trades than by long ones. There are two reasons for this. One of these is intrinsic to the nature of stock price moves and will be understood after formulation of the price-motion model of the next chapter. The other is a case of:

ADDING MAGIC BY COMPOUNDING

Far and away the most important factor in the overall profit-maximization picture is the influence of profit compounding. After each successful trade more funds are available for re-investment than before. Now the nature of the compound interest law is such that the overwhelming contributor to capital growth by this means is-you guessed it: How often the compounding takes place. In short-how short the trades are!

Ixts see how this works by juggling some numbers. Well start with the same $10,000 as before and assume a modest 10% profit (average) on each trade. Assume one trade per month. At the end of a year you vsdll have S31,380 for a profit yield of 313% per year. Take the same $10,000, compound it at the same 10% but do it twice per month. At the end of a year you will have $109,150 or a profit yield of i09l% per year! At once per week, you have $1,410,000 at the end of a year, or 14,100%!

Now it is seen why trading is so important if accurate timing of transactions is consistently possible. Trading brings profit compounding into play-while sufficiently accurate timing to permit short-term trading drastically amplifies the compounding effect. This principle is so important to profit maximization that it deserves entry as the next basic tenet: Profit optimization requires short-term trading.

MAINTAINING 100% INVESTMENT

All sounds pretty rosy so far-but how do we go about keeping funds working all the time if were hopping in and out of trades every time we turn around? The answer is rapid selection and analysis. We already know that we must find a way to drastically improve transaction timing. We now know that we must do this in such a way that issue selection and timing analysis can proceed simply and fast. If we can do this, we can maintain a number of issues ready to go at all times-so that as one trade ends there will be a minimum lapse of time before the next starts. Like timing accuracy, this is a function of the rest of the book-and we make the assumption in this chapter that it can be done.

For psychological reasons the timing techniques to be developed must be such as to provide objective signals, created by actual price action. Such signals must be predetermined by analysis-after which stock prices must be tracked as signals are awaited.

FOUR STEPS TO RICHES

The preceding discuions provide the bits and pieces. Now in pulling them ah together, we find that we require:

1. A profit-optimizing investment philosophy, the elements of which include;

• Trading-as opposed to investing

• Maximization of percent per ear yield on each trade

• Maximization of percent of time invested

• Minimization of the trading interval

• Optimization of transaction timing.

2. Fast and simple issue selection

3. Fast and simple transaction-timing analysis

4. Accurate and timely stodc price tracking

It is the purpose of the remainder of this book to weld these elements into a practical method of extracting the profit magic from stock transaction timing!

chapter two

Timing Is the Key

• Something New and Unconventional Is Required

• What Makes Prices Change

• The Impact of Historical Events

• The Source of Trends

• "X Motivation"-and What it Does to Stock Prices

• How Cyclicality Expresses Itself in the Market

• The Summation Principle

• The Commonality Principle

• The Variation Principle

• The Nominality Principle

• The Proportionality Principle

• And Now You Have a Price-Motion Model

• The Significance of Cyclicality

• How to Go About Observational Analysis

• Adding Envelope Visibility

• "Nesting" Envelopes Upward

• "Nesting" Down

• Using Expanded or Contracted Data

• Extracting Cyclic Model Elements

• Cyclicality in Individual Issues

• How Synchronization Is Expressed

• Summing It AM Up