How To Best Calculate Risks In The Commoditymarket (part 1)

We have defined a tape reader as one who follows the immediate trend. This means that he pursues the line of least resistance. He goes with the commoditymarket - he does not buck it. The operator who opposes the immediate trend pits his judgment and his hundred or more shares against the world's supply or demand and the weight of its millions of shares.

Armed with a broom, he is trying to keep at bay the incoming tide. When he goes with the trend, the forces of supply, demand and manipulation are working for and with him. A trade originating from the commoditymarket, which swings within a radius of a couple of points, cannot be said to have a trend, and is a good one for the tape reader to avoid.

The reason is:
Unless he catches the extremes of the little swings, he cannot pay commissions, take occasional losses and come out ahead. No yacht can win in a dead calm. As it costs him nearly half a point to trade in the commoditymarket, each risk should contain a probable two or five points profit, or it is not justified.

A mechanical engineer, given the weight of an object, the force of the blow that strikes it, and the element through which it must pass, can figure approximately how far the object will be driven. So the tape reader, by gauging the impetus or the energy with which a commodity starts and sustains a movement in the commoditymarket, decides whether it is likely to travel far enough to warrant his going with it - whether it will pay its expenses and remunerate him for his boldness.

The ordinary speculator trading in the commoditymarket on tips, gulps a point or two profit and disdains a loss, unless it is big enough to strangle him. The tape reader must do the opposite - he must cut out every possible eighth loss and search for chances to make three, five and ten points. He does not have to grasp everything that looks like an opportunity. It is not necessary for him to be in the commoditymarket continuously. He chooses only the best of what the tape offers.

His original risks can be gradually effaced by clever arrangement of stop orders when a commodity goes his way. He may keep these in his head or put them on the "floor." For my own part I prefer, having decided upon a danger point, to maintain a mental stop and when the price is reached close the trade "at the commoditymarket."