Does the Path to Trading Success Ever Change?

In 1898, Hoyle came out with a publication titled, "The Game In Wall Street, and How to Play it Successfully". I thought it would be interesting to make a comparative analysis of trading in 1898, versus trading in 2011. Technology-wise, there is an obvious huge difference between 1898 and 2011, but when it comes to trading psychology, and the principles of trading success, you just might be surprised.

Hoyle makes an early point by saying, anyone who goes into the business of trading without study or knowledge, and thinks that tips or gossip will help them, is almost sure to lose in the end. This is just as true now in 2011, as it was back in 1898. You must acquire proper trading knowledge to achieve trading success. This usually takes years. There is no other way to be successful in the long run.

Hoyle stated in 1898, it is not a game of chance, but a game of skill. The game has well-defined principles and rules the public would do well to study. The game is directed by shrewd people who control millions of dollars, and back pools to move the market in their direction. Trading today in 2011 is definitely a game of skill, with certain key principles traders need to study for trading success. Today, similar shrewd people, who now control hundreds of millions or more, back big institutions to control the game.

Hoyle made the following valid statement. If you will run your eye down the column of "numbers of shares sold" in the daily report, you will at once pick out the stocks that are handled by these pools. The concept is the same in 2011, only the pools are now called institutions. This includes mutual funds, hedge funds, and pension funds. When you see daily volume much higher than normal, you know these big institutions are buying or selling shares, and they have the ability to move stocks in a major way. Properly analyzing price and volume is a key to trading success.

This is a truly amazing statement from 1898. Hoyle states, the pools direct and control the grand movements on the stock exchange. The bull campaign begins when prices are low, when the general public are bearish. All the news at such times seems to favor a decline. The news is manipulated in various ways. The news will stay bad, but eventually the prices do not go lower. The bull campaign has already commenced. The pools are now accumulating their stocks and locking them up in their strong boxes. The pools buy when times are bad, and sell when everything seems good. It begins at the bottom and ends at the top.

Prices advance, with normal corrections. Again an advance takes place and this time it goes a little further. The prices are going up and down, but on the whole advancing. After several months or more of gradually advancing prices, the advance begins to be rapid and continuous, the bears are routed. At this point, prices are booming, the public, and even the bears are now madly buying. All the news and indications are favorable for a continued advance, the volume of transactions are extremely heavy, and right then, the bull campaign ends. The pools are now selling, as the general public is going crazy buying and buying. Ultimately, the average stock market participant loses bigtime, the pools become richer, and begin to plan the next bull campaign, which starts the cycle all over again. Understanding how this works is a major key to trading success.

Now, back to this era. Let us take the Nasdaq for example. The bull campaign begins in 1997-1998. You get an unbelievable run up of prices in 1999 and early 2000. At this point, the "smart money" begins to sell as the general public goes wild to buy as much stock as possible. It seems as though the good times will never end, as the media tells everyone to buy, buy, buy. You hear the most dangerous trading statement, "This time is different". It is never different, because human nature never changes. From March 2000 to October 2002, the Nasdaq loses about 78% of its value. Most of the general public lost an enormous amount of money, but not everybody lost. Mutual funds got beat up pretty bad, because they are not flexible. Then who are these big institutions making all this money during a major bear market? It is mostly certain hedge funds, and a few highly proficient individuals, because of their trend following methods. They shorted the bear market at just the right time.

In summary, the path to trading success really has not changed much from 1898 to the current year of 2011. The successful principles of trading are about the same. The "smart money", the pools from 1898, and big institutions from current times, know exactly how to conduct a bull campaign for maximum profits. Most of the general public ultimately lose a lot of money, whether it was 1898, or the early part of the 21st century. Proper knowledge, and psychology was the key to trading success back in 1898. It is still synonymous with success in 2011.