A Course in Trading by Donald Mack

This work was originally published in 1934 as a yearlong course in analysis and was a confidential document available only to subscribers and clients of the Wetsel Market Bureau. The Jerry Favors Analysis recently gave the contents of the course a top-5 status. The 26 chapters contain a series of lessons; each dedicated to a single aspect of chart analysis – some unknown today, others still employed in their original or variant forms.

From the Inside Flap

Warning! This book contains material on Technical Analysis that is creative, a bit novel, and might open up new avenues of appreciation that there is a great deal more to the rigors of analysis than just some technical descriptions. Here I make special reference to what I would call “hidden knowledge,” but which is not so hidden if one is alert to the possibility of it being there. Often this consists of technical applications hidden in the text that just escape the attention of many practitioners of Technical Analysis as they come to grips with what might be termed its scientific methodical approach. As it is so easy to be unaware of this fact, it is pointed out here that some of the great market masters had a method of presentation that was not uncommon in the technical literature provided by them during the time I call the “Golden Age of Market Literature, 1922 to 1957.” It is apparent that these market writers felt it was quite in order for them to start by pointing the reader in the direction of the line of analytical thought or the technical tool they were presenting. This gave them the chance to explore the solid foundations of a particular technical methodology as a basis for what they had in mind. Then they were more than comfortable to leave it to the reader to use that basis to evolve analytical techniques and thinking. Certainly, the answers seldom come easily, and chart analysis is anything but easy; but sharp thinking plus unbridled creativity are an absolute must in advancing this technical area of endeavor. This Course by the Wetsel Market Bureau is a splendid example of that manner of presentation as it teaches individual techniques which, in turn, point the reader to the wider applications of the material presented. This material is typical of what has been referred to earlier – it is rich in ideas and techniques for the serious market student to take up, to experiment with, and to develop as good fortune dictates.

The market classic presented here is one volume of a unique Technical Analysis series that is bringing back many similar classic works to the mainstream of market analytics, from which they have for too long, sadly, been absent. That many of their titles and authors are today unfamiliar has no relevance, for time has the rather bad habit of obliterating much that can later be realized as exemplary when chance brings it to light and to our attention. Fortunately when this happens, it gives us the opportunity to gain some unique and forgotten knowledge if we are willing to leave behind the handicap inherent in the thinking that “modern” is the be-all and end-all. When we come to realize that the past can teach us a great deal that applies as much today as it did earlier, then when it comes to market analysis there is a new and surprising world out there, waiting to be re-discovered.

Regarding details of the authors and the publisher of this Course in Trading, we know very little of the Wetsel Market Bureau and its team of technical writers who put it together. We have not been fortunate enough to find any references to their existence after the 1920s and 1930s. We do know that it was a highly regarded market advisory publication in its time, and judging by the quality of this Course, we have no doubt that it was a solidly based service that profited its subscribers with some excellent analytical teaching and information. From the original Introduction to the Course we learn that the company had changed hands about three years before the time of this publication (1934) and the new head of the company was Fred W. McClafferty, a name I must admit is unknown to me from that period. From the introductory comments to the Course, we have to surmise that the service was published bi-weekly, although, knowing the general pattern of market letter publishing, there is also the possibility that it was a weekly publication. It would appear that the new owners of the service had a strong desire to establish their market credentials with existing subscribers and at the same time display to new and potential subscribers their substantial expertise in the investment analysis field.

It is obvious from the original manner in which the Wetsel Bureau numbered the pages of this Course that they had planned to publish a technically oriented lesson every other week for one year. This would be in the form of an extra supplement consisting of four pages as an accompaniment to their regular market letter. Each lesson was numbered sequentially with a letter of the alphabet and there were four pages to each of these lessons. The first four pages were numbered A-1, A-2, A-3, A-4; followed two weeks later by B-l, B-2, B-3, B-4; and ending with the 52nd’s week numbers Z-l, Z-2, Z-3, Z-4. On our re-publishing this classic Course it was decided to number the pages more in line with modern publishing numbering practice and not to use the original layout. Also, because the original was produced by means of a typewriter, the size of the pages and the print of the original work had different requirements from the modern typeset pages the reader will find in this re-publication.

Another important factor we had to contend with was the need to re-draw the charts and figures for increased sharpness and clarity as reproduction difficulties with many of the original charts and figures left them in need of improvement. However, it should be noted here that I am only referring to the charts and figures as mentioned. When it comes to the text we have one overriding guideline, and that is that the original text in any volume in this Traders’ Masterclass Series is reproduced exactly as originally written. The only changes in the text that have been permitted are those which correct misspellings, inappropriate English, words left out, and the like.

Altogether there were 26 parts or lessons to this Course, and after all the parts had been separately printed and distributed, it seems the company decided the next step would be to join them together and publish them as one complete work for sale to non-subscribing investors. From a study of a large number of courses, especially from this period, it seems safe to say that these earlier ones were extra special. At this point I feel I should explain in more detail just why this was so and why so few are around today in their original printings. To summarize, they were great material, they made vital contributions to the field of analysis, and they were excellent vehicles that advanced Technical Analysis by leaps and bounds with a quality that was unique and excellent. That that quality, in my eyes, was of the highest order seen in technical market literature can always be questioned, for it is a personal judgment. But be that as it may, as one who has seen, compared, studied, and traded from many courses (including some exceedingly rare ones) I feel I have a strong basis for my claim. Their overall importance and tremendous value should enrich future generations of technical analysts for decades to come, for they are a rich source of knowledge that should be known, used and expanded on as far as any market student’s capability permits.

Considering that so few of these monumental “courses” have been available to the investing public in the last forty, fifty, or sixty years or so (for reasons I shall shortly explain), it can only be expected that they have to be looked at afresh. I can only say that any personal judgment should remain in limbo until examination has a chance to prove or disprove my contention of their high quality. Lest it be misunderstood, there is nothing new in using the format of courses for limited distribution to investors throughout the modern history of stock and commodity markets. They have been around since the last century, when the desire to be a better market player was just as strong as at any time since. To meet the demand for quality instruction in the science and arts of market analysis, the published courses, along with the top-quality market books of the time, were obviously well received by many of the investing public. The resultant new knowledge, systems, methods, and unique applications were all solid representations of the great market masters’ quality material and, as time has shown, had we not had access to it, we would be the losers.

Because they revealed unique material from a wealth of market knowledge, these courses could offer prospective subscribers a product that gave them advantages and knowledge over and above what others had. Herein was the extra attraction of the “course”—premium knowledge worth the premium price that was charged. Thus they were produced and sold to the relative few, and many of these courses disappeared into the sunset (that is, time taking its toll), hardly ever to be seen again. Why was this so? Well, first, as stated above, they were designed to sell to the relative few at prices high enough to ensure their exclusivity. Second, and more importantly, is the economics of book production, then as now. Books have been and still are produced on large printing presses which can print 32 pages and over with one run of paper through the machine. For this mode of production the economic facts of life are that higher numbers of books need to be printed on any run of a particular book for the machine to keep its unit costs reasonable. For smaller numbers more appropriate printing methods are required. Such was the case when it came to printing these specially written courses back then, and as mentioned, circumstances meant that only relatively small numbers of the designated work would ever sell, clearly a suitable printing method had to be used. The sale of each course was handled by sending one chapter or section out every month, or every other week, or over whatever period had been chosen, at a price paid per chapter or section. After all the text, charts, and so on in the course had been sent, there followed a special imprinted binder that completed the full course due the buyer.

Without the availability of today’s photocopiers or similar reproduction equipment that would have been an ideal answer back then, the best practical printing methodology was what is known in the USA as the “Mimeograph machine.” (In the United Kingdom this machine is known as the “Roneograph,” and by other names in other countries.) This method has some useful qualities and features, for even today it is still used by some organizations for very small reproduction numbers. Some readers may recall this machine, possibly from their school days—its shape and design, especially the large cylinder in the center around which a typewritten master plate was attached. Generally speaking, back then it seems that 800 to 1,000 pages could be printed from one master plate before the letters began to break up and the printing became unreadable. Such was the situation when, during the 1930s to the 1950s, these courses were printed and distributed in the manner explained, with the total numbers available for sale coming to something under 1,000 copies. Combining all of the preceding information concerning the limited sales potential and the printing problems, the readers of this Masterclass Series will, I hope, feel themselves as being the rightful heirs to Technical Analysis knowledge destined for them, that is material that has been seriously refined through the process of time and made even more precious as it is passed down from the masters to those serious market students who will have the opportunity to develop an appreciation of it.

Looking at the markets of yesterday, today, and projecting that look into the future, it is evident that markets themselves do only three things after taking into account their basic buying and selling functions. Their products rise in price, they fall in price, or they move sideways in price. If these are the only three things that they do, then in a nutshell we have the answer to what to concentrate on in market analysis. We dissect and study every price, volume, and time action using whatever knowledge we have to analyze each price rise, each price decline, and each sideways movement. This gives us the most meaningful direction to follow in our analytical efforts and takes us to the highest levels (again a personal opinion) of Technical Analysis. We will also find that behind a great deal of classical writing is this same focus, analyzing physical aspect after aspect of every rise and every fall.

When we take a close look at the classical period that began with William Hamilton’s The Stock Market Barometer in 1922 and ended with William Dunnigan’s One-Way Formulafor Trading in Stocks and Commodities in 1957, there is one common thread that links just about every technical work produced in that period. That single thread was that their analytical methodology dealt directly with the reality of physical price, volume, and time. For better or for worse (and this writer says “for worse”), the emphasis on reality of past years has given rise to a great deal of emphasis on fantasy today. Price, volume, and time are physical realities to deal with directly; moving averages, oscillators, momentum indicators, and the like have no physical existence on the charts—they are mathematically formulated lines or fantasy lines that have no reality. We find that Divergent/Convergent lines have a basis and often work beautifully, but on the whole fantasy lines should be seen for what they are. That most fantasy lines of today were known to the great market masters and generally ignored by them speaks volumes.

What these same market masters didn’t and couldn’t ignore has to be seen as the greatest single influence of their times—the impetus that set the stage for some of the most outstanding courses, and market books, ever written. Looking back to 1921, with hindsight they saw the market hit its low point in the postWorld War I period and from that point they saw what was probably the greatest rise of all time to the momentous market top of September, 1929. Following this top came the dramatic “Black Day” gyrations and falls of October 1929, leading eventually to the 90% decline and the record bottom of July 1932, a low point that has not been seen since. The psychological effect on the great number of market participants who were involved in this monumental rise and even more monumental decline must have been tremendous. They were left to cope with absorbing the effects of the Great Depression of the 1930s, something not overcome until the end of World War II.

In the early 1930s financial resources around the United States were at a low ebb, with something like 30 to 35% unemployment. Still, it should not be forgotten that 65 to 70% were gainfully occupied, from the lowest levels to the highest. Despite the difficult conditions, a number of the top investment writers saw there was an area where they could provide a premium service for premium prices, even if the payment period had to be extended. Thus it was during the Depression that the number of courses increased dramatically; the authors offered one or more courses specifically designed for a limited number of purchasers. The mode of operation that developed was one where the author would offer material of an extremely high quality on the analytical side that could assist purchasers to perform much better in markets of their choice. This material could take the form of innovative technical knowledge, much of which had not hitherto seen the light of day. There was special theoretical knowledge combined with actual trading approaches (the Elliott Wave Principle is a splendid example), methods for picking entry and exit points through special techniques presented by the author (the work of William D. Gann, certainly), mechanical trading systems used in a straight formula approach, again for market entry and exit points (by William Dunnigan and by George Cole—two of several in this area), plus many more techniques too numerous to mention.

It should not, therefore, be surprising that this Wetsel Bureau Course from that period is completely in the mold described, both as to the fine quality of the analytics it presents and to the reasons it has escaped the attention of so many technical analysts for so long (or at least until this present re-publication). Looking now at the work itself and at its text in detail, we will find its appeal in the freshness of its ideas, concepts, and methodologies. All in all we can say that it represents a microcosm of Technical Analysis in its entirety. The first technique presented in the Course is an old friend to numbers of technical analysts, or one that should become an old friend to those to whom it is unknown now—the 50% Retracement Rule. In its simplest form this Rule states that retracements from tops or recoveries from bottoms will, in the first full move, often go to approximately the 50% level as measured by the distance from the bottom to the top of the previous move. This was one of Mr. Gann’s favorite rules, and as he further stated from time to time “Don’t take my word for it, prove it to yourself.” Like any rule that is passed down over long periods of time, the question of its reliability has the element of time working both for and against it as proof of that reliability is sought. That this 50% Rule works often enough to make it a worthwhile tool to consider should be taken as a positive indication, supported by its historical record. But it is by no means enough to assume that any move at the time of analysis will always settle at around the 50% level. What should not be left out of the equation is that at any one time several other things are happening in that move, just to complicate things and make the technical analyst, and many others too, work very hard for their bread.

At the beginning of this Introduction I focused attention on the unusual approach of many of the great market masters who often accompanied their concepts and techniques with a suggestion (often not very obvious) for ideas to develop further. Well, here in all the simplicity of the 50% Rule given above we have an excellent example of a much wider technical development that is not very evident (as in this case), but one that goes way beyond the earlier seemingly innocuous mention above of its “simplest form.” Armed with the figure of 50% and an example of its applications to chart analysis, readers would be limiting themselves if they didn’t now consider whether there is any potential to expand the seemingly “simple” much further. And as it turns out, this really is the basis of some very powerful tools that equally require some very powerful thinking. We never said that it would be easy; that is not the nature of the market. If the market aspirant expects to find “Easy” as a point on the road to market success, then that market aspirant would be well advised to change over to simpler pursuits such as “quantum theory” or “brain surgery” than finding success in the marketplace. In this paragraph we trust that the earlier vital message from the grand market masters on adding one’s personal initiative to directions they point us to comes through clearly. Admittedly we grow more and more into it as our greatest mentor—experience—gives us the chance to do so, and that means a great deal of time, study, and effort, for expanding a basic principle is not always an easy one to live with.

The next technical concept that follows the material on the 50% Retracement Rule deals with “Straights” and with “Triples.” As it might be easily missed, your attention is called to the not-so-coincidental link with the vital 50% figure that works its way in here too. There’s a lesson here which is a beautiful example of the wisdom that is so much a part of the classical market writings that we are bringing back to today’s and tomorrow’s Technical Analysis fraternity. I trust it will not fall on the equivalent hard ground of computer disks and programs, but having said that, I can see in this work, and other classical works too, where a number of techniques such as the one that follows could well be computerized. Straights and Triples should offer the novice technical analyst, and the seasoned one even more so, a fertile field to play in, especially as the authors point out that the force behind Straights is Resistance, and behind Triples it is Attraction. Working with these two tools should prove rewarding, but as usual, the advice with these and any other market tools is—prove them to yourself. As an aside, there’s a principle that should come out of this and that can be put in more modern terms of “what you see (and develop) can often lead to more than what you get initially.” Above is a prime example of a debt due to applying a variation of the 50% figure, and later to other applications with further directed and intelligent research. The guidelines given here should be permanently stored away for times when they carry the seed of possible solutions to other analytical problems, ones that the reader is sure to meet time and time again.

The next subject to do with Circles and Arcs of Circles represents an interesting concept from this Course that brings to the reader’s attention novel tools that they should find the time to become better acquainted with when they reach the Fourth Lesson. The starting point in employing this methodology is the choosing of a pivotal point, or the “Pivot,” the center point for the measuring that will take place using Circles and Arcs of Circles. The Pivot appears to be most useful as a guide in predicting turning points when stocks are in virgin territory—price ranges which have not been traversed at all or worked over the previous months or even years.

Besides applying this methodology to price ranges, the authors make the very important point that when the Circles and Arcs are drawn for predicting price movements, the time factor should never be ignored as it is equally, if not even more important to work with than price. Here again we see in the writings of the past masters the importance they attached to the analytical usage of various time measurements. Modern Technical Analysis pays much less attention to time measurement, as is apparent from much technical market literature today. So much so that we might ask which group has the better overall insights into market analytics—the past masters or those who currently ignore much that involves time measurement. Having personally found a great deal of predictive value in measurements of time in many, many forms, I can only reiterate that attention paid to time can be of more importance than that paid to price. That in no way is meant to denigrate price, as its analysis value is beyond reproach and practically of equal value to the time factor. Or, as the great man, William D. Gann, himself, said, “The two most important things in the market are Price and Time, of the two Time is the most important.”

As the reader studies the Lessons in the text that follows, it will be obvious that the authors have devoted four of the 26 Lessons to the study of “Gaps,” phenomena that we all constantly come across on the charts. The amount of coverage given just this one subject, comparatively speaking, should certainly indicate the importance the authors attached to it. But, putting all things into perspective, the importance of Gaps must be tempered with the absolute necessity of considering their significance fully in conjunction with other independent indications that may be present. These other indications might help confirm the Gap’s meaning in the overall scheme of weighing up the particular market movement at the time, or they might negate these meanings. In connection with the authors’ guiding principles, the reader should check out the rule designated as “Rule 51,” a rule that at the right time might prove very profitable. While Gaps have been with us ever since there have been speculative markets, along with ongoing debates as to their effectiveness, the authors’ cogent remarks here on their appearances make their own contribution to the subject and are certainly worthy of repetition.

There is one major technique that is as much used today as it was when the first technical analysts plotted the very first charts. Unarguably, this technique and its many variations are still as valid and as solid as ever, and this makes their inclusion in this Course a natural tool that has its place in any analytical effort the reader may make when considering market decisions. That this tool is so easily applied and used has a tendency to mask even its more apparent uses, and also often leaves them ignored. Still more important, there’s a great deal more to them that the alert technical analyst might spend time searching for the tool featured here, the almost ever-present “Trend Line.” The authors state that they placed a low value on a Trend Line’s shorter-term role as an indication in minor movements, but when it came to major movements, they felt it possessed real value in predicting future market directions. That this is particularly so, they state, is because when a major Trend Line is conclusively broken, a major movement may be expected in the direction in which the Trend Line is broken. One of the little recognized phenomenon that occurs in connection with Trend Lines (also in keeping with the earlier comments that there is more to Trend Lines, and many other techniques and tools than that given to its readers by so much current literature) is that sometimes two of these lines happen to intersect. The result of these intersections is generally a strong resistance point, making this technique well worth further study when the reader comes across it later in the text.

After taking the Trend Line discussion to its conclusion, the authors turn their attention to what they generically call “Coil Formations,” again another of the formations that rarely sees the light of day in more recent market literature. Defined in its broadest sense, Coils can be described as price movements in a variety of forms that gradually develop narrowing movements in the ranges that make up those movements. As with Trend Lines, the authors point out that the direction in which the Coil trend line is broken will usually indicate the direction of the subsequent major movement, and generally a fast movement at that. Besides demonstrating two similar Coil formations which they call the l5 “Ascending Coil” and the “Descending Coil,” which generally behave more or less in line with the general Coil, they also bring in the “Flat Coil” which can present greater difficulties than the preceding Coils mentioned. All in all, Coils are seen often enough to make them more than worth the coverage given them in this Course.

The two Lessons that follow are two of the most important in the whole Course, in my opinion. Why? Because they sustain the total foundation, wholly made up of the three parts of what we might term the “Where-It-Is-Really-AtTrinity” of Technical Analysis—the purity of Price, Volume, and Time without the imposition of mathematically formulated distortions. The continually changing and extremely prominent Price factor is certainly enticing in its constant call upon our attentions during (and after) each market’s trading period. So much so that there is a strong tendency by large numbers of market participants to minimize their attention to the other two parts of the “W-I-I-R-A Trinity,” Volume and Time. Herein lies one of the great strengths exhibited by the great market masters in their monumental classical writings, in which many gave a great deal of emphasis to these areas of Volume and Time, which are somewhat ignored today. Just this fact alone keeps increasing the respect I have for the contributions from the technical authors and writers of the great classical period of 1922 to 1957. I trust that this appreciation will prove contagious to the many who will read their way through all or most of the works that in their entirety will comprise this Traders’ Masterclass Series of Classical Technical Analysis, for they will see just how much attention had earlier been focused on the now neglected factors of Volume and Time.

Certainly this Course lives up to the standards of its contemporaries with the coverage and attention it gives toVolume and Price. I hope that with the encouragement of this Introduction and the material on Volume and Time in the text, the reader will in the future turn more attention to them. The analyst working with Volume will find that linking it with Price in a mutual analytical dependence can and will open up new avenues that will make timing and buy and sell decisions a more profitable and rewarding affair. And then to include, with great skill, the factor of Time which, as referred to earlier in this Introduction, is the most important thing to consider and use in market analysis—excellence in all three areas of Price, Volume, and Time should ensure even greater excellence in Technical Analysis. Here is the mightiest key of all to unlocking the more hidden market behind the outer fac,ade that the great majority rarely, if ever, penetrate. For the authors of this Course to cover the many facets of Volume and Time that they knew about, let alone the greater knowledge of these two areas which still remain to be opened up, would take several books on each subject. In this Course, Time and Volume constitute just two of the subjects receiving attention among many others, so it can only be expected that the authors would cover only the special aspects that they chose at the time.

In Part U we again find more innovative coverage given to aspects of analysis that have escaped the attention of modern-day market writers to the detriment of modern-day traders and investors. Of course, in a field as far-ranging as Technical Analysis and cut off from the scattered brilliance of some of its past, this is a natural result to do with the passage of time and therefore not the fault of anyone. The material in this Part is another excellent example of giving us the germ of a technique or methodology that promises greater benefts to the technically inclined who might choose to nurture it. The subjects here guaranteed to open up new vistas to the mentally venturesome are titled “Angles of strength and weakness” and “Curves of strength and weakness.” What the student of the market develops from these two concepts alone should more than repay the cost of all the volumes, those already produced and those to come, in the complete Traders’ Masterclass Series of which this Course is a part.

In this Introduction it has been my intention to hint at the richness of the material that follows and to encourage readers not to be too hasty in their consideration of what is being presented to them. The use of the word “richness” in the preceding sentence is an understatement, in this writer’s view. This is especially so if one keeps in m

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