Foreign Exchange Trading In this stage, for weeks and months, every few days stocks will open up anywhere from 1 to 5 points higher and keep on going up without much reaction. After this has happened and the end is near, although no one can see it, traders all go home some night, hopeful with the sky clear and not a sign of disturbing cloud, and come down next morning and find stocks opening off anywhere from 1 to 5 points. There may be no news out or any reason at all for the decline, but the real cause of it is that the market has reached the stage where Supply exceeds Demand. Everybody has bought to full capacity and there not being any large amount of buying orders in at the opening to support prices, they open off. This is your first sign of the end. Take warning! Get from under, for with this first lightning strike, you may know that the storm is gathering, and it behooves you to protect yourself. After this first sign of the end, stocks may go lower for a while and then rally up near the high points and hold for a time, but it is the warning that the "saturation point" is about reached, and the wise man will get out in time. The history of the world shows that there never has been a time when there was a great demand for anything, whether it be a product of the mine, factory, or farm, that sooner or later, a supply in excess of that demand did not develop. Just as soon as any business becomes profitable enough for a few men to make big money, enough people will get into it to cause overproduction and force prices down. This is but a natural law. It is caused by the weakness of human flesh and it applies to the stock market the same as to any other business. When stock prices reach this third zone above normal, fluctuations are so wide and rapid that fortunes or big profits can be made very quickly. This attracts all classes of people to the market. They buy and continue to buy, and prices continue to rise until somebody from the inside, outside, top side or bottom side, supplies the demand, and the whole crowd find themselves at the saturation point loaded with stocks, looking for a buyer, and he is not there. Then follows the deluge back to Normal and on down to the final and third stage below normal. The First Zone below Normal is marked by a quiet decline from high prices and what might be termed the first bad shake-out of the weak holders. A rally follows but stocks become dull on the rally because the Supply is still greater than the Demand and distribution is still going on. A lot of people who miss the market in the third stage above normal are wise enough to sell out in the first stage down, and professional traders, seeing that the bull market has terminated, go short of the market on every rally with the result that prices begin to work lower slowly. The Second Zone below Normal . — Liquidation increases, breaks become bigger and rallies smaller; reports of falling off in business come to light and a more conservative spirit underlies general conditions. People are less hopeful, become more conservative and stop buying. The result is that the market is without much support and gradually works lower. The Third and final Zone below Normal is exactly the opposite of the third zone above. It marks a period of panicky conditions, extreme pessimism; investors lose confidence and start selling out. There is great excitement throughout the country and reports of poor business; dividends are passed or reduced and even the men who were optimistic at the top, now begin to sound a word of caution and hint that things may get worse before they get better. The supply of stocks seems unlimited; everybody is a seller; no one wants to buy. You hear people say that they are not worth the paper they are written on. They are talking about the same stocks that they bought 50 to 100 points higher. When this stage is reached, it is the time to cover shorts and buy stocks when nobody wants them. In this stage, it may be necessary to watch and wait for several months until you see that liquidation has been completed and that accumulation is taking place, as there is always plenty of time to buy after the quiet advance starts. Remember, it is always darkest just before dawn, and it is always brightest at noontime, just before the sun starts to recede. stock photograpy ~ day trading |