The Perfect Speculator

Quotes / Summary

• most of content available in this book is already know to me but learnd few things
• More details about price action which i am planning to implement
  • during breakout first 1 hour volume should be equal to daily volume
  • also detail explaination about price volume during breakouts
• 20/4 type setup for long term trend, sample of setup is like irfc during jan 2024
• This i already know this but not implementing right now, Create your personal watchlist on every weekend. Observer weekly and Daily Trends, check fundamentals

Appendix 1 : The rules of Spculation

1. Do no harm. (protect your investment)
2. Check of your check list before buying
3. If i cannot make moneyon test buys, i cannot make money on large funds
4. Always use a stoploss in place to protect the account from oneself
5. The trend is your friend and move your stops along the trending move
6. I must start making gains on my positions from day one and within four weeks, the stock must have made atleast 20% or more move from buy price
7. Do not buy second stock and do not make pyramid buy on the first stock unless the first buy has made a gain
8. Pyramid only when odds are working in your favor and make sure that the pyramid buy will never result in a loss on the over-all-trade
9. If many leading 20/4 type stocks start hitting their stops, the market maybe showing sings of danger
10. Do not look to make any gains in bad markets. It is far better to stay out of bad markets where odds of wins are against us, rather than trying to swim against the tide
11. If the best stocks are not moving up in price, the market has no chance of offering good odds of wins.
12. Stocks that are within 15-20% of their all time prior high should be ones to watch
13. do not watch your computer during market hours for real time data
14. Do not listen to any human beings about the market’s general direction
15. Stocks will do what they want to do. No one person can stop a stock from moving in one or other direction
16. Market’s sole job is to confuse and fool us. Always look for confirming signs
17. Breakaway are solid bets. In trending market breakaways that meet criteria usually indicate the beginning of a true up trending move
18. Breakout day volume should explode
19. Keep a written journal of each and every trade

Appendix 2 : A picture is worth a thousand words

Chapter 1 : The Speculator’s Call

this first chapter mostly explain about author reason to write this book. Another major point through this chapter is importance of price and volume action of stock to buy and sell stock.

Summary

The average retail speculator has no change of out researching the vast machinery on the street. The street has some of best people working. Therefore, the best way to be on the “inside” with the most knowledgeable folks is to follow their action. They take action based on all the exhaustive research that they conduct. And such action shows up clearly to the diligent and patient market operator through the price and volume action on the leading indices in conjunction with the price and volume action on leading stocks. Once one learn to decipher the price and volume action, one has started on the path of successful speculation.

Chapter 2 : Can Speculation be learned?

Science vs Speculation

• Science relies on proven facts and theorems before arriving at definitive conclusion. Speculation relies on observation first and then executing or action based on the observed events with only regard to probability of outcome. And each subsequent action is based on the outcome of the previous action. And nothing is conclusive in the art of speculation.
• Science is about proven fact/universal truth nobody can argue against that. Speculation on the other hand, is an art. There is no certainty in speculation. In fact, there is absolute uncertainty in speculation and absolute uncertainty is the only certainty to successful speculator. As a result, there is no way it can be a science. If it were a science, we should have great level of certainty in its outcome. If we take report card of all the professionals in the market then you’ll note that only 10-15% of participants will outperform the market remaining 85% of the people will be beaten by index.
• If one insists on speculation being a scientific process, then one has lost even before entering the market. It is the human mind that will be culprit in killing most trading account. To be successful in speculation, the first and foremost act is to face the fact that it is an art. If one is looking for scientific rules and results, one should stick to academics and to doing research.
• A speculator will allow for the fact that he could be wrong, he needs to eliminate the loss taking position promptly and look for a subsequent trade to place the right trade. A speculator first observes the market and individual stocks to see if a confirm trend is visible. Until he can observe a confirmed trend, he will not place a trade.

What is trend?

• A trend is something that is moving in one direction clearly.
• An uptrend is market moving up and downtrend is market moving down
• Market don’t move up and down in straight line. However in confirmed up trend, the market moves up little and then reacts and move down a little. But the move down or the reaction is less than the first move up. Then it moves up yet again. This time it moves up to a point much higher than the high it made the previous time it moved up. Then it reacts and moves down again. But the down move reaches down to point that is much higher than the lowest point during the last down move. In essence, we are seeing series of higher high and lower lows. this is confirmed trend.
• A down trend works in exact reverse. A confirmed down trend is when series of lower high and lower lows are being pegged by the market or the stock

Type of personality in the market

The average joe who comes to market does not even know who he is. He has no clue if he is trader, investor, gambler or speculator. He has not spent any time to understand how he will approach the market and its traps

• A gambler will act without any regard to odds of wins
• An investor, by definition, is someone who looks for a guaranteed rate of return on his investments. Since the stock market does not offer guaranteed rate of returns, an investor has no place in the stock market
• If he is trader then he must be the kind who gets in for a few scalper’s points and gets out. Again, trader has no chance of winning year after year, cycle after cycle
• Speculator will place his commitments only when odds favour him. A speculator will not make commitments until he has clearly seen at least one set of higher high to confirm and uptrend or one set of lower lows to confirm a down trend.
• Speculator also have to time his trade. not only does he need to time his trade but also mnage his money so that should he be wrong in his interpretation based on his observation, he will lose small amounts. At this early point, the speculator is not looking to make a killing. He is just trying to confirm if he is in sync with the market.

Summary

• Speculation is an art. Speculation involves three steps.
  1. Observation
  2. Interpretation
  3. Action
• The speculator first observes the market and the leading stocks for clues. Then he interprets his observed events. Once his interpretation leads him to believe that the odds of winning are at least equal or better than the odds of losing, he then takes action. A speculator always looks for signals from the market and not from humans.
• A successful speculator places his actions based on probabilities and his second step is based on the success of the first step. and the third step is based on the success of the second step. and so on.

Chapter 3 : First, do no harm

First part of this chapter just explain about avoding reverse compounding and keeping your losses short.

Market in simpler terms

The market is a game of treasure hunt. All players are given a set of clues. As it happens, the clues offered to all of the players are the same. If correctly deciphered, the first set of clues will take the participant to a second set of clues at the first mile-post. Then, if the clues at the first milepost are correctly deciphered, the participant can get to the second mile-post where additional clues will be available. Thus, a participant who can consistently figure out the clues correctly will go from one mile-post to the next until he reaches the treasure. How quickly and correctly one can decipher the clues will determine who will get the treasure. Among the clues offered, some will be red herrings and false clues meant to mislead the players. And once again, the players who can recognize these misleading clues to be red herrings will be the ones with the best chance to land the treasure.

Among the players, there will be very small set of really extremely smart players who will have no trouble reading the clues correctly. They will decipher each and every clue along their path and at the same time the will be able to discard the misleading clues. These smart folks will be the ones to get to the treasure first and are called “smart money”.

And then there will be another very small set of players who will decipher most of the clues correctly and when they are unable to decipher the tricky clues or the misleading clues, they will just follow the “smart money” who get everything right. Since this second group will follow the smart money, the smart money will try and mislead their followers by showing some fake-outs and shake-outs to shake-off the followers. The treasure trove is large and there is enough for most who get there sooner rather than later. Many will never get there. some will get there late. The smart money gets there first. And many folks from the set of followers of the smart money will also get there, albeit slightly behind the smart money.

It is no difference in the market. The smart money recognizes the trend first and act on it. Then the small set of followers will follow the smart money successfully and recognize the trend next. Most others will miss the best part of the trend. Many will come late to the party and will only be there for the brawls that come about at the end of long party.

The biggest problem one faces in the market is the need to wait to confirm the trend. The most common and costly mistake is to jump at every first inkling of a rally. In the stampede to be the first to identify a trend many get crushed. It is the patient ones who wait out the many false starts, who will be fit as fiddle to make the move when the true trend starts. A lot of money has been lost in trying to be the first one to identify the trend

What drew me to you is the fact that you have the courage to sit tight and not jump for every trap and temptation the market throws at us. It is a lost art and very few of us old-timers are around to remind the young ones of the dangers of the market. Everyone claims that this a new market and thus new strategies and new models are a better fit. I have forgotten how many times I have heard that since my teenage years. Every market cycle brings with it these new market strategies that are purported to be able to beat the new changed market. But the market never changes because human emotions never change when it comes to money. There is absolutely nothing new in the market. Every trick and system has been tried before in one form or another.”

Summary

• First do not lose.
• do not try to be first to see the trend. Most signs are wrong signs. wait for confirming signals before making any commitments.
• Making headway in the market is like a game of treasure hunt

Chapter 4 : When in doubt, do nothing

Market cannot be timed

Question : I people claim that timing the market cannot be done and that one should be fully invested through years and years tot reap the benefits of the stock market. whatt do you make of that?

• this is such nonsense. If you had held on to stocks through cycles and cycles of bull and bear markets, I would have been incredibly lucky to come out just about even after decades of fully being invested.
• The machinery wants the common folks to keep buying and buying through bull adn bear trends because the machinery exists to sell stocks. If no buyers can be found, the machinery has to cease to exist and that is not acceptable. Therefore the brain washing goes that the market cannot be timed

Caching Mid part of trend

• while it is possible to pick the absolute bottom and the absolute top of a significant trend, I can definitely catch the meat of a significant move. During such significant trends, odds of winning improve substantially and my test case buys prove to me when such improved odds come about. Once proven that odds have improved, I can seriously and deliberately expose larger commitments to the market. And I keep moving my sellstops along an uptrending and moving stock up along with its price.
• And i may not be able to catch the top, but i am happy with the middle meaty portion of a significant move. Just because the vast majority cannot accomplish this does not mean it cannot be done. It takes discipline and a systematic approach.

Summary

The wich cannot be the father of the thought. Do not try to see something that is not there. The fact that you have free funds available to place in the market does not mean that market is ready to offer you opportunities for gains.

Chapter 5 : How to Speculate

This entire chapter explain how to figure out change of trend and it’s pretty simple. we already know it.

when stock make higher lows and higher high then it’s start of trend change. 1 and 2 cycle like this make this confirm uptrend

second thing to keep in mind is that lot of new growth stock start to make new high during start of trend change, so also keep eye on that

Summary

Not every rally is the beginning of an up trend. But at every rally, one must be open to the possibility that a new up trend has begun. One must start looking for confirming signs from new young growth stock making all time new highs.

Chapter 6 : Confirm everything

How stocks make new highs, keep making new higher highs during a confirmed market up trend?

Any new confirmed market up trend must have new set of young unknown young growth stocks that lead the market. Every cycle has new leaders. It is not unlike a sports team. It takes a new generation of young players to take a game to new hights after a set of older prior greats starts to slow down. In the early industrial revolution days, it was steel and rails that led the market up. Then came the autos and heavy machines. then came airplane and associated industries. then came radio and television. then came computers. then came software and internet associated things. In there somewhere medical technologies and pharmaceuticals. The next serious bull trend will have new set of leaders. It always takes a new set of leaders to carry the market forward.

Market Philosophy

• Market is very tricky and most participants will lose money over long term. So if you risk losing in market better be looking to make big bucks. what’s point of taking this risk for Meager wins
• The big bucks is made only on young unknown growth stock. Bigger companies have become mature stocks with large floats and more for the pension funds and others who believe they can withstand the gyrations of the market via steady companies. Little do they know that single bear run will wipe away all the hard earned gains made over many years.
• the stock i am watching as the potential winner must have shown to me via its price/volume action that it has the ability to move up in price. If i cannot see such characteristic then i have no interest in stock.
• with thousands of stocks moving up and down, to narrow down your focus. start with stocks that are relatively new or 10-15 years old. Older stocks has chance of moving up in previous bull runs so you’re probably too late for that
• Also the stock you’re watching must be nearing its all time high. Some folks look for stocks making new 52-week highs but only focus on stock which is making all time high. Your focus should be on few stock as possible so you need to cut down then number of potential winners down to humanly manageable level. so you need to place certain restrictions and parameters in place.
• Everything in stock market takes time. It takes time for stock to setup it’s play before making its move. During the course of this setup, many time this stock will offer false signals. it may offer signs that true move began only tot reverse and head back into it’s basing or the setting up phase. it will demand patience from the speculator. since the speculator is waiting for the one clear stretch of 6-12 month period where the stock is going to zoom at its fastest pace and go the farthest. We are only interested in a clear cut visible trend where the stock makes clean set of higher highs and higher lows. Such move usually only comes about once during any stock’s lifetime. During such a period, it is not unusual to see a stock multiply many times over it’s beginning price for the time period.

20/4 Type stock move

• when stock move at very least 20% or more in price from the high of its last breakout within four weeks or less.
• This 20% move within four weeks must have occurred without the stock ever heading back into the consolidation price area.
• this called 20/4 mover which stands for 20% or more within 4 weeks without heading back into the basing or the consolidation price area
• you can put stop loss just below buy point for this kind of setup, so this makes this very low risk setup to try
• if you see multiple 20/4 move from market then it’s good indication of market health

Summary

• it is always the young growth companies that confirm the market trend.
• Usually setup of the true move takes a long time for individual stocks. Look for stocks that have gone sideways for long periods of many months or years in what is called at the setup phase.
• Confirm that it’s 52 week high is twice then 52 week low. this allows the speculator to reject all but only the true big winners
• Look for 20/4 type of stocks after stock is breaking out of it’s main base

Chapter 7 : Volume is just about everything

How to look at volume

when looking at volume of trade on an individual stock’s chart, I always start with weekly charts. Once I see something on weekly charts, i confirm the signals on daily as well as monthly charts. If the same signals are visible on daily, weekly and monthly charts, then odds become quite low of seeing something that is not there.

volume is always relative. If stock trades average of 1 million shares a week, then suddenly it shows big price jump to new highs along with clearly visible jump in volume to 5 million share or more during the week of the price jump. It is obvious to me that something has happened to create this increased interest in the stock.

The volume explosion must be clear and visible without question. and at the same time an already up trending stock must show a clear price jump accompanying the volume explosion. A signal like that is an indication to sit up and notice the stock.

However, just because such a price and volume action is visible does not mean much. All the other factors we talked about earlier that apply to a new potential winning stock have to apply. The stock must be at or near all time highs. It must be young stock that came to the market no longer than 10-15 years ago. The stock 52 week high price must be at least twice its 52 week low price. The stock must show a clearly increasing volume on rising prices on its weekly charts.

An almost certain signal of an up trending stock shows up on a weekly chart. One will clearly see prices rising on increased volume and the reactions or consolidations will be on average or less than average volume. this is a good sign.

Interpreting price and volume action, however requires a discerning eye. The art of learning to read such signals on a chart is a lot like reading an xray. It takes some time, practice and lot of experience. Eventually, one is able to take a look at a chart and within seconds see many of the characteristics that jump out. Pretty much like a radiologist who can take a quick glance at an x-ray and immediately interpret some clearly visible signs. Once the initial signs are seen, at that point further careful study is needed.

Summary

Price and volume action should be complementary. Volume must accompany prices in a way that there is little doubt of the impending and the ongoing move. Interpreting a stock’s chart require time, experience, repeated practice and discerning eye. It takes three or four years of constant practice before one develops the skill for seeing things that can be seen on a stock’s chart.

Chapter 8 : Buy only true breakouts

Definition of Breakout

A breakout is simple a move of a stock or an index from one price range to another. At its simplest level it offers no clue tas to the market general direction or stock’s trend. for example, let us take a look at figure 8a.

In this case, stock shows breakout move, but there is no indication of whether the stock that made this breakout move is in any kind of trend or not. There will be thousands of such breakouts in any given year, irrespective of the fact whether it is good year or bad year in the market.

On the other hand, if you consider figure 8b. Here we see a stock that has been building a long sideways base for years. And then, it suddenly wakes up and starts moving up. After moving up for some time, as measured in weeks and months, it settles down to base yet again. this second basing structure is, however, short and is measured in weeks. thereafter the stock breaks out to a higher price range.

about figure 8c, point 1 indicate prior uptrend. the prior uptrend confirms to use that the stock has shown that it can rise in price. The area shown by point 2 is basing area. this is the consolidation or the resting phase where the stock takes a little break from its rising tendency. thenat point 3 a true break out occurs. A true breakout is when a stock breaks into a new high price range after having met each and every criteria below

• stock is less than 15 year old
• the stock has established a long period, as measured in years, of sideways basing pattern
• the stock then starts an uptrend by making it into new alltime price highs
• after showing an uptrend lasting many weeks and months, the stock then settles down into a consolidation, resting or basing phase

Auther comments on breakout

“When i was young man and new to market, i made the mistake of trying to catch a move before the trend began. I used to think that I had to get in before the crowd got in. That is a mistake most folks continue to make in the market. this is the human element part of our down fall. It took me years and huge almost insurmountable losses to figure out that more money has been lost in trying to catch the bottom or the beginning of a move than anyone ever knew ”

“It was after years and years of dealing with the market that i realized that i must be buying when the move has definitely begun and not one second before. I had to find a convincing signal that a serious move had begun. There is no point in anticipating a move. The move must have started with certainty before I should be buying. Anticipation of a move is another human failing that makes paupers out of most folks”

“It was when the light came on in my mind and I had realized that a move must be in progress before I should buy, that I realized the importance of defining a true breakout. It was then i figured out the vast difference between a true breakout and the run of the mill ordinary breakout”

Reply : “ I can see when the uptrend is evident on a stock. Obviously your rules and definition today have helped clarify it. However, for most folks it is hard to wait when they see a stock is moving up. the momentum guys will buy into rising stock without waiting for a reaction. Upon the first sign of a reaction, the momentum players will dump the stock. How can you counteract this argument?”

“It all depends on what is it you want out of the market. If you want few points here and there, by all means go ahead with momentum plays. But if you want the big bucks, you need the finesse and the patience to work with the stock and the market“

“A good stock is one which makes us money. Irrespective of how good a company is run or its products are, if one cannot make money on the stock, the stock is useless. Similarly, irrespective of how bad a company is run or how poor or unprofitable its products are, if the stock makes me money, then it is a good stock. ”

“Also all sister stock must be doing well, sister stock means stock related to same sector or segment. I am wary when the group does not show strength among sister stocks. In the absence of sister stocks, we are either talking about a monopoly stock doing well in group or one stock doing well in a week group. If there is a monopoly stock doing well in a weak group, i might still be interested in the stock due to its monopoly type status. However if there is no monopoly status and i see leading stock in weak group , i am hesitant to consider such a stock as a potential buy”

Summary

Make sure the difference between a true breakout and run of the mill breakout is clear. Learn the basics of an up trending stock and its consolidation, resting or basing period. learn your own human elements and place rules around you to stop the human element from making decision for you.

Chapter 9 : Chart Patterns, Who cares?

You must know for a fact that the stock has shown its ability to rise in price. Moreover, this ability to rise in prices must be on increased volume. This tells me that there is great buying interest in the stock. When a stock has such buying interest, odds are unlikely that it will get sold out. Once the up trend has stopped for a resting phase or the consolidation phase, volume must start to cool down. More the volume contraction, better the stock. When volume dies after rising stock rises in price on volume it tells me that all the buyer who bought during the rising phase are not willing to sell out. Low volume consolidation indicates higher prices to come with all the buyers having serious conviction of the stock’s upward trend

The tighter the price range during the consolidation the better. This adds to the conviction that nobody is willing to sell the stock. In perfect stock, the consolidation price range would not exceed 10-20% and the volume would contract clearly with at least a week or two of volumes of trade that shrink well below 50% of normal weekly volume. And when the stock pierces its prior high on volume, it has psychologically cleared a ceiling or upper resistance band. Once true breakout like this occurs, this ceiling becomes the floor for the stock’s price. A true breakout will never get below this floor price and it begins a truly successful up trend.

The chartists get confused and fall prey to the noise by paying too much attention to the shapes, patterns, predefined formations on daily charts. Daily charts are given to more false reading than are weekly charts. The price/ volume action during the prior uptrend and during the consolidation phase is far more important than the so-called predefined shapes and patterns that most chartists rely upon.

Summary

Pay attention to the price and volume action on weekly charts. Try and make sure that one does not see what is not there. the bias in seeing what one wishes to see is far more prevalent than one will ever know.

Learn chart interpretation through practice. A stock must show volume during its rising phase to prove that buying interest is large. A stock should consolidate or rest on low volume to confirm that selling interest is no-existent. A breakout to new highs must come about on unusual volume.

Chapter 10 : Breakaways are good bets

A true breakaway

The prior long basing pattern and the sub sequent uptrend are clear enough to see and understand since prior lessons addressed these matters. It is the break out point that is uniquely different in breakaways.

Like all true winning stocks, trading breakaway effectively is somewhat tricky. Sometime, the breakaway may test prices as much as 10% below the low of the breakaway day. Which means a standard 10% stop loss may be taken out many times before the true up trend begins. On breakaways, therefore, Boyd would allow as much as 15% stoploss price below the buy price. Since the first entry would be minimal in dollar amounts, the test-buy would be allowed the extra leeway just because the odds of a truly big move were so much higher on true breakaways.

Like everything else in stock market, it also require serious speculator to maintain the detachment and consider each breakaway on its own individual merit. It also required one to be very specific about the definition of a breakaway. Not every gap nor every huge volume explosion was a breakaway.

Also a breakaway does not make its big move in one day or one week. It takes months to make the true move. How effectively and successfully one trades it and how successfully one is able to pyramid on it would dictate the returns on such potentially explosive moves.

Summary

Breakaways are solid bets if they come about early on, just before or just after a true market up trend has began. If one can trade breakaways effectively, very few other trades will be needed during any given market cycle to outperform the major indices handily. though breakaways are solid bets, learning to trade them correctly is very important. Breakaways towards the end of a market cycle usually signify a topping stock. Care must be taken to interpret where the market cycle is, before considering commitments into a breakaway stock.

Chapter 11 : Rules of Speculation

Check off your check list before buying

• Is the general market in an uptrend
• Do i see any 20/4 type of stock movements
• Do i see price and volume action that confirms everything i see?

If i cannot make money on test-buys, I cannot make money on large funds

I had learned early on that the amount of trading capital does not dictate success. If I cannot make money on a small percentage of my trading capital, I cannot make money on a larger percentage of my capital. In other words, if i am not right about the market’s trend and my stock’s trend, it does not matter whether i put 10,000 or 1 million in the stock, i will still take a loss.

A smart speculator first observer the market events. If the market seems to be logging higher high and higher lows with volume confirmation, he then looks for leading individual stocks for additional signs. If the leading individual stocks confirm the market’s action, he then tests the market and the stock to confirm if what he is seeing is what is actually occurring. This test-buy is usually a very small amount from his over-all trading capital. Boyd used anywhere from 5-10% of is trading hurdle “the wish should not be allowed to become the father of the thought.”

In just wishing for bull market, one should not see a non-existing bull trend. The test-buys will confirm or deny the market’s trend. If the test-buy starts to make money, then and only then can not contemplate placing incrementally larger and larger funds into the market.

Always use stop-loss in place to protect the account from oneself

• Use 10% stoploss for 20/4 method
• All major losses in the market start off slowly and insignificantly. By the time the small losses have ballooned into larger losses, it is usually too late to rectify the damage.
• stop-loss is a mechanism that tells a speculator that he is wrong. He is wrong about market’s direction and about stock’s direction, the only way he knows that is when the stock or the market starts to move against him.
• If the stop loss is not in place then it’s very easy to talk ourselves out of selling out when we should sell out. It’s protection from ourselves, insurance policy against the “human element” that was discussed earlier.

Trend is your friend and move your stops along the trending move

• the basic principle of successful speculation is to never sell a rising stock and to never buy a stock that is not rising in price. an additional extension of this principle is to sell a stock which is not rising.
• But the balancing act required of holding a rising stock just long enough until its movement upwards continues and then at the same to sell a stock which has stopped rising further is an extremely tricky one. More money has been lost and more paupers have been created in chasing the bottom or top of move. If one catches the top or the bottom of a move, it is by chance or by luck or a combination of both
• To make big money one has to hold the stock as long as possible and through minor or intermediate reactions. second to sell out close enough to the top of significant move and before a significant retracement in price begins
• So best practice is to use trailing stoploss and move your stoploss just below last low

Summary

Follow rules successful speculation

• Check of the check list before buying
• do test run to confirm market trend
• follow the trend
• use stoploss at your risk level and use trailing stoploss

Chapter 12 : Additional rules of speculation

I must start making gains on my positions from day one and within four weeks the stock must have made at least 20% move from my buy price to high price

Most of the big gains that one makes start off with a bang. There are occasional slow beginners but by majority of big movers start the move from day one. As soon as the first step of market entry is made on test-buy, the sell stop is immediately placed below the buy price usually at 10% of so below one’s buy price. The stock is then given time to either prove or disprove its mettle. The stock can only do one of three things it can go up, it can go down or it can go nowhere.

We have an action that needs to be taken, based on each of these three scenarios.

• if stock moves up, it must move at least 20% or so from its buy-price to the most recent high price within four weeks of purchase. If four weeks have passed and our stock has not come close to the 20% move from its buy price level, we must be prepared to start looking at other prospects and be willing to let go of our first stock.
• If the stock move down instead of moving up, then it will trigger the sell-stop and will eliminate us from the market
• If stock makes 20/4 type move that we have as our first target then the sell- stop must be moved immediately from its then current level to new price of “a little above the buy price” this will ensure that one never takes a loss on any 20/4 type stock. Once the first stock has reached this point where the worst case scenario is that we will breakeven on the position, it is only then we should consider taking a second position. In other words, never buy a second stock unless the first stock has a sell stop that will, at worst, offer a breakeven trade.
• Once 20/4 type stock has been collected, it must from that point onwards continue its up trend. The up trend must be clearly visible on weekly charts. On weekly charts, up trend manifests itself as series of higher highs and higher lows. As the stock keeps making this series of higher highs and higher lows, the sell stops must be kept moving up to “a little below the last low”

Do not buy a second stock unless the first stock has made a gain

• Boyd would use classic line “ Never take a second step forward until you make sure you are on firm ground with your first step”
• Having first ensured that his first test-buy made a 20/4 type move, he would then move the sell-stop on that position to a little above his buy-price. this would ensure that he never took a loss on any 20/4 type mover. This was the rule to keep him focused completely on only those stocks that showed the ability to move from the get go. Once he found such a stock, he would make sure that he never took a loss on such a stock
• Boyd was firm believer that when folks want to make 300% return in days and weeks when it takes months and years that failure is guaranteed. everything in the market takes time and patience. To make sure that time and patience work hand in hand, the rules to be devised and implemented.

Pyramid only when odds are working in your Favor and make sure the pyramid buy will never result in loss on the over all trade

from example i can assume that risk in pyramid buy should not exceed gain made by original buy. In simple terms never take loss on winning stock.

I asked boyd about how many times can be pyramid. He said he never bought more than 2 times. In most cased he will stop at send buy unless thrid buy is possible in trending bull market. only on rare occasion he will make it’s third buy.

If many leading 20/4 type stocks start hitting their sell-stops, the market maybe showing sings of danger

Every cycle would bring new batch of leading stocks. Some times a stock maybe leader for two consecutive cycles in the market. However it would be highly unusual to see the same stock be leader for more than two cycles. The reason was quite simple, once a stock was fully distributed into the public hands, there was no more any need for the insiders to run up the stock’s price. Since the stock being distributed into the public’s hands meant that the insiders were no longer the insiders, they had no more need work the prices up. this is why it’s always good idea to ignore older stocks

do not look to make any gains in bad markets. It is better to stay out of bad markets where odds of wins are against us, rather than trying to swim against the tide

Once the leading stocks start to hit their sell-stops, it is matter of time before most get sold out. when the general market is in down trend or trendless or choppy, the prospects of making any tradable gains are small.

With the larger view of “First, do no harm” it would be grave mistake to give back any portion of the hard earned gains. It is easy to give back the hard-earned gains during bad market conditions. It is far better to protect the gains made by not involved during bad market conditions.

Summary

The true winners start making gains from day one> Usually, the best movers qualify to be 20/4 type movers without ever hitting the sell-stop placed by the speculator. Do not buya second stock until the first stock has made gains. Pyramid only when the odds of wins are in your favor and when the pyramid buy’s worst case scenario will never make you take a loss on the overall trade. If many 20/4 stocks hitting their stoploss then market may be indicating impending danger. In bad condistions, do not look to make gains rather look to avoid losses. If the best stocks are not making money, the market has no chance in offering good odds of wins.

Chapter 13 : More rules of speculation

Stocks within 15-20% of their all time prior high should be ones to watch

We know that stocks that are moving up in price are the only ones we want to buy. Stocks that are moving up in price show many of the winning characteristics including a clearly visible up trend. During the up trend, they will correct and base or consolidate for some periods of time. It is during these periods that we should start watching them for unusual volume activity. As soon as such stock break out to new highs from basing or the consolidating phase, we should be looking to buy them. To get such stock on our watch list, we should pay attention to only those that are within 15-20% of their prior highs.

Do not watch your computer during the day for real time data

Some of the worst decisions novices make is when they place spontaneous trade. this mostly happen due to some news in the market. the news may related to stock earnings and FDA approval of drug being made by pharma company.

These bad decisions come about because one is watching the market and stocks second by second. As seducing as it may be, many seasoned speculator will acknowledge that this could be devasting to most account. The stock market uses news to shakeout and fake out weak folks. The true move and the trend is well in place for in advance of the news. the stock has already moved in anticipation of the news. The news only confirms the prior move.

Do not listen to any human beings about the market’s general condition

Boyd used to say that the only consistent winner in the stock market was the market. The market is never wrong. Humans are almost always wrong.

this rules basically say to avoid all human forcast about market condition.

Breakout Day volume should explode

If a speculator’s intention is to look for just a handful of potential trades for any given year, he should demand at least the stock’s daily average volume traded within the first hour of the trading session.

Keep writeen journal of each and every trade. Learn from your mistake.

this is basically my version of whatever gets measured get improved

Summary

• Stocks within 15-20% of their all time prior high prices should be the ones to watch
• do not watch your computer during the day for any real time data
• do not listen to any human beings about market general condition. let the leading stocks and indices dictate your actions
• The market’s sole job is to confuse us and fool us. Always look for confirming signs. Be in hurry to sell a loss and reluctant to sell a profit
• Breakout volume should explode
• Keep written journal of each and every trade. Learn from your mistakes.

Chapter 16 : Commit After the move starts

It is unbelievable how ingrained in our minds is the thought that we must catch the move before it starts. Perhaps it comes from our caveman mentality where the first one to catch the hunt at. Or perhaps our lifelong lessons we learn from our childhood that life is a race and the faster we begin the race better the odds of us beating the rest of the crowd. Perhaps it is the lessons learned through the ages where the first one who dug up the gold was the first to win the treasure.

Boyd used to say the most of the money is lost during the “chasing the false rallies” phase of a bear market. A classic one liner that boyd would use was, “Do not buy until the move is definitely on” Just how many of can wait out the false rallies? The need to not miss out on anything is so strong and so powerful, that even the best of us have to surround ourself with set of rigid rules to avoid the trap.

It is always better to be late than early in the stock market. Better to wait and confirm that a good looking party is on before arriving to the party. you should always ask below questions for this

• If i get in before a move, what guarantee do i have that a move will occur?
• even if the move should occur, what guarantee is there that the move will be in my direction?
• how long do i have to wait before the move actually occurs?

Summary

Make no commitments until a serious move has been confirmed to be definitely on.