Tape Reading and Market Tactics
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Illustrated throughout with graphs and charts, this book contains excellent sections on human nature and speculation and remains a classic text in the field today.
Humphrey B. Neill
Humphrey Bancroft Neill (1895-1977) was a former World War I lieutenant, having served under General John “Blackjack” Pershing, and a noted economist. Living out of an old 18th-century farmhouse in the hamlet of Saxtons River, Vermont, far away from the hustle and bustle of Wall Street, he ruminated on the markets of the day and penned his thoughts to subscribers of his newsletter, Neill’s Contrary Opinion. Always eager to question the consensus, he became widely regarded as the “father of contrary opinion.” His published works include Understanding American Business (1939), The Inside Story of The Stock Exchange: A Fascinating Saga of the World’s Greatest Money Market Place (1950) and The Art of Contrary Thinking: It Pays To Be Contrary (1960).
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Tape Reading and Market Tactics - Humphrey B. Neill
This edition is published by PICKLE PARTNERS PUBLISHING—www.pp-publishing.com
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Text originally published in 1931 under the same title.
© Pickle Partners Publishing 2016, all rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electrical, mechanical or otherwise without the written permission of the copyright holder.
Publisher’s Note
Although in most cases we have retained the Author’s original spelling and grammar to authentically reproduce the work of the Author and the original intent of such material, some additional notes and clarifications have been added for the modern reader’s benefit.
We have also made every effort to include all maps and illustrations of the original edition the limitations of formatting do not allow of including larger maps, we will upload as many of these maps as possible.
TAPE READING & MARKET TACTICS:
THE THREE STEPS TO SUCCESSFUL STOCK TRADING
BY
HUMPHREY B. NEILL
TABLE OF CONTENTS
Contents
TABLE OF CONTENTS 4
DEDICATION 7
BOOKS BY THE SAME AUTHOR 8
PREFACE 9
LIST OF FIGURE AND CHARTS 12
PART ONE—STOCK SPECULATION 13
I—STOCK SPECULATION 13
PART TWO—TAPE READING 20
II—THE TICKER TAPE 20
Behind the Tape 20
The Tape 22
What the Tape Shows 24
III—THE PRINCIPLES OF TAPE READING 25
Tape Interpretation 25
General Principles 25
IV—INCREASING VOLUME DURING AN ADVANCE 27
V—TURNING-POINTS ON HEAVY VOLUME 28
Heavy Volume But No Headway 28
Volume Indicating an Advance 28
Detecting the Turn of a Trend 30
Various Turning-Points 31
VI—TURNING-POINTS ON LIGHT VOLUME 32
The Struggling Market 32
A Sluggish Top 32
VII—VARIOUS TYPES OF TOP-ACTION 35
Tops More Difficult to Distinguish Than Bottoms 35
A Sharply Defined Top 35
A Broad Top 36
American Can’s July, 1930, Top 39
VIII—THE TAPE-STORY OF LOEW’S 42
A Day-by-Day Illustration 42
A Puzzling Reaction 43
The Action of Loew’s on Saturday, November 15 45
The Action of Loew’s on Monday, November 17 46
The Action of Loew’s on Tuesday, November 18 48
Loew’s Goes Through 48
IX—STEEL, THE MARKET LEADER 49
Watch Steel 49
Watch for False Moves 50
The Action of Steel in August, 1930 50
A Word About the Examples in This Book 54
X—TIPS ARE DANGEROUS 55
Check Your Tips on the Tape 55
The Action of Electric Power and Eight 56
So—Confirm It on the Tape 60
XI—SOME IMPORTANT OBSERVATIONS ON VOLUME 62
Variances in Volume 62
Important, or Good
Buying and Selling 63
Withdrawing Bids 64
Think in Dollars, Not in Points 65
XII—THE EFFECT OF NEWS ON MARKET-ACTION 66
XIII—RESISTANCES 68
Resistance and Support Levels 68
Old Highs and Lows 71
XIV—SUGGESTIONS TO SPECULATORS 73
Be a Cynic When Reading the Tape 73
Use Pad and Pencil 73
Trade Alone 74
Do Not Watch Every Stock 75
The Use of Charts and Statistics in Conjunction with the Tape 75
Acting Contrary to the Public 76
Trend-Trading 77
Capitalization and Floating Supply 78
Patience is a Market Virtue 79
XV—THE RISE AND FALL OF STEEL DURING A NORMAL BULL MOVEMENT 80
PART THREE—MARKET PHILOSOPHY 85
XVI—FOREWORD TO PART THREE 85
The Biggest Handicap of All is Ourselves 85
Market Philosophy 85
XVII—THOUGHTS ON HUMAN NATURE AND SPECULATION 87
Trade on the Longer-Term Trends 87
Market-Poise 87
There is No Such Thing as Position
88
Reflected News 88
The Market as Its Own Best Advertiser 90
The Time Element 91
How to Think, Market-Wise 92
Fundamentals versus Technical Action 92
Pride of Opinion 93
XVIII—MORE THOUGHTS ON HUMAN NATURE AND SPECULATION 95
Greed 95
Look Upon Your Stock Certificates as a Merchant Looks Upon His Merchandise 95
Do Not Believe Anything You Read 96
The Value of the Impersonal Viewpoint 98
The Public is Always Fooled 99
Never Answer a Margin-Call 99
The Danger of Too Much Nerve 100
Averaging to Satisfy Pride of Opinion 101
XIX—ARE CHARTS OF ANY VALUE IN FORECASTING THE MOVEMENTS OF STOCK PRICES? 102
XX—FROM MY NOTEBOOK 104
REQUEST FROM THE PUBLISHER 108
DEDICATION
I dedicate this book to my losses, with a deep appreciation for the experience and knowledge which each loss has brought me.
BOOKS BY THE SAME AUTHOR
The Art of Contrary Thinking
The Inside Story of the Stock Exchange
An Informal History of Speculation
The Neill Letters of Contrary Opinion (bi-weekly)
The Ruminator-A Periodical of Perspective (monthly)
And other books now out of print.
PREFACE
(February, 1931)
IN the making of this book, the tail literally has wagged the dog. The original plan was to collect in bound form a number of editorials written and published in a little magazine called If, As and When. As I set about coordinating and editing these various manuscripts, the thought presented itself that every speculator has three steps to climb before he can expect consistent market success.
These are: first, familiarizing himself with the power and the methods of the professional speculative groups which operate behind the tickers
; second, learning the principles whereby he may interpret the maneuvers of those groups and the actions of the public; and third—and most important—attaining a mastery of himself: of his temperament, emotions, and the other variables that go to make up human nature.
In conference with the publishers, it was then decided to make the main portion of this book a treatise on the interpretation of the ticker tape, inasmuch as there have been any number of inquiries about, and requests for, instruction in tape reading and market tactics. Consequently the reader will find this volume divided into three parts, the first being a brief review of stock speculation, the second the above-mentioned treatise, and the third a group of selections from what was to have been the whole: the plan being thus designed to cover the three steps to successful stock trading.
Candidly, I tackled the task with a fair amount of stage-fright, realizing that for many years no book had been published on the subject of interpreting market movements from the action as revealed on the ticker tape, and, also, because I have been told by many traders that what they learn from the tape comes to them only after years of experience, which has finally given them a second sight,
or intuitive eye. I am not insensible to this belief; but I am convinced that any intelligent person, with, perhaps, an extra grain or two of common sense and mental agility, can learn in a comparatively short time to tell from the tape what is likely to happen.
Right here, however, I should like to inject my personal opinion, that anyone who attempts to catch the hourly, or even daily, fluctuations of stock prices, is entering upon a risky, foolhardy enterprise. There may be some traders who have made, and are making, money from these so-called scalping operations; but I have never met one who was successful for long, and, in talks with brokers, I have been told again and again that the in-and-out
trader, speculating for a turn,
lasts but a few months. The reader will find arguments to substantiate this view throughout the following pages.
It must be recognized that there are methods of gauging the manipulative and speculative forces in the market other than that of reading the stock ticker tape. To many, the thought of tape reading is sinister and reeks of gambling. These same persons, however, will listen to tips, and will scan brokers’ letters and the financial papers, in the hope of hitting upon some commitment whereby they will reap a fat profit.
The tape records the prices at which buyers and sellers have met and agreed upon exchanges of stocks for money. This same record may be printed upon sheets, or grouped for a day’s business and published in the newspaper. It may be recorded upon charts. What are the odds? Some speculators—and everyone who buys common stocks with the expectation of some time selling at higher prices is a speculator—may wish to draw their conclusions from the tape; others may never have the time to look at a ticker and may depend upon other forms of records. There is no quarrel here; each one must decide for himself from whence he secures his data.
There is this to be said against constant tape watching: unless the trader has secure control of himself, there is the grave danger of his perspective’s becoming too confined and of his placing too much importance upon minor details within the various days’ records. The middle road appears, without question, to be the most profitable for the average, conservative speculator. If he travels this path he will turn to the tape only upon occasions, and will retain a clear head for the broader objectives ahead, rather than have his eyes and mind glued on the confusion of near-by objects rushing past him.
The principles of analyzing market-action are the same, whether employed to interpret short-term trading-trends, or followed in order to determine the extent of the far safer intermediate trends which last for anywhere from three weeks to six months.
There are any number of books published which relate to other forms of market interpretation: chart reading, statistical studies, fundamentals, and other factors. All have their advantages and good points. It certainly is conceded that one cannot have too much knowledge of the forces which make the market.
Recent years have demonstrated that the public generally knows little of what actually happens within the realms of common-stock speculation.
The emphasis throughout this book is upon the human equation as it relates to market-action. I have attempted to make stand out in relief the difficulties besetting the speculator, and to discuss informally many factors of stock speculation which have been practically ignored in other books. The principles are not new: in fact, I believe them to be behind the accepted practice of all successful speculators. I hope, however, that the presentation is helpfully different, and that it will bring into sharper focus the important problems which must be solved if we are to trade in the market with profitable results.
In accumulating and selecting the material for this book, I have drawn heavily upon the experience of others; and I only wish that I might thank each person individually for whatever share he has contributed. That would be impossible without listing hundreds of men with whom I have had the pleasure of discussing the market. Likewise, I am indebted in large measure to the thousands of correspondents whose letters of inquiry on investment matters I have read and studied. These experiences have aided in the development of an understanding of the public’s mind and of how the public acts in the market.
I owe to my associates in business more than I shall be able to repay; but I thank them for the privilege of absorbing much knowledge from their economic, statistical, and graphic studies. In particular, I tender thanks to Buchanan Tyson and Arnold W. Wetsel for many of the ideas expressed within these pages, and for their generous