Trading Guru
Trading GuruThe market, though it would be more correct to put the word in quotation marks, has been around ever since people were confronted with the market. In 1841 a classic book on market mania was published in England, Unusually Popular Delusions and the Madness of Crowds. Charles Mackay describes in it the tulip mania, the South Seas boom in England, and other mass manias. Human nature changes slowly, and today new manias, including the mania of following a "guru," continue to sweep the markets.
Thanks to modern telecommunications, trading guru create their manias much faster than before. Even educated and intelligent players and investors follow market gurus like followers of medieval messiahs. Among thousands of analysts, someone is bound to be in favor at any given moment. Most analysts have found themselves famous at some point in their careers for the same reason that a screwed-up watch tells the exact time twice a day. Those who have managed to bask in the glory during their fortunes often find themselves destroyed when their luck runs out and they leave the market. But there are also old foxes who welcome their good fortune joyfully and continue to work as usual when it runs out.
Edson Gould was the reigning trading guru in the early 1970s. He based his predictions on changes in Federal Reserve policy, reflected in changes in the discount rate. His famous "three steps and a stop" rule stated that if the Federal Reserve raised the discount rate three times, it meant tightening the screws and leading to a bear market. Cutting the discount rate three times means easing credit policy and leads to a bull market. Gould also developed an original graphical technique called velocity lines - simple trend lines whose slope depends on the speed of change and depth of market reactions.
During the 1973-1974 bear market, Gould became very famous. He soared to fame by correctly predicting the December 1974 low, when the Dow Jones index fell to nearly 500. When the market surged upward, this important turn was correctly predicted by Gould on the velocity lines and his fame was solidified. But soon the U.S. was flooded with liquid assets, inflation gathered momentum and Gould's methods, developed for other financial market conditions, stopped working. By 1976 he had almost no supporters left and few can even remember his name now.
In 1978, there was a new trading guru - market cycle guru. Joseph Granville argued that changes in sales volume precede changes in prices. He put it colorfully: "Volume is the steam from which the steam train rides. Granville created his theory while working for a major Wall Street brokerage firm. He wrote in his autobiography that the idea came to him while he was sitting in the toilet studying a pattern on the floor. Granville took his idea from the toilet to the charts, but the market refused to honor his predictions. He went broke, divorced and slept on the floor of his friend's office. But in the late 1970s, the market began to work on Granville's scenarios like never before, and people began to take notice.
Granville traveled around the United States and drew huge crowds. He took to the stage in a wheelchair, issued predictions, and scolded the "retrogrades" who did not recognize his theory. He played the piano, sang, and even pulled down his pants at times to be more convincing. His predictions were strikingly accurate. He attracted attention, became widely quoted and covered in the press. Granville became so big that he began to influence the stock market. When he announced that he was joining the bears, the Dow Jones was falling 40 points a day, which was very steep for the time. Granville was intoxicated with his success. The market went up in 1982, but he stayed with the bears and advised his supporters to sell. The market rocketed upward in 1983. Granville finally gave up and recommended buying when the Dow Jones Index nearly doubled. He continued to issue a bulletin, but it was only a pale shadow of what it once was.
In 1984, a new trading guru. Robert Pritcher made a name for himself as a follower of Elliot's wave theory. Elliot was an unremarkable accountant who developed his market theory in the 1930s. He believed that the market goes up in 5 waves and down in 3 waves, each of which can be broken down into several smaller waves.
Like most market teachers before him, Pritcher issued letters of recommendation for many years with limited success. When the bull market broke above the 1,000 mark on the Dow Jones, people began to listen to the young analyst who claimed that the index would reach 3,000. The strong bull market grew stronger and stronger, and Pritcher's fame grew by leaps and bounds.
During the raging bull market of the 1980s, Prather's fame broke out of the narrow confines of newsletters and investment conferences. Prather appeared on national television and was interviewed by mainstream magazines. In October 1987, he seemed hesitant, first giving a sell signal, but then suggesting to his followers that they prepare to buy. When the Dow Jones index fell 500 points, mass admiration for Prather gave way to contempt and hatred. Some blamed him for the decline, while others resented that the market never reached the promised 3,000. Pritcher's advisory business collapsed and he generally retired.
While mass psychology remains what it is, new trading guru will inevitably appear.
From Alexander Elder's book "How to Play and Win at the Stock Exchange