Long Term Secrets To Short-Term Trading

Figure 2.16 The relationship changes as a rally occurs. 

---

38 
minus the low. My point is that the distance price closes off the low tells us the power of the buyers, the 
distance from the high to the close illustrates the impact sellers had on prices. 
This understanding came from the work I did in trying to understand the OBV (On Balance Volume) charts 
Joe Miller and Don Southard were keeping at Dean Witter. Back then, traders, or just old duffers looking for 
a free cup of coffee and a place to chat, would sit around looking at the flow of prices on the ticker tape, a 
trade-by-trade display of each trade made during the day. 
There were two noteworthy old codgers, Jack and Murray, who appeared daily to dispense their 
wisdom of the ages. Since they had been around longer than us, we hung on to their every word. Murray, the 
older of the two, had been a board room marker boy during the crash of 1929 and frequently recounted how 
he had marked down the price of the stock of Bank of America exactly 100 points on the first day of the 
crash! You could just see young Murray at the boards, writing down, in chalk the last price B of A traded at, 
then erasing to replace that value with a lower one. Murray said the biggest price mark down was 23 points 
from one trade to the next! 
His story fit right in with the other oldsters' redundant favorite saying, which still rings in my ears. 
Jack would tell us at least once a day, "What you don't want to do is catch falling daggers," and then he 
would add, "You wait until they stick in the floor and stop quivering, then and only then do you pick them 
up. That's the best lesson I've learned in over 50 years of watching people lose money." 
For short-term traders, I took this to mean that I should not try to buy market sell-offs, should not stand in the 
way of freight trains. I lost lots of money thinking I could tell when price had "bottomed" and would turn 
around for the day. My early trading accounts are pretty convincing proof that I could not perform that 
magic. 
I eventually learned not to try to pick tops and bottoms, but it wasn't until years later that I fully understood 
what was really going on in the market and how I could take advantage of this market truth. My account 
balance had convinced me of the folly of buying abject weakness but I did not know why. I do now. 
The next chart should make this lesson in speculation come alive for you, so you don't have to waste time or 
money learning the way I did. Figure 2.17 illustrates how prices traded during an actual market day in 
Coffee; on the right-hand side, the chart shows the way the bar for the full day appeared. 
Price opened, dipped to a low, rallied to make the high of the day, then got hit by selling until the close. You 
have been aware that every day there is a battle between buyers and sellers; now you know how and where to 
look for the buyers and sellers. More importantly, you have learned about shifting 

---

39