are, of course, "sell-short" and "cover short sale" signals. By the nature of the development so far, it is clear that nothing really new is needed here. In fact, whenever a sell signal is noted, an automatic sell-short signal is implied. However, it is very important to keep one additional aspect of the situation finnly in mind: It is seldom advisable to sell the same stock short that you have fust profited in by making a buy!

Why is this true? Hark back now to our investment philosophy-which is aimed at maximizing yield per unit time. Remember also that smooth, long-term fundamental factors account for 75% of the price motion of a stock. In Milecting a stock to buy, you picked one in which the sum of all components of duration longer than your trading cycle was trending up. This meant that you had the impetus of the fundamental trend also in your favor. In selling the same stock short, you are bucking this trend-which cannot lead to yield maximization.

The correct procedure then is to select another issue in which the sum of all components longer in duration than your trading cycle is down. Analyze this stock as time goes along, just as if you had purchased it. When the trading cycle tops out sending up a sell flare, the simultaneous seU-short signal is valid.

Similariy, all of the techniques for bujring into a stock are applied while you are short the stock. As time passes, these techniques wffl eventually establish a buy signal, at which time you cover your short sale! Cyclic analysis real time and non-real time envelopes, triangle resolution, valid trend lines and trailing "protect-profit" techniques must ail be applied as before while you hold your short position.

Now a word as to why you should ever prefer to sell short. Note the illustration regarding the degree of time-synchronization of cyclicality in the Appendix. The impUcation here is that as the DJ 30 (or S&P "500") Average tops out on your trading cycle (regardless of which one you have chosen), most individual issues are also near a top-out on this cycle. It is true that synchronization is not perfect by a matter of days (or even weeks for some of the longer duration components). Nevertheless, it is real suicide to attempt to trade on cyclicality on the long side when the overall market as measured by the averages is on a cyclic downside. On the other hand, if you simply step aside at titis point you are violating the principle of profit maximization regarding 100% time investment of your capital.

What you must do is this: Always treat the Averages just like a stock. Keep a running cyclic analysis going on the averages just as if it were possible (and you intended) to buy them. As long as your analysis here is "buy" or "hold," trade long in individual issues. As your preselected trading cycle gets close to a top-out in the averages, start to hquidate your long positions in issues (as sell signals are given), and begin the search for suitable "short" candidates. The same applies in reverse as your analysis of the averages indicates a bottoming of the trading cycle.

SELLING RULES TO REMEMBER

Now for a summary of our bag of sell tricks.

• Valid trend lines can be completed into short channel segments. The very short duration component intra to this channel is the basis for an effective cut-loss criterion based on the price-motion model.

• Trailing stop-loss levels can be based on confirmed lows of each cycle of duration next shorter than the trading cycle.

• Triangle resolution should be used all along the hne in connection with cyclic analysis to provide insight into further price action.

• Non-real time envelopes can be used to help determine when to switch from trailing loss levels to short-term sell signal constructions.

• The concept of valid uptrend lines is an effective way of providing a sensitive "take-profit" seU signal.

• Sell-short signals are reverse analogs of buy signals, Selling short can significantly improve your percentage time invested.

chapter six

Compute Your Way to Increased Profits

• Why You Need Computational Aid$

• How to Construct and Use Half-Span Moving Averages

• Other Uses For Half- and Full-Span Moving Averages

• Now Turn Your Averages Inside Out

• Use the Invene Half-Span Average to Improve Your Timing

• Try the Inverse Average in Other Ways

WHY YOU NEED COMPUTATIONAL AIDS

The graphic techniques for making use of the price-motion modei presented in Chapters Four and Five are sufficient to vastly improve your tuning. They may be utilized as is, with no additional aid from computation, and will suffice to make the investment philosophy of Chapter One work for you. However, decision confidence can be greatly increased and the types of stocks in which you can work enlarged, if you dont mind adding some arithmetic. Admittedly, this requires more time and effort, but the results can be extremely worthwhile.

Many, many computational approaches are possible. This chapter is intended to introduce you to several of the simplest and fastest of these. When you learn to apply the techniques given here, you will soon find yourself generating variations and whole new methods. Just as long as these are soundly based on the model, they can be considered valid. Further, the more elements of the model on which the technique depends, the more powerful you will find the aid to be.

HOW TO CONSTRUCT AND USE HALF-SPAN MOVING AVERAGES

Valuable information is available each time a moving average with span equal to one-half the duration of the trading cycle changes direction! Let us examine this characteristic of moving averages in connection with the nature of the price-motion model to see why this is so.

From Chapter Three and from the Appendix, the characteristics of moving averages are summarized as follows: