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This book was recommended by Dawn Bolton-Smith in Your Trading Edge magazine, April 2010. Dawn is the matriarch of technical analysis in Australia, with a career spanning 43 years. We are very proud of getting her recommendation. Please order your printed copy of the book HERE!



THE POINT AND FIGURE METHOD
OF ANTICIPATING STOCK PRICE MOVEMENTS
-
Volume 1






PREFACE TO THE ONLINE EDITION

As we now publish this classic stock market book online in the year 2009 I cannot help but to draw parallells between DeVillier's and Taylor's foreword and the market we are facing today. When the book was first published, in the beginning of the 20th Century, the world had recently witnessed the stock market crash of 1929 and the following great depression. Today, 80 years later, we are again in the midst of a global recession, following the "Financial crisis" when stock prices crashed from the all time high of 2007.

Again, many investors and traders now turn to the literature of economics and market technique in order to get a better understanding of the principles underlying stock price movements.

We are delighted to present this method of stock charting and trading to a wider audience than ever through the Internet. The method we are presenting is as valid today as it was one decade, as well as one century ago. Unfortunately, with today's stock charting softwares and methods the underlying principles of stock price movement have been forgotten. Instead traders and investors are foolishly lured into believing that the bells and whistles of some of the stock charting softwares will make them profitable in their stock market campaigns. We would instead like you to forget about the flashing lights, the colorful indicators and lines, and instead begin focusing on the stock price itself like the professionals. The forces of supply and demand determine the stock price movement - let the same forces guide your way.

Unlike the times of the great traders like Jesse Livermore, R. Keene, W.P. Hamilton, Charles Henry Dow and others who had to keep track of the stock prices by hand or in their memory we now have the possiblity to follow their methods of making millions while utilizing the power of the computer. Along with this book we are delivering point and figure charting software. This means we are combining the proven methods of trading with modern ways of working with computers to simplify tedious repetitive tasks. We are publishing two types of computer software explicitly intended for point and figure trading. The first one is called "Bull's-Eye Broker", and the other one is called "Point and Figure for Microsoft Excel".

We now urge you to join the group of stock market professionals. Read this classic book, it's teachings are as valid today as ever before. Download the free trial of the software we are publishing. Let the point and figure method of trading become your own way of speculating successfully in stocks, commodities, currencies and forex.

Click here to order your copy of the book with both volumes.

pointandfigure.com

Wall Street, New York City

October 2009


TABLE OF CONTENTS:

PREFACE TO THE ONLINE EDITION
PREFACE TO FIRST EDITION
INTRODUCTION TO FIRST EDITION
Chapter 1 - THE PRINCIPLES OF THE POINT AND FIGURE METHOD
Chapter 2 - THE WEIGHT OF AUTHORITY BEHIND THIS METHOD
Chapter 3 - ADVANTAGES OF THIS METHOD OVER OTHERS
Chapter 4 - THE VITAL POINTS
Chapter 5 - APPROVED METHOD OF ASSEMBLING AND MAINTAINING PROPER DATA
Chapter 6 - THE SCIENTIFIC FUNDAMENTALS
Chapter 7 - THE PRINCIPLES OF CHARTING
Chapter 8 - ANALYZING TECHNICAL POSITION
Chapter 9 - ANTICIPATING THE ACTION OF U.S. STEEL
Chapter 10 - ANALYZING A CAMPAIGN IN WESTERN UNION
Chapter 11 - JUDGING THE MINOR SWINGS
Chapter 12 - HALF POINT TECHNIQUE IN ATLAS TACK
Chapter 13 - THE MAIN TREND AND MAJOR CYCLE CULMINATIONS
Chapter 14 - TECHNICAL INDICATIONS AT A TURNING POINT





PREFACE TO FIRST EDITION

Experiences of the recent bear market which had its termination in July 1932 caused many former investors and traders to turn to the literature of economics and market technique in order to get a better understanding of the principles underlying stock price movements. Many have come to realize the futility of depending upon tips, rumors, and gossip to guide them in their market commitments.

Countless others have come to the conclusion that statistics and fundamentals serve only to aid the manipulators, banking sponsors and insiders to unload their stock on the unwary. All will agree that a correct analysis of the technical position of stocks and the market in general is the only key to consistent profit from speculative and trading commitments. Until the publication of the original edition of this work, it was the privilege of the few who made fortunes from speculation to have the advantage of this, the most logical and pragmatical of all methods used for the purpose of plotting the price course of stocks and commodities. This Method has been the keystone and bulwark of the plans of America's most successful speculators and commentators, from Charles Henry Dow, the father of the art of anticipating stock price movements, down to and including those who have profited most during 1929 and subsequently. We offer you the principles of this tried and proven Method because we feel that a broad dissemination of this information will do much to prevent the excesses of bull market peaks and also help avoid the unreasonable deflation of values, as well as the vicious cycles of forced selling and the resultant suffering of depression lows which so surely must follow.

We desire to express our appreciation to Mr. J. Martiney of the publisher's technical staff for the many helpful suggestions given and his care in the preparation of the charts used in this work.

We gratefully acknowledge our indebtedness to Charles Henry Dow, William Peter Hamilton, James R. Keene and others whose works and achievements have been an inspiration and a guide.

Victor DeVilliers

Owen Taylor

New York City

January 1934





INTRODUCTION TO FIRST EDITION

The Point and Figure Method had its beginning sixty years ago and subsequently has been used by some of the eminently successful operators in their important stock market campaigns. With the passing of the years, the Method has been refined, improved and adapted to changed market conditions. The underlying principles of the Method, however - based on the immutable Law of Supply and Demand - are unchanging and are constantly effective.

The theory and practice of the Method is fully treated in Vol. 1 The Point and Figure Method of Anticipating Stock Price Movements (written in 1933 - revised in 1934) Vol. 2 Advanced Theory and Practice of the Point and Figure Method (written in 1933 - revised in 1934) Vol. 3 The Time Tested Technique of the Point and Figure Method (written in 1939- augmented in 1940 and 1941).

The first two of these three texts were written from the viewpoint of the individual stock trader at a time when pool operators gave strong impetus to market movements. Such operation injected a manipulative or artificial element into the supply and demand relationships in the market. But Supply and Demand - whether artificial or genuine, manipulative or otherwise, and whatever their causes - are the forces that create price change. The Point and Figure Method measures these forces and enables one to arrive at sound and reliable conclusions as to subsequent price action.

This Method, a generation ago, was used largely to create profits through market operation. Today it is used by some of the largest and highest ranking fund managers whose objectives are capital and income conservation and growth. The Method also is used by commodity processors for guidance in the purchasing and hedging of their extensive inventory requirements.

In placing these texts in your hands we are conscious of their literary and technical limitations. If some principles are treated dogmatically it is for the purpose of fixing them firmly in your mind. If some of the many principles appear to overlap or seemingly conflict with others, we ask you to disregard it at the start and simply master each principle as it is expounded. Weighing and coordinating these principles is the vital factor in Point and Figure analysis. Development of skill in this technique will be accomplished and hastened by practice on your part.

Instances of extraordinary success in investment account management and in commodity market operation, through Point and Figure means exclusively, are constantly coming to our attention. Such success is attributed to the skillful use of the principles set forth in these modest texts. We mention this as an inspiration to you and to emphasize that this work is of far reaching value and importance.





CHAPTER 1
THE PRINCIPLES OF THE POINT AND FIGURE METHOD

Logic is the basis of this Method

Irrelevant fluctuations eliminated

How the Method got its name

Graphs are logical and scientific

Introductory summary of important principles

Needed accessories are few

Plotting a stock price movement

One point charts the basis of the Method

Accessories and working tools

Fifteen years before the turn of the last century, Charles H. Dow, student, scientist and philosopher, a brilliant economist and a well respected financial writer, began to observe and study the phenomena of Stock Price Movements. He was the founder of the Wall Street Journal. His writings, though not prolific, are the beginnings of all price movement comment, his observations the foundation underlying all technical methods, and his studies and graphic records the seeds from which the Point and Figure Method grew.

The work of Dow was ably carried on by his protege and successor, William Peter Hamilton, who edited the Wall Street Journal until his death in 1929. The writings of Hamilton form the principal source from which Dow's Theory of Stock Price Movements has become available for study. See pages 36 and 153, The Stock Market Barometer, by W. P. Hamilton.

At or around the beginning of the present century, when the expansion era was in full swing, a group of speculators recognized in Dow's research a clear illustration of price movements portrayed through the use of figures which showed a repetition of pattern as it unfolded its tracings on Dow's graphic records. The patterns thus formed were oft-times repeated, and established a precedent and guide to future price movements. Here, then, was the beginning of a truly scientific and logical method of anticipating stock price movements. Fifty years of background, millions of dollars of profits taken out of the stock market, and thousands of hours of study and development, are historical events which commend this time tried Method to you.

In explaining the basic principles of the Point and Figure Method, we will show that the full point and full figure fluctuations in variable equities, be they commodities or stocks, are the vital statistics which hold the key to technical position and the future price path.

Professionals and others who have been successful in their judgment and anticipation of market action, have reached their conclusions by aid of recorded data of one kind or another. In practically every field of endeavor, whether it be in the arts or sciences, in the industrial world, or in the stock and commodity markets, full and detailed records of past and current essential data must be kept. It is of little consequence whether these records are maintained as tabulated figures or by means of logs or charts, which are merely graphic representations and plottings of those essential records.

Charts of stock price movements are vital. There is an ancient Chinese axiom dating from the Confucian era which states "A picture is better than a thousand words." It is self-evident that a picture conveys a clearer and more detailed message than a mass of words or columns of tabulated figures. Since instant comparison and maximum condensation are vital to the art of anticipating stock price movements, we endorse the practice of keeping and maintaining up-to-date charts. Graphic representations of the fluctuations of stock prices are vitally important to a critical analysis of technical position and are the keystone of the Point and Figure Method.

LOGIC IS THE BASIS OF THIS METHOD

Few will dispute the fact that the old fashioned custom of relying solely upon published statistics of sales and earnings for market commitments, must now be relegated to the past. All will agree that by the time these statistics become available for public consumption, others, principally the insiders, the sponsors and the manipulators, have already profited amply therefrom and are ready to unload their commitments as the news becomes public property. We must, therefore, find a method which will show us when the insiders are buying and also indicate when they are commencing to sell. Given the ability to recognize their acts on our charts, it follows logically that we will be able to buy when the insiders buy and sell out when they sell.

The patterns portrayed on our charts and application of the principles of the Point and Figure Method will show us when buying is overcoming selling and vice versa. If you are ready to agree that the present movement of stock prices, as recorded on the ticker tape, is the best and surest indication of the probable direction of the future price trend, then this Method can be used to show the way. It should be needless for us to state that some intensive study and a thorough understanding of the principles are necessary before you can hope to capitalize on that knowledge. Once a solid foundation is laid, your judgment will develop in a logical manner, and you will quickly begin to recognize many profitable opportunities. You will be more certain of yourself, and the courage of your convictions will materially increase your capital.

IRRELEVANT FLUCTUATIONS ELIMINATED

The market fluctuates in countless fractional transactions which, in the final analysis, have little or no influence on future price paths. One of the basic principles of the Point and Figure Method is to eliminate the irrelevant and regard only the important movements upon which our deductions are based. Only full point changes are considered, and fractional variations are totally disregarded.

HOW THE METHOD GOT ITS NAME

The Point and Figure Method derives its name from the fact that we record by figures all full point changes. This plan or system of plotting and recording the movements of the market in general, and of selected individual stocks, is a basic principle of this particular Method. In this one characteristic, it is totally different from any other plan, method, or system of anticipating stock price movements.

GRAPHS ARE LOGICAL AND SCIENTIFIC

A casual glance at the illustrations in this work will show a new kind of chart which, in contrast to all others, has a scientific basis to recommend its use. The Point and Figure graphic records are sometimes made up of a series of symbols composed of X's, fives and zeros. Or - more often nowadays - X's, O's for price changes, and the numbers 1-9 and A, B, C to represent the month of the year. The special design of graph paper which we suggest for use with this Method shows the relationship of these symbols to each other and to the past and probable future price movement. Familiarize yourself with the form and style of these important aids, namely, the charts upon which we rely for our conclusions. Point and Figure charts condense the price fluctuations in such a manner that you will soon learn to recognize accumulation, mark-up, and distribution and thus be able to make your commitments more profitable.

INTRODUCTORY SUMMARY OF IMPORTANT PRINCIPLES

The Method will be fully explained in every detail as we proceed. Each step will be carefully developed and clarified before we proceed with the next. All will be illustrated with examples from recent market action, showing the application of the principles. So that you may have a bird's-eye view of the scope of the work, we list a summary of the important principles underlying the Point and Figure Method.

1. The Method develops the ability to recognize the technical position of individual stocks and of the market in general.

2. The Method is consistent and logical, definite and positive, eliminating, as far as possible, guesswork and emotional influences.

3. The data is recorded in such a manner as to create and force the development of true geometrical and symmetrical patterns easily discernible and classified, and which repeat themselves in the progression of the price path.

4. The patterns thus formed create precedents by which subsequent price movements are easily judged.

5. The Method disregards fractions resulting from minor and irrelevant fluctuations. It also ignores volume. The Method is simple and complete in itself.

6. The Method dispenses with news, fundamentals, statistics, and the reasons for price movements. It concerns itself primarily with cause and effect.

NEEDED ACCESSORIES ARE FEW

The data which we record in order to create the basis for the application of this Method is, primarily, all one point changes of the price movement as it fluctuates. This principle is the same whether we apply it to stock price movements, market indices, or commodities. As a matter of fact, the Point and Figure Method of anticipating price movements may be applied to any form of equity for which a free and open market exists, and in which there are price fluctuations. When full point variations of the price movement are known, they are recorded by figures. Our records are unlike the conventional vertical line or bar charts in that they are created through the use of symbols. The symbol "X" is used to record the price changes in an uptrend and the symbol "O" is used to record price changes when price is trending downwards. The figures 1, 2, 3, 4, 5, 6, 7, 8, 9, A, B, C are used to record the month of the year. At this point, it would be well for you to examine the illustrations used in this book in order that you may have a better understanding of this elementary principle used in making our charts.

The full figure one point changes are recognized by the price fluctuations when they reach each new full one point change. The change thus noted is recorded, whether it be the next higher or the next lower figure, and the change must be recorded each and every time it shows on the tape. At this point, let us emphasize the fact that herein lies the vast superiority of this Method over all others. When we record all full figure changes, we are better able to detect accumulation, distribution, and the characteristics peculiar to the particular stock or commodity under observation. Note, here, that we disregard all movements of seven-eighths points or less, when fluctuations are in eighths. In cases where fluctuations are in tenths or dollars, we must determine whether we will plot the full one-dollar changes or whether the changes in tenths would better serve our purpose.

PLOTTING A STOCK PRICE MOVEMENT

After we obtain the full figure changes, we proceed to make our graphic record from that data. We require for that purpose, graph or charting paper ruled for quick and easy use. Ideal paper for this purpose is "Ideal Charting Sheet Number 5001." This paper is ruled with vertical and horizontal columns, arranged with shadowed symbols "0" and "5" and with the horizontal columns for these important digits accentuated.

The vertical columns on our charts are used to limit the plottings of the price movement as long as it continues in one direction without a reversal. As soon as a reversal occurs, and we find the needed square already occupied, we move to the next right-hand vertical column. This vital principle must be fixed firmly in your mind, as it is the only one that may give you difficulty later on when you proceed to make your own charts.

The Point and Figure Method relies on price changes only, and the graph paper is designed to properly record those changes. The day-to-day time factor and daily volume are ignored. The columns of squares are scientifically designed so as to permit the plotting of true trend lines and to force the development of true geometrical and symmetrical patterns which facilitate accurate comparisons and dependable diagnosis.

In the case of a stock selling at $20 per share, we would record the zero in the square on the 20 line. The next record would be made when the stock sells at flat price 21, or at flat price 19. Should it go down to 19.22, or up to 21.11, no change would be made.

ONE POINT CHARTS THE BASIS OF THE METHOD

When a series of full figure one point changes of a price movement have been recorded, they create a scientific basis from which to draw conclusions. Because of the fact that similar causes usually create similar effects, our conclusions have a dependable basis not available through the use of any other method. In addition to the one point charts, one may easily prepare from them either three or five point charts or both. These are helpful for gauging the technical position of any and all issues, volatile or otherwise, and for revealing the broader intermediate moves of stocks and the market.

ACCESSORIES AND WORKING TOOLS

In addition to graph paper, one needs a record of the actual full figure changes garnered from the most accurate source, the ticker tape. When using this especially designed paper and the daily service which is available, it is a relatively simple matter to keep current the needed changes on one hundred stocks and the important popular averages or indices, in about thirty minutes each day. Form this habit, as it will afford you an opportunity to analyze the patterns as they unfold themselves on your charts and thus take advantage of the implications which develop, first in one issue and then in another. The little effort expended in keeping these charts up to date will soon pay you handsomely, for you will be training yourself in stock market technique in a way not afforded by any other method.





CHAPTER 2
THE WEIGHT OF AUTHORITY BEHIND THIS METHOD

Refined to coordinate with present day markets

Mystery and complications have been clarified

Expensive financial and economic reports unnecessary

Certain factors taken for granted

Analytical technique easy to master

Losses limited while profits accrue

Method weighs forces of buying and selling

The Point and Figure Method has grown from a crude beginning which started more than one hundred years ago. Charles H. Dow, the founder of the art of anticipating stock price movements, created much which led to the development of the technique of this Method. Dow, in his research, was interested primarily in recognizing the main, broad, long term trend which results from the movement of major capital into or out of common stock equities. This main trend was rightly termed the "Capital Movement Trend" by Mr. Edwin L. Ayres in his book Key to Stock Price Movements. The secondary corrections to the main trend, though of interest to Dow, were not the goal of his efforts. He considered the secondary movements highly misleading and concluded that the shorter day-to-day swings were unimportant.

However, we must bear in mind that since Dow's work was completed, the stock market and America's financial structures have undergone revolutionary changes. Common stock equities of American corporations have attracted a world-wide speculative following, unprecedented in the history of finance and of speculation.

In Dow's era, a move of 20 to 30 points in the Industrial or Rail Index consummated in a period of a few years was considered a complete bull cycle. Under present day conditions, we note, on occasion, moves of 10 to 20 points in either or both indexes completed in a few weeks. Three, nine or sixteen million share days, such as were recently witnessed, were undreamed of at the time when ten or a dozen stocks were the active trading mediums, and volume was limited to a few hundred thousand shares a day. One can, therefore, understand why Dow passed lightly over the minor and secondary movements and sought only to ascertain the main trend. These minor and secondary movements have now become all important. Their study, analysis and the understanding of how to use them form the basis of the most successful method of stock price anticipation.

It has been intimated that this Method was first successfully used by James R. Keene during the merger of the United States Steel Corporation in 1901. Mr. Keene was employed by the sponsors of the Steel Corporation to distribute to the public the original stock of the corporation, which its real founder, Andrew Carnegie, refused to take in payment for his equity and profits resulting from the merger. Mr. Keene, originally a Western mining promoter, was a skilled tape reader, a shrewd observer, and a successful market operator. His ability has never been surpassed and rarely, if ever, equalled. It has been stated by his close associates that the Point and Figure Method was known to and used by him during all of his successful campaigns.

REFINED TO COORDINATE WITH PRESENT DAY MARKETS

Like all knowledge, the Method has developed with the passing of years and has been refined, improved, and coordinated with the ever changing conditions of stock market action. The scientific basis of the fundamental principles underlying the Method alone accounts for its survival while most other methods have been relegated to the past. You may confidently depend upon the Point and Figure Method knowing, first, that it rests upon a sound scientific basis and, secondly, that it is vastly superior to any other plan for anticipating stock price movements. In the past as well as at present, it has been and is relied upon by many of Wall Street's most successful interests.

The data which should be kept will be described in utmost detail. Bear in mind that there is a great weight of authority behind this data, and we ask of you to respect its implications. We have found by the trial and error method those refinements needed to fit the basic principles to present day markets. It was ascertained that a careful checking and rechecking of the conclusions arrived at by means of this Method is of vital importance and cannot be over emphasized.

MYSTERY AND COMPLICATIONS HAVE BEEN CLARIFIED

The Point and Figure Method, as here presented, is devoid of mystery and complications and has proven itself of incalculable aid to your authors. We begin by reducing the vast accumulation of transactions comprising market action to the important and relevant moves, which are plotted on charts. From these graphs showing the present market action, we are able to judge the probable future direction and extent of a stock's movement.

The Point and Figure Method permits stock market trading to be considered a serious business with a scientific, substantial, and definite background, based upon actual facts rather than guesswork. Like all other businesses, it demands the making and preserving of certain simple and vital records. It demands that you study those records carefully and permit your judgment to be based upon solid facts. None will deny the old copy book maxim "Practice makes perfect." The Point and Figure Method actually compels practice and extensive study which soon becomes a habit as well as a fascinating hobby.

EXPENSIVE FINANCIAL AND ECONOMIC REPORTS UNNECESSARY

This Method dispenses entirely with the expense and labour involved in the purchase and maintenance of bulky reports, statistics, balance sheets, earnings statements, and other cumbersome paraphernalia hitherto associated with trading and investing. The substitution of the simple records required by this Method is, in itself, an important consideration and a welcome relief.

CERTAIN FACTORS TAKEN FOR GRANTED

The following facts are taken for granted by the Point and Figure Method:

(a) That the correct valuation of a stock, at any given time, is the price paid for it at the time of the consummated sale. This is because the forces underlying the law of supply and demand and the consensus of opinion of the buyers and sellers have determined the value at the time the sale is made.

(b) That the last published price of a stock reflects all that is known by the general public at the time when established, as a result of a sale and purchase which consummates a transaction.

(c) That the insiders, who are presumed to know more about any particular stock than the public, cannot completely conceal their future intentions with regard thereto.

(d) That the plans of the insiders will be revealed in due time by the technical action of the stock itself. The Point and Figure Method is not a system for "beating the stock market." It is the result of the rationalization of logical principles successfully used by important market interests.

ANALYTICAL TECHNIQUE EASY TO MASTER

Assuming that the student will keep the required records, there remains only the need of an understanding of the technique of reading and interpreting them. In the pages to follow, we illustrate for you in detail and with clarity the technique of interpreting the patterns which develop on your Point and Figure Charts. While proficiency may not come at first, yet, in a short time, through study, practice, and observation, the habit of correct thinking in terms of the Point and Figure Method will become apparent, and the resulting sound judgment will soon replace uncertainty and confusion.

It is confidently expected that, as a result of this study, observation, and practice, the reader will learn to properly appraise the price movements, analyze the technical condition, and deduce therefrom plausible conclusions, the correctness of which will soon exceed the errors you are apt to make. With proficiency attained, your market operations cannot help but result in profit.

LOSSES LIMITED WHILE PROFITS ACCRUE

Success in trading and investing, whether by method or by chance, comes not as a result of being perfect, but in consequence of completing a sufficient number of successful transactions netting substantial profits to offset the few errors which may show limited losses.

In order to limit losses and to check possible errors, we employ the simple technical aid known as "stop orders." It is unnecessary for us to go into detail here, as the theory and application of stop orders are fully described in many other works.

In no other enterprise or business is it possible to protect profits or check losses with the same ease and facility as is possible in the stock or commodity markets, through the simple expedient of stop orders. We strongly endorse the use of stop orders except where "averaging" or "pyramiding" is resorted to. Many admonitions have been given against averaging and pyramiding, yet this Method not only tolerates, but, at times, presents ideal points at which both may be resorted to, for the reason that each commitment is independent and is made on its own merits. This will be fully explained in a later chapter.

A pyramid is created when the profits accrued on a position are used to buy additional commitments. This practice usually develops into an inverted pyramid when it is resorted to in connection with credit - borrowed funds - used to finance a margin account. An inverted pyramid is exceedingly dangerous because the load gets top-heavy, as the human weakness to make huge and quick profits invites an over-extended commitment, which, as a general rule, is wiped out on the first technical reaction.

We average a position by buying additional quantities of stock as it sells lower in the price range. This Method indicates ideal points at which to make additional commitments for the purpose of averaging one's cost.

METHOD WEIGHS FORCES OF BUYING AND SELLING

The Point and Figure Method actually measures the forces of supply and demand, and records the support and resistances at all points. It permits of a wide range of visualization through its lucid, graphic records which allows quick and ready comparison of one stock with others and with the market in general, as reflected by a good index and, most important of all, with its previous technical action. These records, if properly compiled from reliable sources, will indicate the true trend of the market and of stocks, and will point out the best trading and investment opportunities.

The Method indicates when and what to buy. It also cautions when to get out, first, through clear signals to act, then, through definite indications for the logical placement of stop orders. It teaches you to adopt a professional approach to your market transactions. Professionals may be considered as the insiders, pools, independent operators, stock sponsors, bankers, and others usually referred to as "they" by many market commentators.





CHAPTER 3
ADVANTAGES OF THIS METHOD OVER OTHERS

Speed and ease of recording data

The Method ignores volume

Price changes versus volume

Supply versus demand

Volume easily manipulated

Facility of this method

The utter simplicity of the records

Manipulation readily detected

Use all full figure changes in making charts

Method is superior to inside information

Isolation develops best results

Our charts reveal plans of the majority

How the move begins

Stock market trading is a business

Inside information unnecessary

One point charts show all

There are certain definite and inherent advantages of the Point and Figure Method not possessed by any other method. These advantages are: (a) the elimination of non-essentials, (b) the ease of condensation, and (c) the speed by which results may be achieved. These superior qualities are again stressed in order to point out that the simplicity of this Method does not curtail its accuracy and dependability. A simple machine with a few well constructed parts will operate far more efficiently than a complicated mechanism with ponderous accessories. So it is with the Point and Figure Method.

SPEED AND EASE OF RECORDING DATA

The Method provides, amongst other things, clarity and simplicity in the keeping of its graphic records. This results in the creation of logical and clean-cut patterns on the graphs and higher speed in the plotting of the necessary data. It will enable you to maintain the records of more stocks, and be a source of checking and correlating all of the facts, with a view of arriving at a correct interpretation of market activity and profiting therefrom.

THE METHOD IGNORES VOLUME

The Point and Figure Method entirely dispenses with the recording of the volume of sales. Many have felt this to be a distinct deficiency under the belief that volume is a dominant factor. We are unwilling to concede that volume is the vital influence which, in the final analysis, governs the price movement. It is conceded, however, that volume is an influence when used as an aid in other methods. In our opinion, the Point and Figure Method has proven itself so much more reliable, that we are satisfied from our research and experience to conclude that the number of price changes and the manner in which they combine themselves have a more scientific foundation than the influence of volume in the anticipation of price movements.

PRICE CHANGES VERSUS VOLUME

Let us analyze the effect of the influence of volume as against the effect of price change only. What is the aim of all methods which seek to anticipate stock price movements? Do we seek to know how many shares are exchanged? Or, do we desire to determine whether stocks are passing from weak holders into strong hands and vice versa? All will agree that it is the answer to the latter question which will permit us to profit most from our knowledge. Taking for granted the known fact, namely, that each transaction printed on the tape is at the same time a purchase by one and a sale by another, it is of little consequence to know the exact number of these transactions. What we desire to ascertain is where in the price scale they occur and their relationship to each other.

Let us approach the problem in a logical manner by taking note of the definitely known elements, in order to determine whether price changes or volume have most influence.

In a speculative market, where the laws of supply and demand are operative, we must have fluctuations in prices. These fluctuations are due mostly to differences of opinion which cause what is technically known as the bid and asked spread. Experience has taught us that a great number of fluctuations in a congestion area usually indicates either accumulation or distribution. When stock is offered for sale at the market, we must take the nearest bid price; and when one is anxious to purchase a stock and offers to take it at the market, he must pay the nearest asked price. The price changes of a stock, as it moves from one price to another, are caused by the difference of opinions of those who are buying and selling. These fluctuations have proven themselves more informative for our purpose than has volume.

SUPPLY VERSUS DEMAND

Furthermore, let us consider the effect of supply and demand on any product or commodity, be it stock, equities, or horseshoes. When demand is greater than supply, prices move upward. Should supply be greater than demand, then prices are forced downward. When demand has absorbed all the supply at any given price, it will begin to absorb the supply available at the next higher price at which offerings are available. As the demand increases, prices correspondingly increase. Prices recede as a result of absence of demand or an oversupply. These factors show that price, as such, holds the key to supply volume as well as to demand volume. These fluctuations or price changes, when plotted by means of the principles outlined for you in this book, will more accurately indicate the technical condition, the relationship of supply to demand, than any other known method which can be used for the purpose.

VOLUME EASILY MANIPULATED

Volume, as well as price fluctuation, can be artificially manipulated. Manipulations of volume at any given price level are deceptive and cannot reveal the difference between true and artificial demand. As contrasted with that principle, consider how easy it is to detect artificial support resorted to for the purpose of distribution when many changes in the price of a stock show that it cannot absorb the supply at the upper registered level, or that demand is insufficient to reach to the next level of supply. This principle becomes more clearly apparent as you compare these conditions in one particular stock with the market and other stocks. Volume indications have a tendency to vary greatly with the changes in the floating supply of stocks as well as changes due to the open short interest in the market. We, therefore, conclude that price changes of themselves, with their relationship to each other and to the market and other stocks for comparison, are vastly superior than is volume, used with any other combination. Herein, then, lies the vital and vast superiority of the use of price changes and the Point and Figure Method.

FACILITY OF THIS METHOD

This Method permits and facilitates the easy recording of the essential data, and a simple and logical method of analysis. The direction of the trend, the extent of the move, and a reasonable approximation of the culmination thereof, are all easily determinable. Through the aid of the one, three, and five point charts, one may be reasonably certain of the shorter immediate swings and the more profitable intermediate trend moves, as well as the main broad swings of the bull and bear market cycles - the Capital Movement Trend.

We can visualize at a glance, through the aids afforded by this Method, namely, the one, three, and five point charts, the broad zones of accumulation and distribution in the main swings, as well as the closer areas of supply and demand of the narrower and more speculative intermediate trend moves. Our data shows, at a glance, the moves by important areas, by months, by days, by the all important dividend periods, by seasonal influences, and by main business cycle influences. It also shows the results of speculative influences, as well as the effects of long range investment buying and selling.

THE UTTER SIMPLICITY OF THE RECORDS

Examine now Chart Figure 3.1. This is an illustration of a hypothetical move from a start and low of 50, to a high of 55, and a close at 54. Here we illustrate a one day move which by other methods would not permit of technical analysis, yet by the Point and Figure Method, we are given two possible price paths, each of which would connote a different technical condition.


Fig 3.1 One point charts. Click the picture to open larger version. Click here to open in new window.

Note the upper half of the illustration, which we diagnose as bearish. Study carefully the three separate and distinct methods by which data may be recorded when using this Method. The first plan is recording by figures. Trace the move, 50, 51, 50, 51, 52, 51, 52, 53, 52, 53, 52, 51, 52, 53, 54, 55, 54, 53, 52, 53, to 54, the close. The pattern just to the right of the figure chart is called a trend outline chart and illustrated the same move. On the extreme right you may observe the geometrical chart of the same move. Note now that all of this action may be recorded by one day's market fluctuations in a fairly active issue in normal markets. This illustration is bearish because it indicates stock in supply around the 52, and 53, levels with a temporary push through to 55, near the close.

Now regard the lower half of our illustration Figure 3.1. Trace the move, 50, 51, 52, 53, 52, 53, 54, 55, 54, 53, 54, 55, 54, 55, 54, 53, 54, 55, 54. This move is diagnosed as bullish because it indicates scarcity of offerings below 55, and its ability to hold the advance above 53.

The analysis above is made on the actual movement of the issue as shown. If the immediate previous action was plotted and available for comparison, our diagnosis might change.

MANIPULATION READILY DETECTED

Records of fluctuations, upon careful analysis, reveal the manipulation. You have seen in the foregoing paragraph how the action which takes place during any market day is broken up into its important fluctuations, namely, its component parts, in order that we may be able to detect what the manipulators, pool operators, and insiders may be doing with the issue. No method as yet devised will show manipulation as clearly and as surely as a diagram made according to the principles of the Point and Figure Method.

Stock sponsors and operators vary their plans of campaign. Some prefer to depress a stock and make it look very weak, even though it is their aim to mark it up to substantially higher prices. Others, whose tactics are bolder and more open, do not hesitate to bid up the price of a stock very rapidly, taking all blocks offered on the way up, and thus creating a spectacular move. The latter method is daring but very effective, because spectacular moves attract wide public appeal through the aid of board room traders and others who watch tape action, as well as comments in the newspapers which usually follow spectacular moves as they develop on the tape.

When operators resort to such spectacular manipulation, lively tape action excites gossip in board rooms and thus attracts a great following for the issue. No matter what procedure is selected by the insiders in any stock, our Point and Figure charts will reveal the areas in which they are accumulating stock and will, with equal accuracy, show zones of distribution.

USE ALL FULL FIGURE CHANGES IN MAKING CHARTS

Build up your Point and Figure data carefully, using for your purpose either the transactions recorded directly from the tape or the full figure daily changes supplied by the publishers of this book. When you plot all of the full figure fluctuations, you have a true representation of what is taking place in the issue. While Point and Figure charts may be compiled from the financial page quotations of your local newspaper, records thus compiled are not nearly as dependable for forecasting purposes as are those with all of the full figure fluctuations.

The charts built up from authentic data consisting of the actual full figure changes, will always develop patterns in the progression of a move which soon become easy to recognize and classify. A careful study of past performances recorded in the same manner will reveal to the student several important factors which have vital forecasting significance - in that they show the proper points at which to make commitments.

These patterns are created as a result of better buying than selling when the move is in the upward direction, and, likewise, when the move is down, they reflect the reverse - better selling than buying. Since a similar cause is always followed by a like effect, these patterns, as they develop, are generally followed by the same type of subsequent action. As we cannot build a house without some kind of foundation, so a stock cannot advance materially unless accumulation has first taken place. Since accumulation will always register on our charts, it becomes but a matter of careful observation and analysis to be able to recognize a move as it is developing and before it really gets started. In addition, we are able to know the exact point at which the risk may be limited while the profit possibilities are preserved to their fullest possible extent.

These characteristic patterns on our Point and Figure Charts always develop, no matter what the condition of the market may be. It is immaterial whether it be a slow day with a half million shares as the average, or a fast session, with five million shares as the average; our Point and Figure charts will reveal, with accuracy, the technical condition of the price movement as plotted and observed.

METHOD IS SUPERIOR TO INSIDE INFORMATION

Since it is the purpose of all market analysis to determine the balance between the forces of supply and demand, we seek a means of accurately measuring those forces. Whether demand be on the part of the well-informed insiders, stock sponsors, manipulators, or the consensus of opinion; whether it be one or more of the foregoing groups, or whether it result from sufficient outside public participation, it will bring about the same results on our Point and Figure charts. By means of the use of the Point and Figure Method, anyone who will devote sufficient time to the mastery of its principles can place himself in possession of the knowledge that will put him on an equal footing with the influential forces, whether they be insiders or outsiders. No basis for a movement in any stock can be completed without leaving definite indications in its price path together with their logical implications as the action of the stock traces its movements clearly on our Point and Figure Charts.

ISOLATION DEVELOPS BEST RESULTS

As a matter of fact, those who apply the principles of this Method and handle their transactions independently are in a better position than members of a syndicate or a pool operation, for reasons later explained. Prices advance or decline because of the operation of the forces of demand and supply. While it is true that major interests, large scale operators, syndicates, and pools can temporarily accelerate or retard a movement, we must, nevertheless, keep in mind that no human force or group can very long obstruct the real trend of the market as it moves, because of influences of general economic cycles.

In the last analysis, all speculative operations, whether undertaken for trading profits or for long term investment capital appreciation, must be in harmony with the main trend of the capital movement cycle, or they will result in grief and loss to those who undertake them. Those who operate with one to five hundred share lots of a stock are in vastly better position than are the large groups who must necessarily employ thousands and perhaps hundreds of thousands of shares in their operation. The small operator can reverse his position quickly, while the large scale operator cannot quickly turn about, by reason of the very size and extent of his commitment and the inability of the market to absorb so vast an amount of stock into the floating supply without breaking the movement wide open and causing a major reversal.

Thus, you see that the use of the principles of this Method is more reliable than inside information. We have actual knowledge of the most potent and vital influence, namely, the actual price changes, which must be considered as the verdict of the market resulting from the consensus of all opinions which influence the issue or commodity in which we are operating.

Adhere to the principle of isolation. Turn a deaf ear to all gossip, rumor, inside tips, and other information. Your Point and Figure Charts are more reliable than any other source of information available.

OUR CHARTS REVEAL PLANS OF THE MAJORITY

Our charts reveal, in a condensed form, all that is known to the insiders and unknown to others, about the movement of a stock up to the very last moment. What more can anyone wish to know?

Authentic and reliable inside information must not, and cannot be disclosed. Disclosure may wreck costly plans. When such information is disclosed, it is no longer inside information, and then it is not worth knowing, for it immediately becomes common property and usually develops to be the most costly type of information in Wall Street. It generally leaves you long of stock while the insiders have sold their stock and are out of the market. Remember, the news and information you get is only what the insiders and sponsors wish you to know, and then only after they have profited therefrom.

HOW THE MOVE BEGINS

In recent years, the market has more quickly responded to combined public sentiment. Millions of investors and speculators comprise that public. On occasions, their demands have taken the market completely out of the hands of the insiders. Their inactivity has, at times, upset many well laid plans of some of the best banking and financial brains in the country. When these millions begin to act or show tentative signs of activity, the alert major interests - the sponsors, bankers, pool operators, and insiders - endeavor to anticipate their demands. The insiders and operators can only anticipate and start the move by quickly completing their positions and temporarily taking stock out of the floating supply. This operation is often completed in secrecy during inactive markets, when all offerings are soon absorbed without indications of demand appearing on the tape. Then follows the demand or the beginning of the demand of the outside public. After this buying has commenced, sponsors continue to accelerate the advance in harmony with the trend, buying and selling on balance, so that the value of their position, completed at the lower level, increases, as prices are forced higher. As an illustration, a syndicate operation may own, let us say, 10,000 shares of a certain issue at an average price of $10 per share. As the price begins to advance, the manager of the syndicate buys and sells on balance, yet always holds at least the amount originally accumulated, until the market price of the stock is far above the average cost of his position. At the predetermined higher price level, he begins to sell more than he buys and only buys a sufficient quantity to hold the price of the stock at approximately the level at which he wishes to distribute his inventory, accumulated substantially lower down. These operations are always apparent from the patterns formed by the price changes and portrayed on our Point and Figure Charts. When you possess this information, remember, you, too, may be considered one of the insiders.

Students who take this Method seriously and apply themselves to a better understanding of it are in a more advantageous position than the insiders, since, at the first signs of danger, their smaller positions can be quickly liquidated, enabling them to stand aside while the large scale interests are struggling to complete their campaign.

STOCK MARKET TRADING IS A BUSINESS

Again, we wish to emphasize this important fact - stock market trading or investing is a serious business and requires careful study and application. No other business offers similar opportunities for gain as often or as quickly as does the stock market. No other business permits one to limit loss or to insure ultimate success as do your transactions in the market, when you thoroughly understand market technique. Remember, your stock market transactions may be closed out quickly or you may reverse your position or protect it by placing strategic stop loss orders.

In business, it is the major interests who dominate, and the larger the unit, the more efficient can be its management; yet that is not applicable to the stock market. Here, a very large commitment may prevent quick action when speed is essential.

It is well to remember when you hear of inside information that is unsupported by positive confirmation from your Point and Figure Charts that many insiders have, in the past, made serious errors. Testimony before governmental committees has revealed only a few of the grave mistakes made by many well grounded in the fields of finance, economics, and banking. Inside opinion, inside judgment or so-called inside information, may on occasion be very good, but if your transaction is not properly timed, you may be wiped out, notwithstanding the good intentions of your informant.

INSIDE INFORMATION UNNECESSARY

It is best, at all times, to rely upon logical judgment, the result of conclusions arrived at through a careful analysis of actual facts. It is far more dependable than guesswork, tips, rumors, or so-called inside information. Your full figure changes, your knowledge of their implications, the direction of the trend, and your faith in your own self, is all you need when you employ the principles of the Point and Figure Method.

Inasmuch as market knowledge, by and large, is not an exact science, errors of interpretation cause errors of judgment, and hence faulty conclusions may occur on occasions. The most positive indications may be reversed almost momentarily. Therefore, if in the beginning you err occasionally, do not be discouraged. Profit from your mistakes, note the error carefully and resolve never to commit it again. Bear in mind, as you proceed, that coming events are usually anticipated or discounted by major interests and the insiders. When, in the face of bad news on a particular issue, formations indicative of accumulation develop, despite such adverse news, it is wiser for you to follow the insiders than to pay attention to the news, which may have been deliberately released in order to cause the uninformed to dispose of their stocks at a low level.

ONE POINT CHARTS SHOW ALL

The one point figure changes, as they register on your charts, reflect all of the buying and selling. When such price changes have completed the pattern, the picture thus formed is the best sort of inside information, since it may be indicative of an impending up move or down move, as the case may be. When your three point charts confirm the conclusions reached by a study of your one point charts, you will then have corroborative proof, and your judgment is thereupon confirmed. Should the implications of your one point charts be confirmed by the three point and also by the five point charts of the same stock, then you may consider your knowledge absolute and definite, and you must act accordingly. Be ever alert and study at all times. Remember, the patterns which are traced on your charts result from the action of individuals. Your chart discloses the balance of all influences. It tells you what is taking place and when to prepare for the move as well as how to take advantage of that information.


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