I’m currently reading “How I Trade and Invest in Stocks & Bonds,” a fantastic trading book written by Richard D. Wyckoff and first published in 1924. The insights into the nature of trading are applicable regardless of the instrument you choose to trade, despite the fact that the majority of the examples in the book pertain to stocks.
I am particularly drawn to the authors’ appreciation of the market’s ebb and flow and how this perspective can be utilized to great effect.
“When making a speculative commitment, it is difficult to overstate the importance of studying the technical position. “What is a weak or strong technical position?” is a common question. My answer is, in a word, that a stock is in a feeble specialized position on the bull side when it has been bought and is held by an enormous number of outside examiners; when the majority of these are seeking financial gain; when the stock’s price has risen to the point where new purchases cannot be encouraged for the time being. No matter how strong its management, finances, or earning power are, a stock must fall when its buying power is exhausted.”
“Then again, a stock is in a feeble specialized position on the short side when the bears have depleted their ammo by selling all they can manage and while the purchasing force of venture and speculative buyers is to such an extent that it opposes the strain of the bears; that is, when there is more demand than there is supply. The fact that everyone who is short is a potential bull is the weakness of such a position; they must, at some point or another, cover their responsibilities to close their exchanges. They do not want to be short for an indefinite amount of time.” Bears that have sold short are not a sign of weakness but rather of strength.
The Chinese Yin-Yang symbol may best represent the nature of all markets.
In each bull move, and in each bear decline, are the seeds of their own obliteration.
Electronic Trader and Pit Trader for Malcolm Robinson’s LIFFE
