• Upon reversal, both half- and fuU-span averages are extrapolated to mtersection with the stock price on the chart.

• The price move from the previous tradii cycle peak (or low) to the intersection price represents half the total price move anticipated.

• The predicted price is generated by adding (or subtracting as the case may be) the peak-to-intersection price move to the intersection price.

• The total move is noted, and ±10% of this is used as a tolerance about the target price to create a prediction zone.

• A rough estinrate of when zone entry oi move peak-out will occur is ned by adding half the span of the half-span average to the date of intersection. The time zone tolerance about this date must t>e made quite broad.

• The half- and full- average concept can be used to hdp establish correct envelope bounds.

• Use of the full-span average can detect trading channel trend changes before real and non-real time envelopes can do so.

• The technique is powerful, but should always be used in injunction with all other methods of prediction available.

• The inverse half-span average identifies the all important component just shorter in duration than the trading cycle.

• Inverse averages display specific component magnitudes directly.

• Inverse averages used to extract a selected trading cycle can help establish the condition of magnitude-duration fluctuations of that cycle.

chapter seven

How to Select and Track Trading issues

• Alternative Ways of Selecting Investment Vehicles

• The Total Scanning Concept

• Making Use of Screening Criteria

• Selecting Candidates For Volatility

• Applying Stability Factors

• When You Should Use Alternative Scanning Methods

• Take Advantage of the "Stable" Concept

• How to Track Your Stable

• Summing Up Selection and Tracking

Going back to Chapter One we recall that the four basic elements of a profit-optimizing trading system are as follows:

1. A profit-optirruzing investment philosophy.

2. A fast and simple issue selection method.

3. Fast and simple transaction-timing analysis techniques.

4. Accurate and timely stock price tracking.

You now have in hand Items 1 and 3: This chapter suggests specific methodology for the accomplishment of Items 2 and 4.

ALTERNATIVE WAYS OF SELECTING INVESTMENT VEHICLES

By this pomt you have realized that the existence of the "X" motivated cyclic phenomenon and methods of utilizing it in transaction timing negate tlie importance of many traditional ways of selecting issues on which to trade. Nevertheless, in keeping

with the profit-maximization philosophy, much can be done at the level of selection to limit trading risk and provide increased profit potential per trade.

You can proceed here in one of a number of ways. You can, for example, depend wholly on issues brought to your attention via news items, brokerage recommendations, and the various stock advisory services. Once your attention is tiius directed to specific issues, you can proceed to assemble the required data and perform the cyclic analysis to determine when your commitments should take place.

Another route to go depends upon the daily newspaper, the Watt Street Journal, or Barrons weekly tabulations of stock data. Regular mspection of any of these sources is capable of quickly revealing stocks and groups of stocks toward which large-scale investor interest is directed. The most active Ust is a fertile source, or you can sunply run your eye down the listings looking for extreme volume numbers or large percentage moves. The principal difficulty with this approach is the fact that by the tune a stock comes to your attention in this way, it usually is well along on a major trading cycle, and you may have to analyze and track the stock for a long period before it provides you with the low-risk action signal you want.

As in the case of trailing-loss-level signals, it is far better to use a selection system soundly based on the price-motion model to begin with. Accordingly the rest of this chapter will be devoted to such a method, one which is truly in the spirit of the profit-optimization principle.

THE TOTAL SCANNING CONCEPT

There are more than 2,000 issues listed on the New York and American Stock Exchanges. Since this number is far greater than needed to provide all the opportunities ever required for trading using the price-motion model, it is a good idea to limit your attention to these issues. The most hnportant reason for this is the ready availability of data on stocks listed on these two exchanges.

Were concerned here with selecting those issues as trading candidates which:

1. Provide the highest probability of the greatest gain per trade, and:

2. Provide a high likelihood of generating a valid action signal in the very near future.

The object is always to have a "stable" of such issues at the ready, in order to reduce the inactive time between trades to an absolute mmimum. Property handled, the following techniques will assure a minimum of four or five action signals per day from a stable of 12 to 20 issues. If you do not need this many, you may always reduce the screening, analytical and tracking work required by limiting the size of your stable.

To implement the total scanning concept you require access to a comprehensive charting service. Among many, two such services provide you with freshly updated charts once each week on every stock and warrant on both major exchanges.

The Mansfield Stock Chart Service provides this coverage in the form of weekly high-low-close charts. This service can be obtained from:

R. W. Mansfield Co.

26 Journal Square

Jersey City, New Jersey (07306)