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2

GDntents

HOW THIS BOOK CAN BOOST YOUR PROFIT PERFORMANCE......... 9

1. MAXIMIZE YOUR PROFITS .....................................21

Where the Magic Is 21

To Trade or to Invest 22

The Most Dollars in the Least Time 22

How the Trading Interval Affects Profits 23

Adding Magic by Compounding 26

Maintaining 100% Investment 26

Four Steps to Riches 26

2. TIMING IS THE KEY ............................................28

Something New and Unconventional Is Required 29 What Makes Prices Change 30 The Impact of Historical Events 30 The Source of Trends 30

"X" Motivation - and What It Does to Prices 31

How Cyclicality Expresses Itself in the Market 31

The Summation Principle 32

The Commonality Principle 32

The Variation Principle 32

The Nominality Principle 33

The Proportionality Principle 33

The Significance of Cyclicality 35

How to Go About Observational Analysis 36

"Nesting" Envelopes Upward 38

"Nesting" Down 39

Using Expanded or Contracted Data 40

Extracting Cyclic Model Elements 44

Cyclicality in Individual Issues 44

How Synchronization Is Expressed 48

Summing It All Up 48

3. VERIFY YOUR CHART PATTERNS.................................51

Why Trend Lines and Channels Form and Repeat 52 Where Head and Shoulder Patterns Come From 52



About Double Tops and Bottoms 57 The Significance of Triangles 5 7

How to Tell in Advance if a Chart Pattern Will "Fail" 59

Understanding Other Chart Patterns 61

How Cyclicality Gives Meaning to Chart Patterns 61

The Significance of Moving Averages 62

Why Ten- and 30-Week Moving Averages Are Useful 64

How to Plot and interpret a Moving Average Properly 65

How a Moving Average Can Aid Cyclic Analysis 65

Summarizing Chart Patterns 66

4. TIMING YOUR BUYS WITH GRAPHICS............................68

Prediction by Graphics 68

How to Construct Curvilinear Envelopes 69

Prediction of Price Turns Using Envelopes 70

Use This Example as Your Channel Prediction Guide 71

Constructing the Dominant Channel 73

Finding the Outer Envelope 74

Setting Up Price-Turn Predictions 75

The Kind of Results You Can Achieve 76

How to Generate Graphic "Buy" Signals 77

What to Look For 78

Recognizing the "Valid Trend Line" 78

"Edge-Band" Transaction Timing 79

"Mid-Band" Transaction Timing 82

Points to Remember Regarding Graphic "Buy" Signals 85

5. YOUVE MADE SOME MONEY - HOW TO KEEP IT...................86

Use of Logical Cut-Loss Criteria 86

Extension to Trailing "Sell" Signals 88

How to Construct Selling Analogs 90

How to Make and Use Non-Real Time Envelopes 91

Selling Short 93

Selling Rules to Remember 95

6. COMPUTE YOUR WAY TO INCREASED PROFITS.....................97

Why You Need Computational Aids 97

How to Construct and Use Half-Span Moving Averages 97

Other Uses for Half- and Full-Span Moving Averages 108

Now Turn Your Moving Averages Inside Out 109

Use the Inverse Half-Span Average to Improve Your Timing 109

Try the Inverse Average in Other Ways 112

7. HOW TO SELECT AND TRACK TRADING ISSUES ...................114

Alternative Ways of Selecting Investment Vehicles 114 The Total Scanning Concept 115 Making Use of Screening Criteria 116 Selecting Candidates for Volatility 117



Applying Stability Factors 118

A Word of Caution and Emphasis 119

When You Should Use Alternative Scanning Methods 119

Take Advantage of the "Stable" Concept 120

How to Track Your Stable 121

Summing Up Selection and Tracking 122

8. TRADING BY LOGIC INSTEAD OF BY GUESS ....................... 123

The Tools at Your Command 123

The Anatomy of a Trade 124

Determining the "State of the Market" 124

Selecting the Issue 127

The Next Step Is Analysis 127

Forming the Valid Downtrend Line 131

Computing Potential and Risk 131

A Model Transaction 132

A Trading Experiment 135

Prediction of the Averages 138

The Results of Industry Group Predictions 138

Specific Issues Involved 138

Conclusions 139

9. WHY STOCK PRICES CHANGE ................................. 141

How Decision-Making Enters the Picture 142

Understanding Inational Decision Processes 144

What You Should Know About Fundamental Factors 145

How Company-Related Fundamentals Affect Prices 146

The Influence of Broad Environmental Factors 147

Should You Sell in Event of War? 147

What About Cunency Devaluations? 147

How National Crisis Should Affect Your Decisions 149

How the GNP Affects the Market 149

Now Compare Cyclicality vs. History! 151

The Impact of the Fall of France 151

Here is How Long-Range CycUcality Affects the Market 154

Summarizing Price Change Causes 157

10. PITFALLS AND HOW TO AVOID THEM ........................... 158

Why the Unexpected Occurs 159 Recognizing Psychological Barriers 160 Counteracting the Outside Influence 160 Overcomi ng Greed 162 Beat the "Persimmon Effect" 163

The Bugaboo of Time Distortion - and What to Do About It 164 Dealing With "Scale Effect" 165 Combating Emotional Cyclicality 166 In a Nutshell 167



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