10, Last Par.)
The same reasoning (as above applied to the small waves) should be
employed in your studies of the larger waves, that is, those which make up the
market's minor, intermediate and major trends. (Sect. 5M, Pg. 2, Par. 3 to end of
Pg. 3.) And the cumulative impressions you get from your day to day analysis of
the Wave Chart will help you to observe how and where the small waves are
merging into turning points for the big moves. (Pg. 1, Pars. 3 & 4 and Pg. 2, Par.
1.)
Thus far we have not considered the volume of trading nor the activity
because it is better, first, to learn to judge the factors just enumerated i.e.,
Price Movement, Time and Comparative Lifting Power or Pressure.
After you have mastered these, you should begin the study of volumes
and the intensity of action (activity) in connection therewith (Pgs. 19 to 22). This
will give you added understanding and power.
Since the average trader and investor does not have the time nor equipment necessary to secure the data for computing activity and volume, these significant figures are included in the Wave Chart of Tape Readings published by us
daily for the convenience of subscribers and issued in the form of daily "Tape
Readings" with detailed comment upon each day's market action. (See specimen

Section 22M Page 9

Section 22M Page 10
blue sheet supplied in envelope with your Course.)

This service is furnished to each student, gratis, for a period of five
months, as a part of his Course of Instruction; and begins six weeks after enrolment, unless you request it sooner. The purpose of withholding it two months
is to give you an opportunity to become thoroughly acquainted with all of the
principles of this Instruction before you undertake the practical application of the
Wave Chart.
Below is a sample of the complete Wave Chart as made up by us. It shows
at a single glance all of the vital information herein discussed:TAPE READINGS
The Pulse of the Market
A daily analysis of the buying and selling waves on the New York Stock
Exchange from the tape of the stock ticker.

Section 22M Page 11
(1) Price Trend. The solid line which zigzags from left to right across the
chart (A to 0, Figure 2) represents the buying and selling waves throughout each
stock exchange session, as reflected in the price fluctuations of five leading active
stocks. At this time, these stocks are American Telephone, du Pont, New York
Central, U. S. Steel and Westinghouse Electric.
This portion of the chart is constructed in accordance with the method already explained on Pages 3, 4 and 5 of this Section. We use the aggregate or total
price of the five leaders instead of the average because this makes a more
sensitive indicator. The price scale is shown at the right of the chart. Each
horizontal line represents a movement of five points in the total price of the five
leaders. The chart is plotted on cross-section paper ruled ten squares to the inch,
as in this illustration shown in Figure 1, Page 6, but for the sake of simplicity
and convenience in reproducing the graph in printed form all of the small ruled
squares which appear on the original copy are not drawn on the chart as we
present it. Thus, only every fifth horizontal line, representing a 5 point swing, is
shown in Figure 2 and on the blue sheet which we mail to you in the form of the
Daily Tape Readings service. (See specimen.)
(2) Time. The time scale is divided into hourly periods as shown by the
short vertical bars at the top of the graph (opposite the letter B, Figure 2) and
each hour is marked above these short vertical lines.
(3) Volume. Above the time scale at the top of the graph is the share
volume as it is reported on the ticker tape from hour to hour. However, as the
market may swing up and down several times within any one hour, these figures
as reported by the New York Stock Exchange do not reveal the volume of
transactions accompanying each buying and selling wave. Therefore, in the
table at the right of the Wave Chart graph, we record the approximate total
volume of transactions occurring in all stocks on each separate buying and
selling wave (see Column 6). These volume figures are reported to the near-

Section 22M Page 12
est thousand. Incidentally, they are an exclusive feature of our Tape Readings
service and are obtainable nowhere else.
(4) Activity. The market's activity, that is, the intensity of trading, is
indicated by the small figures in Column 7 of the table and by the two irregular
dotted lines which appear in the chart, running along, one above (C) and the
other below (D) the solid line which represents the price path. The market's
relative activity, that is, the pace of trading, is reflected in the size of the index
numbers recorded ii the table (Column 7) which are proportional to the change of
activity. Thus, an index number of 1 or 2 reflects dullness; a unit of 3 to 4,
moderately active trading; and 6 to 7, high activity. In extremely active markets,
when the tape is late, the activity index may rise to as high as 10 or more.
Changes in activity are shown graphically on the chart by measuring off,
vertically, equal distances above and below the turning points of the price line.
For example, in Figure 2, we draw a vertical line through the dot which
represents the price of 385 1/2 at 10:25 A.M. at the end of Period 1. Since the
activity for this period was 5 1/2 (see first line, column 7 in the table), we
measure up 5 l/2 small squares or spaces on our cross-section paper from the dot
at 385 l/2 and down an equal number so that the vertical line just mentioned
extends equally above and below the turning point of the central price line at 385
1/2. Period 2 ends at 10:35 with the price at 382 3/4. Another vertical line is
drawn through this turning point on the chart and the activity index for that
period, which was 4 units, is measured off by running this vertical line up 4
spaces and down the same number from the price at 382 3/4. The ends of
these vertical lines are then connected by the dotted lines to form small parallelograms. In this way the chart graphically portrays the changes in the market's
activity on each buying and selling wave by the spread of the dotted lines
at the top and bottom of each period. Consequently, when the ac-

Section 22M Page 13
tivity is increasing, the dotted lines move further apart, as in Period 9. When the
activity is decreasing, the dotted lines move closer together as in Period 6.
Observe that in Period 7 the dotted lines are parallel, meaning that there was no
change in the pace of trading in this period compared with the previous one,
Period 6. (*)
It will be noted that the vertical bars which serve to measure off the
activity index on the chart also mark the time at which each up and down wave
ends. Hence the horizontal distance between these lines indicates the duration of
each buying and selling wave, corresponding with the figures shown in Column 3
of the table.
The price rallies (up waves) and reactions (down waves) during the session are designated as periods, numbered consecutively on the graph from left to
right in the order of their occurrence. Some of these figures are omitted from the
chart because there is not always enough space in which to print, them on the
* The quality of demand oh the more critical buying waves and the quality
of supply on the more significant selling waves is an important factor in judging
the trend. Thus, if it appears that transactions on an up wave are mostly in 100
share lots, the indication is that the rise is not likely to continue because such
small lot trading would represent small fry operations, hence demand of poor
quality. But if, on an up wave, transactions are predominantly in 1,000 to 2,000
or 5,000 share lots, the indication would be that demand is coming from
important sources and hence is of good quality. The reverse of this reasoning
applies in the case of a selling wave, small lots indicating poor, and larger lots
good quality offerings.
By casually (not mathematically) comparing the activity with the volume
and duration of the buying and selling waves, we are able to judge whether the
supply or the demand is of good or poor quality. For example, suppose we have
two buying waves each of 10 minutes duration and each showing a volume of
100,000 shares. And suppose that the activity index registers 5 on the first, but
only 3 on the second wave. Obviously, demand must be of poorer quality on the
first wave than on the second because, while the market is more active on wave
number one, since time and volume are the same, this greater activity can be
accounted for only by trading in smaller lots as compared with wave number two.
These comparisons should only be made when it appears that the action of
the market is becoming critical. To make them for every buying and selling wave
will result in confusion and needless expenditure of time and effort.
Incidentally, it should be noted that the activity index has no relationship
to the price movement as recorded in the Wave Chart table, and it is only
indirectly related to the time and volume figures because it represents the rate at
which orders are flowing into the market, not a ratio between time and volume.
Section 22M Page 14
stencil from which the graph is made.

The Table at the right of the graph contains a complete summary of each
session's significant price, volume and activity change. These figures are the
data from which the chart is constructed and are presented in the table in such
form that the student may quickly analyze all of the relationships between time,
volume, activity and net price change on each buying and selling wave.
Comments. Our detailed comments upon the day's market action are set
forth in the text which appears underneath the graph and table (see specimen
blue sheet furnished in separate envelope). These comments are intended to give
a complete summary of all important technical developments, as they occur,
during each day's session. It will be noted that each paragraph is numbered to
correspond with the period numbers as they appear in the chart and the table.
This is done so you may readily associate our comments with the proper buying
and selling waves.
Having acquired an understanding of the construction of the complete
Wave Chart, you are now ready to study its practical application to the purposes
outlined on Pages 1 to 3 of this Section and Page 27, Section 4M. To secure the
best results from your Wave Chart studies, you should make up 1 and 10 point
figure charts of the price fluctuations of the five leaders and a 3 or a 5 point
chart (see illustrations, pages 32 to 37). The 1, end 3 point charts are of great
value in judging the turning points of the intermediate swings of the market,
while the 10 point chart gives an excellent perspective of the major trend.
These figure charts may be made very easily and quickly from the figures
on the blue sheet as they are recorded beneath the table under the heading "One
Point Changes of Wyckoff Tape Readings." (See specimen blue sheet.)
Another good plan is to keep a continuous or running line chart of the

Section 22M Page 15
Tape Readings by clipping the graph from these blue sheets as you receive them
and pasting the daily charts side by side in a book or on a large sheet, with the
price scale in adjustment over a period of several days or weeks, as illustrated on
Pages 30 and 31, this Section; or it will be sufficient merely to paste the graphs
side by side, folding them in accordion fashion when the record becomes too long.
By keeping your daily charts in this way, you are enabled to observe significant
changes in the forces of supply and demand as the small buying and selling
naves merge into and build up the swings of from 3 to 5 points and then into the
larger movements of 10 to 20 or 30 and more points over a series of daily stock
market sessions. This continuous, or running record of charts pasted together
also affords a valuable means of judging the market's behavior when you are
coordinating your study of the volume and activity relationships with your
analyses of the indications given by the 1 point and 3 or 5 point figure charts of
the Tape Readings.
When you learn to coordinate all of the factors revealed by these records
in combination and use them properly, it will greatly strengthen your judgment.
You will find that, whatever the market does, it will in nearly every instance tell
you what it is going to do and what the market is going to do is the most
desirable thing to know in Wall Street. Or it will leave you in doubt, and then you
must do nothing.
Before taking up the interpretation of these records, however, we must
consider the significance of volume, activity and support and pressure.
Your continuous line chart of the Tape Readings, pasted side by side,
enables you to maintain a complete, running history of the market's behavior
from which you can observe how the relationships between volume, price trend
and activity are changing. From this you can judge whether the market is
growing stronger or weaker. These relationships frequently become very important when the market, as represented by the action of the five leaders, is

Section 22M Page 16
approaching former points of support and resistance.

Relationship of Activity, Volume and Price Trend. As previously, explained, changes in the market's activity on the alternating small buying and
selling waves are indicated by the way the dotted lines come together or spread
apart on the chart, a condition which is easy for the eye to detect. These
comparisons, of course, may also be made by reference to the figures in the table
(Column 7). Increasing or decreasing activity, accompanying a price rally or
reaction during any period of the day, is immediately apparent from these
comparisons.
Remember, that when the activity is increasing while the price is rising
or the activity is decreasing while the price is declining, the indication is usually
bullish except under some conditions when the increase in activity is
unusually, large. In these cases (unusually large increases accompanying an up
or a down wave) the sudden increase may signal the culmination of a movement.
When activity is increasing while the price is declining or the activity is decreasing while the price is rising, the indication is usually bearish.
Likewise, when volume is increasing while the price is rising or decreasing while the price is declining, the inference is usually bullish unless the
increase is unusually large, in which case the sudden increase may indicate the
culmination of the particular movement accompanying the abnormal volume. (If
you will here review what you learned from the reference to volume in Section
7M, the logic of this will be immediately apparent. See also volume studies, Sect.
14M, Pgs. 6-12.)
Similarly, when volume is increasing on the down waves and decreasing
on the up waves, the indications are usually bearish unless the volume surge
is abnormal, in which case the abnormal volume may indicate the approach or
the actual culmination of the movement.
Support and Resistance. A very important thing to observe from the

Section 22M Page 17
chart of the five leaders is where they meet support on the declines. That
indicates the level at which the dominating interests in these stocks are wiling to
buy them and usually affords a strong indication of the attitude of these interests
and of large operators toward the whole, market. (See Pg. 4.) Likewise, observe
where the leaders meet resistance to advances. This indicates the level at which
shrewd holders are selling, and if it appears that a large quantity of stock is
coming into the market on these advances, this is a strong indication that
insiders and large operators are taking advantage of a broad, active market to
load the public up, with the stocks which they wish distribute. (Sect. 8M, Pg. 5.)
In trading, the value of any stock is the price you can get for it within one
minute. Hence the price at which the insiders are willing to take it or sell it
combined with the amount they appear willing to buy or sell at that price, is a
strong indication of its immediate future.
Support and resistance may be studied either by reference to your continuous line chart or by reference to your one point figure chart of the five
leaders; or hotter still by using both together.
The chart studies which follow will illustrate how to interpret the Wave
Chart and how to coordinate all of the factors involved in its practical application
to your own market operations, either as an investor or as a trader. To simplify
your approach to these studies, we begin by enlarging on our study of the Wave
Chart for a single session (Pgs. 6 to 9) by adding the factors of Volume Activity
and Support and Pressure to the factors of time elapsed, price movement and
comparative lifting power or pressure, which were discussed in pages 7 to 9.
In this next illustration, Figure 3, merely for the sake of emphasizing
what to look for and to show how experienced operators judge the market assume
again that you are a day to day trader, making your deductions from a Wave
Chart as a stock market session progresses from its opening to the close.

Section 22M Page 18
In this illustration, it will be seen that volume and activity are both of
very small proportions on the little buying and selling waves from 10 o'clock
to 1:00.P.M. The day starts with a small rally which is promptly followed by a
small dip. Bulls and bears are evidently well matched during this part of the
session since neither faction has been able to move the market far in either
direction. Supply and demand are in equilibrium. Your position, therefore,
should be neutral while you are waiting for a clear indication.
After the first dip in Period 2, the bulls try to put prices up (Period 3),
but they fail to attract a following as shown by the failure of activity to
increase on the up wave and their inability to lift the price index much
above the 10:20 A.M. high. Demand peters out on this rally to the previous
(10:20 A.M.) top. A small dip in the fourth period brings out very

Section 22M Page 19
little stock, however, and the reaction fades out at a higher support, i.e., above
the 10:40 A.M. low. This encourages the bulls to try again (Period 5). Once more
they fail to attract a following. Note how the rally dies out in dullness around the
two previous tops (activity in period 5 is the smallest so far). So now, the bears
endeavor to break the deadlock by offering stocks down (Period 6) until 1
o'clock. This maneuver meets no better success. The time elapsed is longer on
this wave than on the previous swings, but activity fails to increase and the
volume is light which tells us the supply is of poor quality, only small fry traders
are selling (Footnote Pg. 14), so we may expect the price to hold around the
former supporting levels of periods 2 and 4. This expectation is confirmed when
the price index actually halts above the morning low and the market turns dull
there.
We now have a tentatively bullish signal since it appears from our observations thus far that the bears are unable to bring out offerings on reactions.
Furthermore, the market has come to a complete standstill which warns us to be
ready for a change. That is, at the end of period 6 it is on the hinge. Everything
now depends upon the ability of one side or the other to rouse a following, either
by breaking down the support or by pushing prices up through the forenoon top.
We judge that the stalemate will be broken by an advance because the bears seem
to have failed in their weak 1 o'clock drive; the selling on this down wave was of
very poor quality, only 120,000 shares in 60 minutes against 135,000 shares in
40 minutes on the preceding up wave. Hence if we are trading for the short
swings this is our cue to buy, though we may prefer to wait for more positive
indications.
Now it is the bulls' turn to try their strength again. This time (Period 7),
demand is a little stronger. Volume is comparatively larger (72,000 shares in 30
minutes compared with 120,000 shares in 60 minutes during the preceding down
wave) showing improvement in the quality of the buying larger

Section 22M Page 20
lots of stock are changing hands. Prices rise above the previous highs (showing better lifting power) and activity increases a trifle as they advance, indicating the market is now attracting a following on the up side as it struggles
to advance.
We may expect the leaders to hesitate and perhaps react (which they
do) as the price index comes up to, or toward, the tops of periods 1, 3 and 5
since the market was turned back from these levels on three previous
occasions. But if activity falls off on this next selling wave, the bulls are
likely to become aggressive.
We do not have long to wait. Prices sag only fractionally in the next
fifteen minutes (Period 8) as the market pays its respects to the forenoon resistance levels. Volume is very light and activity dries up almost completely
on the dip. This is what we have been looking for. If we failed to buy on the
first tentative bullish indications we must do so now on this convincing performance. The extreme dullness (low activity) and small volume
accompanying the recession tells us there are few offerings coming into the
market; there is no longer any pressure; stocks have become scarce at this
level. The supply that was holding previous rallies in check has been
exhausted or it has been absorbed on the small earlier reactions. Therefore,
we step in with confidence and buy. Other shrewd traders, seeing the lack of
pressure and the scarcity of supply, may be expected to buy also, thus
helping the bulls along.
A sharp rise in period 9 promptly confirms our judgment. Any
question as to the validity of this upward move is settled by the increase in
activity as prices rise through the previous tops. The bulls have now
attracted sufficient following to drive the bears into a retreat. Volume is
expanding in proportion with the activity as the price rises sharply, showing
that demand is of good quality, and growing urgent. (Footnote, Pg. 14.)
Shortly before 2 o'clock, the bulls rest momentarily because at this

Section 22M Page 21
point the price index has risen to a level where the market encountered
supply, on the preceding Friday and Saturday (not shown on chart). If the
supply around these former highs is still formidable, the market is likely to
fall back quickly, forcing the bulls to give up their gains. But it doesn't fall
back. Instead, it recedes very stubbornly as evidenced by prompt shrinkage of
volume and activity. Also, the small net change in price and brief duration of
the reaction confirm the indications that the previously overhanging supply
has been absorbed or dislodged. As there obviously is no pressure on the
market yet, and few offerings to be taken at this level, we stay long and wait
for the bulls to push on again as they try for a higher objective. This they
attain just before the close.
In the above and the preceding example, explaining, Figure 1, the Wave
Chart principle was considered only from the standpoint of one day's action.
You are now ready to take up the next and most vital function of this
chart which is its application to the market's longer swings of 10 to 20 or more
points. For this purpose you should use the daily graphs pasted side by side,
together with the 1, the 3 or 5, and the 10 point figure charts of the price
fluctuations of the five leaders.
Not every day's Wave Chart will give as decisive indications as those we
have just discussed. Hence, do not make the mistake of expecting every one of
your daily charts to yield positive evidence. There may be some days on which
the action seems contradictory or confusing. You must make allowances for that
by waiting until you get another clear indication. But at important turning points
in the trend you generally will find that the market reaches a critical condition in
which its action on certain days will convey very vital information (Pg. 2, Pars, 1
& 2) and it is at these points that the Wave Chart attains its greatest value.
For instance, just as the action on the small waves in periods 1 and 5,

Section 22M Page 22
Figure 3, left us uncertain of the immediate trend, whereas the market's

behavior in period 6 and 7 became sufficiently critical to warn us of a material!
changer so in the case of the larger movements, the market's action for several
days may be indecisive but eventually there comes a time when its behavior over
one or more full sessions will warn you of an important change in the intermediate trend if you are alert and properly trained.
APPLYING THE WAVE CHART TO THE LARGER MOVES.
If you now will look at the one point figure chart on page 32, just under
the letter A, you will observe ,that the five leaders are swinging up and down in
a range between 409 and 419. This action took place on the rebound from the
low of July 21, following the distributive campaign in the summer of 1933. This
trading range, under A, is developing just under the July, 1933 tops. Reference
to the running line chart of the five leaders (Pg. 30) shows that the total daily
share volume ail the top of the August rise is comparatively heavy, though
considerably less than the daily turnover accompanying the rise and subsequent
distribution in July (when volumes reached the 6 to 9 million share mark). This
of itself indicates that the public's buying power, or the market's power of
absorption, now (August, 1933) has been materially weakened as a result of
previous speculative excesses and in consequence of the severe July 18th to 21st
slump.
This August recovery had brought the market back up into a very formidable resistance area. Our problem at this point, therefore, is to determine
whether it promises to go into new high ground or whether this recovery will
develop into a campaign of secondary distribution, completing the primary distribution of July.
For the purpose of this study, assume that it is now Tuesday evening,
Aug. 29, 1933 and we have our records for the past few weeks before us. Comparing the one point figure chart of the five leaders at A, page 32, with the daily

Section 22M Page 23
Wave Charts for August 25 to 28, page 30, it is immediately apparent that the
market (as represented by the five sensitive leaders) is attempting to advance
under difficulties. Thus, the price movement (as represented by the zig zagging
solid line) shows a tendency to flatten out or run sidewise. The action is feverish
(Sect. 14M, Pg. 8, Par. 4) as shown by the comparatively high activity. Also,
there is a lack of progress on relatively heavy volume.
The figure chart at the same time indicates that the bulls are finding it
difficult to hold the market up. At 409 (under the letter A, Pg. 32) the price
index broke through the previous support (or the lows) of 412. This action
corresponds with period 3, Aug. 28, on the chart page 30. They try to check this
selling drive on the part of the bears by bringing up their reserves for a counter
attack and succeed in forcing the price up again. But here (around 416-18 on the
figure chart) they falter. Apparently, they have exhausted their ammunition for
the figure chart shows a leveling off under the previous high point at 419;
indicating inability to continue the advance.
Now let us apply the microscope to this portion of the figure chart by
referring to our running line graph, page 30. On Aug. 28 there is a shrinkage in
volume around the top 2,120,000 shares compared with 3,500,000 the day before. During the latter half of the session (Periods 5 to 9) activity has failed to
increase on the up waves. These are bearish indications confirming the weakening of the bulls' attacking power, since heretofore (Aug. 24 & 25) the Wave
Chart shows that activity has consistently increased on the up waves. Likewise,
activity previously has either shrunk or failed to expand on the down waves.
This says that whereas the bulls previously were able to attract a following on
advances and sellers were reluctant to follow prices downward, now the buyers
are becoming timid. The Wave Chart thus shows accumulating evidences of a
change from weakness to strength.
As the session of Aug. 28 closes, demand is still sufficient to hold the
price index in the range 416-18. But next day, sensing the fact that buyers have

Section 22M Page 24
now become reluctant, the bulls make one more desperate effort to carry on their
campaign. On the morning of the 29th, they succeed momentarily in breaking
through the bears' line of resistance, forcing the market to a new high. This
brings the price up to 421 on the figure chart (under A) . The public and the
boardrooms, hailing this break-through as a signal of victory for the bulls, jump
in to help create a broad, active market on which they exhaust the remaining
buying power. Activity reaches climactic intensity as the shrewder bulls and
smart bears unload all these buyers will take (shown by the fact that in period 3,
the leaders promptly lose all they gained on the initial bulge with volume and
activity still very high). Here we have a good illustration of an upthrust (Sect.
21M, Pg. 3, Par. 3) that has failed and in so doing, marks the culmination of this
particular advance.
Having recognized preceding symptoms of a possible turning point, we regard this action in periods 1 to 3 of August 29 as the critical stage at which the
intermediate trend has changed form bullish to bearish. Behavior of the Wave
Chart through the balance of the session strongly substantiates this conclusion.
The outpouring of supply which stopped the bulls' forward rush in period 2 continues unabated thereafter. Volume and activity are undiminished as prices
slump between 10:30 and 10:40, indicating that sellers are unloading all they can
"at the market." Between 11 and 12 o'clock (period 4) pressure lifts while the
sellers rest to size up their position and allow the bulls to venture a counter
attack. This takes the form of a normal rally which lays bare the weakness of
the counter attackers, since activity immediately contracts on the recovery the
buyers are all loaded up and can't take on any more stock.
This is the Second time a rally has failed to attract good quality demand
in this very critical area (the first was in period 4, Aug. 28), so the bears
are encouraged to resume the offensive. They clinch their victory by bringing
out a fresh deluge of offerings in period 5, on which the price index

Section 22M Page 25
breaks Monday's support around 409. Just under this level, pressure lifts once
more to permit another rally. The weakness of the bulls' position is again confirmed when the rally falls a little short of normal and activity fades out
further evidence of more decline ahead.
On the next downward drive, however, there is a lessening of activity
(Period 7). The bears are a little wary now as the price is coming down close to
the Aug. 24 low. Furthermore, the decline from the early morning high has been
very steep and severe. Under these conditions we may expect another technical
rally as floor traders cover shorts put out on the early morning bulge. Our one
point chart also indicates that the leaders have reached their immediate objective,
since we have a line of supply across the 418 level (see A, Pg. 32) calling for a
drop to 406-403.
Examining the results of these four days' tape action (Aug. 24 to 29) in
the quiet of our home on Tuesday evening or Wednesday morning, and reasoning
as above briefly outlined, we see that the Wave Chart is warning us of an
impending change of trend of considerable importance. It is telling us that during
these few days, the market has developed accumulating symptoms characteristic
of distribution. And since this, distribution is occurring under the earlier July
tops, it very probably represents a maneuver on the part of the bull forces to
complete the unloading of stocks which they didn't succeed in, dumping a month
or more earlier. Hence, after we have had a chance to examine the results of
Tuesday's action, we decide to close out our long positions, if we have any, and
go short the next day (Aug. 30).
We are not impressed with the character of the rally in period 8, Aug. 29,
for while the lifting power seems good from the standpoint of ground covered,
this rebound looks more like short covering by traders, or perhaps another desperate rally engineered by the bulls who still have some stocks left to unload
before the decline gets fully under, way. Note that activity again fails to ex-

Section 22M Page 26
pand on this up wave, making the third time there has been inability to attract a
good quality of demand on the up side. With so many, indications of progressive
weakness, we decide that this final rally indicates the market has been thoroughly saturated with supply. Under such conditions we cannot expect the bull forces
to overcome the resistance around 415 (see figure chart). Rather, the hurry up
character of this last bulge tells us they are probably taking advantage of a
temporarily oversold condition, the help of short covering, and some new buying
by floor traders who see a chance to scalp a quick profit on the long side, to wind
up their campaign as quickly as possible.
Observe that our 5 point figure chart (Pg. 36) shows a line of seven 418s
and ten 415s, indicating a decline to either 400 or possibly 391. This would mean
an important slump in the other averages and probably a serious decline ahead
in those individual stocks and groups of stocks which our other records show to
be in weak positions.
Following the action along from here, on the one point figure chart, observe that some support appears around the 401-400 level, about where our 3
point chart said it should. But offerings come in again on the indicated 12 point
rally to 413 and a new line of supply forms across the 410 level on the 1 and 3
point charts, stretching out to 20 points on the former and from 24 to 33 on the
latter. The price index more than makes good the most conservative objective by
dropping to 390 where the charts show indications of sufficient new demand to
support a recovery to 408 or 416. Then (at C, Pg. 32) there is more distribution
around the 415-419 level, followed by a collapse to 399 (under D), and a hypodermically stimulated rise to a secondary top 417 (D) which sets the stage for
the intermediate downward trend to 321 (Pg. 34, under H).
By studying the continuous line chart (Pg. 31) in conjunction with the 1
and 3 point figure charts at K, Pg. 35; and by applying the principles already
outlined, you will see how the Wave Chart again revealed the vital details

Section 22M Page 27
of the market's action, as its behavior became critical, in advance of an important reversal of the intermediate trend, this, time as a base was formed for a
substantial advance. It is suggested you make this detailed study for yourself,
consulting our Coaching Staff if you encounter any difficulties.
You will note that the 1 point figure charts, pages 32 to 35 carry trend
lines and comments which are designed to aid you in understanding how to interpret the significant information afforded by these records when you begin to receive them daily from us as explained in paragraph 6, page 9. From these notations it will be seen that the principles employed in reading the action of the five
leaders are identical with those used in analyzing any other chart (Sects. 7M to
21M).
____________________________________
On Page 38 we present additional graphs to illustrate how the daily Wave

Charts, when pasted side by side, reveal vital details of the market's action at
critical stages; and to show how the cumulative impressions you get from
studying these charts day by day afford important clues to impending changes of
trend.
Observe, for instance, how the Wave Charts for Sept. 3rd and 4th, by
fanning out the vertical bars representing the Times average (above the letter A)
disclose certain significant details of the market's tape action which cannot be
seen by examination of the composite average alone. According to the latter, the
market seems to be rallying from the low point of Aug. 31 on very small volume.
It is important to know whether this low volume means that offerings have
become scarce as a result of the preceding reaction; or whether the small volume
signifies poor demand, hence the forerunner of a further decline.
Examination of the Wave Charts for Sept. 3rd and 4th shows clearly that
no offerings are coming out on successive down waves during these two sessions
because the activity remains very small. In other words, the low activity indi-

Section 22M Page 28
cates that the bears are failing to bring out any liquidation or selling of good
quality in their efforts to drive the market down through the critical Aug. 28th29th supports. Hence we must conclude that stocks have become scarce and so
we interpret the September setback as a technical reaction which has been
completed, thereby preparing the market for a new rise.
Conversely, when the Composite Average reaches the new high around
109 (under B), examination of the daily Wave Charts for Sept. 17th to 19th
shows clearly the inability of the bulls to attract a further following. Note especially how the opening bulge of Sept. 19th is immediately checked at a lower top
add how this upthrust is promptly met with a deluge of offerings as shown by the
continuing high activity on the down wave in period 2. That performance marks
the culmination of the rise and the beginning of a substantial reaction.

Section 22M Page 29
Illustrating zone of distribution; inability to absorb supply and

development of weakness; and showing how the Wave Chart reveals significant
details of the market's tape action, preceding a turning point in the intermediate
trend. (Compare with one point figure chart at A, Page 32.)

Section 22M Page 30
Illustrating zone of support; ability to absorb offerings and development

of strength; and showing how the Wave Chart reveals significant details of the
market's tape action, preceding a turning point in the intermediate trend.
(Compare with one point figure chart at K, Page 35.)

Section 22M Page 31

Section 22M Page 32

Section 22M Page 33

Section 22M Page 34

Section 22M Page 35

Section 22M Page 36

Section 22M Page 37

Section 22M Page 38
HOW TO ESTIMATE DAILY CHANGES IN THE TIMES AVERAGE

FROM THE RICHARD D. WYCKOFF WAVE CHART OF TAPE READINGS
Some of our students have asked us how they may overcome the difficulty
which arises from the fact that, because our Daily Figure Chart Report is mailed
immediately after the close of the market, the report of the New York Times and
Herald Tribune averages is necessarily delayed one day.
We therefore offer the following suggestion, which provides a method by
which you can arrive at a satisfactory estimate of the high, low and closing
prices of the N.Y. Times Average of 50 stocks, each day. This method will enable
you to keep your daily vertical line chart of the Times average up to date, before
the opening of the market the next day.
First, note that price changes in our daily TAPE READING PRICE INDEX
(which appears in the fourth column of the table to the right of the Wave Chart)
bear a fairly constant ratio to price changes in the N. Y. Times average. This
ratio is approximately 4 1/2 to 1. That is, an approximate change of 4 l/2 points
in the Tape Readings price index is roughly equivalent to a change of one point in
the Times average.
Therefore, if you divide the high, low and closing prices of the Tape
Readings price index by 4 1/2, you will get a rough approximation of the high,
low and closing prices of the Times average. Note, however, that this ratio varies
somewhat, from time to time. This results from the fact that the Tape Readings
index is extremely sensitive. Hence, it may sometimes swing more sharply than
the more sluggish Times average.
In order to compensate for these possible variations and adjust the ratio
from day to day, all you need to do is to divide the closing price of the Tape
Readings Index for a given day by the closing price of the Times average for that
same day. The result will be the ratio which you should use to determine the
high, low and close of the Times average for the next day from the Tape
Readings index for this following day.
For example, on January 18, 1934, our Tape Readings price index closed
at 404 3/8. The New York Times average for that same day closed at 90.44.
Dividing 404 3/8 by 90.44, we get a ratio of 4.47.
Now, looking at the fourth column of the table of Tape Readings for the
next day, January 19, we find that the index recorded a high of 414, a low of
407 3/8 and closed at 411 1/2. Dividing each of these figures by our ratio of
4.47, we get 92.6, 91.1 and 92.1, respectively, as our estimated high, low and
close for the Times average. This compares with the official figures of 92.95
high, 90.76 low and 92.43 close, a reasonably satisfactory approximation.

Section 22M Page 39

Section 22M Page 40
STOP ORDERS
The first rule in successful trading and investing is: Cut losses short.
E. H. Harriman, who was once a broker on the floor of the Stock
Exchange, said: "If you would be a successful trader in stocks, kill your losses."
As a floor trader he used to close out a trade if it went l/2 to 1 point against him.
You, who pay full commissions and are not on the floor, cannot cut your losses
as closely as this but you can limit them. You can safeguard your investment
and trading commitments against crippling losses, against the tragic consequences of riding stocks up and down through one intermediate market cycle after
another until eventually you have nothing but a collection of "has been" performers whose only last remaining solace to your damaged bank account is your
hope that they "might some day come back."
The way to do this is: First, never make a commitment whether for
investment or speculation until you have decided, in advance, where the danger
point exists in that stock. Second, calculate the possibilities for profit if the stock
should confirm your judgment by moving in your favor. Third, determine
whether the indicated probable profit outbalances the indicated risk by at least
three to one. Fourth, place a stop order (under the danger point on a long
commitment and above it on a short sale) the moment your buying or selling
order is consummated.
Should you have a stock under observation and believe it affords a logical
buying or selling opportunity, have patience to wait until it works into a position
where it meets the first three conditions above named before you make your
purchase, (or sale if you contemplate selling it short). Or, if these conditions
cannot be met, look around for another opportunity where they do exist. In other
words, test the validity of any proposed commitment by noting, in advance,
where your stop order must be placed so that you will always be operating with

Section 23M Page 1
the odds at least 3 (or more) to 1 in your favor. It pays to wait for these
opportunities.
In the stock market you must be constantly on your guard: Always be expecting something to happen. Danger is present in every trade, whether it be for
investment or speculation.
But when you place a stop order on every commitment, you limit this
risk. You insure yourself against letting a little loss run into a big one. In short,
you "kill your losses." Also, you are always "Foot loose and fancy free." Your
capital is never tied up in losing ventures; you are not waiting for soured performers to come back. You are always set and ready to swing into new opportunities because your investment and trading accounts will not become restricted by
impaired margins. Your funds will not become frozen assets.
You decide in advance that you will risk just so much on your judgment
that a commitment will be profitable, and you are out automatically when you
are wrong. With good judgment, you are not likely to be wrong three times in a
row. But assume this does happen and you are using stops which cut your losses
to an average of 2 points on each trade. You still have capital intact to take the
fourth position on which you will need to make only 8 points to come out ahead
of the game. But if, on your first trade you let a loss run to 10 points or more
because you failed to use a stop order, it may take only the one venture to tie up
your account and put you out of business; or at best, you will be a long time
getting back on your feet.
No one can trade (or invest) without losses, which are a part of the operating expenses of trading, along with the broker's commission, the transfer
taxes and interest charges. Instead of becoming irritated when your stops are
caught, you should be thankful. Say to yourself: My judgment was wrong when I
started this trade and a few points lost is better than the 10 or 20 points I might
have lost had I not placed a stop order.

Section 23M Page 2
There is nothing mysterious or complicated about a stop, order. A Stop

Order, or a Stop Loss Order as it, is generally called, is simply an order, given to
a broker, to be executed whenever a 100 share lot (or more) of that stock sells at
a stipulated price. If you buy a stock at 50 and wish to limit your risk to, say, 2
points, you give your broker an order: "Sell 100 shares XYZ at 47 7/8 Stop."
(See Pg. 12, Par. 2.) This means that if and when the price, touches 47 7/8, he is
to close out (sell) that 100 shares of XYZ at the market so as to stop your loss.
Or, if you sell XYZ short at 50 and wish to limit your loss to 2 points, you give
the broker an order: "Buy 100 XYZ at 52 l/8 Stop." This means that if and when
the price rises to 52 l/8, he is to cover (buy back) that 100 shares at the best
price obtainable after the stipulated figure has been reached. Thus, the addition
of the word "Stop" to your order distinguishes it from an ordinary "Buy" or
"Sell" order.
Stop orders are usually considered "Good till cancelled," which means
good till cancelled or executed, and the technical term is GTC. If your broker does
not make it a rule to keep all stop orders GTC, specify that you wish your stop
orders so considered. You do this because you want to protect your commitments
so long as they are outstanding.
You may, if you prefer, mark your stop orders "Good this week" (GTW)
or "Good this month" (GTM), instead of GTC. The advantage in limiting open
orders (that is, orders that cannot, be executed except at or when a stipulated
price is reached) is that you might forget to cancel a GTC order and later find to
your chagrin that the GTC order is still standing after you have changed your
position. If you make it a practice to limit your orders to a week or a month, they
must be renewed by you at or before the beginning of the next week or month
provided, of course, they have not been executed previously. This will reduce the
possibility that a forgotten GTC order may turn up unexpectedly when it is no
longer wanted. However, you must not fail to renew such GTW or GTM stop

Section 23M Page 3
orders on stocks in which you are still committed, long or short.

The stop order is the greatest protection against danger.
Stop orders are a form of insurance against large losses; against errors of
judgment; and unforeseen contingencies. You pay insurance premiums on policies
protecting your home against fire. Of course, you can take a chance that your
house will not burn down, but to save a small premium you would risk a large
loss. It is the same with stop orders. Trace back all your large losses in past
years and you will see that they have resulted from your failure to place stop
orders.
Many people say: I do not believe in stops. Probably this is because a
number of their stops have been caught from time to time. That is chiefly because they do not understand the market, have never studied it properly, and so
do not know how or when to begin their trades at the point of least risk; neither
do they know how to handle stops judiciously. Of course, even with the best of
judgment some stops are bound to be caught; without good judgment the majority
very likely will be caught.
Other people fail to use stops because they think the specialists influence
the market so their stops will be executed. This happens only in stocks having
very thin markets; or in dull, professional markets; or when a lot of stops are
bunched around the same levels so that it pays the floor traders to gun for these
stops. In active stocks in which there is a large volume of trading, this is no
ground for failing to use stops.
We cannot too strongly urge you: (l) To enter stop orders, "Good till
countermanded" (or as suggested on the previous page), immediately upon
making every commitment; (2) to move these stops to cover commissions and
taxes as soon as you can safely do so; (3) to protect profits to the utmost by
moving these stops judiciously as the market goes in your favor, as explained in
preceding chart studies.
The closer you can get your stop, the more you reduce your risk. But

Section 23M Page 4
there is another point about this: The smaller your stop, the greater the percentage of your profit compared with the amount of your risk. To illustrate: If a
stock should indicate a decline of 10 points and you can play it on the short side
by selling close to the danger point (Sect. 7M, Pg. 4, Par. 2, and Pg. 10, 5th Line)
with a 1 point stop, your possible profit is ten times your risk. That is much
better than making a trade with a 2 point stop in which the probable profit is 5
points; for in such a case your expected profit is only 2 l/2 times the risk.
By making both a rule and a habit of placing stop orders invariably as
soon as a commitment is made, you can operate with much loss, concern. You
need not feel that you must hang over a ticker to see what your stock is doing.
You can go about your regular business. The moment your broker receives that
order he becomes personally responsible for its execution. If for any reason he
fails to execute the order, he must make good to you any loss occasioned by
reason of his failing to carry out your instructions.
If you file with your broker, when you begin trading with him, a letter
instructing him to consider all of your stop orders good until countermanded and
if you receive from him a letter in reply, acknowledging and accepting these instructions, he can never claim that he "thought your stop was good for the day
only." Of course, you will not do this if you follow the plan of renewing your
open orders weekly or monthly.
The use of stop orders will increase your mental poise. This is a very
great requisite (Sect. 25M, Pg. 1, Pars 1 & 2). Dixon G. Watts, one of the most
successful cotton operators of half a century ago, wrote this among the fundamental principles which lead to success in speculation:
"Act so as to keep the mind clear, its judgment trustworthy."
Your mind will be clear if you decide on the amount of your risk when
you start to operate. But if you neglect to place a stop, and leave yourself open

Section 23M Page 5
to a loss out of proportion to your possible profit, your mind is apt to become
confused and you are likely to do the wrong thing at a critical time.
Therefore:
Never abandon the use of stop orders.
You may think you have so much money you cannot lose it.
Thirty million people thought that in 1929. Very few used stop orders.
I know, or know of, several who lost $100,000,000. They did not use stop
orders.
Do not let anyone dissuade you from the use of stop orders. Now and
then, well meaning brokers may imply disapproval of stops. This is because they
have been so long accustomed to dealing with the haphazard operations of the
untrained public that they are apt to think in the" same terms as the mass.
Stop orders are used:
(1)
(2)
(3)
(4)
To
To
To
To
limit risk
reduce risk
insure profits
begin new trades at prices above or below the present market.
Stop orders are used to limit risk, as already explained, by placing a stop
order immediately, as soon as a commitment is made.
Stop orders are used to reduce risk when the action of the stock enables
you to move the stop closer to the market price than it was originally. If you
have an opportunity to do this without jeopardizing your trade, it should be done.
It is better to risk 1 point than 2 or 3, but do not be too hasty in moving the stop
up or down. Watch for the support and resistance points to develop so that you
can use these as a guide when placing or changing your stop orders.
Of course when you can move your stop order to cover cost or selling
price and commissions, there is no risk; your expectancy is then 100$ of the indicated profit.
A good rule is to move your stop on a long trade if you can do it with
safety 1/2 or 3/4 point above your cost price as soon as the market permits, or,
in the case of a short trade, a half or three-quarters point below your selling

Section 23M Page 6
price. The 1/2 point is usually sufficient to cover the commissions on a round
(100) share lot and 3/4 point on an odd (less than 100 shares) lot.
Stop orders cannot always be executed exactly at the stop price, especially
in the case of round lots. If a stop stands at 58 on a long trade, the broker must
sell your stock the moment the first trade is made at 58. If at the time the best
bid is 57 3/4, he must sell your round lot at 57 3/4 if he cannot induce the
bidder to pay 57 7/8. In the case of an odd lot, if the stop stands at 58 and a
round lot sells at that figure, your stop will be executed on the basis of the round
lot price, that is, at 57 7/8 (the round lot price less the odd lot dealer's
differential). Bear this in mind: A stop order is an order to buy or sell at the
market when the stop price is reached (see Par. 1, Pg. 3). So never blame your
broker if he cannot get you out exactly at the price at which you have placed
your stop.
Stop orders cannot always be executed satisfactorily in stocks which have
a small floating supply, or in those having thin markets. This is evidenced by
their wide swings, their skipping large fractions or points between sales, combined with a very small number of shares traded in. In such stocks you are more
or less at the mercy of the sponsors and the specialist in the stock. The latter is
employed by your broker because the broker cannot himself stand in one crowd
(i.e., at one post on the Exchange) just to watch your stop order; therefore, you
may find in thin market issues your stops at 70 executed at 69 or 68; in very
bad markets perhaps at 65.
The large swings in these stocks make them look inviting because, above
all things, most people like to get action. However, you will find in the long run it
is more satisfactory to deal in the leading stocks where stop orders can be
executed exactly at your price or very close to it. These stocks are very much
less inclined to skip large fractions or points, and, therefore, you can get in and
out at a figure close to the last sale.

Section 23M Page 7
Stop orders are used to insure profits. One can never tell when a contrary
move in the market will wipe out a paper profit. Rarely should a profit of even 3
points be allowed to run into a loss. This applies to investment, as well as to
trading commitments.
Remember: The element of risk is present in every commitment. There is
no such thing as a "permanent" investment. Failure to recognize this fact is one
of the most productive sources of loss to investors who annually lose more in
vanished paper profits and shrinkage of capital than they gain in the form of
dividends. The worst offenders in this respect are those who allow profits of 10
to 30 points to shrink from one to two-thirds because they neglected to safeguard
their commitments. When the market turns they hesitate to get out because they
think "it is only a reaction." As profits shrink, they hold on because they think
of what they might have made by getting out sooner and this leads them to
hoping that the market will come back. Later on, they fear to sell because stocks
have declined so far they "are due for a recovery" and they "hate to get out at
the bottom," or the financial writers, still dazzled by the hangover effects of the
late bull movement, mislead them into believing "this is only a healthy intermediate reaction in a major bull market."
Eventually, the paper profits become paper losses. And then the investor
consoles himself with the dangerously comforting thought that "it is only a paper
loss." How many people do you know who were not ultimately driven to
converting just such "paper" losses into actual ones, in the aftermath of every
big bull market?
How much better it is to recognize that 10 points profit on most stocks is
more than you can take out of those stocks by holding for a full year's dividends.
If you take 15 or 20 points, you can afford to close out your holding's and
remain out of the market for three years, if necessary, before the dividend
return can catch up with the profits you have taken.

Section 23M Page 8
Therefore, protect your profits with stop orders.

An initial move of 10 points in your favor, if it started from the point of
accumulation or distribution, will usually be followed by a contrary movement of
3 to 5 points (Sect. 14M, Pg. 4, Par. 2). You must allow for that contrarymovement in judging where to place your stop. The greater the initial move, the
greater the expected rally or reaction. Even though you expect a probable move
of 20 points in your favor, make sure that you nail some of the 10 points you
have on paper. The move may have been just a flash in the pan. A rise from 60
to 70 is no guarantee that the next move will not be down to 50.
Stop orders may be used to begin new trades above but not below the
present market. However, it is best that you do not undertake to employ stop
orders for this purpose unless you have had a great deal of experience and know
exactly what you are about. Otherwise, there is danger you will be whipsawed.
A buy stop would be used to begin a new trade on the long side above the
present market. Such stops can be placed on the floor, through your broker, in
the regular way.
A sell stop would be used to begin a new trade on the short side below the
present market. Owing to a ruling of the Stock Exchange, selling stops cannot be
used to open new trades under the market. Therefore, if you desire to take a
short position "on stop" it will be necessary to use an office stop: That is,
instruct your broker or your customers' man to watch the stock and sell it short
at the market when he sees that the price on the tape has touched the figure you
have specified. Thus the Stock Exchange requirement will be met, as this will be
a market order on the short side, and not a stop order placed on the floor to
begin a new short trade. In following this procedure, you, of course, must rely
upon the alertness of your broker to see that the stock is sold immediately after
it touches the price you have instructed him to act upon.
A buying stop is used under conditions where you have reasons to believe

Section 23M Page 9
that the fulfillment of a required rally indication would be likely to initiate a

further rise or the beginning of an important advance with no further material
reaction; and where it appears that unless you catch the initial move immediately
on the day the required indication appears, you might miss it or be compelled to
pay a higher price by waiting (Sect. 17, Pg. 9, Par. 2). These conditions may
prevail: (l) When a stock is near the end of a period of accumulation or
absorption and seems ready to step on the springboard. (2) When a stock is on
the hinge, that is, at a dead center. (3) When a stock has been in a trading range
and it appears that if it can overcome previous resistance it will go into a definite
mark up.
You reason that if the stock touches a certain figure on the up side, it will
be ready to go, whereas, if it fails to reach that figure, you prefer to stand aside
waiting until it does give the up signal. For instance, suppose you have seen the
accumulation in the hypothetical stock charted on Page 9, Sect. 9M. You observe
that whenever the price dips to around 30, it is strongly supported. You believe
that at M a quick rise to 32 would be an indication that it is on the springboard
for an immediate further rise, whereas a break to 29 or 28 on increasing volume
would result in a further immediate sharp decline. You are undecided which it
will do and you cannot watch the market to see how it will behave. Believing it is
more likely to rise than fall, you instruct your broker: "Buy 10 ZYX at 32 1/8
Stop." If the price does not touch 32 1/8 your order will not be executed. But if it
reaches that figure, whether you are watching the market or not, you will be long
of the stock at or about that figure. Hence, if it should continue on up to 33 or 34
the same day, you would be in near the inception of the move and would avoid
buying on a further bulge.
The disadvantage of this procedure is that since your risk begins the moment a new trade is made for you, you must place* a new stop order immediately
to protect your purchase, just as you place a fire insurance policy on a house

Section 23M Page 10
when you buy it. This second stop, which is to limit your risk, would have
to be under 28 and since your buy stop necessarily must be executed on an up
wave, you have increased your risk, as compared with the first procedure of
buying at 30, etc, (as explained on Pg. 4, Sect. 10M). Thus, if the move to 32 1/8
should prove to be a flash in the pan and the stock fail to fulfill all its previous
indications by turning downward, your trade would be closed out with a relatively
large loss on the execution of your protective sell stop under 28.
A selling stop is the reverse of a buy stop and is used to begin a new
trade on the short side when you have reason to believe that a reaction to a
certain price would be likely to signal the beginning of a further down swing or
the beginning of a large decline, with no further material rally.
The advantage of a selling stop is the same as in the case of a buying
stop. You use it under conditions where you believe that the indicated down move
is not likely to start unless and until a certain price is reached. And, when that
price is reached, you figure that the decline will continue rapidly so that it is
better to act on what is the equivalent of an automatic selling order than to risk
a chance that you .might miss catching the beginning of the move, or risk having
the price slide rapidly away from you if you should wait, for the required
indication to be fulfilled.
The disadvantage of such a stop is the same as in the case of the buy
stop, namely, you may be whipsawed by having your protective buy stop (which
must be placed immediately to limit risk on the short sale you have just made)
caught in the event you have misjudged the indications.
Sometimes when you are long of a stock close to a danger point, you reason that if it should break through that danger point you wish to be short instead
of long. Say you are long 100 at 61 and the danger point is 59 3/4; it is your
opinion that if it breaks through the latter figure you must get out of your long
stock and go short. You instruct your broker: "Sell 200 XYZ at 59 3/4 Stop, and

Section 23M Page 11
when sold, put a 2 point stop on the 100 shares I will then be short."
The reverse of the above procedure might be followed if you are short of a
stock close to a danger point (on the up side) and you reason that you wish to be
long instead of short if it should break through the resistance point. Say you are
short 100 at 73 and the resistance point is 75. In that event you would give your
order to: "Buy 200 XYZ at 75 1/8 Stop, and when bought, put a 2 point stop on
the 100 shares I will then be long."
It is better not to place stop orders at even figures such as 90, 83, 72, 41,
etc., because there is usually an accumulation of orders at the even figures, and
when it is to their advantage, sponsors, specialists and floor traders try to get a
stock up or down to these even figures so that these orders will be filled.
Therefore, if you are long of a stock at 65, do not place your stop at 64 or 63,
but at 63 5/8 or 62 7/8 instead. Then if the stock declines say to 64 there may
be quite a lot wanted at that figure; more in fact than is offered for sale, and so
long as the demand at 64 is greater than the supply, your trade is protected.
Only when all the buyers are supplied at 64 and at least 100 shares dealt in at
63 5/8 will your stop be caught.
This technical point is based on an analysis of a large number of orders
placed by the public. Full figures are the most used in the placing of orders.
Next to the full figures, the half points are most often stated, such as 25 l/2,
50 1/2, etc. Next to the half points, the quarter points. Least of all, the fractions
3/8 and 5/8.
From the above we observe why it is to our advantage to place stops on
long trades at the so-called odd fractions below the full figure, and on short
trades at the odd fractions above the full figure.
The proper methods of placing stops to protect commitments when first
made, and of moving stops to reduce risk and then to protect profits have been
fully exemplified in the chart studies presented in preceding sections. From these

Section 23M Page 12
practical illustrations, it will be noted that it is unwise to follow arbitrary rules,

such as placing a stop 2 or 3 points away from the price at which a commitment
is made.
Arbitrary stops of 2, 3 or more points should be used only when the tape
or the chart does not show a support or resistance level, or a support or resistance point, nor otherwise give an indication as to where your stop might logically
be placed.
Remember, your object should be to place your stops as close to the
danger point as you can get it with reasonable safety. In the case of very high
priced stocks, this may be 3 to 5 points under a supporting point or level, or 3 to
5 points above a resistance point or level, or it may be the same number of
points under or above the level of a part way (50%) reaction or rally mark; or
the same (approximate) number of points under a clearly defined trend support
line or above a clearly defined trend supply line. In the case of moderately priced
stocks it may be approximately 2 to 3 points and in the case of low priced stocks,
say in the ranges under $50, approximately 1 to 2 points.
The number of points you will risk in placing a stop should also be governed by the type of operation you are engaged in. Thus, in short swing trading
operations where you may be trying for the 3 to 5 point moves, your initial stop ;
must be placed much closer to the danger points and should be moved to reduce
risk more quickly than in the case of commitments made for the intermediate,
swings of 10 to 20 or more points. The difference is that in the case of short
swing trades, you are trying for smaller indicated profits and a more rapid turnover of capital; hence to keep the proper limitation of risk you must crowd your
stops closer than in the case of long swing operations where you wish to allow for
normal corrective rallies and reactions, or changes of stride, without being kicked
out of your position on minor reversals of an established trend. All of which
sums up into saying:
In handling stops, be influenced by the purpose for

Section 23M Page 13
which you made your commitment originally, and adjust your stops thereafter in
accordance with the subsequent behavior of the stock and the market as a whole.
Always keep in mind that:
Stop orders should NEVER be changed so that
your risk is increased. All changes should be made for the purpose of reducing
risk or eliminating risk or making sure of part of your paper profits.
Nowadays so many traders make a practice of placing stops exactly 1
point above or below an old resistance or support level on the even (full) figures
that it is better to place your stops from 1 3/8 to 2 5/8 points away, from these
levels and at the odd fractions, as already stated. Thus you will, in many cases,
be out of range of specialists and floor traders who "gun" for these stop orders.
After a stock has moved well away from the point at which you took a
long or a short position, you must remember that the further it moves, the
nearer it is coming to the reactionary or rallying point, or the turning point for a
swing in the opposite direction. The more it goes in your favor and the more it
approaches the point (objective) where, you estimate, it should rally or react or
turn completely, the closer your stop order should be to the market price.
If you calculate that there should be a 15 point move in your favor, do
not hold out for the last point. If you are 10 or 12 points to the good on paper,
crowd the stop order right behind the price when you see indications of hesitation
or preliminary signs of a reversal. The more the stock hesitates and seems ready
to reverse, the closer your stop should be.
In some cases, such as the above, it may be better to be stopped out on a
close stop than to close it out yourself, for when you close a trade you shut off
the possibility of further profit. But if you move your stop within a point or so
of the market price, or to whatever figure the action of the stock itself indicates
is best, the way is open for more profit and you have assured yourself most of
what has already accrued.

Section 23M Page 14
However, the handling of stops efficiently is like everything else in the

stock market, it is a matter of developing good judgment. Generally speaking, you
will find it more satisfactory to close out your trades yourself, on your judgment
of behavior, in preference to letting your stops take you out. This is because a
stop on a long trade must necessarily be executed on a down wave, that is, on
weakness and a stop on a short trade necessarily must be caught on an up wave,
that is, on strength. With good judgment, you aim to begin long trades and cover
short sales on down waves and to close out short trades or close out long
commitments on up waves. The difference between what you get in using good
judgment to begin and close out positions and all owing them to be closed out on
stop, nevertheless, should not be counted as a loss. Rather, it is merely another
item in the operating expenses of an investor or trader, namely, the insurance
premium paid to guard against greater losses a very small premium and a
very convenient insurance which is available in few other lines of merchandising.
Of course, even the very best judgment in making commitments and the
best logic in handling stops cannot prevent having them caught at awkward
places. In such instances, that is, where you see you have been stopped out
prematurely, it pays to reestablish your original position if you find that the
action of your stock subsequently justifies going right back into it. But you must
set your stop on the reestablished commitment just as if it were an entirely new
position and without regard to the price at which you previously went in or were
stopped out.
There are three reasons for the too frequent catching of .stops:(1) Starting trades too soon. This may be the result of impatience
hence poor timing or failure to wait for reasonably conclusive
indications or failure to observe the principles set forth in
Paragraphs 2 and 3, Page 1.
(2) Bucking the trend.
(3) Improperly placing and adjusting your stops.

Section 23M Page 15
If you find your stops are being caught frequently, go over your trades
carefully to determine whether the fault may be attributed to any or all of the
above causes. Then review the instructions herein and all preceding references
to stop orders so you may discover your errors and thus avoid repeating the
same mistakes in the future.
Should it appear that your commitments are started right and your stops
reasonably well placed, then the frequent catching of stops should be taken as a
warning that you are not operating in harmony with the trend of the market.
Thus, if you persist in selling stocks short in a rising market you are bound to
expose your stops to the danger of being touched off on bulges. Conversely, if you
repeatedly buy on what you believe are reactions only to discover that your stops
are consistently caught, this should be taken as an indication that you are
operating on the wrong side of the market the trend is down and those
presumed "reactions" in reality are waves of liquidation. Such errors of judgment sometimes lead students to abandon the use of stops. Nothing could be more
dangerous.
Some active traders prefer to use mental stops. We suspect that many of
them do not watch the market continuously; they forget that the market may go
badly against them when they are not studying the tape. And on occasions the
tape is many minutes behind the market. A mental stop is of no use under such
conditions. Do not use mental stops unless you are watching the market continuously. If you cannot do this, leave instructions with your order clerk to close out
your trade "at the market" when a certain price appears on the ticker tape. You
may get more or less than that price; but if you will follow this plan you will not
sustain a large loss if you are wrong. And everyone must expect to be wrong a
considerable percentage of the time, especially when he is learning to trade.
NEVER abandon the use of stops. Instead, if your stops are too frequently

Section 23M Page 16
caught, close out all your commitments. Get out of the market entirely and stay
out until your judgment clears, until you have located the cause of your difficulty
through consultation with our Coaching Staff and know how to correct it: In brief,
until you understand the market and are able to apply the instructions contained
in this Course.
Not to use stop orders is to discard one of the most vital parts of this
Method. The secret of success in any business is the limitation of losses. Not to
use stop orders is to express such confidence in your judgment as to indicate that
you cannot be wrong.

Section 23M Page 17
GENERAL INSTRUCTIONS
CAUTIONARY SUGGESTIONS
Your undertaking to learn this Method is evidence that you intend to reverse the rule of the public which is to monkey with the stock market buzz-saw
before it knows what makes the wheels go round. As in any other business or
profession, art or science, it is essential that you lay a sound foundation by
serving an apprenticeship before you begin actual practice. If you were studying
to become a dentist, you would not begin by immediately pulling patients' teeth.
If you wish to become a lawyer, you do not begin by trying cases before the court
(even if the Bar Association would let you). Your clients would soon discover
your inexperience and you would have to suck other fields, It is the same way
with the stock market. You must study first, then acquire experience by serving
an apprenticeship before you begin your actual practice with real patients which,
in this Instance, are your own dollars.
The way to lay a solid foundation for success is to begin by:
Trading on Paper. This is an inexpensive way to gain experience and to
test your ability to apply what you have learned. Some people object to paper
trading on the ground that it is like playing poker without stakes, there is no
thrill in it. Very well: We ask you to remember that the biggest thrill of all comes
when you make your first series of actual trades, with money, and find that they
were correct. There will be more thrills as you continue to make successful
commitments and discover that you never again are taking big chances nor
suffering disastrous losses. If you wish to forego the satisfaction of stock market
success for a little temporary excitement, you may disregard this admonition to
start by making trades on paper without taking any risk. But if you wish to
attain the thrill of achievement, you will begin by trading on paper.
Do this until you find that you are learning what and when to buy or sell.
When you decide a certain stock is either a purchase or a short sale, write it

Section 24M Page 1
down in a record book just as if you were writing an order to your broker. Then
ascertain either by telephoning your broker, or by looking in your newspaper
that evening or the next morning, at what price your order would have been
filled. Give yourself the worst of it if you are in doubt. Mark this price down in
the book. Add the commission for buying or selling. When you close out this
transaction, figure the commission and the tax on the sale or purchase. Calculate
the net profit or lass. Then add, in the loss column, interest at 6% on the amount
the stock cost (if it was a long commitment), just as if you had actually bought it
through a broker.
Study your losing paper trades and compare them with the successful
ones so you may locate the cause of your mistakes. Try to correct these when
you make the next series of commitments. After making fifty or a hundred such
trades on paper without risk, you will know whether or not you are learning to
select the right stocks at the right time. Do not fail to study your weak points.
When making trades on paper, place a stop order on each commitment
immediately, the same as with factual money. On a paper transaction it is just as
important to do this as on actual purchases and sales, for you want to know
when your judgment is wrong, and the penalty for wrong judgment is loss.
After you have completed a successful course in trading and investing on
paper, you will be ready to operate with money, but not before. Do not be impatient, to begin trading or to get results. Lay a strong foundation for your future
by understanding thoroughly before you make even a single paper commitment.
Continue your paper transactions long enough to be certain of your judgment
before you venture a dollar.
Do not let anything or anybody lead you to make hasty commitments with
real money. If you have subscribed to the Course with this idea and have not the

Section 24M Page 2
capital to see it through, get yourself into that position before you make your
first transaction with cash. Nothing should urge you to begin hastily and to be
under a nervous financial strain.
Operating with actual money is more of a test of your ability than paper
trading, for when your money is at stake you will be more or less at the mercy of
the two devils of stock market followers Hope and Fear.
Therefore, when you start actual operations it is advisable to begin with
ten or fifteen share lots no matter how large your capital may be. Remember that
you are learning the business. You should not try to make money at this stage. It
is vital for you first to train yourself. Bear in mind that you do not need any
capital to learn how to trade and invest according to this Method. Knowledge of
stock market technique is far more valuable than capital in the beginning.
The longer you study the Course, the more expert you will become. Do not
expect to be a full-fledged operator in a few weeks or months. Bull markets
sometimes run for years before a bear market comes along. Even the more
experienced traders can forget the tricks they have learned in the last bear
market before another one develops; and the reverse is equally true. Therefore, if
you start at the beginning or in the middle of one cycle, it may take a long time
before you will have the opportunity to learn how to handle your transactions in
the other. Hence, you should strive to perfect your judgment by constant practice.
Avoid concentrating on one feature of the Course to the exclusion of others.
Learn the whole Course. Get the benefit of all of it.
Overtrading is a form of financial suicide. It is the second greatest
mistake made by the public. After you have gone far enough with your paper
transactions to warrant actual trading and investing, begin with small lots.
Provide sufficient capital to keep your mind at ease. If actual results are not as
good as in your paper trading, go back to paper trading, then resume later with
real money. Try to build up your capital out of profits.

Section 24M Page 3
If you make money at the start, wait until you have ample capital before
you deal in larger lots. It is much better to creep before you try to walk. There
will be plenty of time for you to operate in larger lots after you become more
expert. The market will always be there, and the main thing at the beginning is
to proceed in such a way that you will build a solid foundation for future
successes. If you overtrade at this, or any other stage, that is, spread yourself
out too thin, you will be handicapped and perhaps discouraged and defeated by
your early experiences. This happens to most people who operate without
learning stock market technique; they lose their capital before they know how to
trade or invest. I emphasize this so it will not happen to you.
Trade in equal lots of stock. Success in active trading means making a
series of transactions in equal amounts of stocks with the result that, after
paying commissions, interest and taxes, profits exceed losses.
The man does not live who can make a profit on every transaction.
A loss on a trade is punishment for wrong judgment. The more accurate a
trader's judgment, the less losses he will have. For example, one hundred percent
judgment in selecting opportunities means that after a trade is made the price of
the stock bought or sold does not go as much as one-eighth against you. That is
the standard which you should strive to equal, and the nearer you come to it, the
greater your net profit at the end of the year.
The reason for having the number of shares equal in active trading operations is this: Most people will have twenty-five or fifty shares of this and one
hundred or five hundred of that. Usually they aim to make a killing by loading up
with the very lowest priced stocks, i.e., the most speculative and hence the
riskiest issues. Result: The losing trades oftenest will be in those of which they
have the most, and profits will come on the small amounts. Sound practice
demands a series of trades in equal amounts; as you become more expert you
will find your profitable trades running several times your losing trades,
measured in points and fractions.

Section 24M Page 4
If you aim to operate on an investment basis, that is, make commitments

for the intermediate and major swings, you may prefer to divide your capital so
that, instead of carrying equal lots of stock you will have approximately the
same number of dollars invested in each issue. That is all right provided you
stick to the better class stocks and do not unbalance your position by placing an
unduly large percentage of your funds in "cheap" stocks.
Whether you are trading for short or long swings, it is better to diversify
your commitments than to concentrate on one or two issues. In other words,
spread your capital over three, five, ten or perhaps twenty of your best selections; how many will depend upon the amount of money you have available. Say
you have picked five candidates, and assume that five is the maximum number
of commitments you will normally carry at one time. Even with the best
judgment, one of these may go wrong and another may fail to make good as you
anticipated. But chances are your profits on the other three will more than offset
your losses and you will have at least "one good horse in the running." However,
if you take on, say, 100 shares of just one of your candidates instead of twenty
shares of each, you may find that it is just your luck to be in the poorest
performer of the lot.
On the other hand, diversification can be carried to extremes as much as
concentration. Thus, if you have too many commitments to watch, your judgment
may be warped by worry, or lack of time in which to keep an excessively large
number of open trades under careful observation.
Of course, the above does not mean that you must make all five of your
commitments at once. As explained elsewhere (Sect. 8M, Pg. 7, Par. 2), the day
on which you make your first transaction may not be the best time to enter any
one or all of the others. Suppose five is your usual limit and you have taken
on one or two of your selections; in that case do not complete your line by
putting the rest of your capital in those first two stocks. Keep the rest in
reserve until you see that the right time has come to get into the others. It

Section 24M Page 5
may happen, that after you have made your fourth commitment, you will not like
the way your fifth choice is behaving. In that event, you will pass it up, keeping this much of your operating fund on hand until you do find a stock that is acting
in the manner which would justify your selling it short, or buying, as the case
may be.
Where to study the market. This Method may be followed either in a small
private office, or in one's study at home after business hours, or elsewhere in
spare time.
If you plan to make active trading your profession (as explained in the
"Tape Reading and Active Trading" division of this Course), the best way to
study the tape is in a private office, preferably one which you lease for your own
use. It may be a very small office, for all you need is a ticker, a telephone, a
desk and a chair. If you do not put your name on the door, nobody will call and
bother you. Just have the word "Private" painted there; then other folks will
keep out.
If your commissions warrant it, your broker will be glad to furnish you
with a private office and all equipment at no cost to you.
Your broker's Customers' Room is probably the worst place you could select either for study or for actual operations, regardless of whether the market is
your profession or merely your avocation. You cannot concentrate on the very
difficult and intricate subject of tape reading when the broker and his assistants
are rushing around with orders; when other people are gossiping about the
market, asking foolish questions, passing along tips, and shouting out every
1,000 share transaction as it comes across the Trans-Lux. All these influences
tend to confuse your judgment. They are just as damaging, just as misleading to
the investor as to a trader. Learn a lesson from the hen: She goes off into a
quiet nest and there, in a little while, produces the egg. It is the egg of profit
which you must learn to lay, and experience will prove that this is best

Section 24M Page 6
done, in solitude. (See also Sect. 25M, Pg. 2, Pars. 1 & 3.)
Judging the stock market is a task which requires a careful balancing of
one's faculties. If one's judgment is pulled this way or that by the numerous,
influences which are present in a brokerage office, it is almost impossible to keep
from being biased. By working in silence and seclusion these1 confusing conditions are done away with.
Another objection to operating in a broker's office is the gradually acquired tendency to trade too often. You see people all about you buying and
selling. The customers' man comes to you with his latest bit of news or gossip.
The news ticker rouses your curiosity and leads you astray. Everything about the
place encourages you to trade frequently; to act on emotional impulses and to go
off half-cocked.
It is much better for you to make one commitment a month and realize a
profit from it than to trade every day and show a net loss. In the kind of
operating which is most profitable, the day to buy is not always the day to sell.
If, as I have shown, the important movements in the market take time to prepare
and carry through, it must be evident that if you wish to benefit by them you
must have patience. It is difficult to have patience in a broker's office; this is
comparatively easy when, in your private office, or in the evening, you devote an
hour to a study of the market and the planning of your moves.
If you have no private office and no time to devote to the stock market
except after office hours, you are perhaps just as well off, even as an active
trader, and certainly so if you are more inclined to investment operations. You
find in your evening newspaper the complete record and the net results of the
day's battle between the bulls and bears. From this record (*) and a Wave Chart
* That is, from the table of prices and volumes. DO NOT fritter away your
time reading the financial news and gossip columns. The less you know of this
stuff the better off you will be. Much of this material may be colored by the
opinions and prejudices of the writers whose business is journalism, not
forecasting. The financial reporters function is to gather news of current

Section 24M Page 7
you can, in a little while, obtain the comparatively few facts that are necessary
to compile your own individual records. It is from these records of your own that
you can, in the silence of your own room at home, plan your campaigns. You
then mail, telegraph or telephone instructions to your broker. You need pay no
further attention to the market until the next evening, when you see the results
of the day's transactions. These will either confirm or contradict your previous
judgment, or throw doubt upon it, in which latter case you close out your
commitments and take a neutral position.
Devoting an Hour, a Day to the Market. The best results I ever had in
judging the market and trading were when I could devote only one hour a day to
study of the market, planning my campaigns and giving instructions. Busily engaged in affairs that prevented my studying the tape throughout the session, I
found, as stated in my book, "Wall Street Ventures and Adventures," (Page 211):
"It was not until some time afterward that I realized that being limited to one
hour in the middle of each day was an advantage in my concentrated study of the
position of the market and its action. Had I been an active trader, this would not
have been true, but in defining the trend of the market, anticipating the important turning, points, and selecting the best stocks for making the most profits
in the shortest time, the hour-a-day method was ideal. Each hourly section was
compared with those of the preceding days. The comparative strength or weakness, the response of the market to bullish or bearish influences, the nature of
the manipulation, and the evident purposes of the manipulators became more
clear thus in comparisons of hours side by side."
happenings; you cannot expect him always to know when a bit of news or gossip
may be inspired by some one with an axe to grind. Furthermore, he strives to
give the public what it usually wants, namely, the best explanation he can concoct for any given rise or fall in the market. That satisfies the majority, but it is
of no value to you. You want to be in or out before the apologies and explanations start. Anyhow, did you ever stop to think how many thousands of other
people are reading the same news item at the same time, and reacting to it in the
same way? You do not want to go with that crowd, but against it.
Section 24M Page 8
Years ago, as I stood at the ticker watching James R. Keene, the famous
stock operator, do his own trading, I observed that he would make a close scrutiny of the tape for two or three minutes, and then he would pace up and down
his office for about the same interval. Each time he returned to the ticker he
would observe the changes that had taken place in the character of the market
and the action of certain stocks. He saw, on the tape, a series of pictures which
he closely analyzed and weighed. As he walked back and forth during the
intervals he would further consider his observations and form his conclusions.
I suggest that a certain hour each day be devoted to a study of the market
by those who cannot give more time to the subject. For the average man who is
engaged in his regular line of business, an hour in the late afternoon or evening
should be sufficient. On the average I think one who follows this plan will be
more successful than those who spend all day in a brokerage office, but probably
not as successful as those who can devote all of their time to a study of the tape
in combination with the charts in the seclusion of their own private office.
In my case, during the period above mentioned, when I was following the
hour-a-day plan, I had an understudy who watched the market closely and called
my attention to any special features that occurred while I was absent. A boy kept
the charts. One day I said to this boy: "What you are learning here should be
worth a million dollars to you some day." That was fifteen years ago. I was right.
He has since made more than a million dollars, largely from, what he learned at
that time.
Selling Short is something that many people cannot do as easily as they
can trade on the long side. This is such a great handicap that I advise trading on
paper until you can sell short as readily as you can take a long position: that is,
with an equal amount of mental ease.
One who can operate only on the long side of the market is, only half a

Section 24M Page 9
trader. He sees everything through the eyes of a bull. He thinks everything is

always going up. He never can see any money on the short side. The truth is, a
chronic bear has a better chance of making money than a chronic bull.
The speculative public is made up mostly of bulls. The speculative public
loses on a colossal scale every year except in riotous bull markets, and even than
this money is only lent to them for the time being. Wall Street history proves
that chronic bulls mostly lose their profits and more besides. A great part of
these losses could be turned into profits if they could see the short side and the
many advantages of operating that way when the proper time arrives.
It is not what you make but what you keep that counts.
Many hesitate to sell, short for fear of a corner. If one were to investigate
the number of corners that have occurred in the last fifty years, he would find
that there is not one chance in a million of being caught in a corner, and that one
chance can be eliminated by placing a stop order on every trade immediately
after it is made.
It is an old Wall Street saying: "Stocks are put up but they fall down."
The biggest and quickest money is on the short side. In the panic of October and
November 1929, the decline, in two months, wiped out the gain of the previous
fourteen months. This means that a short seller, acting at the right time, made
big and quick money by taking advantage of a bad technical situation and an
overloaded public. Had there been more shorts at that time, the market would not
have had such a demoralized break. A tremendous balance wheel would have
existed had a good portion of the traders taken the short side" in the upper
levels of the 1929 market, say in July, August and September. This would not
only have prevented prices being marked up so extravagantly, it would also have
supplied a great buying power on the way down to a certain degree a protecttion against the wide breaks between prices.

Section 24M Page 10
The average man's commercial training requires him to buy before he

sells. In stock trading one must get accustomed either to selling first or buying
first. It makes no difference which, in the final result, but the object is to sell at a
higher price than you buy.
When you sell short, your broker borrows a certificate for the same number of shares as you have sold, and with this he makes your delivery. To the
broker who loans him the certificate, he in turn loans the market value thereof
in cash, as security.
At times, when it is difficult to borrow certain stocks, it is necessary for
you to pay a premium for the use of such certificates. These premium rates are
published on the news tickers, also in the financial papers and usually in the
daily papers. When a premium is thus charged, it is an indication that there may
be an excessive short interest in that stock; but that is no guarantee the stock
will not go down and it need not worry any one who uses a stop order.
A trader must be careful to avoid selling short stocks which have a very
thin market, for these are likely to open some morning several points above the
previous night's closing price, thus resulting in stop orders being executed at
much higher figures than anticipated.
There are times, too, when the New York Stock Exchange forbids short
selling or puts restrictions on such sales, so that the short seller is at a disadvantage. On such occasions it is best to postpone trading until normal market
conditions prevail and thus avoid such handicaps.
Selecting Stocks. Search the market continually for the best stocks in
which to trade. Your charts will show you which these are.
Favor the stocks which are the mediums for the largest operations. These
usually offer the best action, the greatest facilities for getting in and out close to
the last sale, and the most safety in the use of stop orders.
Do not get into a stock just because it is in a bullish position or sell

Section 24M Page 11
it short just because it is in a bearish position. Wait until it gets to the end of its
period of preparation and is out on the end of the springboard, ready to go. Let
other people play with it until that time. Thus your money will be kept active.
You will avoid getting tied up in dull stocks, long before they are ready to make
money for you. You will avoid being kicked out of your, trades because you got in
too soon.
Try to get almost immediate action for your money; not that you can expect a stock to move just because you bought or sold it, but because it is bad
practice to hold a position for many days or weeks without getting anything out
of it.
Try to select the stocks that indicate they will move soonest, fastest, and
farthest.
Limit your losses and let your profits run. This is one of the fundamental
principles in Wall Street trading. Unless you can follow it you had better not
start.
The reason why the public loses so much money in the stock market is
that most people reverse this rule; they take small profits and let their losses
run, often until they go broke.
When deciding upon a trade, decide also how much risk you will take.
Reason thus: The action of this stock indicates that it should move in my favor
ten or fifteen points. I am therefore justified in risking three points; my
prospective profit must always be several times the amount of my risk. I must
place a stop so many points from the price at which the trade is made. If the
stock moves in my favor, I will move the stop so that the risk will be reduced,
then eliminated; then, if the market permits, and a paper profit appears, I will
move the stop farther so that a part of this profit will be assured.
The above means: If you are wrong, run quickly. When a stock goes
against you, you are wrong to just that extent. It is no sin to be wrong, but to

Section 24M Page 12
let a lose run into big figures often leads to failure and disaster. Just think how
much money the public would have saved in the decline of 1929 to '31 if the risk
on each trade or investment had been limited.
After you have traded for a while, if you find that your stops are being
caught too frequently, it will mean that you are not careful enough in starting
your trades. Thereafter decide to use more discrimination. Refuse all but the best
opportunities. Wait for them. Take your positions as close as you can to the
danger points, as shown on your charts or on the tape. Place your stops according to the requirement of the situation (Sect. 23M). Study your mistakes and
profit by them. Know every minute why you are starting a trade, why you are
holding it, and why you should close out.
Placing Orders. In nearly all cases it is best to place your orders "at the
market," except in the case of stop orders, of course. As a rule, limited orders
are inadvisable, but not in all cases.
When you have watched a stock go through a period of preparation for a
substantial move, and you observe that it is suddenly becoming very active at
day 85 1/2, it is a mistake to place an order at 85 1/2, or any other limited
price, because your broker may not be able to get it at that figure; it may not
be obtainable under 85 3/4 or 86. In trying to save a fraction, you might miss
the whole move.
If you are waiting for an opportunity to sell a stock on a rally, or buy it
on a dip, and your chart shows you that the trade should not be made unless
it goes to about your figure, it is all right to use limited orders. A case would be:
A stock advances from 86 to 90 after going through all the1 stages of
preparation, and you believe, judging from its own action and that of the rest
of the market, it should react a point or two before it goes on upward. You
might then place a limited order at 88 1/4 (just above the full figure for
reasons explained under the heading "Stop Orders").

Section 24M Page 13
If you are placing orders for execution the next day or are unable to
watch the tape or your charts during the day, limited orders are all right in
certain cases. However, if you figure, during the evening, that a certain stock is
in a bearish position or on the edge of a sharp decline, tell your broker to sell it
short at the market price at the opening. Do not use limited orders in such cases.
A limited order always means that it is to be executed at that price or
better; in the case of a buying order, at a lower price than the figure stated; in a
selling order, at a higher price if possible.
Do not straddle. It is bad practice to be long of one stock and short of
another unless you are so proficient and so experienced that nothing will "rattle"
you.
When a down trend is indicated, you should be short.
When the decline has run its course, you should cover: if there are indications of a reversal in trend, you should go long at the same time.
If only a small rally is indicated, you should do nothing until the real
buying time is indicated. If an important rally is forecast, you should cover
and at the top of the rally, if you judge that the trend is still downward, you
should again sell short.
But do not try to catch every turn in the market, Wait for the best
openings.
In my most successful short swing trading campaigns I took a position on
an average of once a month. Five or six of these campaigns showed losses. These
were small, because a stop order was always placed on each trade. Result: A very
satisfactory net profit at the end of the year. The profitable trades ran into
substantial figures usually several times the risk.
Judging the Market from your Newspaper without the aid of tape or
charts: After you have practiced with the wave chart and the others explained in

Section 24M Page 14
this method, you can readily apply the same principles, and study the
action of stocks as indicated in your daily newspaper. (Section 4M, Pgs. 22 and
23.)
Take a few of the leading stocks for study purposes and observe how they
act in relation to the rest of the market; whether they are well supported on
declines; whether they lead or follow in rallies; how the volumes compare with
the whole market; whether these volumes are light or heavy on advances and declines, etc.
One after the other consider all the important technical points explained
herein and apply them as often as you can whenever you have spare time.
If you have figure charts and can give sufficient time to the subject, you
will find that you can memorize them. The way to do this is to look steadily at a
chart for a few moments, just as if your eye were a camera and you were thus
taking a mental picture of it. This will aid you in studying the market, when you
have, no charts handy. From your newspaper you can see what changes would be
made on your charts when the time comes to make your entries thereon.
Dividends. It is bad practice to buy a stock just before it sells exdividend, merely for the sake of getting the dividend. Many people do this, in
the mistaken belief that they are securing an additional profit and as a result of
this kind of buying there are occasional bulges in a stock the day before a dividend comes off, but this gain is just us likely to be lost in the succeeding
sessions.
In a bull market the dividend will frequently be recovered in the market
price, within a day or two following the ex-dividend date but in the long run these
gains are absorbed in the average trend; hence, buying to get the dividend is
based on a fallacy and is simply a gamble that it will be recovered, almost
immediately.
If you are short of a stock on the day it soils ex-dividend, you must pay
the amount of the dividend, or, rather, your broker will charge it against your
account. But that should not bother you because if your short position is sound
Section 24M Page 15
the stock is likely to lose the full amount of the dividend. Thus, in a bear market,
when the dividend comes off the price, a stock usually declines more rapidly than
the average trend. That is, on the ex-dividend date, the stock may not only sag
off by the amount of the dividend, but may also lose several points more owing to
offerings from those who hold the stock just long enough to secure the dividend.
Therefore, in making commitments, either on the long or the short side, it
is best to disregard ex-dividend dates.
*Pyramiding. There are certain points, as indicated by the tape or your
charts, when it is good practice to pyramid, protecting each additional lot with a
stop order. These are explained on the charts.
There are certain other times when the preparation has been completed
for a quick and important move in, a stock; when it is out on the springboard, as
we call it, and is giving almost positive evidence that the psychological moment
has arrived for a pyramiding play. At such times there are two good ways of
pyramiding:
(l) By making your initial short sale (or purchase) 300 shares (or 30 or
any multiple number of shares) and, as the market goes in your favor, adding to
your line 100 (or 10) shares for each one point. Your trade should be started so
that your initial stop order will be about three points or less away from your first
sale price. A stop order should also be placed about three points away from the
selling price for each additional lot. The stop on the 300 shares should be lowered
one point for each point the stock declines. The stops on the 100 share lots
should be so moved that none of them will be above the stop price on the 300 lot.
(2) 1 By starting with 100 shares, add 10 shares for each one point the
stock goes in your favor. Have a stop on each and every lot. Move all stops the
* This explanation is intended to illustrate the principle involved. Pyramiding is no longer practicable on the long side under present day (l937) high
margin requirements.

Section 24M Page 16
same way as in the first operation above described.

Closing pyramid trades should be done the same as any other trades
when the action of the stock on the tape, or on the chart, tells you it is time to
close.
Never get the idea that because a stock shows a clear indication of going
up or down, it is time to pyramid. There are only certain conditions under which
this form of operation is comparatively safe. I say comparatively because no one
can ever make a trade in the stock market with any guarantee or positive
assurance of success.
As above stated, the ideal time for pyramiding on the short side is when'
the pressure on a stock is so heavy, and the support beneath it so light, that it
shows positive signs of sudden and drastic decline. Or, on the long side, when
sudden and insistent demand for a stock shows such irresistible lifting power, as
shown on the tape or your charts, that it seems about to be driven suddenly and
strongly upward.
There should be evidence of a 10 to 15 point move at least to justify pyramiding.
Orders to buy or sell for the additional lots should be placed "on stop" so
that when the price touches the buying or selling prices the pyramiding orders
will be executed automatically.
Averaging. Never increase your line when a trade goes against you.
Letting a stock run against you more than a few points is bad practice.
Letting it run to where you think it desirable to buy or sell more to average your
cost is worse practice.
If your judgment was wrong in the first instance, a stop order should
have let you out with a small loss. If you had no stop, and the price goes against
you, it proves more than ever that your judgment was wrong. Why persist in
using wrong judgment?

Section 24M Page 17
You may think a stock is cheap at 90 and still cheaper at 80, but remember that it may go to 25 or 10. Neither a trader nor an investor has any business
to be in a stock after it goes few points against him. So eliminate the idea of
averaging. Never average in trading.
Closing Your Trades. This should be done on positive tape or chart indications. Just as there must be good reasons for beginning a trade, there should
be other good reasons for staying in it and closing it.
The market constantly tells you what to do: Be long; be short; be neutral.
When it says "be neutral" you should close your commitment, whether
there be a profit or a loss in it.
If you don't get out on the rises, rallies or booms, you will have no money
with which to buy in the slumps, panics and depressions.
And when you are short, if you dont cover when they are weak, you will
probably lose your best chance.
James R. Keene once said to me:
"The best time to buy stocks is when they are all going down together,
and the best time to sell is when the whole body of stocks is strong."

Section 24M Page 18
MARKET PHILOSOPHY
Cautionary Suggestions Continued.
The two elements vital to success in the stock market are: (1) Knowledge
of the principles taught in this Course and (2) Ability to apply these principles
correctly. A famous operator, Dixon G. Watts, expressed the idea many years
ago by saying that the qualities essential to the equipment of a speculator (and
an investor) are: Judgment, self-reliance, courage, prudence and pliability.
To these should be added another quality, patience. In brief, rigid self-control
is half the battle.
We can train you to develop good judgment, but you must train yourself to
act upon your decisions and to carry them to a successful conclusion. By this is
meant that you must operate with no emotion's whatever. Be just as indifferent,
hard boiled and level headed in opening and closing actual commitments as you
would if they were merely paper trades. You can do this if you will be honest
with yourself. Make a searching analysis of your own mental processes. Study
your psychological shortcomings. To know them is to beat them. If you find you
do not possess courage, self-reliance, patience, prudence and pliability, cultivate
those qualities. It is folly to be in the market without them.
When you make a commitment, your attitude should be that it is just an
ordinary business transaction involving risks common to any other business
venture. If it turns out profitably, well and good. If it results in loss, no serious
harm will be done because you have limited your risk with a stop order; and you
know in advance that no business can be conducted without occasional setbacks,
so you are prepared to accept them philosophically.
Thus you will waste no time regretting losses or lost opportunities. The
only value of a mistake is the lesson it may teach. Hence the only thought you
will give to your errors will be studying the reasons, for them. Regrets can
Section 25M Page 1
teach you nothing but they can produce a great deal of mental anguish which will
upset your self-control.
Once you have acquired complete control of your emotions, you will, he
surprised to find how greatly that strengthens your, judgment. The better your
judgment, the greater will be your confidence in yourself and your contempt for
the opinions of others. Right here let us caution you to remember that another
vital element in your success will be your ability to play a lone hand.
Decisions arrived at by committees or groups are no better than the worst
opinion of the weakest thinker of the lot. It is a peculiar fact, in the stock market
at least, that a loud mouth goes with a lame brain, but leather lungs sway more
people than sound logic. That statement may seem harsh, but you will recognize
its truth later if you do not see it now.
Neither should you seek confirmation of your decisions by consulting
others whom you may regard as experts, unless you are positive they speak the
same language as you, that is, understand and follow the same principles. Even
then, be careful. One person may see the market with the eyes of an investor,
another through the eyes of the day-to-day trader. You may consult both and get
conflicting opinions, each of which is sound for that particular individual's
requirements, but not for your purpose. Again, you may have made a close study
of a certain stock. You ask another, who knows little about its behavior because
he; has not followed it, what he thinks. To be sociable he gives you an offhand
opinion which throws you off balance. Result: You take a loss or miss an
opportunity. In fact, we know of cases where two equally skilled operators have
had diametrically opposed positions at the same time, one long, the other short,
in different stocks of course. Both made profits. But had they compared notes,
consulting each other for an opinion on the market, the outcome would have been
confusion, hence opportunity lost and mental poise upset. Therefore, make it
your practice to draw your own conclusions and keep them to yourself.
Section 25M Page 2
A stock market operator must be as hard boiled as a five-minute egg.; cold

blooded as a fish; deaf to all gossip; blind to news; and dumb as a door knob
when it comes to discussing the market with others.
Capital and Courage are two things necessary before you begin actual
trading. You must have capital and you must have the courage to act on your
own decisions.
As you continue your study and practice, you will gain confidence and this
should give you the necessary nerve when you see an opportunity. If at any time
you find yourself powerless to move because you haven't the nerve to trade,
make your trades on paper; but only until your confidence returns. Better still,
take a vacation from the market. Do nothing for some days or weeks. When you
return to it, you will find your judgment improved.
Prudence. Do not let successes lead you to trade in unduly large amounts
in proportion to your capital. If you have $10,000 available, see what you can do
by venturing not more than $1,000 in a series of trades in small amounts of
stock. Do not touch the other $9,000 until you have proven whether or not you
have been successful with the $1,000. If you should lose the $1,000, try again
with the next $l,000; do not use all the rest of it.
It is a good plan to have a column in your record of transactions in which
you enter the causes of any losses that occur. Study these. This will aid you
toward success.
Your transactions may be small at first but this start is very important to
you. "As the twig is bent, the tree's inclined."
Suppress all anxiety to make a lot of money. Do not aim to make a killing;
try rather to realize a consistent return on your capital 20% to 45% or more
per annum is not an unreasonable goal. You will be surprised how rapidly you
can build if you do not aim too high at the start. Concentrate upon learning to
play the game not the way it is played by the public but by the professionals
Section 25M Page 3
Play it, not like an outsider, but an insider. Try to get the big fellows
point of view. Reason out what you would do if you were in his place. If you were
trying to buy you would force the price down as low as you could. When it came
time for you to sell, you would spread bullish tips and print optimistic news items
through your press agent in order to induce other people to buy; thus you would
create a good market on which to sell. That is the game as the large operator
plays it, and when you understand how he works and you, trace his movements
on your charts, you are making him work for you and profiting by his efforts.
Thus you continually increase your chances .to win.,
Never risk any more money than you can afford to lose.
If you use money that you cannot afford to risk, your judgment will be
warped. Fear of loss will cause you to use bad judgment. Hope that you will make
a profit will cause you to hang on when you should close out.
Pliability. If you cannot act without hope or fear; if you cannot trade
without having your judgment distorted by these factors, wait until you have a
certain amount of money that you can afford to risk and the time to devote to the
market. Then you can be calm, cool and collected. By practicing on paper
meantime, you can further prepare yourself for your real campaigns.
When in doubt, get out!
Nothing clarifies the mind more than to be in a
neutral position out of the market. The reason: An investor or trader is biased
by his open trades. If he is long, he thinks his stocks should rise because he is
long; his hope often overbalances his judgment. If he is short he often fears that
a rally will catch his stop orders. Livermore says: "Instead of hoping, he must
fear; instead of fearing, he must hope. He must fear that his loss may develop
into a much bigger loss, and hope that his profit may become a big profit. It is
absolutely wrong to gamble in stocks the way the average man does." (*)
* Reminiscences of a Stock Operator by Edwin Lefevre.
Page 131.
Section 25M Page 4
Whenever you find hope or fear warping your judgment, close out all your
positions at the market price, regardless of whether you have a profit or a loss.
Then keep out of the market a few days, a week or longer until you feel that
you can go back again and be guided by your judgment instead of your hopes and
fears. These two emotions are the cause of many failures in stock trading.
Until you can learn to trade and invest without hope or fear you will not
meet with all the success you should.
During the years when I conducted an advisory service, I found that one
of the important elements in my success was the practice of keeping out of the
market for days or weeks at a time when the trend was in doubt. Subscribers
often complained of this; they claimed that they were paying for the service by
the year and that in telling them to do nothing I was depriving them of
opportunities for trading. I replied by stating that the best advice I could give
was:
Do nothing. I had not agreed to keep them in the market all the time. My
aim was to show a large profit at the end of the year after deducting losses,
commissions and other expenses.
I know a number of people who do not make a commitment more than a
few times a year. They usually clean up. I recall one year in which I was very
busy with some other matters and could not give attention to my personal
trading, but I did make commitments three times during that year. There were no
losses on any of these three trades. All showed profits. These amounted to seven
times the capital originally employed on margin and no additional margin was
required.
Prospective Profits. Do not fix your mind upon any stated amount of profit that you hope to make on any commitment. Your chart will indicate the possibilities before you enter your order. Never say you will make twenty points out
of this stock, because such an expression is merely registering hope, it may lead
you to hang on too long. Even the biggest bankers, manipulators and operators
never know how a trade is coming out. The market situation is changing
Section 25M Page 5
constantly. Before you have been in a commitment twenty-four hours there may
be reasons why you should not only close it out, but reverse your position. You
must be so flexible that you can turn readily according to your indications.
Never pit your judgment against that of the market. Today's trading trend
may be one thing and tomorrow's another. The thing to cultivate is ability to
sense and to follow a trading trend whichever way it leads.
Patience. If you find that you have been taking five point profits when
you might have had ten or twenty points in several cases, it is probably due to
lack of patience. Your charts will show that you should not have gotten out when
you did; that you should have waited until you had definite indications that your
stock had completed its swing and was ready for a reverse movement.
Patience is an indispensable factor in the market: Patience to wait for
opportunities; to see them develop; to wait for a substantial profit. Livermore
said he became a big and successful trader only when he learned to hold his position through rallies or reactions until he had sound reasons for closing his
trades.
Don't be in a hurry to get into the market simply because you have
surplus cash available. Wait until you see a real opportunity. Suppose you do
have $5,000 idle for even as long as three months. The interest on that sum at
6% would be $75 which you lose by not investing it. One good commitment a year
will make you profits of many times that amount but a hasty trade can set you
back twelve months' interest, to say nothing of the shock to your confidence.
Likewise, once you have made up your mind that the market is topping
out don't be in a hurry to climb back into a stock out of which you have just
taken a substantial profit. What if it does go a few points higher? Let the other
fellow gamble for the last eighth. Chances are you can buy it back again, if it acts
right, at lower prices than you sold even if you have to wait six months or a
year.
Section 25M Page 6
Have patience to wait out a situation until you see it is ripe for an aggressive move. Then act promptly. Do not debate whether it would be better to
wait for positive proof of the correctness of your decision. By the time you are
100% certain, the move will have started and your opportunity slipped away. If
this does happen, don't make the mistake of running after the move which has
escaped you, for in that case your judgment is consciously or unconsciously
biased by your first error and chances are you will not thereafter act with a clear
mind. It is best to say: The higher it goes the less I want that stock (if you were
bullish), or: The lower it goes the less I want to sell it short (if you were bearish);
so I'll just look ground for the next opportunity.
Never get the idea that you must be in the market all of the time. In fact,
it is a good plan to operate so that your funds will be completely liquid at
intervals and your position neutral. The purpose of this is to prevent you from
going stale; to keep a fresh, clear perspective.
Never make a commitment in any stock unless and until you have made a
thorough study of its position, its background and present behavior. If you have
no charts of that stock, make them before you go ahead.
Do not go into a stock merely because you think it may be good; or because you "hear something good (or bad)" about it; or a friend has been advised
to buy; or your broker "hears" big people are picking it up or selling it, as the
case may be.
If you must lean on advisory services, check up their recommendations
and opinions for yourself before you act blindly; and don't hesitate to disagree
with them. Their judgment may be no better than yours right now, and when you
have thoroughly assimilated this Method, your judgment will probably be far
superior.
Self-reliance. NEVER ASK YOUR BROKER or anyone else what he thinks
of the market, or what he advises you to do or whether he approves of what you
Section 25M Page 7
plan to do. Form your own opinion. Try to make it so accurate that you will gain
more and more confidence in it. Learn to have no respect for anyone's else
opinion but your own. If you follow anyone else, your own judgment will weaken
and that is the opposite of what it should do. By constantly cultivating a more
accurate judgment, you will continually add to your earning power.
Make it your invariable rule that you will never allow either your broker
or your customers' man to express his opinions; and you will allow him to quote
prices only when you specifically ask for them. Make it your fixed policy and
have this clearly understood that he is to do nothing more than take your orders and confirm their execution. See that he stops right there.
When you ask another person what he thinks, or which stock he believes
best to buy or sell, you are taking his judgment or mixing his judgment with your
own. In most cases, his opinion is nothing more than a guess. Your opinion can
be based on facts, as shown on the tape, or on your charts. It will become more
and more sound as you practice the rules herein suggested. Study, practice, trade
and develop your judgment, your foresight and your self-reliance. New students
especially should not ask a broker: "What's the market doing?" That leads him
to express an opinion and immediately the student's judgment is biased.
Although brokers are constantly being asked for opinions and advice, they
would much prefer not to give either. As Arthur Brisbane once wrote:
"When advice is good, its origin is forgotten and the buyer rejoices in his
own intelligence. If bad, the giver of the advice is hated."
A broker prefers customers who know what they want to do and when to
do it; who never ask advice; who give their orders in a clear and intelligent way.
A broker has his hands full executing orders and financing the accounts of his
clients. To ask him what to buy or sell, or to expect him to tell you just what to
do, is an imposition for which he is not compensated by the small commissions
you pay on each transaction.
Section 25M Page 8
Do not mix fundamentals; statistics; opinions, formed from newspaper

headlines concerning domestic or world political conditions, or conversations with
your banker, your broker or business associates with technical conditions. To do
so will distort your perspective and impair your judgment.
Do not judge the market by what you see from occasional glimpses at the
tape. In the first place, unless you are an active trader and able to devote five
hours a day to reading the tape continuously, you should not look at the stock
ticker at all. But if you do have occasion to call on your broker, stay away from
the tape. It is very bad practice to drop in at lunch time to see how the market is
doing. That's just like hopping into the movies to see a five reel thriller and being
called out at the end of reel two when the villain is about to tie the heroine on to
the railroad tracks. You go away thinking she, is done for, not knowing that reel
three may bring our hero on the scene in the nick of time with a posse from the
sheriff's office.
Take care that you do not confuse minor swing with intermediate trend indications, nor short swing trading with trading or investing for the long moves. If
you make a trade for say a five point move on the basis of tape indications, you
must close out that trade on tape indications. On the other hand, if you take a
position for a possible 10 to 15 point move on the basis of your chart indications,
close it out on what the chart shows, do not run into a broker's office and throw
your commitment overboard on what you suppose to be a tape indication. Short
swing trading requires an advanced technique (explained in the division "Tape
Reading and Active Trading") which is not strictly applicable to intermediate
trend trading. Hence, if you confuse the two you are sure to be whipsawed. That
is, you will always be jumping in on bulges and out on reactions. You will succeed
only in paying brokers more in commissions than you will ever take out in
profits for yourself.
Above all, DO NOT MIX YOUR METHODS.
Section 25M Page 9
Occasionally we find a new student who is endeavoring to combine this Instruction with all or part of other ideas and theories (particularly some of the
popular, new day "studies" of geometrical chart "patterns") which he has
previously acquired. It is sheer folly to suppose that you can hope to discover
any easy short cuts to practical market operations. The very nature of the art is
such that it cannot be reduced to a basis of rigid formulas functioning along
mechanical or mathematical lines. In short, you cannot solve your market
problems with a calculating machine.
Our experience shows that those who set aside all other methods, ideas
and theories (especially the Dow Theory) secure the best results. One case was
like this: A student correctly forecast a rise in the market and accurately
indicated the number of points that a group of leading stocks should advance. But
when the rise was only half over he decided, on the basis of the Dow Theory, that
the market should decline and not only sold out his long stocks but went short at
that point. Result: He missed about half the advance, operating contrary to the
trend as indicated by our teachings. He not only lost money but he lost an opportunity to get out of his stocks at the clearly indicated tops and to make a handsome profit on the short side in the decline which followed (which decline was not
indicated, again on the basis of the Dow Theory, until the market was nearly at
bottom once more).
Those students who have nothing to unlearn make the most rapid
progress because they follow the Course 100% and soon find themselves on a
paying basis. Therefore, we hope you will not mix our Instruction with any other
for the above and the following reasons: It is practical, being founded, upon
principles employed by real operators, men who have had professional
experience and not merely smatterings of beautiful theories picked up as market
letter writers, statisticians and self-styled "experts." It is complete in itself. It
covers all your requirements in all phases of the market. It has been tested in all
Section 25M Page 10
kinds of markets through more than quarter of a century, in fact, the underlying
principles of this Course are as old as the market itself. It has made a great deal
of money for many thousands of people. It will not stand mixing with any other
so-called method; to do this is like going to two doctors, getting their prescriptions
mixing the two together in one battle and taking a dose in the hope that it will
cure you. You really should give one doctor a fair chance by taking his medicine
when and as prescribed. Indeed, we claim that, unless you learn and apply this
Instruction, you had better quit the market and stick to a business or a
profession which you do understand.
Do not be impatient to begin trading or to get results. Lay a strong foundation for your future by understanding thoroughly before you make even a
single paper trade. Continue your paper trading long enough to be certain of your
judgment before you venture a dollar.
In some instances, students start trading on some feature of the Course
before they have even read it through once. In fairness to themselves and to us
they should follow instructions. These are: Read, study and learn the Method.
Practice on paper until you are proficient. Then begin trading in small lots.
We asked one subscriber who is a doctor and who insisted upon trading
almost immediately, "How long did you study medicine before you actually began
to practice?"
"Five years," replied the doctor. "Then would it be too much if we
requested, for your own good, that you study the Course for three months before
you make your next trade?"
"That seems quite reasonable," he admitted.
Section 25M Page 11
ADDENDA
The material contained in the following pages and

in Sections 24M and 25M is as vital a part of this Course
as the technical studies set forth elsewhere.
We urge you to read these last three sections over
and over again until you have practically committed them
to memory. Then refresh your memory by reviewing them
at intervals.
You are asked to do this because we find that students who have acquired proficiency in technical details
often spoil good trades; by failing to keep Market Psychology fresh in their minds at all times.
Page A1
WHY WE DO NOT GIVE ADVICE.
We are not in the advisory business. Our charter does not authorize us to
issue advices on the stock market, and1it is also against our policy.
Our business is teaching the Science of Trading in Stocks. We assist you in
developing your own judgment. Our object is to make you independent of us so
that eventually you will not have to ask us a question. When you reach that
point, you will thoroughly understand the Method.
If we were to tell you when to buy or sell, and which stocks, we should be
handicapping instead of helping you. Quality of judgment cannot be measured by
any one piece of advice. If we tell you what to do and we are right, it would not
prove that we have a good Method; nor if we are wrong, would it prove that ours
is a poor Method. Good judgment can only be demonstrated by the giving of a
long series of advices and basing trades thereon, in which the majority yield
profits.
A bullish indication given today may be absolutely wrong tomorrow. Not
only can the trend of the market change at any moment, but the technical position of any stock can do the same. Therefore, unless advices are followed up, and
the adviser indicates whether the market confirms or contradicts their accuracy,
they are of no value.
Advices to be of any value, were they given, should also carry correct
stop order figures. And the market must be continuously watched so that stops
can be moved according to directions. Merely to say, "Buy this stock," therefore,
is to give a small section of what should be a continuous series of advices on a
single trade. A small and incomplete piece of advice is of no value whatever. Both
from the standpoint of the giver and the taker it is worse than useless.
Queries sent to us should state your interpretation and we will endeavor
to make helpful suggestions. All interpretations are subject to confirmation or
contradiction by subsequent market action. If we should at any time express an
opinion as to the position of a stock, or the market, it must be understood that
this is solely for the purpose of improving the quality of your judgment and that
IT APPLIES TO YOUR PAPER TRADING ONLY. Our opinion should NEVER be
regarded as advice to make actual trades or to take a position in the market. We
are teaching not advising.
When you have completed your paper trading, your judgment will be
sharpened to the point where you can depend upon yourself and you will not then
need any coaching from us. You can test your position by asking yourself this
question: "Have I made a long series of paper trades which show more net
profits than losses? If so, I am ready to trade with real money; otherwise, I have
not yet acquired sufficient understanding of this Instruction to warrant my
making actual trades."
Page A2
COACHING
In coaching we show you all the fine points in the operation of our Method
and help you to learn how to- interpret every phase of the market itself. As a
subscriber, you are entitled to this assistance without any charge whatsoever.
With your cooperation we can make our coaching service (either by personal conference or correspondence) one of the most valuable parts of the
Richard D. Wyckoff Course of Instruction. We suggest that you number your
questions (keeping a copy for yourself) so that we can reply according to
number. If you will carefully word your questions or problems you will facilitate
our replies and enable us to give you clear, concise answers or discussions. We
prefer these to be typewritten on full sized letterheads to facilitate handling and
filing.
A most comprehensive result will be secured If you will send us complete
details relating to one or two of your typical paper trades at a time, whereupon
you will receive from us a thorough discussion of the problem, designed to illustrate the application of all important principles involved. (See Pg. B, "How to
Proceed," Par. 9.)
Take full advantage of our coaching service. Call on us for assistance as
often as you like. As this Course of Instruction, may determine-your financial
future, it is sufficiently important to warrant a personal visit to these offices if
practicable for you. We cordially invite this action on your part. You will find the
time and expense involved negligible items compared to the satisfaction that is
sure to result.
Almost daily we confer with students and prospective subscribers from
points as distant as San Francisco, Mexico City, Vancouver, B. C. They come to
learn the extent to which this Instruction will aid them, or to benefit by our
personal coaching which is one of the features of our Course. None has ever gone
away disappointed.
We shall be glad to answer any and all of your questions from the time
you first enroll. But we strongly recommend that you avoid making long trips to
our office for personal coaching until you have made some progress with your
studies on your own account. That is, wait until you have studied the Course
from beginning to end a few times so that, when you do make a trip to the New
York office, you will have a proper basis for assimilating individual instruction.
HOW, WHEN AND WHERE TO SECURE THE
ADVANTAGES OF PERSONAL COACHING.
All students of our Course should communicate directly with the New York
office in connection with all questions involving detailed discussions of technical
problems, whenever this is possible.
The New York office maintains a technical department that is in a position to discuss technical problems in considerable detail, and this department
Page A3
maintains a file of correspondence which is likely to present a clear understanding of the students record of progress, thus giving the instructor an advantage, owing to his familiarity with the student's previous difficulties and his
general knowledge of the Course. Such direct contact is calculated to obviate
difficulties and misconceptions that might arise through attempts, to secure
instruction from others who are neither authorized nor competent to give such
instruction, or who are operating under disturbing conditions, or in an
atmosphere that is likely to impair judgment or involve prejudices or fallacies
growing out of local or transitory influences.
The technical department, in the New York office, believes that for every
market situation there is an interpretation that is likely to be the most logical
and consistent under the circumstances, and we desire that our students secure
the benefit of whatever discussion or reasoning may be available in connection
with the problem at hand.
Bear in mind also that the home office has a file of complete technical
records and other facilities that help to supply the latest and most significant
facts involved in a logical interpretation of the latest manifestations of the law of
supply and demand.
POSITION SHEET
Subscribers often ask for our Position Sheet. We do not issue this sheet.
We find it much better practice for you to send us your calculations on the technical positions; then we indicate whether these are right or wrong. The value of
this practice in determining the positions cannot be overestimated. If we were to
give you our estimate of these positions you would be deprived of an important
advantage which can be gained only by working it out for yourself.
To facilitate your progress in determining the positions of individual
stocks you should use our "Subscriber's Position Sheet" (which lists twenty active representative sticks and suggestions regarding its use). Decide to the best of
your ability the position of each individual issue listed thereon and then record it
as indicated. Be sure to explain the reasons for each of your deductions; this is
very important. Unless you give your reasons we have no opportunity to correct
any misinterpretation, miscalculation or wrong judgment on your part. Please do
not send us Position Sheets covering more than these 20 stocks. We cannot
possibly do justice to an inquiry which requests us to review a long list.
Page A4
ARE YOU APPLYING THE SOUND PRINCIPLES SET FORTH IN THIS COURSE?
ARE YOU OVERLOOKING OR IGNORING ANY OF THEM?
Analysis of an unsatisfactory period in the early trading operations of a
subscriber disclosed abuses that prompted the following constructive comment
and suggestions, which are submitted for your information and guidance.
Dear Mr. E___________:We have examined the record of your trading during the past
several months and find, among others, the following errors in your
procedure and practice:
1. You concentrated on the figure charts of individual stocks,
basing your trades on these alone.
2. You did not make all trades in harmony with the trend of
the market as indicated by the averages.
3. You did not complete a period of successful paper trading
before trading with real money.
4. You frequently took your position too late; that is, after the
move was well under way, or actually completed.
5. Your eagerness to make profits warped your judgment.
6. You were frequently impatient and acted too soon.
7. You did not properly estimate the distance a stock should
move before making trades.
8. You failed to keep up your Position Sheet, and selected your
stocks on hunches rather than on cold calculation.
9. After you were in the market you discontinued paper
trading of which you were still much in need.
10. You frequently bought on bulges instead of waiting for reactions.
11. You made two or three trades on the same day. This with
insufficient study and practice increased the percentage against you.
12. You abandoned the use of Vertical Line Charts which
should have been studied in combination with your Figure Charts, at
least in the stocks in which you were trading.
13. In one case, Atchison, you bought after it had risen over
20 points above the level where several buying indication appeared.
Naturally, your stop was caught.
14. You falled to place stops and move them according to instructions.
Page A5
15. On several occasions you called up your broker and permitted him to express opinions, whereupon you acted on his suggestions with the result that you sold at the bottom when you should
have done nothing; you bought when you should have sold; and you
permitted his offhand opinions to scare you out of your own perfectly
sound decisions.
16. On another occasion, you allowed yourself the luxury of
reading a market letter which said stocks are bound to go up "when
Congress adjourns" and thereby frightened yourself out of a logically
taken short position.
17. You listen to friends who speak glibly of "double tops,"
"Island gaps," and similar chart pictures from which they pretend to
forecast without giving logical reasons why these accidental formations should have any forecasting value whatsoever.
These are the principal reasons why you have met with difficulty. They may be summed up in one sentence: You did not practice
the Method as it is set forth in the Course of Instruction.
We suggest that you begin again. First restudy the whole
Course. Then trade on paper, following instructions to the letter.
Make hundreds of paper trades if necessary, until you find that your
judgment is improving until you have a good percentage of profits
over losses. Then begin to trade in small lots of actual stock until you
can increase your unit of trading (number of shares) out of profits.
It is necessary for you now to unlearn much that you have
been doing, just as you would correct bad habits in golf by beginning
to do what the pro tells you. Gradually you will build up your ability
to follow the proper procedure as stated in the Course and then you
should begin to make money. Unless you can follow these suggestions
we advise you to stop trading altogether, and abandon the idea of becoming a successful operator in the stock market. Such a decision
would be deeply regretted by us, as we are confident that if you will
follow the Course exactly, success will be your reward, as it has been
in the case of other students who were no better Qualified at the start
than you were.
Cordially yours,
RICHARD D. WYCK0FF, Inc.
Page A6
DAILY PROCEDURE.
1. Keep your Wave Chart and Trend Charts (Composite Average and
Group Averages) at the beginning of your chart books. Consult these first, so that
you will have a clear impression of the trend of the market as a whole. You
cannot get this from a study of one or a few stocks. You must rely on the Wave
Chart and the averages to indicate whether the next swing will be up or down
and whether it will go far enough to warrant your taking a position. For this purpose keep both the vertical charts of the averages, with volumes, and the figure
charts of the same. Combined, these will give you a, sound basis for your
forecasts.
2. Next make the daily entries on your figure charts of each stock and on
your vertical line charts. If your time is limited keep down the number of stocks.
3. As you enter the changes for the day, have your Position Sheet beside
you and note thereon whether each stock is now in position 1, 2, 3 or 4. You
need not make a new sheet each day; use a pencil and erase where alterations
are necessary.
4. When you have completed your chart changes and revised the Position
Sheet, add the columns and observe from your summary whether that confirms
the trend indications of your averages. Plot these summarized figures on your
Technical Position Barometer Chart. These changes in the totals are important
because they warn you of the approach of a change in trend. They are best
shown on a Barometer Chart, but a tabulation of the totals is also simple and
effective.
By following this procedure the best results should be obtained.
Page A7
CONCLUSION.
In this Course Mr. Wyckoff and the Institution he founded have taken you
into their confidence by giving you the best of all the ideas, plans, methods and
technique that you need for common sense trading and investing. Work out from
these your own procedure, depending upon the amount of time and capital you
wish to devote to the market; what you aim to accomplish; how you wish to trade
or invest, and the way in which you can make the most profits.
You ask how much time it will take? The answer is: As little or as much
as you choose. But as you learn this Instruction, you will find it profitable to
devote more and more of your time to it. You can, from what you learn here,
make trading in stocks your profession if you so desire.
After you have thoroughly educated yourself in the practical use of these
principles, and you have the benefit of long practice and experience, you will
probably find that you are gradually developing intuition.
Intuition enables one to judge a situation without conscious reasoning.
Some people possess this faculty to a greater degree than others. It
develops in stock trading just as it does in any other line of business or
profession. It is the reward for long and patient study, close application, deep
concentration.
There was a time when Mr. Wyckoff was unable to judge the market because he did not know all that he learned later. It could not be found in books. He
had to search this all out, bit by bit. It required years and years in the face of
many discouragements.
We now put into your hands tools that served him so well. What you do
with them depends upon yourself. We shall be glad to take up with you, at any
time, your personal problems relating to the application of this Course to your
individual requirements; also to receive your criticisms and suggestions.
The stock market is the greatest game in the world. The wealthiest, most
expert and most powerful individuals, corporations, bankers and investment
trusts are engaged in it. They employ sums running into billions of dollars.
Like them you must be sharp, shrewd, clever and industrious.
Success to you:
WYCKOFF ASSOCIATES, Inc.
Page A8

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CONTENTS

Judging the Market by Its Own Action

Buying and Selling Waves

Determining the Trend of the Market - Composite. Averages

Comparing Strength and Weakness - Group Averages

How a Campaign is Conducted - Individual- Chart Studies - Part I

How the Operator's Intentions may be Detected - Chart Studies II 10M

Figure Charts - Individual Chart Studies - Part III

Figure Chart Studies - Individual Stocks - Part IV

Figure Charts - N. Y. Times Average - Chart Studies Part V

Market Technique - Volume Studies

Significance of Trend Lines

Vertical Line Charts - Chart Studies Part VI

Vertical Line Charts - Chart Studies Part VII

Selecting the Best Stocks - Position Sheet - Barometer

How to Determine the Position of an Individual Stock

Buying and Selling Tests

The Wave Chart

General Instructions - Cautionary Suggestions

Market Philosophy - Cautionary Suggestions (Cont.)

HOW TO PROCEED WITH THE STUDY OF THE

Copyright 1937 by Wyckoff Associates, Inc.

Copyright 1931 by Wyckoff Associates, Inc.

Copyright 1931 by Wyckoff Associates, Inc.

THE BASIC LAW OF SUPPLY AND DEMAND

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

JUDGING THE MARKET BY ITS OWN ACTION

The object is to market these stocks and bonds at as high

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

It has always been my rule to reduce the number, of my own charts to

Copyright 1931 by Richard D. Wyckoff

Copyright 1936 by Wyckoff Associates, Inc.

DAILY PRICE RANGE AND VOLUME U.S. STEEL

Copyright 1936 by Wyckoff Associates, Inc.

DAILY PRICE RANGE AND VOLUME

Copyright 1931 by Richard D. Wyckoff

(Sections 10M to 13M.)

It is in these horizontal formations, or congestion areas, on the figure

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

The Figure Chart, as we have stated, takes no account of anything except

It rallies to 49 or to 49 7/8, but does not reach 50 therefore, you would

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff

There are two Trends to be considered in trading, as here advocated:

Copyright 1931 by Richard D. Wyckoff

Copyright 1931 by Richard D. Wyckoff