The Finance Book Club

Clemmo quietly following your excellent book reviews. I've got another one for your list - Unknown Market Wizards by Jack Schwager. I recommend it as a read for everyone, especially thinking about what's the connection between the disparate kinds of traders who've make a killing.

Thanks for your kind comment. I'm sure I will get around to it. I've been biased towards books of a certain vintage.

all are bullshit books!!

Possibly true, but do you mean all books are bullshit, or that just these books are bullshit and you know some that are better?

any "opinion" book is a bullshit.
they express thier opinions, and thier own experiences,
your opinion/experience may be much better
selling words! begger authers! without any exception . .

Ch7 - Various Types of Top-Action
Tops Are More Difficult to Distinguish Than Bottoms

Buying is slower than selling; so the tops in all stocks don't coincide.

Stocks gain momentum when falling. Panic causes dumping. Climaxes (is this the right word? Nadirs?) are concentrated.

Bottoms are sharply differentiated. Tops are rounded.

The tired-appearing market tops might also be deceptive resting places in an ongoing trend. The vital clue is greatly increased volume at the market turning.

Markedly increased volume following a run-up in price signifies distribution.

A Sharply Defined Top

A stock rushes up accompanied by heavy volume and turns over on a big volume-day.

A Broad Top

I’m sure NH would have appreciated my little visual pun, but this ain’t about dames, see? It’s about bacon, bread, dough, ya big palooka!


This top is not as simple to interpret. NH says we get the first clue on 07.30 but isn’t 07.16 the same deal??
Well, NH says the 16th is a significant day. Especially in contrast to the 18th when there is a volume gap. Then on the 28th the volume is heavy with small headway made, and on the 30th the selling is persistent and heavy.
No rallies of consequence; volume dried up each time liquidation slackened.

Volume is large on the advances and light on the set-backs.

if me or you know a single reputable book .. both of us are now Millionaires

Thales of Miletus ca. 540 BC : "All is Water."
Mohammed Safar Al-Otaibi ca. 2023: "All is Bullshit."

I think, if you are saying becoming a millionaire (if you aren't one already) will require more than a book, then I agree.

I came across the last posts in this thread and would like to add my experience/opinion in this subject if I may....

All books are definitely not bullshit. But can you take a book and apply it as presented, again definitely not.
But even if you take one point from a book that fits your style it could be golden, could change your whole life.
Will you learn to trade from reading one book definitely not, but they are building blocks that will shape your whole
system in the end, a strategy that is solely yours, cause we are all different.
In the end you and only you will form your "perfect" strategy based on your past experiences, thousands of hours
of trading and screen time, cause nothing can replace experience.

Ch8 - The Tape-Story of Loews


The stock announced a new dividend and its future looked bright.

However on Nov 5-7 there was some evidence of a problem.

“A trader watching the tape on the 7th would have seen the activity of volume in Loew's to be more impressive on the declines than on the rallies.” Technically untrue. I see rising volume during the rally and the pattern continues on the 7th but price gaps down?

Then NH says that when price drops to 52 ⅝ , the ‘buying appears better than the selling’ as volume swells while price closes higher. But this ensuing rally is accompanied by a decreasing volume trend?

The price doesn’t go far so this is an example of ‘"heavy volume without progress" marking the turn.

Rumours usually circulate to assist those who have something to gain.

“A favourable sign concerning Loew's during the morning was its lack of activity (no great amount of stock offered for sale) folio wing the active run-ups.”

It is a favourable sign for a further advance if, after a run-up in a stock on reasonably heavy volume, the subsequent set-back occurs on light volume; in other words, if the volume dries up on the reaction. I don’t have any reason to doubt this but I wonder if volume is even a necessary part of the equation. Can’t we make the same assertion simply by seeing how price behaves?

Ch9 - Steel, The Market Leader
“As steel goes, so goes the market.” (I suppose these days it would be, AAPL? Or is it TSLA?)

“There are no interests in Wall Street powerful enough to stem the tide of wholesale public liquidation (this was proved in October, 1929); nor have they enough money to run Steel up ten points, when they know from the market's position that thousands upon thousands of shares of Steel would be offered for sale all the way up. It is simple enough to sit around a brokerage office and glibly spin yarns about the "big fellows." Forget it; if any of your informants knew them well enough to know what they were doing, they would not be sitting in a broker's office talking to you and me.” What about the Fed?

“Assume that the market on Steel at five minutes after ten o'clock is 149 ¼ bid and 149 ½ asked. If you notice 3,000 shares of Steel pass soon after at 149 ¼ , you know at once that someone has" hit the bid," that in this block of Steel the selling has been more urgent than the buying. If it happens the other way about, with the transaction at 149 ¾, you will know that someone is bidding for stock and is willing to pay more than the asked price.” This assumes there is some correlation between individual orders and so some value in knowing what’s been hit first.

Watch for ‘false moves’ in a lightly traded market. These are smaller volume orders that follow the sale of a large block, at better prices. They are meant to ‘entice’ buyers and get a better price for the next big block sale.

“Only through practice can we acquire that" feel" which sends a definite signal to our brains when important action takes place.”

Systems don’t work. Only interpretation. If there was a system that worked, hundreds would learn its secret and then it would cease to work. (now you tell me)

Supply and demand are your guide; gauge which is stronger. Don’t expect to always judge correctly.

Never overtrade; maintain a margin of at least 50%.

Ch10 - Tips are Dangerous
Neither give nor receive them.

However you can use the action of the tape to confirm or refute them.

Ch11 - Some Important Observations On Volume
Pros use big orders to trap the unwary. Don’t just watch big orders but watch smaller volume orders too.

“During the final stages of a bear market we hear a great deal about pools' being unable to
attract a public following.”

Margin-selling produces fast reactions but actual liquidation is broader, slower and more persistent.
Short-covering produces rapid recoveries. ‘Good’ institutional buying advances with constant volume.

Wild price moves in a rally shows a meagre supply of stocks.

Investment buyers who buy stocks for holding/accumulation are slow to bid up prices and buy on scale-downs.

“Large bids, or offerings, are often placed with the specialists, which facts are noised about and transmitted to brokers' offices for the sole purpose of fooling the public.”

“Let us not forget that when Mr. Big Operator is selling a stock publicly, and is thoughtful enough to tell us about it, he may be buying more than he is selling, through several other brokers.”

NH says he was told that Jesse Livermore had no regular brokerage but would drop in here or there, leaving orders to buy or sell, (disguising his intentions). The tape will record his orders and the tape reader must guess on which side the balance falls. (Can we still do this with ‘dark pools’?)

Ch12 - The Effect of News on Market-Action
‘Sell on good news’ is good advice but has a problem. It’s hard to tell if something is ‘plain good news’ or ‘the good news’.

“National events, increased business, world conditions - all of these are judged in advance by intelligent investors, bankers, and big operators. Theyknow how the public will react; they realize that the time to buy is when the public sells - on bad news - and that the time to sell is when the public buys- on good news.”

When there is a big event (war, assassination of leaders, unexpected election results, catastrophes) they are a surprise. Stop and think what the majority will do, and estimate the seriousness of the incident. Decide what to do and be careful not to do ‘the expected thing’. If you can’t decide, just watch the tape and let it tell you what the buyer/seller opinions are.
Stock dumping = selling by public;
Persistent pressure = intelligent selling

Sell and buy with the intelligent, obvi.

Ch13 - Resistances (and support levels)
Support and resistance levels are repeated often, with varying causes and effects.

Buying Side = those who:

1. Are buying today
2. Are covering short sales
3. Have stop orders that will be executed
4. Have orders in at lower prices
5. Have orders in at higher prices
6. Sold lower down, wishing to buy
7. Sold higher wishing to buy

Inverse for the Selling Side.

“There are innumerable levels at which opinions momentarily are evenly balanced - where demand and supply will balance.”

There is no hard and fast rule about where they will occur.

Often resistance will set up 50% of the way between the limits of the previous move. NH can’t say for sure why, but this is probably due to the ‘law of averages’ working between buyers and sellers.

However this rule fails so often that it cannot be considered reliable.

Instead, adopt methods to handle specific circumstances. Watch the 50% mark and see if volume dries up or if volume is heavy but the stock fails to break through. That’s a sign of resistance.

No mechanical resistances are absolutely dependable.

“However, [resistance points] will vary from time to time; never depend upon them mechanically, remembering that human beings, not robots, are buying and selling Stocks.” These days the reverse is just as likely to be true; despite that, the adage still likely holds.

“Resistance levels lose their power of resistance in proportion to the time which separates them”.

“The tape is your scout. It prints the number of soldiers marshalled for the combat.”

“Remember that your charts are records only of past human action. Your charts are pictures of the results of financial strategy.”

Old highs and lows mean nothing in themselves. Sometimes they are S&R and often not.

NH claims that prior S&R levels were completely reset after the 1929 crash and theorizes that because many of the old groups were now out of commission you couldn’t depend on the same action repeating itself. ‘The entire situation was different and could not be compared.’

“Resistance is a temporary balancing of power. If we all played for a given resistance, there would not be any resistance left when the stock arrived at the expected point, because all of us would have executed our orders ahead of it, in order to take advantage of it.”

agree. i like it too. but i didnt reed other books about trading on forex. most of all prefer to watch videos on youtube.

Video killed the radio star. Internet killed the video star.

Ch14 - Suggestions To Speculators
Not surprisingly, this chapter has a lot of interesting and possibly useful material, so it's a fairly long read.

Be a cynic when reading the tape. Not pessimistic, but skeptical.

Perma-bears and Perma-bulls cannot hope to trade successfully. Although long bulls if they hold on long enough will probably come out all right.

“Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow.”

“It is a game of checkers with the big fellows playing against the public. Many a false move is engineered to catch our kings. The operators have the advantage in that the public is generally wrong.”

Small speculators have the advantage of not having to risk fortunes on their judgements. We must learn to ‘tag along’ with the insiders, while they are accumulating, but get out quickly when they are run up.

Believe nothing but what the market tells you.

“If you are contemplating a purchase, stop to think whether, if you act contrary to your inclination, you would not be doing the wiser thing, remembering that the public is usually wrong.”

NH recommends recording the tape with a pencil and pad. This improves concentration and observation, he says.

Trade alone.

Ignore outside counsel and opinions. Although NH says it’s fine to follow someone but then don’t interject your own thoughts.

Have no public opinions of your own, when asked; and ask for none. If you get into the habit of giving opinions you are inviting an argument and may get talked out of a good position. (Interactive trading threads!)

“If the tape bores you, leave it alone; go out and play parcheesi - do anything but join in the idle, unintelligent gossip in a broker's board-room.” (LOL - literally nothing important has changed in 100 years!)

NH remorsefully recalls the times that he gave opinions and it increased his red ink. The pad and pencil trick at least prevents you from having time to gossip.

Don’t watch every stock. Watch steel. (substitute for the steel of today. I’m interested in your opinion on what that is.)

Watch no more than 3-5 stocks in addition to Steel. Many successful operators only trade only in one stock.

“Never buy and sell on the basis of past history, except when you are selling to discount the good news which is finally released, or are buying when the uncertainty, or poor report, is removed.”

Volume activity shows the extent of optimism or pessimism.

At important turning points the public is always wrong.

In 1930, November, the public began to believe that short sales were the only way to make money as prices had sagged for so long. However they ended up selling at the bottom. (I’m sure the market declined as everyone was buying and rose up just as some poor sucker(s) finally broke under the strain.)

Intermediate movements are harder to pinpoint.

It is unwise to buy in front of a normal reaction in a mature rally. However we should also not wait for the public to start selling before reacting to the signal of increased volume and price activity which mark the turning point.

Often the best course of action is to go with the public for a part of the way, and then ‘cross’ them later at the ‘strategic hour’.

“Over the long pull- even over the major intermediate movements- you can safely cross the public and make money.”

“Buy when stocks are being accumulated - then you can go along with the majority during the major portion of the advance, and can part company at definite signs of increased public participation without corresponding progress in the movement of the stock. The greatest public participation is near and at the tops, because, as we have learned, rising prices attract a following.”

Intermediate trends = 0.5 to 6 months.

Buy after confirmation and sell early.

If you are trading minor fluctuations you will have to watch the tape constantly but if you’re playing for intermediate trends you only need to check it occasionally to monitor your position.

Sell quickly if you think something unexpected has occurred. You can buy in again any time, but you cannot bring back profits which have been wiped out by a sudden, unforeseen reaction.

“It should never for a moment unsettle you to see a stock advance ten points just after you have sold it.” (Especially as your exit may be one of the catalysts for the continuation.)

“The ideal trading-stock is one of which there is a large floating supply, which is being traded in constantly, and which is shown on the tape frequently.”

“Six to twelve successful trades in a year, based upon the important, intermediate trends will return far greater profits than countless attempts within the minor fluctuations, whereby a large number of losses must ensue and where the profits will be small.”

Ch15 - The Rise and Fall of Steel During a Normal Bull Movement

1. The congestion or accumulation area in Steel, after a swift decline from 189 on Dec. 10 (NH points out that the Jan. 23 breakout has the highest volume ‘in more than a month’, but it also has the tallest price bar in more than a month; and it usually seems to be like this; volume anomalies are only interesting when they aren’t accompanied by unusual price movement, but even then it is usually accompanied by taller ranges, so….?)
2. Price advances until volume dries up for 3 days.
3. Another advance, but not long-lasting as volume is insufficient. Feb. 20th is a big volume day and a big reaction.
4. Congestion which is either accumulation for a further advance or ‘quiet’ liquidation. So which is it? We won’t know until..

1. March 17, price breaks up at the end of a ‘tired sagging movement”. Note that he didn’t pick March 15 though its volume was notably higher than the 14th. Nor the 13th when volume spiked on a down bar!
2. Volume rises on advances and drops sharply during setbacks.
3. The top is ‘not particularly hard to gauge’ with 3 different signals.
   1. April 2, action reverses after a new high but actually on April 1 there was heavy volume and little progress.
   2. April 16 closed at the bottom of the day’s range.
   3. April 21, there is no question sellers are offering stock.

   
   

4. Rising volume on lower prices, until May 5 when we get the ‘sold out’ indication (big vol spike and bar closed higher than open)

“Volume will give you indications of pending moves, often when nothing else will.” (except for price, maybe?)

Part 3 - Market Philosophy
is devoted to subjects like human nature, and asks if charts are of any value in speculation. I think we have already dwelt too long on those topics so I’ll end the book here.

Review
I love old-timey books! They are easy to read, free of much of the "book BS" of modernity, and the principles that we can understand are clearly unchanged, timeless, and valuable. Whatever doesn’t make sense is usually old-fashioned and easy to ignore.

There was a fair bit of overlap between this book and Wyckoff’s Studies in Tape Reading book which is to be expected but Humphrey Neill puts the bulk of his emphasis on the importance of volume.

Here is a big question mark because it seems to me each signal of the volume indicator is matched by a corresponding signal from ‘price action’ but that might not be true of stocks; I don’t consider myself experienced enough at stock swing trading to say for sure. I am sure there is no value whatsoever in the ‘tick volume’ for estimating the strength of forex moves. Otherwise, most of the principles outlined in this book seem equally applicable.

Footnotes

Next: Pit Bull by Marty Schwartz

Pit Bull - Lessons from Wall Street’s Champion Day Trader

Marty is one of the Market Wizards interviewed by Jack Schwager; this is his chapter writeup:
https://www.forexfactory.com/thread/...3#post13947163

Chapter 1
The book begins by introducing us to the small details of working at the exchange (the American Stock Exchange).

1. Showing your badge
2. Changing shoes to more comfortable crepe soles
3. Switching to the traditional blue smock
4. The intricacies of the trading jargon

Marty knows what he wants to buy on his first day and after placing his first trade he watches it slowly tick down from his entry price.

While he watches his future fade away he reflects on his family history and how he got into this mess.

He calls his mentor for reassurance. Naturally the mentor loves the trade.
Reassured - he averages down (doubling his first order).
Of course it keeps going down and he starts to freak out. Goes for a walk, calls his mentor again, buys more. We learn that he’s trading with money he borrowed from his in-laws. (!!!)

“You’ll never know how good you really are until you’ve performed under fire.”

He spent a year and a half planning this trade and had his rules ready; two of which he’s already bent.

1. Risking more than he can afford to lose. ½ of his working capital underwater now.
2. Not booking a profit every day (he’s already on day 3 of a downtrend)

He’s also undercapitalized, having only enough of a grubstake for two plays.
His third rule is ‘shoot dying quails’. Cut losers short. He doesn’t, however, know when he’s going to do that. (!!!!)

He makes up his mind to sell if it’s down the next day. Of course, it isn’t. He gets out with an $8000 profit.
Then he immediately puts in another trade. Eventually he forgets to close out a trade and loses $10k in paper profits.

The lesson I get from this is there's a fair bit of luck involved in how a novice gets started on a successful run. Often, it takes more than one attempt.