TableofContents

IntroductionTheEssenceofTradingHowtoFindanEdgeLookforMinimumRiskPointsIsThereaTradingFormula?WhyTradingCannotBeReducedtoSimpleRulesHowtoDevelopCompetenceFirstRequirementofSuccessSecondRequirementofSuccessQuestionstoAskYourself

TradingMethodOutlineWyckoff’sTradeManagementTakeaFreePositionSelectiveDayTradingWaitforWideSwingsDistinguishingPullbacksfromaChangeinTrendOneMan’sMeatPitfallsTheSixthSenseinTradingThePowerofCommitmentThePrinceofFloorTradersKeeneHowSuccessHappensFullTimeLearningfrom

MistakesWhatTradingisNotInertiaManipulationNotaProblemAdvantageOverBigTradersTheTradingObjectiveBefore,During,andAftertheTradeTheIdealWorkEnvironmentHowMoneyisMadeTradingDrivenbyPsychologicalNeedsStartwithMinimumSizeStartRightorNotatAllEnteringattheRightTimeGetOn!

SpecializeWhattoTradeInterdependenceOnBreakEvenTradesExpertAlwaysHaveaStopTrailingStopsHowtoManageanOpenTradeTheImportanceofImmediateTrendStayOutofQuietMarketsStrong,HighMomentumMovesNeverMoveYourStopNeverAverageaLoser

GunforAbsoluteProfitsFourReasonstoCloseaTradeVolumeAsaCrucialIndicatorHowtoEvaluateVolumePriceFactorsEverythingStrengthandVolumeDon’tEnterafterProlongedMovesChancesDecreaseasMoveContinuesDayTradingIsFine,But...TheUseofMarketCyclesinWyckoff’sDayGettingtotheBottomof

ThingsNoOneKnowsHowtoAnticipateBigMovesScalpingDevelopingSubconsciousCompetenceDiscretionaryTradingChartingandHindsightBiasProperUseofChartsWideVisionLocalTrendsvs.GeneralTrendsIdentifyingTrend,Range,Accumulation,andDistributionDiscardAllMechanicalHelps

WatchingOneMarketInsufficientMarketAbsorptionRangeDoesNotMeanReversalDocumentAllTradesProfessionalLossesAreTinyBigSwingsandLargeVolumesWhatisthe‘Best’TradingStyle?TradingAsaProfessionDayTradingvs.SwingTradingCan’tTellHowFarWaitforaBreakout

Re-enterOnaPullbackUseVolumeonBreakoutHowtoMoveYourStopPlayingDominoesNoTrend,NoTradeImpairedTradingTired,Hungry,Horny,orUpsetTheFoundationofStrongTradingPsychologyOneIdeaintoaMethodOnTrading“Teachers”FormingaTradingCharacterConclusion-TheFinalLesson

ExpertTrader:93Trading

LessonsofRichardWyckoff

FrankMarshall

Copyright©2014byFrankMarshallAllrightsreserved.Nopartofthisbookmaybereproducedortransmittedinanyformorbyanymeans,electronicormechanical,withoutwrittenpermissionfromtheauthor,exceptfortheuseofbriefquotationsinareview.

Publisher:MarshallPressFirstedition:2014Byreadingthisbook,youacknowledgethattradingisriskyandyoucouldhavesubstantiallossesthatexceedyourcapitalinvestment.Tradingfinancialinstrumentsprofitablyisverydifficultandisnotforeveryone.Thisisaninformationalbook

andnothingassociatedwithitshouldbeconstruedasspecificadvicetobuyorsell(ornotbuyorsell)anyfinancialinstruments,orbeimpliedasawaytoguaranteeprofitabletrading.Nooneassociatedwithitacceptsanyliabilityforanylossesordamagesrelatingtoanycontentinhere.Anymentionoftradesinfinancial

instrumentsshouldbeassumedtobehypothetical.Werecommendthatyouconsultwithalicensed,qualifiedprofessional,beforemakinganyinvestmentdecisions.Itistheindividual’sresponsibilitytoperformduediligenceinregardstoalltradesandentitieswithwhichyouchoosetodobusiness.

Dedication

ToHermannHesse,

forhelpingmefollowmyvision.

Introduction

AfterwritingTheBestTradingLessonsofJesseLivermore,afriendwhoreadthebookandlikeditasked:“Whydon’tyouwriteasimilarbookaboutWyckoff?”Hehadapoint.RichardWyckoff(1873-1934)wasanimmenselysuccessfultrader(‘stock

operator’)speculatingintheearly1900s.Whatmadehimdifferentwasnotjusthisunprecedentedsuccess,buthisabilitytounderstandandexplainthecomplexnatureofthemarketsinawaythatmadesense.Ifhesawfartherthanothers,itwasbecausehe‘standingontheshouldersofgiants’.WyckoffbuiltontheworkofLivermore,Keene,

Morgan,andotherwealthyspeculators.Fortunately,Wyckoffwasnotstingyinsharinghisinsights.Hehadmuchtosayaboutexperttrading,ashedevotedthelatterpartofhislifetowritingandlecturing.Thepresentvolumesummarizeshisbestlessons.AsaretheinsightsofJesseLivermore,Wyckoff’swisdomis

timeless.WhilereadingandthinkingaboutWyckoff’stradingapproach,onegetsthedistinctimpressionthathewastherealdeal,thathe‘gotit’.Hiswealthconfirmedthat.Wyckoffputmuchemphasison‘tapereading’.Bythat,Wyckoffmeantwhatwemeantodaybywatching‘priceaction’,thefluctuationsofpricesupanddown,

combinedwithpayingattentiontotheorderflow(level2).Incaseyoudonotgettoreadthewholebook,Ihaveputthemostcruciallessonsatthebeginning.HowdidWyckoffoperate?Whatapproachworkedforhim?Howdidhetrade?Whatdoesitmeantobeanexpert?IhavefocussedonWyckoff’s

practicaltradingadviceasopposedhismoretheoreticalviewsthatareoutlinedelsewhere(‘compositeoperator’...etc.).Itishardtoimaginenothavingone’stradingenrichedbypracticalinsightsandtipsofoneofthebesttradersofalltime.FrankMarshall

WestPalmBeach,July2014

OtherBooksbyFrank

Marshall

TheBestTradingLessonsofJesseLivermore-75tradinglessonsfromthegreatestspeculatorofalltime.ContainsthemostcrucialtradinglessonsoftheReminiscencesofaStockOperatorinoneplace,

extractedandlabelledforconvenience,withabriefdiscussionfollowingeachlesson.TradingEssentials:HowtoCutYourLearningCurve-Mosttradersblowtheiraccountandquitindisgust.Itdoesn'thavetobethatway.TradingEssentialsreveals20keylessonsfrommytrading

experience,andgiveshelpfulsuggestionsonwhatittakestosucceedintheultracompetitivefieldoftrading.Regardlesswhetheryoutradestock,forex,bonds,futures,oroptions,youwillfindmanyusefulpointersthatcancutyourlearningcurvesignificantly.

TheEssenceofTrading

“Tradingseemstous:Thescienceofdeterminingfromthetapetheimmediatetrendofprices.Itisjudgingfromwhatappearsonthetapenow,whatislikelytobeshowninfiveminutesormore.Itbearsnorelationtoclairvoyanceandwedonotbelievethatspiritsof

departedfriendscouldbeofassistancetostudents.TapeReadingisrapid-firehorsesense.ItsobjectistodeterminewhetherUnionPacific,whichisnow159,willsellat160before158,orviceversa;tomakedeductionsfromeachsucceedingtransaction—everyshiftofthemarketkaleidoscope;tograspanew

situation,forceitlightning-likethroughtheweighingmachineofthebrain,andtoreachadecisionwhichcanbeacteduponwithcoolnessandprecision—allwithinthespaceofafewseconds.Itisgaugingthemomentarysupplyanddemandinparticularstocksandinthewholemarket,comparingtheforcesbehindeachandtheir

relationship,eachtotheotherandtoall.”Discussion:Wyckoffisclearthattradingisaboutdeterminingthepresenttrendthroughaseriesofdeductions.Deductionmeansreasoningfromparticularstoreachasingleconclusion(suchas‘trendisup’,‘trendisdown’,or‘themarketisin

arange’).Wyckoff’sreferencetoadecisionwindowofonly‘afewseconds’suggeststhathewasadaytrader.

HowtoFindanEdge

“Atraderislikethemanagerofadepartmentstore;intohisofficearepouredhundredsofreportsofsalesmadebythevariousdepartments.Henotesthegeneraltrendofbusiness,whetherdemandisheavyorlightthroughoutthestore,butlendsspecialattentiontothe

linesinwhichdemandisabnormallystrongorweak.Whenhefindsdifficultyinkeepinghisshelvesfullinacertaindepartment,heinstructshisbuyers,andtheyincreasetheirbuyingorders;whencertaingoodsdonotmoveheknowsthereislittledemand(market)forthem,therefore,helowershisprices—offersinducements

topossiblepurchasers.”Discussion:Howdoesonefindanedge?Wyckoffhintsthatspecialattentionmustbepaidtosituationswhereoneormoreelementsare‘abnormallystrongorweak’.Alledgesarebasedonimbalances.Whenthemarketforcesareoutofbalanceandnotin

equilibrium,thereareedgespresent.Recognizingthosetimesiswhatprofitabletradingisallabout.

LookforMinimumRisk

Points

“Themarketisatug-o'-war.Successfultapereadingrequiresabilitytojudgewhichsidehasthegreatestpullingpowerandonemusthavethecouragetogowiththatside.Therearecriticalpointswhichoccurineach

swing,justasinthelifeofabusinessorofanindividual.Atthesejuncturesitseemsasthoughafeather'sweightoneithersidewoulddeterminetheimmediatetrend.Anyonewhocanspotthesepointshaseverythingtowinandlittletolose,forhecanalwaysplaywithastopplacedclosebehindtheturningpointorpointof

resistance.”Discussion:Professionaltradersfocusonminimizingrisk.Oneofthebestwaystodothatistoenterat‘turningpoints’,placingthestopjustbeyondthem.Inpractice,thatmeansenteringpullbacksintrends.Apullbackisaspecialtypeofaturningpoint.Whena

pullbackends,thetrendresumes,offeringalowriskopportunityforentry.WewillseehowWyckofftradedpullbackslater.

IsThereaTrading

Formula?

“Iftradingwereanexactscience,onewouldsimplyhavetoassemblethefactors,carryouttheoperationsindicated,andtradeaccordingly.Butthefactorsinfluencingthemarketareinfiniteintheirnumberand

character,aswellasintheireffectuponthemarket,andtoattempttheconstructionofatradingformulawouldseemtobefutile.However,somethingofthekind(intherough)maydevelopasweprogressinthisinvestigation,soletuspreserveopenminds.”Discussion:Wyckoffdidnot

feelthattradingcanbereducedtoanexactformula,duetothefactthattherearesimplytoomanyvariablestoconsider(‘infiniteintheirnumber’isanexaggerationonhispart,butgetsthepointacross).Hedoessay,however,thatsometradingguidelinesshouldbeinplace.Tradingdoesnothavetobewholly

mechanicalordiscretionary.Wyckoffaimedforbalance,butputmoreemphasisonthediscretionaryapproach.

WhyTradingCannotBe

ReducedtoSimpleRules

“Butrealtradingtakeseverythingintoaccount—everylittlecharacterwhichappearsonthetapeplaysitspartinformingoneoftheendlessseriesof‘movingpictures.’Inmanyyears'studyofthetape,Idonot

rememberhavingseentwoofthese‘pictures’whichwereduplicates.Onecanrealizefromthishowimpossibleitwouldbetoformulateasimplesetofrulestofiteverycaseoreventhemajorityofthem,aseachday'ssessionproduceshundredsofsituations,which,sofarasmemoryserves,areneverrepeated.

Thesubjectoftradingisthereforepracticallyinexhaustible,whichmakesitallthemoreinterestingtothemanwhohasacquiredthe‘studyhabit.’"Discussion:Nosituationrepeatsitselfexactly.Sowhenyoucreateasimplesetofrulesbasedonthepast,theyarelikelynottofitfuture

situations.Wyckoffdoesnotrecallamarketsituationeverrepeating100%.Therearealwaysnewsubtletiesandnuances.Themarketevolves.Everydayisnew.Thisisthestrengthofadiscretionaryapproach.Purelymechanicalsystemcannottakethatintoaccountwithalimitedsetofsimplerules.Wyckoffhadgreatrespectfor

thecomplexityofthemarkets,andhistradingapproachreflectedthat.

HowtoDevelop

Competence

“Atraderabsorbsinformationandfollowsadefiniteandthoroughlytestedplan,whichaftermonthsandyearsofpracticebecomessecondnaturetohim.Hismindformshabitswhichoperateautomatically

inguidinghismarketventures.Nointelligenthumanneedbetoldthatwhentheskydarkensandthethunderrollsthere'slikelytobeashower.Heunconsciouslynotesthepreliminarysigns,donsaraincoatandtakesanumbrella.Longpracticewillmakethetraderjustasproficientin

forecastingstockmarketevents,buthisintuitionwillbereinforcedbylogic,reason,andanalysis.”Discussion:Ifthereisnoexactwinningformula,howissuccesspossible?Wyckoffoutlineshisrecipefordevelopingcompetence:

Information+Plan+

Experience+Analysis=Expertise

Withoutinformation,yourtradingisblind.Withoutplan,yourtradingisinconsistent.Withoutexperience,yourtradinghasnoedge.Withoutanalysis,yourtradingislost.

Missanycomponentandyourtradingwillbeineffective.

FirstRequirementof

Success

“First,hemustbeabsolutelyself-reliant.Adependentpersonwhosejudgementhangsuponthatofotherswillfindhimselfswayedbyathousandoutsideinfluences.Atcriticalpointshisjudgementwillbeuseless.He

mustbeabletosay:‘Thefactsare—;theresultingindicationsare—;thereforeIwilldosoandso.’”Discussion:Absoluteself-reliancemeansdoingone’sownthinking,basedonfacts(price/orderflow).Itisgoodtobeamemberofatradingcommunity,butultimatelyonemustthinkforoneself

andmakeone’sowntradingdecisions.Nobodycanholdyourhand.Tradingisanindependentendeavor.

SecondRequirementof

Success

“Nexthemustbefamiliarwiththetechnicalitiesofthemarket,sothateverylittleincidentaffectingpriceswillbegivendueweight.Heshouldknowthehistory,earningsandfinancialconditionofthecompaniesin

whosestockheistrading;thewaysofthemanipulators;thedifferentkindsofmarkets;beabletomeasuretheeffectofnewsandrumors;knowwhenandinwhatstocksitisbesttotrade;measuretheforcesbehindthem;knowwhentocutalossandtakeaprofit.Hemuststudythevariousswingsandknowwherethemarketandhis

stockstand;mustrecognizetheinherentweaknessorstrengthofthemarket;understandthebasisorlogicofmovements.Heshouldstudythefundamentalsandsiftthewheatfromthechaff;recognizetheturningpointsofthemarket;seeinhismind'seyewhatishappeningonthefloor.Hemusthavethenervetostand

aseriesoflosses;persistencetokeephimattheworkduringadverseperiods;self-controltoavoidovertradingandaphlegmaticdispositiontobalancehimatalltimes.”Discussion:Thereissomuchtomasterasatrader.Wyckoffsummarizesmanytechnicalandpsychologicalaspects.Tradingisacomplex

taskthatrequiresadevelopmentofmasteryinnumerousareas.NoticeWyckoffdoesnotsaythat‘tradingissimple’,asispopularnowadayswithmanytradingcoachesandauthors.Thereisnoideaof“findagoodsetup,tradeit,andbecomeamillionaire.”Ifonly.

QuestionstoAskYourself

“Successisonlyforthefew,andtheproblemistoascertain,withtheminimumexpenditureoftimeandmoney,whetheryouarefittedforthework.These,inanutshell,arethevitalquestions:1.Doyouhavetechnicalknowledgeofthemarketand

thefactorswhichmoveit?2.Doyouhavesufficientcapitalwhichyoucanaffordtoloseinanefforttodemonstrateyourtradingability?3.Canyoudevoteyourentiretimeandattentiontothestudyandthepracticeofthisscience?4.Areyousofixedfinanciallythatyouarenotdependent

uponyourpossibleprofits,andsothatyouwillnotsufferifnoneareforthcomingnoworlater?”Discussion:Wyckoffbidsyoutotask:areyourtechnicalskills,capital,commitment,andfinancialstabilityuptopar?Noticethelastquestionimpliesthatatradermustbe

okwithfailure.IsWyckoffbeingnegative?Notatall.Youmustbeokwithlosingmoney,otherwiseyouwon’tbeabletomanageyouropenpositionsproperly.Thequestionalsosuggestsdetachmentfromprofits.Tradingiseasierwhenitisnotmoneyfocussed.Theprofessionalisfocussedondoingtherightthing.Money

takescareofitself.Itisnottheimmediategoal,buttheoutcomeofgoodtrading.

TradingMethodOutline

“Thisisonegreatadvantagethetraderhasoverotheroperatorswhodonotemploymarketscience.Byaprocessofeliminationhedecideswhichsideofthemarketandwhichstockaffordsthebestopportunity.Heeithergetsinattheinceptionofamovementorwaitsforthe

firstreactionafterthemovehasstarted.Heknowsjustaboutwherehisstockwillcomeonthereactionandjudgesbythewayitthenactswhetherhisfirstimpressionisconfirmedornullified.Afterhegetsinitmustcomeuptoexpectationsorheshouldabandonthetrade.Ifitisabullmove,thevolumemustincreaseandtherestof

themarketoffersomesupportoratleastnotopposeit.Thereactionsmustshowasmallervolumethantheadvances,indicatinglightpressure,andeachupwardswingmustbeoflongerdurationandreachanewhighlevel,oritwillmeanthattherisehasspentitsforceeithertemporarilyorfinally.”

Discussion:Wyckoffoutlinestheessentialsofhistradingmethodhere.Thecomponentsare:1.Enteronabreakoutorapullback.2.Keepthetradeonifitismeetingtheexpectations.3.Lookforincreasingvolumewhenit’salongtrade.4.Lookforlightvolumeon

reactions.Allfouraresolidideas,thathavestoodthetestoftime.

Wyckoff’sTrade

Management

“IbuyandsellwhenIgetmyindications.IngoingintoatradeIdonotknowwhetheritwillshowaprofitoraloss,orhowmuch.ItrytotradeatapointwhereIcansecureprotectionwithastop...sothatmyriskis

limited.IfthetradegoesinmyfavorIpushthestopupassoonaspossible,toapointwheretherecanbenoloss.Idonotletprofitsrunblindlybutonlysolongasthereappearsnoindicationonwhichtoclose.Nomatterwheremystoporderstands,Iamalwaysonthewatchfordangersignals.SometimesI

getthemwayinadvanceofthetimeatradeshouldbeclosed;inotherinstancesmy‘getout’willflashontothetapeassuddenlyandasclearlydefinedasastreakoflightningagainstablacksky.Whenthetapesays‘getout’IneverstoptoreckonhowmuchprofitorlossIhaveorwhetherIamaheadorbehindontheday.Istriveforan

increasingaverageprofitbutIdonotkeepmyeyesomuchonthefractionsorpointsmadeorlost,somuchasonmyself.”Discussion:Wyckoffoutlinestheprinciplesofhistrademanagement.Thereadingoforderflowasasignaltogetoutisworthnoting.Mosttraderstodaydonotbother

withorderflow(level2),asitseemstobetoomuchwork.Toaprofessional,thereisnosuchthingas‘toomuchwork’ifithelpshim.Therearegreatrewardsatstake.Whenthestakesarehigh,itiscrucialtogeteveryadvantage.

TakeaFreePosition

“Mystopwasmoveddownsotherecouldn'tbealoss,andsoonaslightrallyandanotherbreakgavemeanewstopwhichinsuredaprofit,comewhatmight...Istronglyadvocatethismethodofprofitinsuring.Thescientificeliminationoflossisoneofthemostimportant

factorsintheart,andtheoperatorwhofailstoproperlyprotecthispaperprofitswillfindthatmanyapointwhichhethoughthehadcinchedhasslippedawayfromhim.Whenyoupushastopclosebehindariseoradecline,youleavethewayopenforafurtherprofit;butwhenyouclosethetradeofyourown

volition,youshutoffallsuchchances.Thiswholeplanofusingstopsisasortofsqueezingoutthelastdropofprofitfromeachtradeandneverlosinganypartthatcanpossiblyberetained.”Discussion:Wyckoffwouldtakeafreepositionusingswinglowsandhighsasthe

tradewentinhisfavor.Heneverusedfixedtargetswithinflexibleprofit/lossratios.Hegunnedforabsolutereturns.

SelectiveDayTrading

“Manyopportunitiesforprofitdevelopfromeachday'smovements;onlytheverychoicestshouldbeactedupon.Thereshouldbenohaste.Themarketwillbetheretomorrowincasetoday'sopportunitiesdonotmeetrequirements.”

Discussion:Wyckoffwasadaytrader,butaselectiveoneatthat.Youdon’thavetotakeeverysignalyousee.Ifyouthinkoftradingasplayingpoker,imaginehavingtheabilitytoplayonlyifyouhavetheaces.Mosttradersdonottakeenoughadvantageofselectivity.

WaitforWideSwings

“Theremustbewideswingsifprofitsaretoexceedlosses,andthethingtodois,waitforgoodopportunities.‘Themarketisalwayswithus’isanoldandatruesaying.Wearenotcompelledtotradeandresultsdonotdependonhowoftenwetrade,butonhowmuchmoneywemake.”

Discussion:Itisagoodreminderthatthemarketisnotgoinganywhere.Itwillstillbeheretomorrow.Thereisnoneedtopushactionwherethereisn’tany.

DistinguishingPullbacks

fromaChangeinTrend

“...oneofthefinestpointsintheartoftradingisthatofdistinguishingapullbackfromachangeintrend.Agoodwaytodothissuccessfullyistofigurewhereastockisduetocomeafteritmakesanupturn,

allowingthatanormalpullbackisfromone-halftotwo-thirdsofthedecline.Thatis,whenastockdeclinestwoandahalfpointswecanlookforatleastapointandaquarterrallyunlessthepressureisstillon.Incasethedeclineisnotover,therallywillfallshort.”Discussion:Wyckoff’srule

fora‘normal’pullbackisaretracementof50%to66%.Thisruleworksquitewelleventoday.Lookatthechartofyourfavoriteinstrument.Howdeeparenormalpullbacks?

OneMan’sMeat

“Theresultswhichareattainabledependsolelyupontheindividual.Eachmustworkouthisownmethodoftrading,basedonsuggestionsderivedfromthesestudiesorfromothersources.Itwilldoubtlessbefoundthatwhatisoneman'smeatisanother'spoison,and

thatnoamountofbooklearningwillavailifthestudentdoesnotputhisknowledgetoanactualtestinthemarket.”Discussion:Findyourownway.Youcannottradesomebodyelse’ssystem.Ithastobeyourown.

Pitfalls

“Anxietytomakearecord,toavoidlosses,tosecureacertainprofitforthedayorperiodwillgreatlywarpthejudgement,andleadtoalowpercentageofprofits.Tradingisagooddeallikelayingeggs.Ifthehenisnotlefttopickupthenecessaryfoodsandretireinpeaceto

hernest,shewillnotproduceproperly.Ifsheisworriedbydogsandsmallboys,ortriestolayseveneggsoutofmaterialforsix,thenetproceedsmaylooklikeanomelet.Thetrader’sprofitsshoulddevelopnaturally.Heshouldbuyorsellbecauseitisthethingtodo—notbecausehewantstomakeaprofitor

fearstomakealoss.”Discussion:Oneofthemostcommonproblemsdaytradersfacepsychologicallyiswantingtobookawinningday,everyday.Ofcourse,thatisalosingproposition,asthemarketsimplydoesnotgiveyouopportunitiestomakemoneyeverysingleday.

TheSixthSenseinTrading

“Bypropermentalequipmentwedonotmeanthemereabilitytotakealoss,definethetrend,ortoexecutesomeothermovecharacteristicoftheprofessionaltrader.Werefertotheactiveordormantqualitiesinhismake-up.Thepowertodrillhimselfintotherightmentalattitude;to

stiflehisemotion,fear,anxiety,elation,recklessness,totrainhismindintoobediencesothatitrecognizesbutonemaster—thetape—these,ifpossessed,wouldbeasvaluableinshapingtheresultasnaturalability,orwhatiscalledthesixthsenseintrading.”

Discussion:Wyckoffequatesthe‘sixth’senseintradingwiththeabilitytomasterone’sinternalworldinsuchawaythatalltradingisdeterminedstrictlybytechnicalconsiderations.Itamountstomasteryofthetechnicalsideaswellascontrolofoneself.

ThePowerofCommitment

“Somepeoplearebornmusicians,othersseeminglyvoidofmusicaltaste,developthemselvesintovirtuosos.ItistheamountofIWILLinamanwhichmakeshimmediocreorpre-eminent—inWallStreetparlance,aduborabigtrader.”

Discussion:Themostpowerfulfactorinachievingsuccessiscommitment.Talentisnotnearlyenough.

ThePrinceofFloorTraders

“Thosewhoknew‘Jakey’whenhebeganhisWallStreetcareer,wereimpressedbyhisabilitytoreadthetape,andfollowthetrend.Histalentforthisworkwasdoubtlessborninhim;timeandexperiencehaveintensifiedituntilnowheisconsideredbythemajorityof

hisfellows,thePrinceofFloorTraders.”Discussion:Wyckoffisdescribingoneofthebesttradersheknew.Thethreequalitiesheadmiresinthismanarereadingpriceaction(‘tape’),followingthetrend,andexperience.

Keene

“WhateverlaurelsMr.Keenehaswonasanoperatororsyndicatemanager,donotdetractfromhisreputationasatrader.Hisscrutinyofthetapeissointensethatheappearstobeinatrancewhilehismentalprocessesarebeingworkedout.Heseemstoanalyzeprices,

volumes,andfluctuationsdowntothefinestimaginablepoint,thentelephonestothefloortoascertainthecharacterofthebuyingorsellingincertainactivestocks.Withthisauxiliaryinformationhecompleteshisjudgementandmakeshiscommitments.Mr.Keenestandsto-dayonthepinnacleoffameasa

trader,andhisdailypresenceatthetickerissufficientevidencethattheworkpaysandpayswell.”Discussion:JamesR.Keene(1838-1913)wasashrewdspeculatorwhomanagedfundsforbothMorganandRockefeller.AdmiredbothbyWyckoffandLivermore,Keenewasindeedasharp

studentofthemarketsandpriceaction.Wyckoffespeciallyadmiredhisclosescrutinyofpriceactionandunderstandingofvolume.

HowSuccessHappens

“Successinthisfieldusuallyresultsfromyearsofpainstakingeffortandabsoluteconcentrationuponthesubject.Itrequiresthatonedevotehiswholetimeandattentiontothetape.Heshouldhavenootherbusinessorprofession.‘Amancannotservetwo

masters,’andthetapeisatyrant.”Discussion:Wyckoffiteratesthatsuccessisamatterofmakingamajorcommitment,tothepointwhereitbecomesone’schiefoccupation.Hedoesnotfeelthattakingpartialinterestwillleadtosuccess.

FullTimeLearningfrom

Mistakes

“Onecannotbecomeatraderbygivingthetickerabsenttreatment;norbyrunningintohisbroker'sofficeafterlunch,orseeing‘howthemarketclosed’fromhiseveningnewspaper.Hecannotstudythisartfromthe

farendofatelegraphortelephonewire.Heshouldspendtwenty-sevenhoursaweekattheticker,andmanymorehoursawayfromitstudyinghismistakesandfindingthe‘why’ofhislosses.”Discussion:One’smistakesprovidethebestlearningopportunities.Everytrade

shouldbefollowedbya‘postmortem’session,adissectionofwhatwentwrongifthetradewasaloser.Curiously,Wyckoffdoesnotmentionstudyingone’swinners.Winningtakescareofitself;itislosingthatmustbelearnedfrom.

WhatTradingisNot

“Tradingisnotmerelylookingatthetapetoascertainhowpricesarerunning.Itisnotreadingthenewsandthenbuyingorselling‘ifthestockactsright.’Itisnottradingontips,opinions,orinformation.Itisnotbuying‘becausetheyaregoingup,’orselling

‘becausetheylookweak.’Itisnottradingonchartindicationsorbyothermechanicalmethods.Itisnot‘buyingondipsandsellingonbulges.’Norisitanyofthehundredotherfoolishthingspractisedbythemillionsofpeoplewithoutmethod,forethought,orcalculation.”

Discussion:Tolearnwhatsomethingis,itisgoodtoknowwhatitisnot.Tradingrequiresatestedmethodandcarefulthought.Itisnotamatterofactingonawhimoranimpulse.

Inertia

“Themarketislikeaslowlyrevolvingwheel.Whetherthewheelwillcontinuetorevolveinthesamedirection,standstillorreversedependsentirelyupontheforceswhichcomeincontactwithitshubandtread.Evenwhenthecontactisbroken,andnothingremainstoaffectits

course,thewheelretainsacertainimpulsefromthemostrecentdominatingforce,andrevolvesuntilitcomestoastandstillorissubjectedtootherinfluences.”Discussion:Themarkethasatendencytokeepdoingwhatithasdoingrecently,unlessotherthingsinterfere.Thisis

anoldandanimportantprincipleofspeculation.

ManipulationNota

Problem

“Theelementofmanipulationneednotdiscourageanyone.Manipulatorsaregianttraders,wearingseven-leaguedboots.Thetrainedearcandetectthesteady‘clump,clump,’astheyprogress,andthefootprints

arerecognizedinenormousquantitiesofstockappearingonthetape.Littlefellowsareatlibertytotiptoewhereverthefootprintslead,buttheymustbewarythatthegiantsdonotturnquicklyandcrushthem.”Discussion:Intoday’sageofHFT(HighFrequencyTrading),co-location,and

flashcrashes,manytradersworryaboutmanipulation.Butmanipulationwasalwayspresent,eveninWyckoff’sday.Anditisvolumethatrevealsit.Nothingcanhidehugevolumes,whichshowsthatbigtradershavesprungtoaction.Payattentiontovolumepatterns.

AdvantageOverBig

Traders

“Thetraderhasmanyadvantagesoverthelongswingoperator.Heneverventuresfarfromshore;thatis,heplayswithaclosestop,neverlayinghimselfopentoalargeloss.Accidentsorcatastrophescannotseriously

injurehimbecausehecanreversehispositioninaninstant,andfollowthenew-formedstreamfromsourcetomouth.Ashispositiononeitherthelongorshortsideisconfirmedandemphasized,heincreaseshisline,thusfollowingupandcumulatingtheadvantagegained.”Discussion:Wyckoffpoints

outtheadvantagesoftradingona‘shoestring’.Itiseasytogetoutofapositionwhentradingsmall.Largetraderssimplydonothavethisoptionastheirtradingmovesthemarket.

TheTradingObjective

“Thisistheobjectivepointofthetrader—tomakeanaverageprofit.Inamonth'soperationshemaymake$3,500andlose$3,000—anetprofitof$500toshowforhiswork.Ifhecankeepthisaverageup,tradingin100-sharelots,throughoutayear,hehasonlytoincreasehis

unitto200,300,and500sharesormore,andtheresultswillbetremendous.”Discussion:Tradesmallandbepatient.Ifyoucanwinwithconsistency,youcanincreaseyourtradingsize.

Before,During,andAfter

theTrade

“Thetraderevolveshimselfintoanautomatonwhichtakesnoteofasituation,weighsit,decidesuponacourseandgivesanorder.Thereisnoquickeningofthepulse,nonerves,nohopesorfears.Theresultproduces

neitherelationnordepression.Thereisequanimitybefore,during,andafterthetrade.”Discussion:Emotionalstateofatradershouldnotfluctuate.Tradingdecisionsaretobemaderationallyandnoemotionalityshouldbepresentatanytime.

TheIdealWork

Environment

“Forperfectconcentrationasaprotectionfromthetips,gossipandotherinfluenceswhichaboundinabroker'soffice,heshould,ifpossible,secludehimself.Atinyroomwithaticker,adeskandprivatetelephoneconnection

withhisbroker'sofficeareallthefacilitiesrequired.Theworkrequiressuchdelicatebalanceofthefacultiesthattheslightestinfluenceeitherwaymaythrowtheresultagainstthetrader.Hemaysay:‘Nothinginfluencesme,’butunconsciouslyitdoesaffecthisjudgementtoknowthatanothermanisbearishatapointwherehethinksstocks

shouldbebought.Themerethought,"Hemayberight,"hasadeterringinfluenceuponhim;hehesitate;theopportunityislost.Nomatterhowthemarketgoesfromthatpoint,hehasmissedacogandhismentalmachineryisthrownoutofgear.Silenceisamuchneededlubricanttothetrader'smind.The

advisabilityofhavingevenanewstickerintheroom,isasubjectfordiscussion.Thetapetellsthepresentandfutureofthemarket.”Discussion:Tradingdecisionsaredelicate,andthusrequiretheproperenvironment.Eliminatedistractions.Wyckoffrecommendedsilenceastheidealwork

environment.Intoday’scontext,thatwouldmeannotjustquietinyourtradingroom,butalsonocontactwiththeothersviaemail,facebook...etc.Whenyoutrade,justtrade.Bepresentandmindfultoeverythingthatistakingplaceinfrontofyou.

HowMoneyisMade

“Moneyismadeintradingbyanticipatingwhatiscoming—notbywaitingtillithappensandgoingwiththecrowd.”Discussion:Goingwiththecrowdoftenmeansenteringtoolate.Agoodtraderseesthemove

asitisstarting,havinganticipateditinhisanalysis.Thatusuallymeansenteringonthebreakout,orthefirstpullback.

TradingDrivenby

PsychologicalNeeds

“Thetraderofslightexperiencesuffersmentalanguishifthestockdoesnotinstantlygohisway;heisafraidofalargeloss,hencehisjudgementbecomeswarped,andheclosesthetradeinordertosecure

mentalrelief.Astheseareallsymptomsofinexperience,theycannotbeovercomebyavoidingtheissue.Thebraveandthebusiness-likethingtodoistowaderightintothegameandlearntoplayitunderconditionswhicharetobemetandconqueredbeforesuccesscanbeattained.”Discussion:Howmany

tradingdecisionsdoyoumakeinordertosecurementalrelief(‘tofeelbetter’)?Wyckoffgivesanexampleofatraderclosinghispositioninordertoexperienceamorecomfortablepsychologicalstate.Ofcourse,itdoesnothavetobeanexit.Sometradersenterinordertorelieveaninnertension.

Needlesslytosay,tradingtomakeoneselfcomfortableisthewrongandtheexpensivethingtodo.Itisgoodideatoseewhichofyourtradingdecisionsarebasedpurelyonunmetpsychologicalneeds.

StartwithMinimumSize

“Afteracompleteabsorptionofeveryavailablepieceofeducationalwritingbearingupontrading,itisbesttocommencetradingintensharelots,soastoacquiregenuinetradingexperience.Thismaynotsuitsomepeoplewithapropensityforgambling,wholookuponthe

ten-sharetraderasapiker.Theaveragelambwith$10,000wantstocommencewith100to500-sharelots—hewishestostartatthetopandworkdown.Itisonlyaquestionoftimewhenhewillhavetotradeinten-sharelots.Tousitseemsbettertostartatthebottomwithtenshares.Thereisplentyoftimein

whichtoincreasetheunitifyouaresuccessful.Ifsuccessisnoteventuallyrealizedyouwillbemanydollarsbetteroffforhavingventuredtheminimumquantity...Thinkofababy,justlearningtowalk,beingenteredinaracewithprofessionalsprinters!“Discussion:Thereisnorushtotradebig,ifyouarejust

startingout.Proveyourselfbytradingsmallfirst.Youcanalwaysscalebiglater,afteryouhavedemonstratedyouredgeandexpertise.

StartRightorNotatAll

“Tradingishardwork,hencethosewhoarementallylazyneednotapply.Norshouldanyonetowhomitwillmeanworryastowherehisbreadandbutteriscomingfrom.Money-worryisnotconducivetoclear-headedness.Over-anxiety

upsetstheequilibriumofatradermorethananythingelse.Soifyoucannotaffordthetimeandmoney,andhavenotthenecessarysupplyofpatience,betterwait.Startrightornotatall.”Discussion:Itisanoldsayingthatscaredmoneyloses.Youcannotbeconcernedabout

moneyandactinanobjective,detachedway.Greedcloudsyourjudgementandmakesyourtradingweakandhesitantwhenitneedstobestronganddecisive.Itishardtodotherightthingwhenyouarethinkingaboutmoney.

EnteringattheRightTime

“Forthetraderthereisapsychologicalmomentwhenhemustopenorclosehistrade.Hisordersmustthereforebe‘atthemarket.’Hagglingoverfractionswillmakehimlosethethreadofthetape,upsethispoiseandinterrupttheworkingsofhismentalmachinery.”

Discussion:Wyckoffbelievedinenteringatthemarket(‘jumpingin’)attherightmoment.Enteryourpositionwhenyourconvictionhasreacheditsapex.

GetOn!

“...asthetradergenerallygoeswiththetrenditisacaseof‘getonorgetleft.’Byallmeans‘geton.’”Discussion:Wyckoffbelievedinenteringtrendswhentheybegin.Thoughsometimeshewaitedforpullbacks,healsotraded

breakoutswhenhefelttheevidencewassufficienttopullthetrigger.

Specialize

“Itisbetterforatradertotradeinonestockthantwoormore.Stockshavehabitsandcharacteristicswhichareasdistinctasthoseofhumanbeingsoranimals.Byaclosestudythetraderbecomesintimatelyacquaintedwiththesehabitsandisabletoanticipatethestock'saction

undergivencircumstances.Astockmaybestubborn,sensitive,irresponsive,complaisant,aggressive;itmaydominatethetapeortrailalongbehindtherest;itiswhimsicalandcoquettish;itmaywhisper,babblelikeabrookorroarlikeacataract.Itsmoodsmustbestudiedifyouwouldknowitandbendittoyourwill.

Studyimpliesconcentration.Apersonwhotradesinadozenstocksatatimecannotconcentrateonone...Bettertoconcentrateononeortwostocksandstudythemexhaustively.Youwillfindthatwhatappliestoonedoesnotalwaysfittheother:eachmustbejudgedonitsownmerits.Thevaryingpricelevels,volumes,percentageof

floatingsupply,investmentvalues,themanipulationandotherfactors,alltendtoproduceadifferentcombinationineachparticularcase.”Discussion:Specializeinwhatyoutrade.Itisbettertobeamasterofoneinstrumentthanajackofall.

WhattoTrade

“Thetradermustendeavortooperateinthatstockwhichcombinesthewidestswingswiththebroadestmarket;hemaythereforefrequentlyfindittohisadvantagetoswitchtemporarilyintootherissueswhichseemtoofferthequickestandsurestprofits.It

isnecessaryforustobecomefamiliarwiththecharacteristicsoftheprincipalspeculativemediumsthatwemayjudgetheiradvantagesinthisrespect,aswellastheirweightandbearinguponagivenmarketsituation.”Discussion:By‘widestswings’,Wyckoffmeant

tradingwhatmoves.Ifitdoesn’tmove,youcannotmakemoney.Thisprincipleisiteratedbyallgreattraders.

Interdependence

“Thevariousstocksinthemarketarelikeagiganticfleetofboats,allhitchedtogetherandbeingtowedbythetugs‘MoneySituation,’and‘BusinessConditions’...Theleadersarefirsttofeeltheimpulse;theothersfollowinturn.Shouldthetugshalt,thefleetwillrunalongfor

awhileunderitsownmomentum,andtherewillbeacertainamountofbumping,backingandfilling.Incasethedirectionofthetugsischangedabruptly,thebumpingisapttobesevere.Obviously,thoseintherearcannotgainandholdtheleadershipwithoutanall-aroundre-adjustment."

Discussion:Instrumentsmoveintandem.Thisistrueforstocks,buttherearealsostrongcorrelationsbetweendifferentmarketsandtheinstrumentswithineachmarket.Thenatureofthebeastisinterdependence.

OnBreakEvenTrades

“...thetrader'sproblemisnotonlytoeliminatelosses,buttocoverhisexpensesasquicklyasmaybe.Ifhehasacoupleofpointsprofitinalongtrade,thereisnoreasonwhyheshouldletthestockrunbackbelowhisnetbuyingprice.Herecircumstancesseemtocallforastoporder,

sothatnomatterwhathappens,hewillnotbecompelledtopayoutmoney.Thisstopshouldnotbethrustinwhennetcostistooclosetothemarketprice.Reactionsmustbeallowedfor.”Discussion:Wyckoffstronglybelievedintakingafreeposition,oncethemarkethas

movedadistancethatallowedforareaction.

Expert

“Atraderisessentiallyonewhofollowstheimmediatetrend.Anexpertcanreadilydistinguishbetweenachangeoftrendandareaction.Whenhismentalbarometerindicatesachangehedoesnotwaitforastopordertobehit,butcleanshouseorreverseshisposition

inatwinkling.Thestoporderatnetcostis,therefore,ofadvantageonlyincaseofareversalwhichissudden,pronounced,andwithnoforewarning.”Discussion:Oneofthehardestthingsintradingistellingthedifferencebetweenareactionandachangeoftrend.Indeed,inWyckoff’s

thinking,thatiswhatdistinguishesanexpertfromtherest.Spottingachangeoftrend,anexpertdoesnotwaitforhisstoptobehit.Heclosestheposition,possiblyreversingit.Thusabreakevenstopisusefultoanexpertonlyincasesofsuddenorunexpectedmarketmoves(‘spikes’).

AlwaysHaveaStop

“Iknowatraderwhooncebought500sharesofSugarandthenwentouttolunch.Hepaid25centsforwhatheate,butonreturningtothetapehefoundthetotalcostofthatlunchwas$5,000.25.Hehadleftnostoporder,Sugarwasdowntenpoints...”

Discussion:Wyckoffbelievedinalwayshavingastop.Withoutastop,youexposeyourselftothepossibilityofmakinganinfiniteloss.Notagoodideaforyouraccount.

TrailingStops

“Acloserstopmaybeobtainedbynotingthe‘pointsofresistance’—thelevelsatwhichthemarketturnsafterareaction.Forexample,ifyouareshortat130andthestockbreaksto128,ralliesto129,andthenturnsdownagain,thepointofresistanceis129.Incaseoftemporaryabsence

orinterruptiontotheservice,agoodstopwouldbeabove129.Iftheoperatorwishestouseanautomaticstop,averygoodmethodisthis:Supposetheinitialtradeismadewithaone-pointstop.Foreveryoneeightthestockmovesinyourfavor,changethestoptocorrespond,sothatthestopisnevermorenorlessthanone

pointawayfromtheextrememarketprice.Thisgraduallyandautomaticallyreducestherisk,andifthetraderbeatallskilful,hisprofitsmustexceedlosses.Assoonasthestopisthusraisedtocovercommissions,itwouldseembestnottomakeitautomaticthereafter,butletthemarketdevelopitsownstoporsignaltogetout.”

Discussion:Wyckoffusedtrailingstops.Heindicatesthatanautomatictrailingstopwasacceptableuntilyoutakeafreeposition.Afterthat,itisagoodideatoallowthemarkettodeterminewheretoplacethetrailingstop,accordingtorecentswinghighsorlows.

HowtoManageanOpen

Trade

“Fear,hesitation,anduncertaintyaredeadlyenemiesofthetrader...Thereforecommitmentsshouldbenogreaterthancanbebornebyone'ssusceptibilityinthisrespect.Hesitationmustbeovercome

byselftraining.Toobserveapositiveindicationandnotactuponitisfatal—moresoinclosingthaninopeningatrade.Theappearanceofadefiniteindicationshouldbeimmediatelyfollowedbyanorder.Secondsareoftenmorevaluablethanminutes.Thetraderisnotthecaptain—heisbuttheengineerwhocontrolsthemachinery.The

tapeisthepilotandtheengineermustobeyorderswithpromptnessandprecision.Uncertaintymaybereducedbytheuseofstops,orbyclosingatradewheneverone'scourseisnotentirelyclear.“Discussion:Theidealmentalstateisoneinwhichanobservationcorresponds

closelytoaction.Havingeliminatedhesitation,anexperttraderactsinstantlyexecutinghisdecisions.

TheImportanceof

ImmediateTrend

“Wehavedefinedatraderasonewhofollowstheimmediatetrend.Thismeansthathepursuesthelineofleastresistance.Hegoeswiththemarket—hedoesnotbuckit.Theoperatorwhoopposestheimmediatetrend

pitshisjudgementandhishundredormoresharesagainsttheworld'ssupplyordemandandtheweightofitsmillionsofshares.Armedwithabroom,heistryingtostaytheincomingtide.Whenhegoeswiththetrend,theforcesofsupply,demandandmanipulationareworkingforandwithhim.”

Discussion:Wyckoffbelievedingoingwiththetrend.Infact,makingprofitpresupposesatrend:pricemustmoveinthedirectionofone’spositioninordertogetoutahead.Goingwiththetrendmeansthatthetemporarysupply/demandimbalanceisonone’sside,addingstrengthtothemove,decreasingthe

probabilityofthestopbeinghit.

StayOutofQuietMarkets

“Amarketwhichswingswithinacoupleofpointscannotbesaidtohaveatrend,andisagoodoneforthetradertoavoid.Thereasonis:unlesshecatchestheextremesofthelittleswings,hecannotpaycommissions,takeoccasionallossesandcomeoutahead.

Noyachtcanwininadeadcalm.Asitcostshimnearlyhalfapointtotrade,eachriskshouldcontainaprobabletwotofivepointsprofit,oritisnotjustified.”Discussion:Ifthemarketdoesnothavelargeenoughswings,itishardtopaythecommissionsandcovertheoccasionallosses.Makesure

thatthereissufficientvolatilitytopotentiatesignificantmovesbeforeyoutrade.

Strong,HighMomentum

Moves

“Amechanicalengineer,giventheweightofanobject,theforceoftheblowwhichstrikesit,andtheelementthroughwhichitmustpass,canfigureapproximatelyhowfartheobjectwillbedriven.Sothetrader,bygaugingthe

impetusortheenergywithwhichastockstartsandsustainsamovement,decideswhetheritislikelytotravelfarenoughtowarranthisgoingwithit—whetheritwillpayitsexpensesandremuneratehimforhisboldness.Theordinarytip-tradingspeculatorgulpsapointortwoprofitanddisdainsaloss,

unlessitisbigenoughtostranglehim.Thetradermustdotheopposite—hemustcutouteverypossibleeighthlossandsearchforchancestomakethree,fiveandtenpoints.Hedoesnothavetograspeverythingthatlookslikeanopportunity.Itisnotnecessaryforhimtobeinthemarketcontinuously.Hechoosesonlythebestofwhat

thetapeoffers.”Discussion:Oneofthegreatestadvantagesthataretailtraderhasistheabilitynottotrade,tostayout,andwaitonlyforthebestopportunities.Unfortunately,fewnewtradersusethisadvantage.

NeverMoveYourStop

“Iftheoperatorisshakenoutofhisholdingsimmediatelyafterenteringthetrade,itdoesnotprovehisjudgementisinerror.Someaccidentmayhavehappened,someuntowarddevelopmentinaparticularissue,ofsufficientweighttoaffecttherestofthelist.Itistheseunknown

quantitiesthatmakethelimitationoflossesmostimportant.Insuchacaseitwouldbefollytochangethestopsothattheriskisincreased.This,whilecustomarywiththepublic,issomethingatraderseldomdoes.Eachtradeismadeonitsownbasis,andforcertaindefinitereasons.Atthe

outsettheamountofriskshouldbedecidedupon,and,exceptinveryrareinstances,shouldnotbechanged,exceptonthesideofprofit.Thetradermusteliminate,notenhance,hisrisk.”Discussion:Onthesideofprofit,Wyckoffusedtrailingstopsplacedjustbeyondarecentmajorswinghighor

low.Onthesideoflosses,heusedstops,whichhenevermoved,andwhichwereintendedtotakehimoutofthemarketwhentheimprobableoccurred.Trademanagementisalwaysaboutminimizing,notincreasingrisk.

NeverAverageaLoser

“Averagingdoesnotcomewithintheprovinceofthetrader.Averagingisgropingforthetoporbottom.Thetradermustnotgrope.Hemustseeandknow,orheshouldnotact.”Discussion:Anotherwayofsayingthatis,neveraddtoa

losingposition.Neverbuyonthewaydown,orsellonthewayup.

GunforAbsoluteProfits

“Itisimpossibletofixarulegoverningtheamountofprofittheoperatorshouldaccept.Inageneralway,thereshouldbenolimitsetastotheprofits.Adeal,whenentered,maylookasthoughitwouldyieldthreeorfourpoints,butifthestrengthincreaseswiththeadvanceit

mayruntenpointsbeforethereisanysignofahalt.”Discussion:Wyckoffdidnotbelieveintakingprofitsatfixedratios.Onemustreadthemarketandthendecidewheretoexit.Ofcourse,suchactivetrademanagementrequireslotofexperienceandstrongmentalmakeup.

FourReasonstoClosea

Trade

“Tradermustcloseatrade:(1)whenthetapetellshimtoclose(2)whenhisstopishit(3)whenhispositionisnotclear(4)whenhehasalargeorsatisfactoryprofit”

Discussion:Theyareallgoodreasonstocloseatrade.Whenpriceactionindicatesareversal,whenyourstopishit(assumingthereisnoautomaticcloseorder),whenthingsareunclear(‘range’),orwhentheprofitisquitelarge,areallimportantconditionstoconsiderwhenactivelymanagingyour

position.

VolumeAsaCrucial

Indicator

“Thehandofthedominantpower,whetheritbeaninsider,anoutsidemanipulatororthepublic,isshownin...volumes.Thereasonissimple.Thesebigfellowscannotputtheirstocksupordownwithout

tradinginenormousamounts.”Discussion:Donotignorevolume.Itshowsthehandoflargetraders.Whenamovehasstrongparticipation,itismorelikelytocarrythrough.

HowtoEvaluateVolume

“Volumesmustbevaluedinproportiontotheactivityofthemarket,aswellastherelativeactivityofthatparticularissue.Nosetrulecanbeestablished.Ihaveseenatradermakemoneyfollowingtheleadofa1000-sharelotofNorthwestwhichsomeonetookatafraction

abovethelastsale.OrdinarilyNorthwestisasluggishinvestmentstock,andthissizelotappearedastheforerunnerofanactivespeculativedemand.”Discussion:Volumemustevaluatedonarelativebasis,withrespecttothebroadmarketanditsusuallevels.Forinstance,ifaninstrument

showsvolumelevelsthataredoubleofnormal,thisisanindicationthatsomethingunusualistakingplace.Moneyismadewhensuchimbalancesarepresent.

PriceFactorsEverything

“Sofarasthetraderisconcerned,hedoesnotcarewhetherthemoveismadebyamanipulator,agroupoffloortraders,thepublicoracombinationofall.Thefiguresonthetaperepresenttheconsensusofopinion,theeffectofmanipulationandthesupply

anddemand,allcombinedintoconcreteunits.Thatiswhytapeindicationsaremorereliablethanwhatanyonehears,knowsorthinks.”Discussion:ItisatenetofDowtheorythatpricediscountseverything.Wyckoffpointsoutthereasonforitsreliability:it

factorsinallinfluences,seenandunseen.

StrengthandVolume

“Thecomparativeactivityofthemarketonbulgesandbreaksisaguidetothetechnicalconditionofthemarket.Forinstance,duringadecline,ifthetickerisveryactiveandthevolumeofsaleslarge,voluntaryorcompulsoryliquidationisindicated.Thisisemphasized

if,onthesubsequentrally,thetapemovessluggishlyandonlysmalllotsappear.Inanactivebullmarketthetickerappearstobechokedwiththevolumeofsalespouredthroughitontheadvances,butonreactionsthequantitiesandthenumberofimpressionsdecreaseuntil,liketheoceanatebbtide,themarketisalmostlifeless.”

Discussion:Ifastrongtrendisunderway,volumeshouldbelargeronthemoveswiththetrend,thanonthereactions.

Don’tEnterafterProlonged

Moves

“Ofcourse,thesethingsaremereguideposts,asthetrader'sactualtradingisdoneonlyonthemostpositiveandpromisingindications;buttheyarevaluableinteachinghimwhat

toavoid.Forinstance,hewouldbewaryaboutmakinganinitialshortsaleofSmeltersaftera15-pointbreak,evenifhisindicationswereclear.Theremightbeseveralpointsmoreontheshortside,buthewouldrealizethateverypointfurtherdeclinewouldbringhimclosertotheturningpoint,andaftersucha

violentbreakthesafestmoneywasonthelongside.”Discussion:Toputitsimply,donotbuyafterlotofbuying,anddonotsellafterlotofselling.Themarketdoesnotmoveinastraightline.Donotenterafterprolongedmoves.

ChancesDecreaseasMove

Continues

“Itisseldomthatthemarketrunsmorethanthreeorfourconsecutivedaysinonedirectionwithoutareaction,hencethetradermustrealizethathischancesdecreaseastheswingisprolonged.”

Discussion:Samepointasabove.Eveninstrongtrends,themarketdoesnotmoveinonedirectionindefinitely.

DayTradingIsFine,But...

“Thedailymovementsofferhisbestopportunities;buthemustkeepinstockswhichswingwideenoughtoenablehimtograbaprofit.”Discussion:Again,youcannotmakeprofitifthemarket’stradingrangeistoonarrow.

TheUseofMarketCycles

inWyckoff’sDay

“Itisanastonishingfact,andonewhichwehaveneverbeforeseeninprint,thatthereisamarketcyclewhichrunsalmostexactlyonehour.Watchitforyourselfwhennextattheticker,andyouwillfindthatifanupward

movementculminatesat10:25,thereactionusuallywilllasttill10:55,andtheapexofthenextupswingwilloccuraboutthirtyminuteslater.Ihaveactuallystoodwatchinhand,havingdecidedwhattodo,waitingforthehighorlowmomentonwhichtosellorbuy,andhaveoftenhitwithinafractionofthebestobtainable

figure.WhythisisIdonotattempttoexplain,butithappensveryoften.Ihavefrequentlyusedthisideaasatestofthemarket'sstrengthorweakness,inthisway:Ifadeclineendedacertainmomentandthesubsequentrallyonlylastedtenminutes,insteadofthenormalhalfhour,Iwouldconsideritanindicationof

weaknessandwouldlookforafurtherdecline.”Discussion:Inhisday,Wyckoffspottedadailypatternofpricebehavior.Whilethisparticularpatternobviouslynolongerworksafter80years,itgivesusaprecedent.Howdoesyourfavoriteinstrumentactonatypicalday?Whendoesit

usuallyturn?Whendothemainmoveshappen?Whattypicallyhappensat10am?At11am?Atnoon?At2pm?

GettingtotheBottomof

Things

“Hestudies,figures,analyzes,anddeduces.Heknowsexactlywherehestands,whatheisdoingandwhy.Fewpeoplearewillingtogototheverybottomofthings.Isitanywonderthatsuccess

isforthefew?”Discussion:Anexpertknowswhatheisdoing.Ofcourse,thisisatruismanditwouldbetrivial,ifitweren’tformanytraderswhosimplygamble,insteadofknowingexactlywhattheiredgeisandhowtomilkit.

NoOneKnows

“Whenamarketisinthemidstofabigmove,noonecantellhowlongorhowfaritwillrun.”Discussion:Strongtrendsrunfartherthananyoneimagines.Findarecentstrongtrendonthechartofyourfavoriteinstrument.Didyouthinkit

wasgoingtogothatfar?Andwhatdoesthatsayaboutprofittakingstrategiesinbigmoves?

HowtoAnticipateBig

Moves

“Whenadullmarketshowsitsinabilitytoholdrallies,orwhenitdoesnotrespondtobullishnews,itistechnicallyweak,andunlesssomethingcomesalongtochangethesituation,thenextswingwillbedownward.

Ontheotherhand,whenthereisagradualhardeninginprices;whenbearraidsfailtodislodgeconsiderablequantitiesofstock;whenstocksdonotdeclineuponunfavorablenews,wemaylookforanadvancingmarketinthenearfuture.Noonecantellwhenadullmarketwillmergeintoaveryactiveone;thereforethe

tradermustbeconstantlyonthewatch.Itisfoolishforhimtosay:‘Themarketisdeaddull.Nousegoingdowntowntoday.Theleadersonlyswunglessthanapointyesterday.Nothinginsuchamarket.’Suchreasoningisapttomakeonemisstheverychoicestopportunities,i.e.thoseofgettinginonthegroundfloorofabigmove.”

Discussion:Bigmovesstartfromdullmarkets,notfromactiveones.Whenthemarketis‘goingnowhere’,paycloseattention,andwaitforastrongmovethatiscertaintoeventuallyhappen.

Scalping

“Thereareotherwaysinwhichatradermayemployhimselfduringdullperiods.Oneistokeeptabonthepointsofresistanceintheleadersandplayonthemforfractionalprofits.This,weadmit,isaratherprecariousoccupation,astheoperatingexpenses

constituteanextremelyheavypercentageagainsttheplayer,especiallywhentheleadingstocksonlyswingapointorsoperday...Wecannotrecommendit.Itwillnotasarulepaythetradertoattemptscalpingfractionsoutoftheleadersinadullmarket.Commissions,taxstampsandtheinvisibleeighth,inadditiontofrequent

losses,formtoogreatahandicap.”Discussion:Wyckoffdidnotrecommendscalping.Themathisagainstit,asthecommissionsconstituteasignificantpercentageofpossibleprofits.Thevigwilleatyoualive.Waitforstrongmoveswithwideswings.

DevelopingSubconscious

Competence

“Thetraderoperatesonwhatthepriceshowsnow.Heisnotweddedtoanyparticularinstrument,and,ifhechooses,canworkwithoutpencil,paperormemorandaofanysort.Healsohashiscodeofrules—lessclearly

definedthanthoseofthechartist.Somanydifferentsituationspresentthemselvesthathisrulesgraduallybecomeintuitive—asortofsecondnatureisevolvedbyself-trainingandexperience.”Discussion:Wyckoffspokeofunconsciouscompetencebeforethetermbecamefashionable.Heexplainsthe

makingofadiscretionary,‘intuitive’trader.Hisguidingruleseventuallyevolveintoaformofintuition,throughlongobservationandexperience.

DiscretionaryTrading

“AfriendtowhomIhavegivensomepointsintradingonceaskedifIhadmyrulesalldownsofinethatIknewjustwhichtouseatcertainmoments.Iansweredhimthus:Whenyoucrossastreetwherethetrafficisheavy,doyoustoptoconsultasetofrulesshowingwhentorun

aheadofatrolleycarorwhennottododgeawagon?No.Youtakealookbothwaysandatthepropermomentyouwalkacross.Yourmindmaybeonsomethingelseoryoumaybereadingyournewspaperwhilecrossing—yourjudgementtellsyouwhentostartandhowfasttowalk.Thatistheattitudeofthe

trainedtrader.”Discussion:Greatelucidation!Asamastertrader,Wyckoffusedhisjudgementanddiscretionhonedthroughthousandsofhoursofobservationandexperience.Itisn’tthathehadnorules;heclearlydid.Buttheyhaveevolvedintoa‘tradingsense’,whichtold

himwhichactionwasthebestatanytime.

ChartingandHindsight

Bias

“Nowifchartswereaninfallibleguidenoonewouldhavetolearnanythingmorethanitscorrectinterpretationinordertomakebigmoney.Ourcorrespondentsays,‘afterathoroughtrialofthechartI

findthatIcouldhavemadeaveryconsiderablesumifIhadfollowedtheindicationsshown.’Buthewouldnothavefollowedtheindicationsshown.Heisfoolinghimself.Itiseasytolookoverthechartafterwardsandseewherehecouldhavemadecorrectplays,butIventuretosayhenevertestedtheplanunderproper

conditions.Letanyonewhothinkshecanmakemoneyfollowingacharthaveafriendprepareit,keepingsecretthenameofthestockandtheperiodcovered.Thenputdownonpaperapositivesetofruleswhicharetobestrictlyadheredto,sothattherecanbenoguesswork.Eachsituationwillthencallfora

certainplayandnodeviationistobeallowed.Coverupwithasheetofpaperallbutthebeginningofthetestchart,graduallyslidingthepapertotherightasyouprogress.Recordeachorderandexecutionjustasifactuallytrading.Putmedownascopperingeverytradeandwhendonesendmeacheckforwhatyouhave

lost.Ihaveyettomeetthemanwhohasmademoneytradingonafigurechartoveranextendedperiod.Anykindofachartwillshowsomeprofitsattimes,butthetestis:Howmuchmoneywillitmakeduringseveralmonths'operations?”Discussion:Soberingwords.

Ifmakingmoneywassimplyaboutrecognizingafewchartpatterns,therewouldbemanymoretradingmillionaires.Heproposesamanualsystemtesting.Willthetradingrulesmakemoneyoveraperiodofmanymonths?Wyckoffpointsoutthehindsightfallacy:itseemseasytotradelookingbackatthechartattheendofthe

day.Butthingsareharderinrealtime.

ProperUseofCharts

“Thechartgivesthedirectionofcomingmoves;thetapesays‘when.’”Discussion:Wyckoffrecommendsusingorderflow(‘Level2’)inordertopinpointentry.

WideVision

“Thetraderseeseverythingthatisgoingon;thechartplayer'svisionislimitedtooneinstrument.Bothaimtogetinrightandgowiththetrend,buttheeyethatcomprehendsthemarketasawholeistheonewhichcanreadtrendsmostaccurately.”

Discussion:Don’tignorethetrendcontext.Whatisthemarketdoingasawhole?Isyourinstrumenttheonlyonetrending?Oristherewideparticipation?

LocalTrendsvs.General

Trends

“Ifonewishesamechanicaltrendindicatorasasupplementandaguidetohistrading,hehadbestkeepachartcomposedoftheaveragedailyhighandlowofeightortenleadingstocks.Suchacompositechartisof

novaluetothetraderwhoscalpsandclosesouteverythingdaily.Butitshouldbenefitthosewhoreadthetapeforthepurposeofcatchingtheimportantfiveortenpointmoves.Suchatraderwillmakenocommitmentsnotinaccordancewiththetrend,asshownbythischart.Hisreasonisthatevenawell

plannedbullcampaigninastockwillnotusuallybepushedtocompletioninthefaceofadowntrendinthegeneralmarket.Thereforehewaitsuntilthetrendconformstohisindication.”Discussion:Whatisthetrendofthegeneralmarket?‘Local’trendshavelesschanceofpersistingthan

‘general’trendsthathavemulti-marketparticipation.

IdentifyingTrend,Range,

Accumulation,and

Distribution

“Itseemshardlynecessarytosaythatanuptrendinanychartisindicatedbyconsecutivehighertopsandbottoms,likestairsgoingup,andthereversebyrepeatedstepstowardalowerlevel.A

seriesoftopsorbottomsatthesamelevelshowsresistance.Aprotractedzig-zagwithinashortradiusaccompaniedbyverysmallvolumemeanslifelessness,butwithnormalorabnormallylargevolume,accumulationordistributionismoreorlessevidenced.”Discussion:Distinguishing

trendsfromrangesisthemostbasicskillthatatradermustacquireinordertobesuccessful.

DiscardAllMechanical

Helps

“Theproficienttraderwilldoubtlessprefertodiscardallmechanicalhelps,becausetheyinterferewithhissensingthetrend...Weadvisestudentstostandfreeofmechanicalhelpssofarasitispossible.”

Discussion:Wyckoffwasnotafanofblindlyfollowingmechanicalrules.Atrainedeyecanspottrendsbetter.

WatchingOneMarket

Insufficient

“Ourcorrespondentinsaying‘achartisbutacopyofthetape’doubtlessreferstothechartofonestock.Thefulltapecannotpossiblybecharted.Thetapedoestellthestory,butchartingoneortwostocksislikerecording

theactionsofoneindividualasexemplifyingtheactionsofaverylargefamily.”Discussion:Tradeincontext.Inotherwords,beawareofhowyourtradefitsintothewholemarketpicture.

MarketAbsorption

“JustnowItookasmalltriangularpieceofblottingpaperthree-eighthsofaninchatitswidest,andstuckitontheendofapin.Ithenthrewablotofinkonapaperandputtheblotterintocontact.Theinkfairlyjumpedupintotheblotter,leavingthepapercomparativelydry.

Thisisexactlyhowthemarketactsonthetapewhenitsabsorptivepowersaregreaterthanthesupply—largequantitiesaretakenattheofferedpricesandatthehigherlevels.Pricesleapforward.Thedemandseemsinsatiable.Aftertwoorthreeblotshadthusbeenabsorbed,theblotterwouldtakenomore.It

wasthoroughlysaturated.Itsdemandsweresatisfied.Justinthiswaythemarketcomestoastandstillatthetopofariseandhangsthere.Supplyanddemandareequalizedatthenewpricelevel.ThenIfilledmypenwithink,andletthefluidrunoffthepointandontotheblotter.(Thisillustratedthedistributionofstocksinthe

market)Beyondacertainpointtheblotterwouldtakenomore.Adropformedandfelltothepaper.(Supplyexceededdemand.)ThemoreIputontheblotterthefasterfellthedrops.(Liquidation—marketseekingalowerlevel.)Thisisasimplewayoffixinginourmindstheprincipalopposingforcesthatareconstantlyoperatinginthe

market—absorptionanddistribution,demandandsupply,supportandpressure.Themoreadeptatraderbecomesinweighingandmeasuringtheseelements,themoresuccessfulhewillbe.”Discussion:Afittinganalogyofhowthemarketabsorbsorders.

RangeDoesNotMean

Reversal

“Whenastockholdssteadywithinahalfpointradiusitdoesnotsignifyareversaloftrend,butratherahaltingplacefromwhichanewmoveineitherdirectionmaybegin.”

Discussion:Itshouldbepointedoutthatwhenpricepausesandformsatemporaryrange,itismorelikelytoresumemovinginthedirectionoftheprevioustrendthanagainstit.

DocumentAllTrades

“Agoodwaytowatchtheprogressofanaccountistokeepabookshowingdates,quantities,prices,profitsandlosses,alsocommission,taxandinterestcharges.Besideeachtradeshouldbeenteredthenumberofpointsnetprofitorloss,togetherwitharunningtotal

showingjusthowmanypointstheaccountisaheadorbehind.Achartoftheselatterfigureswillpreventanyonefoolinghimselfastohisprogress.Peoplearetooapttoremembertheirprofitsandforgettheirlosses.”Discussion:Ofcourse,nowadays,softwarekeepsthe

scoreforyou.Yet,itisagoodexercisetorecordthetradesyourself,examiningthetechnicalandthementalfactorsthatwentintoyourtradingdecisions.

ProfessionalLossesAre

Tiny

“Thelossestakenbyanexperttraderaresosmallthathecantradeinmuchlargerunitsthanonewhoisawayfromthetapeorwhoistradingwithanarbitrarystop.Thetraderwillseldomtakeoverhalfapointtoa

pointlossforthereasonthathewillgenerallybuyorsellat,orcloseto,thepivotalpointorthelineofresistance.”Discussion:Ifthereisonethingthatprofessionalsareverygoodat,itisminimizingrisk.Theyenteratpricepointsthatallowthemtousetightstops.

BigSwingsandLarge

Volumes

“Thebigmoneyintradingismadeduringveryactivemarkets.Bigswingsandlargevolumesproduceunmistakableindicationsandaharvestfortheexperiencedoperator.”

Discussion:Wyckoffgivesarecipeforidealmarketconditions,whichmeansbigswingsandlargevolumes.Suchmovesareapttogofar.

Whatisthe‘Best’Trading

Style?

“Ifhismake-upissuchthathecancloselyfollowthesmallswingswithprofit,graduallybecomingmoreexpertandsteadilyincreasinghiscommitments,hewillshortly‘arrive’bythatroute.Ifhisdispositionissuchthat

hecannottradeinandoutactively,butiscontenttowaitforbigopportunitiesandpatientenoughtoholdonforlargeprofits,hewillalso‘getthere.’Itisimpossibletosaywhichstyleoftradingwouldproducethebestaverageresults,becauseitdependsaltogetheruponindividualqualifications.”

Discussion:Thereisnosuchthingasthe‘best’universalstyleoftrading,because‘thebest’dependsonone’stechnicalskillsandmentalmakeup.Thekeyisfindingatradingstylethatcaterstoyourstrengths.

TradingAsaProfession

“Tradingisessentiallyaprofessionforthemanwhoismentallyactiveandflexible,capableofmakingquickandaccuratedecisionsandkeenlysensitivetothemostminuteindications...Speculationisabusiness.Itmustbelearned.”

Discussion:Wyckoffdidnotbelievetradersareborn.Theyaremade.Tradingisabusiness,justlikeanyother.

DayTradingvs.Swing

Trading

“...atradermightfinditbothdifficultandlessprofitabletooperatesolelyforthelongswings.Inthefirstplace,hewouldbeobligedtolettwentyorthirtyopportunitiespassbytoeveryonethathewouldaccept.Thesmallswingsof

onetothreepointsgreatlyoutnumberthefiveandtenpointmovements,andtherewouldbeaconsiderablepercentageoflosingtradesnomatterhowheoperated.”Discussion:Wyckofffeltthatdaytradingforsmallermoveswasok,astherearemanytradablemoves.Waitingsolelyforverylargemoves

meansmissingoutonmanymediumones.Bepicky,butnottoopicky.Itisagameofselectivity,butnotagameofperfection.

Can’tTellHowFar

“Recenttradingobservationsandexperimentshaveconvincedmethatitisimpracticableandalmostimpossibletogaugetheextentofamovementbyitsinitialfluctuations.Manyimportantswingsbegininthemostmodestway.Thetopofanimportantdeclinemay

presentnothingmorethanalightvolumeandadriftingtendencytowardlowerprices,subsequentlydevelopingintoaheavy,slumpymarket,andendinginaviolentdownwardplunge.”Discussion:Bigmovesbegininsmallways.Andnoonehasanyideahowfartheywillgo.

WaitforaBreakout

“...theoperatorshouldaimtocatcheveryimportantswingintheleadingactivestock.Todothishemustactpromptlywhenastockgoesintoanewfieldorotherwisegivesanindication,andhemustbereadytofollowwhereveritleads.Ifithasbeenmovingwithinathree-pointradius

andsuddenlytakesonnewlifeandactivity,burstingthroughitsformerbounds,hemustgowithit.”Discussion:ThisthemeiscommontoWyckoff,asitwastoLivermore.Waitforabreakout.Takenointerestuntilthen.

Re-enterOnaPullback

“Ifthestockrisesthreepointsandthenreversesoneoroneandahalfpointsonlightvolume,hemustlookuponitasaperfectlynaturalreactionandnotachangeoftrend.Theexpertoperatorwillnotordinarilyletallofthreepointsgetawayfromhim.Hewillkeeppushinghis

stopupbehinduntilthefirstgoodreactionputshimoutatclosetothehighfigure.Thisleaveshiminapositiontorepurchaseonthereaction,providednobetteropportunitypresentsitself.Havingpurchasedatsuchatime,hewillselloutagainasthepriceoncemoreapproachesthehighfigure,unlessindicationspointtoits

forgingthroughtoanewhighlevel.”Discussion:Afterbeingtakenout,re-enteronapullback,andthenexitonstrength.Soforexampleinanuptrendchannel,buyonapullbackinthebottompartofthechannel.Exitintheupperhalfofthechannel.

UseVolumeonBreakout

“Themorewestudyvolumes,thebetterweappreciatetheirvalueintrading.Itfrequentlyoccursthatastockwillworkwithinathree-pointrangefordaysatatimewithoutgivingoneachanceforarespectable-sizedscalp.Withoutgoingoutoftheseboundaries,itsuddenly

beginscomingoutonthetapeinthousandsinsteadofhundreds.Thisisevidencethatanewmovementhasstarted,butnotnecessarilyinthedirectionwhichisfirstindicated.Thetradermustimmediatelygowiththetrend,butuntilitisclearlydefinedandthestockbreaksthroughitsformerlimitswithlargeandincreasing

volumes,hemustexercisegreatcaution.”Discussion:Asuddenincreaseinvolumeisasignthatthetradershouldpaycloseattentionandbereadytotradeinthedirectionofthetrend.

HowtoMoveYourStop

“Supposetheoperatorsellsastockshortat53anditbreaksto51.Heisfoolishnottobringhisstopdownto511/4unlessthemarketisripeforaheavydecline.Withhisstopatthispointhehastwochancesoutofthreethattheresultwillbesatisfactory:(1)Thepricemaygolowerand

yieldafurtherprofit;(2)Thenormalrallyto52willcatchhisstopandenablehimtoputthestockoutagainatthatprice.Thethirdcontingencyisthatitwillrallytoabout511/4,catchhisstopandthengolower.Hecanscarcelymournoverthelossofafurtherprofitinsuchacase.”Discussion:Wyckoff’stight

trailingstopmightgiveusapause.However,ifheistakenout,heisreadytore-enterthemarketonapullback,solosinghisposition(whiletakingsignificantprofitsoffthetable!)isnotaproblem.

PlayingDominoes

“Mentalpoiseisanindispensablefactorintrading.Themindshouldbeabsolutelyfreetoconcentrateuponthework;thereshouldbenofeelingthatcertainthingsaretobeaccomplishedwithinagiventime;nofear,anxiety,orambition.Whenatraderhashis

emotionswellinhand,hewillplayasthoughthegameweredominoes.Whenanythinginterfereswiththisattitudeitshouldbeeliminated.If,forexample,therebeanunusualseriesoflosses,thetraderhadbettersuspendoperationsuntilhediscoversthecause.”Discussion:Thecomfort

levelswhiletradingshouldbethesameaswhenpayingdominoes,inotherwords,itshouldbeacomfortableandarelaxedexperience.

NoTrend,NoTrade

“Themarketmaybeunsuitedtotradingoperations.Whenpricesdriftupanddownwithouttrend,likeashipwithoutarudder,andfewpositiveindicationsdevelop,thepercentageoflosingtradesisapttobehigh.Whenthisconditioncontinuesitiswelltoholdoff

untilthecharacterofthemarketchanges.”Discussion:Whenindoubt,stayout.Directionlessmarketsresultinwhipsaws,notprofits.

ImpairedTrading

“...thetradershouldbecarefultotradeonlyinsuchamountsaswillnotinterferewithhisjudgement.Ifhefindsthataseriesoflossesupsetshimitisaneasymattertoreducethenumberofsharesone-halforaquarteroftheregularamount,oreventotenshares

sothatthedollarsinvolvedarenolongerafactor.Thisgiveshimachanceforalittleself-examination.”Discussion:Tradethesizethatiscomfortable,thatdoesnotimpairyourjudgement.Youcannotstayobjectivewhenyoufeeluncomfortable,asyouwillbepronetobaseyourdecisionsonyour

feelings.

Tired,Hungry,Horny,or

Upset

“Ifapersonisinpoorphysicalconditionorhismentalalertnessbelowparforanyreason,hemaybeunabletostandtheexcitementattendingthework.Lossofsleep,forexample,mayrenderone

unfittocarryallthequotationsinhishead,ortoplanandexecutehismovesquicklyandaccurately.Whenanythingofthiskindoccurswhichpreventsthefreeplayofallthefacultiesitisbesttobringtheday'sworktoaclose.”Discussion:Traderested,nottired.Itisalsonotagood

ideatotradehungry,horny,orupset.

TheFoundationofStrong

TradingPsychology

“Iendeavortoperfectmyselfinclearheadedness,quicknessofthought,accuracyofjudgement,promptnessinplanningandexecutingmyplays,foresight,intuition,courage,andinitiative.Masterfulcontrolofmyself

intheserespectswillproduceawinningaverage—itismerelyaquestionofpractice.”Discussion:Thefoundationofstrongtradingpsychologyisself-mastery.Self-masterymeanstwothings:1.Preferringlong-termconsequencestoshort-term

gratification.and2.Theabilitytodothe‘hard’thing,ifitisrequired.Thinkaboutyourtrading,andyourlife.Wherehaveyoudemonstratedthese?Howcanyouincreaseandimproveyourself-mastery?

OneIdeaintoaMethod

“Tobesureitispossibleforapersontotakeanumberofthe‘tricksofthetrade’hereinmentionedandtradesuccessfullyonthesealone.Evenoneideawhichformspartofthewholesubjectmaybeworkedandelaborateduponuntilitbecomesamethodinitself.Thereare

endlesspossibilitiesinthisdirection.”Discussion:WhileWyckoffrecommendsathoroughstudyofthemarketsandtrading,healsosaysthatyoucantakeasingleideaandevolveitintoyourowntradingmethod.Tobesuccessful,youneedonegoodideaandmakeityourown.

OnTrading“Teachers”

“FrequentrequestsaremadeforthenameofsomeonewhowillteachtheArtofTrading.Idonotknowofanyoneabletoreadthetapewithprofitwhoiswillingtobecomeaninstructor.Thereasonisverysimple.Profitsfromthetapefarexceedanythingthatmightbeearnedintuition

fees.”Discussion:Itisnaivetothinkthataprofessionalwilldiscloseallhistricks.That’snottosaythatthereisn’tlotofgood,tradingwisdomoutthere.Buttoexpectsomebodytogiveyouallhissecretsissilly.Nothingbutyourownmindcanmakeyouasuccess.

FormingaTrading

Character

“...eventhosewhogetprettywellalonginthesubjectwillbescaredtodeathatastringoflossesandquitjustwhentheyshoulddiginharder.Forinadditiontolearningthearttheymustformasortoftradingcharacter,which

noamountofreversescandiscouragenorturnbackandwhichconstantlystrivestoeliminateitsownweakpointssuchasfear,greed,anxiety,nervousnessandthemanyothermentalfactorswhichgotomakeorunmaketheprofitcolumn.”Discussion:Whileworkingonyourtrading,youare

workingonyourself.Thisisoneoftheadvantagesofbeingatrader.Youevolveanddevelopasaperson.Tradingisn’tdisconnectedfromwhoyouareorfromtherestofyourlife.

Conclusion-TheFinal

Lesson

UnlikeJesseLivermore,RichardWyckoffkepthiswealthtiltheendofhislife.Andsoheleftuswiththefinallesson:onceyoubecomesuccessful,payyourselffirst.Protectwhatyouhavemade.Donotrisk

allyourprofitstrading.Wyckoffdidn’t.Hetookthemoneyoffthetableandtooka‘freeposition’inlife,enjoyingthefruitsofhislabors.Marketschange,andthereisnoguaranteeofcontinuedsuccess.Manytraderswhomadetheirfortunesretire.Youcannotstepintothesamerivertwice.Aftermakinghis

millions,Wyckofffocussedontradingeducation.Tradingtakesitstoll.Thereistimeforhardwork,butalsoforhappytimes.Lifehassomuchmoretooffer.Byallmeans,enjoythegame,butbesmartaboutit.HappyTradingandGoodLuck.:)

PSIfyougotsomethingoutofthisbook,pleasepostareviewonAmazon.Youmayalsoenjoymyotherbooks.

“Thegameofspeculationis

themostuniformlyfascinatinggameinthe

world.Butitisnotagamefor

thestupid,thementallylazy,thepersonofinferior

emotionalbalance,ortheget-rich-quickadventurer.They

willdiepoor.”