FROM ALVIN & BETTE NELSON PHONE NO. 847 724 8793 JUN.

2E 2E92 eg:42RM RI FAX TO: Fred Phone Fax Phone CC: I Date 6/29/98 Number of pages including cover sheet 10 FROM: Alvin A Nelson 44 Park Drive Glenview, IL 60025-2721 Phone Fax Phone 847-724-8809 REAMRKS: For your review

Fred, Here are some notes I took from the Wyckoff manuals and tapes for your review Al

Wyckoff Notes From Tapes Intraday Moves:

Very Small fluctuations occurring with a day (need tape reader's techniques)

Minor Moves:
Three or more intraday trends that last a couple of days to a couple of weeks. Magnitude 10%.

Intermediate Moves:
Three or more minor trends lasting a couple of weeks to a couple of months. Magnitude of 15% - 20%.

Major Moves:
Three or more intermediate trends lasting several months to several years. Magnitude over 25%. The End Of a Down Move and Stan of Trading Range: 1. Preliminary Supply 2. Buying Climax 3. Automatic Reaction 4. Secondary Test of the Low

Terminal Shakeout:
Deep, sharp break through previous support level designed to slake stock out of weak bands.

Spring:
Short, sharp break through former support level - with purpose of shaking out stock from weak hands and seeing what volume of stock is available

No.1 Spring.

Wide price swing on heavy volume. Supply is in control. Most prevalent in down moves. Possible short sale on rally after the spring.

No.2 Spring;
Medium level of price spread and medium volume. Bullish sign, hilt because of the volume on the down side the low will be tested again. There should be good demand on the rally off the bottom. If less supply shows up on the secondary test of the low -- buy. if more supply shows up - wait for further tests.

No.3 Spring.
Very small, if any, price drop below former low. Lack of increase in normal volume level below support. This spring low does not have to be tested because professionals know very little, if any, stock is left in weak hands. Buy on the spring.

Up-Thrusts and Up-Thrusts After distribution:

Distribution is usually accomplished in a relatively short time, where as, accumulation takes much longer - often many years. Major distribution occurs over a few weeks to a few months. The action is characterized by wide price movement, heavy volume and great activity.

Take A Short Position Only

1. On an Up-thrust or Up Thrust after distribution. 2. On last point of supply after a sign of weakness

How To Take A Speculative position:

1. Determine the trend of the general market 2. Classify stocks by their relative strength or weakness 3. Analyze the stocks most likely to move with the market and pick the ones most likely to do better than the market.

Questions About Individual Stocks

1. 2. 3. 4. 5' 6. Which direction is the stock going to move? How Soon is it likely to move? How far will it probably move? (point & figure chart) Take action now? Wait & watch for point to take action Remove stock from consideration & look for others

Establish a Position For An Up Move On Spring Board at Right Hand Side of Trading Range
1. On a No.3 Spring 2. On a No.2 Spring or its test 3. A Terminal Shakeout or its test 4. A backup To The Edge of the Creek 5. On Last Point of Support after a Sign Or Strength 6. if a stock is in an up trend buy on normal correction, usually around the half way point or on an ordinary shakeout or its test.

Close Cut Your Long Position:

1. When stock reaches the objective built by Cause in the original accumulation. 2. As stock reaches the objective of the area of re-accumulation 3. At the appearance of Preliminary Supply 4. On a Buying Climax 5. On a shortening of Price Thrust (big volume but little price move) 6 Reaching a major "Half Point" range or an overbought condition 7 Reaching of a Supply Line

Taking a Short Position On a Down Move

1. Take a short position on an Up-Thrust or an Up-Thrust after distribution 2. On the Last Point Of Supply after a Sign of Weakness

3. wben a stock is in a downtrend you can take a short position on an Up-Thrust or a normal correction around the Half Way Point of the last down move

Where To Close Cut Your Short Position

1. When the stock reaches the objective built by the "Cause" in the original area of distribution. 2. When the objective of an area of re-distribution is met. 3. At the point of Preliminary Support 4. At a Selling Climax 5 A shortening of Price Thrust on the down side 6 Reaching major Half Way Points 7 At a Support Line or on an Over Sold condition

Risk/Reward Ratio
1. Never take a position with less than a One to Three Risk/Reward Ratio 2. Always use a Stop Loss Order (placed at same time yon place your buy order) to limit risk a specific amount in line with your Risk/Reward Ratio 3. How to place Stop Loss Order a. Place just below full $ figure on long side (27 7/8) b. Place just above full $ figure on short side (28 1/8) In playing for a rally look at the Risk/Reward ratio just like yon were looking to buy into a new stock.

Profit Goals For Different Types Of Trading

Long Tern Positions: 50% profit objective per trade- Positions held for more than a year. One round of trades per year.

Intermediate Term Positions; Profit goal of 20% to 40% with positions held from 4 to 6 months. Possible to do 3 rounds of trades in 1 year.

Short Term Positions; Short term profit objectives need not be more than 10% to 20% with positions held only for a few weeks. Possible to do 12 rounds of trades in the 1st year.

Wyckoff Principles
The Law of Supply & Demand: If an investor wants to exchange his dollars for someone else's shares, but can only get those shares by offering more dollars than did the previous buyer and if he is, in fact, willing to offer the increased number of dollars, the price of the stock increases to absorb the extra dollars. In this case, it is said that the demand is greater than the supply. On the other hand, if the investor wants to exchange his shares for dollars and will accept fewer dollars than the seller before him to accomplish his objective, the price of the stock will be reduced. In this case, it is said that supply is greater than demand The Law of Cause & Effect: In order for there to be an effect that shows up as a change in the price of a stock, there must first be a cause. The effect realized by a cause will be in direct proportion to that cause. To get an important move, or effect there must be an important cause. These are not built from one trade, but rather take time, sometimes a long time, to develop. Generally these causes are built during an important shift in who is holding the stock The most

important flow of shares is the one that occurs as shares leave the strong hands of the professional traders and go to the weaker hands of the general public The knowledgeable trader will go with the upward trend as long as prices continue to move up easily. At some point. prices will begin to encounter resistance and the professional uses this buying as an opportunity to liquidate his holdings The Law of Effort vs. Result: The result is what happens to the stock price. It is the volume that produces the effort that achieves the result. Without effort there can be no result. When the amount of effort and the extent of the result are not in harmony, something is wrong. Any positions held when this situation exists are potentially in danger They may not be liquidated, but they should be protected Example: As the stock advances; the amount of each successive advance decreases. The volume on the other hand increases steadily throughout the four days This results in a clear case of an effort without a corresponding result. It produces a warning of potential trouble

The Nine Buying Tests

1. To be certain the preparation in the trading range that leads to the perceived buying opportunity is in fact accumulation, the downside objective of the previous trading range must be accomplished. 2. The price and volume action of the stock must be bullish before taking a long position. That is volume should increase on rallies and decrease on reactions. This action does not have to appear throughout the trading range. After an important decline, it is normal for early rallies & reactions to carry some of the negative qualities of the prior down move- However, if the trading range is accumulation, this pattern will stop Until this switch to a bullish pattern, no buy orders are warranted. 3. Unless the two critical points of stopping action are present - preliminary support & selling climax no buying is justified. Many strong moves overshoot the downside objective. Therefore, it is not correct to buy just because the price reaches the objective. There must be a clearer indication the prior move is over and this is provided by the process of first meeting preliminary support and then experiencing a selling climax. Exception: In major bull markets, one period of accumulation and advance can be followed by another period of accumulation leading to a further advance. The beginning of the second period of accumulation begins with preliminary supply and a buying climax instead of preliminary support and a selling climax. 4. The stock must be stronger than the market This means the relative strength index must be showing a strong picture. The strong stock advances by a greater percentage than the general market on rallies and retreats by a smaller percentage on reactions. 5 As long as the supply line of the down trend remains unbroken no buy orders are warranted. Once that line is penetrated, however, the fixture of the down trend becomes more doubtful. The more penetrations that occur, the more doubtful the down trend's future becomes. The supply line must be totally destroyed before any long positions can be taken. 6. & 7. In order for a stock to be considered a good buy, it must demonstrate higher highs and higher lows (stair-steps) A stock that moves from a spring situation, up through a sign of strength, back to a last point of support, jumps the creek, and then successfully backs up to the edge of the creek is producing the ideal example of higher supports and tops,

8. If a stock is to be considered for along position, it must have built a base. Just because a stock has stopped going down does not mean it is ready to go upRemember the law of cause and effect. If a worthwhile base is not in place, a long position is not justified. The base is everything that goes into the make up of the accumulation phase and part of that is the point & figure count. What constitutes a worthwhile base depends on your investment time frame. A short term trader needs10% to 15%, an intermediate traders needs 20% to 4004 and a long term trader needs over 50%. 9. The estimated profit in the stock being considered must be at least 3 times as large as the risk of putting on the position. The estimated profit comes from the point & figure count The risk is calculated by how far below your entry price a logical stop loss order can be placed. A proper stop loss order must be placed just below an important support level. If you can't set a proper stop loss point and still preserve a 3 to 1 risk reward ratio, don't make the trade. Note: if a stock passes all 9 of the buying tests, it is a potential buy. This assumes it also possesses adequate potential to make a worthwhile move, and is located in one of the primary buying positions. All of these qualifications significantly limit the number of stocks that are suitable for trading at any particular time Even so, the number will always be large enough to satisfy even the largest amount of funds.

The Nine Selling Tests

1. To be considered as a short candidate, a stock must reach its previously established upside objective. This provides an indication that the prior up move is over. Distribution leading to an eventual decline is then possible. 2. The potential short sale candidate must also exhibit bearish or negative behavior. This is determined by the pattern of price and volume action. In order to be considered bearish, volume must increase on reactions in price and decrease on rallies. This indicates a greater interest in the downside3. There must be an indication by the price and volume action that the pervious up move is over. This test is satisfied by the development of preliminary supply and a buying climax. In those instances where a phase of distribution and decline is followed by a redistribution, which is likely in very weak markets, there is no preliminary supply and buying climax. This precludes the passing of this selling test, but does not stand in the way of taking a short position if all other qualifications are met 4. The stock must be weaker than the market as indicated by the relative strength index. In this case, the comparison made between the general market index and the price action of the stock will reveal a pattern of responsiveness to reactions and resistance to rallies that exceeds that of the general market. 5. Before any short position is established, it is necessary that the upward stride of the previous up trend be broken. This means that the support line of the trend must be decisively penetrated. In addition, it is desirable that any attempts by the price to reenter the trend channel be turned back. 6. & 7 A stock most show a pattern of lower tops on rallies and lower supports on reactions to be seriously considered as a short sale candidate. This pattern does not have to be evident throughout the entire distribution phase. It must, however, be in evidence just before the short selling position is established. This pattern indicates that supply is exceeding demand, which is necessary if a significant decline is going to develop.

8. Has the lateral movement or trading range built a worthwhile amount of downside potential? This is another important point that must be met before any short position is taken. In considering the significance of the potential, use the same guidelines used for long positions. Short term opportunities need 10% to 15% potential, intermediate positions from 25% to 40%, and 50% or more for long term opportunities. 9. The final selling test is to compare the probable profit to the risk indicated by positioning of the initial stop loss Order above the purchase price. It must be no less than three to one. If the stop loss order cannot be properly positioned with the result being that the potential profit is at least three times the risk, something is wrong. No action can be taken in that stock. Note: The greatest degree of confidence in a short position exists if all the selling test are passed. Failure to pass even one test creates a doubt that may be considered reason enough not to act. Trying to weigh the selling or buying test as to importance is not advisable. There is no way to determine how much more important, if at all, one test is than another. Trying to rank the tests can lead to taking a poor position. It never makes sense to try bargaining with the market. The market will invariably win. The buying and selling tests are presented in the order they are for a reason. This is the normal sequence in which a stock will attempt to pass them. There is another approach that can be used. Generally the most difficult tests to pass involve the potential and the stop. Can a stop be properly positioned and still maintain at least the minimum acceptable profit/risk ratio? The fact that two tests help to prevent so many potential problems is no reason to avoid becoming familiar with the other tests. At some point, a stock being considered for a trade provides positive answers to all theses tests. This is not an automatic green light to the taking of a position. The normal order in which all the other tests tend to be passed indicates that the positive response to the last two verifies the desirability of action. The problem with this is that the other tests do not have to be passed in the usual order. As a result, the passing of the last two tests may not prove anything. when they are passed, the wise trader will then check to make sure all the others are passed as well.