The Market is used to fool traders, for often when stocks look the weakest on the tape, they are the strongest as accumulation is taking place. At other times when they are booming and very active and appear the strongest, they are really the weakest, because the insiders are selling while everybody is enthusiastic and buying.
The man who watches the tape daily is influenced by his hopes and fears. He can not help it. Suppose that the
market has been strong all day, and the very stocks that he is interested in are gradually moving up, when suddenly, around 2:30 P.M. the market starts to break. It goes down for fifteen minutes and active stocks are off a point from the highs all around. It does not rally and by five minutes to 3, or closing time, they are off another point.
The volume is heavy and he decides that something is wrong and he sells out at the close. The next morning stocks open up from 1/2 to 1 point.
Why?
Because the selling in the last half hour the day before was simply the result of profit taking and all of the traders who were scared sold out at the close
rather than carry them over night, the result being that the supply of stocks to be offered next morning was limited, and the reaction had in no way interfered with or changed the main trend.
One great mistake the man makes who watches the ticker all the time, is that he trades too often. He gets in and out sometimes several times during the day, and each time he pays commission. If he buys or sells higher or lower each time, even though he has made profits on his trades, he is increasing the percentage against him. A man who makes 300 trades in the year, or, say, one for each market day, must pay an Brokerage and Taxes getting in and out. It cannot sustain for long.
Another important fact traders overlook is that the more times a man gets in or out of a market, the more times he changes his judgment. Therefore, the percentage of his being wrong increases. In a bull or bear market, there are often big reverse moves opposite to the main trend, from which big profits can be made, but a man can not catch them by jumping in and out every day. He must wait until he has a real cause and sufficient reasons, based on facts, before he makes a trade. If he jumps in or out on hope or fear, he will not only make losses, but he will miss the real opportunity when it comes. The daily moves generally mean very
little to the main trend of the market.