Be Careful Where You Get Your Stockmarket Information From

The Nicholas Darvas Stockmarket Information Success Story (part 20)

This experience did more than anything to convince me that the purely technical approach to the market was sound. It meant that if I studied stockmarket information like price action and volume, discarding all other factors, I could get positive results.

I now began to try to work from this point of view. I concentrated on a close study of stockmarket information like price and volume and tried to ignore all rumors, tips or fundamental stockmarket information. I decided not to concern myself with the reasons behind a rise. I figured that if some fundamental change for the better takes place in the life of a company, this soon shows up in the rising price and volume of its stock, because many people are anxious to buy it. If I could train my eyes to spot this upward change in its early stages, as in the case of M & M WOOD WORKING, I could participate in the stock's rise without any stockmarket information.

The problem was: How to detect this change? After much thinking I found one criterion - that was to compare stockmarket information with people.

This is how I began to work it out: If a tempestuous beauty were to jump on a table and do a wild dance, no one would be particularly astonished. That is the sort of characteristic behavior people have come to expect from her. But if a dignified matron were suddenly to do the same, this would be unusual and people would immediately say, "There is something strange here - something has happened.'

In the same way, I decided that if a usually inactive stock suddenly became active I would consider this unusual, and if it also advanced in price I would buy it. I would assume that somewhere behind the out of the ordinary movement there was a group who had some good stockmarket information. By buying the stock I would become their silent partner.

I tried this approach. Sometimes I was successful, sometimes not. What I did not realize was that my eyes were not sufficiently trained yet, and exactly when I started to feel confident I could operate on my stockmarket information theory, I was in for a rude awakening.

In May 1956 1 noticed a stock called PITTSBURGH METALLURGICAL, which at that time was quoted at 67, It was a fast-moving, dynamic stock and I thought it would continue to move up rapidly. When I saw its increased activity in my stockmarket information, I bought 200 shares for a total cost of $13,483.40.

I was so sure of my judgment that I threw all caution overboard and when the stock - contrary to my expectation - began to weaken, I thought this was just a small reaction. I was sure that after the slight drop it was set for another big upward move. The move was there all right - but it was in the wrong direction. Ten days later PITTSBURGH METALLURGICAL stood at 57 & three quarters. I sold it. My loss was $2,023.32. My stockmarket information was wrong.

Something was obviously wrong. Everything clearly pointed to the stock as the best in the market at that time and still, no sooner had I bought it, than it dropped. And what was more disillusioning, no sooner did I sell it than it started to move up.  


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