I 1 I I I 6RUEN INDUSTRIES

18 WEEKS

Refining Predictions-By Going To DaSy Data

The First Valid Downtrend Line

The Second Valid Downtrend Line

moment it breaks this trend line on the upside-provided time has not passed so that weve exited the time zone on the far side. Needless to say, our envelope analysis should not show violation either. Everything looks ripe and A-OK. Channel analysis predicted prices would be about here at about this tune. A series of steepening trend lines has formed. We should be at or very near the bottom of all the multiphcity of channels that can be drawn. We should expect to have all the probabilities on our side if we use a break in this trend line as a valid buy signal.

The very next day prices traded completely above our valid trend line (see Figure rV-9). This means that the stock opened at a price which was above the trend line. This was our signal to place an unraediate order to buy at market! Lets say we got our order executed at mid-range for the day, or IVi. The subsequent rise in price to 13 in the next 65 days is quite dramatic, isnt it?

This is an example of "edge-band" transaction timing. We utilized all the information the price-motion model provides to establish an objective and rational buy signal that put us in the stock at the lower edge of our cycUc channels. This method can be generally counted on to provide a maximum of room for upside price motion for the trading cycle selected. Notice that the same technique could have been used on any cyclic component. The investor with large amounts of capital who wishes to operate on a longer term basis would, of course, apply the same methods to longer duration cycles.

We are not, however, assured of maximum profits in terms of yield per unit time when using the edge-band technique. Lets see how this works.

The Buy Signal-And Profits In The Pocket!

"MID-BAND" TRANSACTION TIMING

Notice the fact (from Figure IV-9) that the price of the stock idled more or less in the purchase area for nearly two weeks before making an appreciable move upward. In terms of yield, this was wasted time. Then, within two days time, the price moved nicely to 9, only to idle between 7-3/4 and 9 for an additional two weeks before moving on. Remember our investment philosophy which calls for maximum time rate of profit. Those idle weeks represent time in which we could have had our investment dollars at work elsewhere.

Why did prices tend to move out rather slowly, then gather momentum as time went along? We were buying in at the first indication that cyclic lows had been formed. Naturally, the first such indications came from the shortest duration periodicities, which top out and reverse themselves just as quickly. The longer term components forming lows at about the same time make their turn more slowly (by definition). In fact, no component provides maximum time rate of change of price until it is halfway between a low and a high (or high and a low as the case may be). Thus the large magnitude, long duration components that contribute the most to price motion are scarcely in motion on the upside when our first indication of a short term oscillation turn becomes apparent.

This brings us to a second type of buy signal which we may term a "mid-band" buy. The logic behind this is simply that we wiU waita er the "edge-band" buy point