Notes
Trade only on pivotal points. Always made money when patient and traded on pivotal points. Reversal pivotal points almost always accompanied by a heavy increase in volume with 100-500% increases in daily volume and usually occur after long trending moves, why patience so necessary. Would send out probes and also in respective industry group, continuation pivotal point confirms and chance to add to position. Don’t chase if above 5-10%, missed the reversal, would rather pay higher for continuation pivotal point as confirmation. Biggest movement occurs in the last two weeks and also for commodities, so must wait and be alert for the clues. Danger signal when high of day is higher than high of previous day but close is below the close of the previous day and volume of current day is higher than volume of previous day. If sit with it during the rise must have the courage to do the ‘right thing’, acknowledge the signal and pull the trigger. Always transact at the right time, not low or high
Will allows us to accomplish our goals, not our intellect- will to suffer hard work and incredible persistence leads to attainment of the impossible, no shortcuts
The individual, not the group that led to the great discoveries in humanity, technology, medicines, politics, fortunes etc
Placed NYT, WSJ and London times on seats every morning to study in dark silence
What people do, not what they said they were going to do
Some people wanted to see the chaos, JL wanted to stay untouched by these human reactions
No talking during market hours, wanted no distractions while market was open
Can die financially in a heartbeat
No one knew better how fast things could change in the market
Remembered the prices
Tape tells everything if smart enough to read it, must fight fear and greed
Tape life of its own, its verdict final
Kept numerical diary in secret and discussed with no one, certain recurring numerical patterns emerged
Had no time to waste rationalizing the action of a stock, could be a million reasons, by the time reasons understood the change is already a historical event
Majority of people lost money, no plan, just gambling
Either control greed and fear or they control you
Always learn and thereby profit from mistakes, no arguing with the tape, tape is always is right, players are wrong
Win when all factors in favor, when patient and all ducks line up in a row, thus no one can profitably trade the market all the time (Baruch too)
10% rule (but took quick losses if didn’t feel right)
Answer always out there, must figure it out
Get the facts, make a judgment, act IN TIME before it’s too late
Always false clues, bad conditions etc
Quest in analysis to find out why he made or lost money
Nothing changes in market except for players, pockets and memories
1901 looked for big break, severe correction and then rally (had it right but went bust b/c of timing) then back to small gains/chops
Have to lose b/c teaches what not to do, if you do again then no hope
Always evaluate and appraise general conditions and determine line of least resistance, up down or sideways, if trend not in your favor then at extreme disadvantage
To anticipate the market is to gamble, to be patient and react when the market gives the signal is to speculate
Imperative not to sell until good reason, and if general trend with you than have to let it play out
Novices, second grade suckers (42months), third grade who buy at the bottom, don’t be the sucker (said still was)
Pivot points for the big swings, where real money is made
Bad news in a bull market takes a lot longer to sink in
Did no trading for three days as watched stock (UNP)
Follow only own method despite best intentions of others
Concentrated on basic conditions before picking a stock and follow line of least resistance
The best are good money managers
Not whether the market or stock would turn, but WHEN it turned, TIMING EVERYTHING
Send out probes, position size determined beforehand, go 60% on 20,20,20 and then wait for further move and correction
If moved against would be patient and wait or close out
Only side to avoid is wrong side
Speculator proved wrong if stock moves against you, must admit it quickly and close the trade
. Big money in big swings and in waiting for basic trend to play out, and ride it before the inevitable change in basic trend seen in line of least resistance
1) Decide on overall direction, 2) Develop buying strategy 3) Be patient and wait for the facts and the big move to play out
Examined factors carefully and decided market was cresting even though line of least resistance still appeared upward and slowly increased positions on each failed rally
Been wiped out many times by not closing out positions but close out only when reason other than fearful of losing profits
After thousands of trades and hundreds of hours examining trading techniques, knew he was right in that big money made in the big swings, although clipping points served well in building stake
Advanced from gamble to true speculator who looked ahead, evaluated general conditions and moved prudently, testing first and then plunging ONLY when convinced all factors in favor and essential secret of success was the hard work of never ending analysis
Worked every night on sheets of long column paper looking for trends, patterns and timing mechanisms
Quiet and secretive
If choose to take up speculating for a living it has to be studied intelligently and worked twice as hard as any other profession
When good luck came in unpredicted windfall, would take it and not wait for more good luck
Only time ever really lost money was when broke rules
Interested in only what tape told him, market does what wanted, not what expected
“If know something about stock, don’t tell me”
Could deal with failure, not success
38 filed bankruptcy
If a lil ahead of time you’re an eccentric, a lil late failure, if you hit it right on the head you’re a genius (Tom Watson- IBM founder)
Stocks react positively when cross par 100,200,300
Six long weeks studying tape, analyzing every trade as it crossed the ticker
He knew his biggest enemy was own emotions
Work hard to avoid emotional flaws
Like bear markets, bull markets do not last forever
When leaders start to top out and roll over, first signal for bear market
Don’t change precipitously in either direction, give plenty of signals, clues if can read objectively
Coffee trade was right but regulators got him
If stock languished after break in price in sideways channel, would probably keep going down but watched for deciding move before acting
No end to the learning process, game never over and could never know enough or get lucky enough to beat the market all the time
Market student who occasionally traded correctly
Ability to see what is happening without emotion, make observations others don’t and a good memory to remember facts correctly, particularly mathematic facts
Only speculate if can make it a full time job, don’t take tips and don’t try to catch tops or bottoms, is fools play
Take losses quickly and don’t brood, learn from them as inevitable as death, and ONLY make a big move when the majority of facts in your favor
Don’t try to play all the time, can’t be done, too hard on the emotions, made biggest moves and profits b/c had some cash sitting in reserve
Always be thinking, figuring percentages and probabilities
Industry group movements critical from both sides
Trade market leader, not the bargain and not always conventional leader, sometimes smaller well-manages stock assumes leadership with new product and knocks out the old one
Leading groups of one market most likely not leading group of next major market, followed only leading groups b/c if couldn’t make money there than won’t make
As favored groups got weaker and collapsed it usually meant correction in the market as a whole
Also used group action in commodities
Bed at ten and up no later than 6 for quiet, solitary strategy time
Hope, ignorance, greed, fear distort reason
People always move en masse b/c want company, where it gets complicated b/c want to trade line of least resistance, but detect when the change in trend starts to disappear to separate from popular thinking
Whenever detected change and wasn’t sure when, cashed in positions and waited. Is the change in trends that hurts most speculators, so use probes to test
Factors which marked the end of a major market move was heavy volume with stalled prices where leading stocks don’t make new highs
Always look for heavy volume in either individual stock, commodity or market
Not uncommon for stocks to suddenly spike in a straight shot with heavy volume and then stop, roll and retreat never to make a new high before onslaught of major correction
Always have wind at back, keep it out of face and when sideways market hits get out, go fishing
Staying out always difficult but is essential to not only wait for all factors but to seek emotional balance which is most critical
No windows in new office
On desk in/out baskets, pad and pencil and nothing else
Would beware of deep price fluctuation
People paint tape to get light volume stocks going
Liked sleepy stocks he could wake up (either way-lba?), still had to be on line of least resistance though
Wise trader knew that waited until a bottom firmly established before buying
True new high is when stock broke through overhead supply of stock
Action with leading stocks which change with every market
Never goes up or down forever but when changes direction, it remains in that new trend until it is stopped
Crash happens every 20-30 years, length of financial memory and length of time for new set of suckers to come in and imagine they have a wonderful fix on the future
Winter of 1928 until early spring was a full-fledged bull in a runaway bull market, but was looking for the change. Made a list of leading stocks that thought were overextended as line of least resistance went from up to sideways, correction of upward spike or change? Experience and extinct said the top, but TIMING was everything, not whether the top coming, but when
Commodities were dropping to secular lows and first shorts were right but then wrong and covered, then did again and they held. Everyone was bullish and things couldn’t have been better
Leaders were struggling, but public arrived in full force, barbers, shoe-clerks doc’s, etc
Must play by rules for life amid constant study b/c never entirely figure them out