Stock Market Trading Secrets Revealed

Have you ever purchased a stock only to see the price fall after you bought it? You must have thought it was bad luck or bad timing and think that it will be a better day tomorrow or next week or next month or...the unknown forces that manipulate the particular stock?

I always believed there are 3 main groups of traders/investors.

1. Institutions -  Banks/Asset Management Houses/Hedge Funds
2. The Super Rich - High Net Worth Individuals/Groups of Smaller Fund Houses
3. The Retailers - Us! White Collar/Blue Collar Workers

As retail investors, we always are the last to know in every aspect of market news. We are always the suckers stuck high and dry and left to hold when others have sold. Why and how are we always the ones that are burnt/lost/defeated against the markets? Some have paid for courses promising XXX% returns or tried to outwit the markets but few have done so and survived (made $$ I mean).

 

In the 1900's, Richard Wyckoff had identified how a market "operator" works and below are his findings:

 

You can google for those who are keen to know more  

Two Rules 

Rule One: Don't expect the market to behave exactly the same way twice. The market is an artist, not a computer. It has a repertoire of basic behaviour patterns that it subtly modifies, combines and springs unexpectedly on its audience. A trading market is an entity with a mind of its own.

 

Rule Two: Today's market behaviour is significant only when it's compared to what the market did yesterday, last week, last month, even last year. There are no predetermined, never-fail levels where the market always changes. Everything the market does today must be compared to what it did before.

 

Instead of steadfast rules, Wyckoff advocated broad guidelines when analyzing the stock market. Nothing in the stock market is definitive. After all, stock prices are driven by human emotions. We cannot expect the exact same patterns to repeat over time. There will, however, be similar patterns or behaviours that astute chartists can profit from. Chartists should keep the following guidelines in mind and then apply their own judgments to develop a trading strategy.

 

 

 

Four Phases

Before looking at the stock selection process in detail, keep in mind the four phases of price movement: accumulation, markup, distribution and markdown. It is important to understand the price position for the broad market and the individual stock before initiating a trade. Long positions are preferred when the broad market is in a markup stage. Trend followers would buy on the breakout that signals the start of an uptrend. Once the breakout has taken place, chartists can also look to establish long positions during throwbacks, re-accumulation phases or corrections.

 

 

Short positions are preferred when the broader market is in a markdown stage. Aggressive traders would become active when a lower peak forms or thrust pattern forms, which is a failed resistance breakout. This is clearly a top picking exercise with above average risk of failure. Trend followers would be most apt to sell on a support break that signals a clear trend reversal. After the break down, chartists can look to establish short positions during throwbacks, re-distribution phases and corrections

 

 

*Trading is a lot like any other merchandising business, and liquidity is important*

 

 

A. It takes a while for a pro to accumulate a position in advance of a big move – buying too many shares at once would cause the price to rise too quickly.

 

“The preparation of an important move in the market takes a considerable time. A large operator or investor acting singly cannot often, in a single day’s session, buy 25,000 to 100,000 shares of stock without putting the price up too much. Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks.”

 

B. Instead, here’s how he sets it up: first, he’ll “shake out” the little guys by forcing the stock lower in order to get a better price

 

“He prefers to do this while the market is weak, dull, inactive and depressed. To the extent that they are able, he, and the other interests with whom he works, bring about the very conditions which are most favorable for accumulation of stocks at low prices…
“When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.“

C. Then, he will try to time the top of his planned price rise with some “good news” about the stock he may already know about

 

Remember the saying, “Buy the rumor, sell the news”?
“You have often noticed that a stock will sell at the highest price for many months on the very day when a stock dividend, or some very bullish news, appears in print. This is not mere accident.
The whole move is manufactured. Its purpose is to make money for inside interests — those who are operating in the stock in a large way. And this can only be done by fooling the public, or by inducing the public to fool themselves.”

 

Risk Reward and Stops

The final Wyckoff steps are to calculate reward potential, identify potential risk and set appropriate stops. Wyckoff believed that profit potential should be at least three times the risk. In other words, he would risk 5 dollars for the chance to make 15 or more. Using such a risk-reward ratio, it would be possible to make profits 50% of the time and still make money.

 

*Stop Loss*

In general, Wyckoff thought stops should be placed at obvious danger points. In other words, look for key support or resistance levels that when broken would change the initial assessment. Once a move is underway, chartists should trail their stop-loss to lock in profits. Wyckoff advised against placing stops too tight. Chartists should allow a little wiggle room and exercise judgment when adjusting their stops. Stops should, however, be quite tight once a price objective is reached.