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To give an illustration: After the rapid advance all stocks had following the declaration of war in Europe, a Natural Reaction occurred in the whole market. Then all the stocks in the four prominent groups recovered their reaction and all sold at new high prices—with the exception of the stocks in the Steel group. Anyone keeping records according to my method would have had their attention drawn very forcefully to the action of the Steel stocks. Now there must have been a very good reason why HOW TO TRADE IN STOCKS the Steel stocks refused to continue their advance along with the other groups. There was a good reason! But at the time I did not know it, and I doubt very much that anyone could have given a valid explanation for it. However, anyone who had been recording prices would have realized by the action of the Steel stocks that the upward movement in the Steel group had ended. It was not until the middle of January 1940, four months later, that the public was given the facts and the action of the Steel stocks was explained. An announcement was made that during that time the English Government had disposed of over 100,000 shares of U. S. Steel, and in addition Canada had sold 20,000 shares. When that announcement was made the price of U. S. Steel was 26 points lower than its high price attained in September 1939 and Bethlehem Steel was 29 points lower, whereas the prices of the other three prominent groups were off only 2Y2 to 12% points from the high prices that were made at the same time the Steels made their highs. This incident proves the folly of trying to find out "a good reason" why you should buy or sell a given stock. If you wait until you have the reason given THE LIVERMORE MARKET KEY you, you will have missed the opportunity of having acted at the proper time! The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself. Whenever the market docs not act right or in the way it should—that is reason enough for you to change your opinion and change it immediately. Remember: there is always a reason for a stock acting the way it does. But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably. I repeat that the formula does not provide points whereby you can make additional trades, with assurance, on intermediate fluctuations which occur during a major move. The intent is to catch the major moves, to indicate the beginning and the end of movements of importance. And for such purpose you will find the formula of singular value if faithfully pursued. It should, perhaps, also be repeated that this formula is designed for active stocks selling above an approximate price of 30. While the same basic principles are of course operative in anticipating the market action of all stocks, certain HOW TO TRADE IN STOCKS adjustments in the formula must be made in considering the very low-priced issues. There is nothing complicated about it. The various phases will be absorbed quickly and with easy understanding by those who arc interested. In the next chapter is given the exact reproduction of my records, with full explanation of the figures which I have entered. IX. EXPLANATORY RULES 1. Record prices in Upward Trend column in black ink. 2. Record prices in Downward Trend column in red ink. 3. Record prices in the other four columns in pencil. 4.(a) Draw red lines under your last recorded price in the Upward Trend column the first day you start to record figures in the Natural Reaction column. You begin to do this on the first reaction of approximately six points from the last price recorded in the Upward Trend column. (b) Draw red lines under your last recorded price in the Natural Reaction column the HOW TO TRADE IN STOCKS been recording prices in the Upward Trend column, you then start to record those prices in the Natural Reaction column, and continue to do so every day thereafter that the stock sells at a price which is lower than the last recorded price in the Natural Reaction column. (b) When a reaction occurs to an extent of approximately six points, after you have been recording prices in the Natural Rally column, you then start to record those prices in the Natural Reaction column, and continue to do so every day thereafter that the stock sells at a price which is lower than the last recorded price in the Natural Reaction column. In case a price is made which is lower than the last recorded price in the Downward Trend column, you would then record that price in the Downward Trend column. (c) When a rally occurs to an extent of approximately six points, after you have been recording prices in the Downward Trend col- 94 EXPLANATORY RULES umn, you then start to record those prices in the Natural Rally column, and continue to do so every day thereafter that the stock sells at a price which is higher than the last recorded price in the Natural Rally column. (d) When a rally occurs to an extent of approximately six points, after you have been recording prices in the Natural Reaction column, you then start to record those prices in the Natural Rally column, and continue to do so every day thereafter that the stock sells at a price which is higher than the last recorded price in the Natural Rally column. In case a price is made which is higher than the last recorded price in the Upward Trend column, you would then record that price in the Upward Trend column. (e) When you start to record figures in the Natural Reaction column and a price is reached that is lower than the last recorded figure in the Downward Trend column- then that price should be entered in red ink in the Downward Trend column. HOW TO TRADE IN STOCKS (f) The same rule applies when you are recording figures in the Natural Rally column and a price is reached that is higher than the last price recorded in the Upward Trend column—then you would cease recording in the Natural Rally column and record that price in black ink in the Upward Trend column. (g) In case you had been recording in the Natural Reaction column and a rally should occur of approximately six points from the last recorded figure in the Natural Reaction column—but that price did not exceed the last price recorded in the Natural Rally column—that price should be recorded in the Secondary Rally column and should continue to be so recorded until a price had been made which exceeded the last figure recorded in the Natural Rally column. When that occurs, you should commence to record prices in the Natural Rally column once again. EXPLANATORY RULES (h) In case you have been recording in the Natural Rally column and a reaction should occur of approximately six points, but the price reached on that reaction was not lower than the last recorded figure in your Natural Reaction column—that price should be entered in your Secondary Reaction column, and you should continue to record prices in that column until a price was made that was lower than the last price recorded in the Natural Reaction column. When that occurs, you should commence to record prices in the Natural Reaction column once again. 7. The same rules apply when recording the Key Price—except that you use twelve points as a basis instead of six points used in individual stocks. 8. The last price recorded in the Downward or Upward Trend columns becomes a Pivotal Point as soon as you begin to record prices in the Natural Rally or Natural Reaction columns. After a rally or reaction has ended, you start to record again in the