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until a slightly longer duration cyclicality causes prices to pause. Then we wiU utilize the same type of valid trend line technique to set up a buy signal closer to mid-channel-hence closer to the point of maximum rate of price increase. We wont expect to make as much per trade, but we hope to make a higher percent per unit rime yield, and to compound our profits more often. Remembering our trading philosophy, it is the compounding effect that produces profits more quickly than any other single factor- Of course, we must pay for this gain through added labor; i.e., having complete analysis ready and available on a number of issues at once so that we are given sufficient buying opportunities to maintain near 100% time investment of capital.

Lets see how mid-band timing would work out in the case of Gruen. Fire IV-10 shows the required analysis. It is assumed that all previous analysis has been completed and the stock was being tracked. The edge-band buy signal was given and

GRUEN INDUSTRIES

--»l

FIGURE -

Triangle Resolution-And A Midhannd Buy Signal

noted without action, since we have predetermined on a mid-band buy. The moves to 9 and back to 7 3/4, then to 8 3/4 and back to 8 3/8 were seen. On this exact day, two important things are noticed that immediately cause us to take action:

1. We note that we are approaching a low on a component of roughly four weeks duration (two samples present).

2. A triangle is forming composed of two one-week cycles.

We are ready to set up our mid-band buy criteria! First, let us analyze the

triangle.



HARD UP

1. Sum of all components longer in duration than 19 weeks (represented by center line of 19-week cycle channel)

2. 19-week component weeks along-

hard up

3. 4-week component Bottoming out to

turn up

4. 2-week component Bottoming out to

turn up

5. 1-week component Bottoming out to

turn up

We predict all odds in favor of an upside resolution of the triangle-and very soon! The upper boundary of the triangle is also the valid trend line at this point in time. It is validated by two peaks of the one-week cycle. No steeper trend lines have formed as yet. It trends right into the heart of the time when upside resolution of the triangle should take place. We draw in the valid trend line and conclude that an upside breakout is a valid mid-band buy signal.

The next day immediately provided this signal. Now notice several things;

1. You would have had to employ special intra-day tracking procedures to have handled the mid-band buy signal without chasing the price. This can be done, and techniques are described in later chapters. But again, more time and effort are involved.

2. Assume for the sake of comparison that you were able in both the edge-and mid-band cases to sell at the top-at 13.Your gross profits on the edge-band transaction would be 73.5% in 65 calendar days or an equivalent per unit time yield of 418% per year. The mid-band transaction grossed only 53%, but it did it in 36 days. The resulting equivalent per unit time yield is 539% per year!

As usual, the shorter time interval of trading produced the highest profit yield, not to mention the effect on profit compounding which is even more impressive. However, the price exacted is increased time, effort and attention.

In this example a triangle formed at the precise mid-band buy point. This was a fortunate happenstance that will not always occur. The two important points to remember are these:

1. Always watch for triangles of all sizes and shapes. This chart pattern, when analyzed for resolution using price-motion model concepts, always provides extremely valuable timing information. jVever pass up the opportunity to analyze a triangle!

2. If a triangle does not form at the mid-channel buy point-simply utilize the valid downtrend line concept applied to the shortest duration component present. Be sure to complete a cycle status analysis as each new high and low (either daily or weekly) becomes available. This will assure you of the continuing validity of the downtrend lines you are using.



POINTS TO REMEMBER REGARDING GRAPHIC "BUY" SIGNALS

• As many envelopes should be formed as the amount of data available permits. At least one and preferably two components of duration longer than the one you wish to trade on should be identified by enwlopes.

• If sufficient care is used in the construction of these, estimates to current time of probable envelope continuation from the last identifiable low (or high) can provide advance warning of change or analysis error.

• Estimates of cyclic duration variation may be formed by direct measurement (on scratch paper), or you may count weeks from low-to-low and average. In either case, envelopes provide enough visibility to give a fair estimate as to when cyclic kws are likely to occur in the future.

• An ideal buy point is approached as several cyclic components approach lows simultaneously, with the sum of all longer duration components being on the upside. (A center line through the middle of a chaimel is a good representation of the sum of all components of duration longer than the one contained by the channel.)

• Use of daily charts in conjunction with weekly ones provides additional information Oil the status of very short duration components. These normally occur in groups of two or three per some longer duration one. They can therefore be used as verniers on transaction timing decisions.

• Envelope analysis does not provide clear-cut, objective buy and sell signals, but it does lay the groundwork for prediction, and is the basis of all more definitive techruques.

• Triangles and trend lines when used in conjunction with channel analysis price-turn prediction can provide precise and objective buy signals.

• Downtrend lines must always be formed from clear-cut peaks of rccogrJzable cyclic highs. (Uptrend lines are formed similarly from clear<ut lows of recognizable cyclic fluctuations.)

• As stock prices near a multiplicity of cychc lows, multiple trend lines form corresponding to cyclic charmels. Each trend line formed is steeper than die last.

• This steepening of trend lines occurs all along a channel, as various components low-out. It is only of significance when the time for a multiplicity of lows is approached as indicated by charmel analysis.

• The steepest such downtrend line which is broken on the upside during the time zone of an expected multiphcity of cyclic lows is a valid downtrend line.

• The upside breakout from a valid downtrend line is a valid buy signal.

• If this occurs in the price-turn zone, it is an edge-band buy signal.

• If it occurs at or near the center of the channel enclosing the trading cycle, it is a mid-band buy signal.

• Mid-band buy signals are more lucrative than edge-band signals in terms of yield on investTTient capital, but compound the work and effort involved.

• Cyclic analysis of triangle formation and resolution provides strong additional evidence of buy signal validity.



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