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4 Market Principals

4-pThere are four basic principles of price behavior which have held up over time. Confidence that a type of price action is a true principle is what allows a trader to develop a systematic approach. The following four principles can be modeled and quantified and hold true for all time frames, all markets. The majority of patterns or systems that have a demonstrable edge are based on one of these four enduring principles of price behavior. Charles Dow was one of the first to touch on them in his writings.
Principle One: A Trend Has a Higher Probability of Continuation than Reversal
Principle Two: Momentum Precedes Price
Principle Three: Trends End in a Climax
Principle Four: The Market Alternates between Range Expansion and Range Contraction!

OBEY PRICE

We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know. It is not well to be too curious about all the reasons behind price movements. You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide. Do not argue with the condition, and most of all, do not try to combat it.Jesse Livermore

The market reflects all the jobber knows about the condition of the textile trade; all the banker knows about the money market, all that the best-informed president knows of his own business, together with his knowledge of other businesses; it sees the general condition of transportation in a way that the president of no single railroad can ever see. It is better information on crops than the farmer or even the Dept of Ariculture. In fact, the market reduces to a bloodless verdict [THE PRICE] all knowledge based on finances, both domestic and foreign.Charles Dow

The Essence of Success

Charles Dow used to counsel that no individual should ever be promoted if they hadn’t made a large error at some point. Phil Fisher used to insist only in investing in those stocks that had management teams willing to make big mistakes. If they didn’t make mistakes, they wouldn’t also take the risks required for success. Is this the essence of success? How does a corporate management team, upon the fruition of such errors, survive being “stopped out” of their positions in today’s hair twitch paradigm? Is being expropriated from your career rather than your capital not the bigger risk today? And thus can it only be stocks with founder, family or veto shareholdings that make for truly great growth stocks today? Should not Tim Cook undertake an LBO with the Qataris?

The Essence of Success

Charles Dow used to counsel that no individual should ever be promoted if they hadn’t made a large error at some point. Phil Fisher used to insist only in investing in those stocks that had management teams willing to make big mistakes. If they didn’t make mistakes, they wouldn’t also take the risks required for success. Is this the essence of success? How does a corporate management team, upon the fruition of such errors, survive being “stopped out” of their positions in today’s hair twitch paradigm? Is being expropriated from your career rather than your capital not the bigger risk today? And thus can it only be stocks with founder, family or veto shareholdings that make for truly great growth stocks today? Should not Tim Cook undertake an LBO with the Qataris?

14 things financial journalists won't tell you.

IF YOU’RE READING the business section, you need to read between the lines. Here are 14 things financial journalists won’t tell you:

  1. That unbelievably telling anecdote at the top of my article? I scoured the country for three weeks to find that schmuck.
  2. The Dow industrials fell 263 points today. Why? By the time deadline arrives, I’ll have cooked up a reason.
  3. What qualifications do I possess? An ability to dial a telephone.
  4. Actually, I always wanted to be a sports reporter.
  5. Today, I had to bang out a long feature story on the mortgage market. My editor is looking to buy a new house.
  6. What qualifications do my sources possess? A willingness to pick up the receiver.
  7. If you saw my portfolio, you’d never ask me for financial advice.
  8. In the story, the company’s PR guy is quoted as saying, “no comment.” But on background, the senior counsel sung like a bird.
  9. The more the market falls, the giddier the newsroom gets.
  10. I don’t understand collateralized mortgage obligations, but I just wrote 1,000 words about them.
  11. My sources aren’t nearly as articulate as I make them sound.
  12. That joking, throwaway comment that the CFO made as we hung up? It’ll be in the second paragraph.
  13. We’ll get the online version up now, and figure out the real story for the print edition.
  14. I want my editors and sources to think I’m smart. What about readers? Yeah, I guess they’re also important.