Summary & Discussion of My Trading History of Airborne Freight (ABF) in 1992 Based on the Parallel Horizontal Lines Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New World Technologies, Inc.
www.nwtai.com

Michael Fouche
mfouche@nwtai.com

Table of Contents

Introduction. 3

ABF Trading Executive Summary. 4

Discussion, Chart, and Results. 5

Original Return on Investment. 6

Alternative Return on Investment. 10

Conclusions. 12

Appendix – Transaction Receipts. 13

 

 


 

Introduction

 

In 1989 I was introduced to Ted Warren’s book, “How to Make the Stock Market make Money for You” (originally published in 1966) – his claim was that one could discern specific patterns in stock histories to predict future performance (this is also called “Technical Analysis”).

In order to validate his claims, I studied many stock charts from the local library in 1990 – interestingly I found that the same type of patterns that Warren had used as examples from the 1950s and 1960s, were also present in the stocks that I’d studied from the 1970s and 1980s. 

Thus the next step was to begin investing - which is where the “rubber meets the road” so to speak, using the techniques that he had described in this book. 


During the early, mid, and late 1990s, I was successful for the most part, in selecting and investing in good stocks based on specific patterns – my primary downfall was in not being patient enough to wait for the stock to meet its full potential.

This document discusses the details of one of thirty documented stock investments which were made based on the patterns discerned from that particular historical stock profile.



ABF Trading Executive Summary


The following is a synopsis for this stock investment. 

Return on Investment (ROI)

21% in 4.5 months

 

 

Maximum possible ROI

148.7% in 20 months

 

 

Reason for Purchase

Parallel Horizontal Lines Pattern

 

 

Time Frame When Purchased

1992

 

The next two sections include more details on the reasons for the trade, the trading history, and the maximum potential ROI. 

Copies of the original stock transaction receipts, for each of the trades (buy and sell), are included in the appendix at the end of this document.


 

Discussion, Chart, and Results

 

I studied many stock charts obtained from the library and the internet – ABF got my attention because of the apparent parallel horizontal lines pattern.  The original stock chart for ABF (obtained from the library) is shown below in Figure 1.

 

 

Figure 1 – Original Chart Page from Library

 

Original Return on Investment


In this case it appeared that ABF was following the horizontal line pattern (the stock price is bounded by two parallel lines) – the first example of this pattern occurred during the 1983 to 1987 time period – as shown below in Figure 2.  The next horizontal line pattern occurred during the 1990 to 1992 time frame – based on this pattern, I purchased the stock in July of 1992 – near the bottom horizontal line, and sold in November of the same year with a 21% profit.


 

Figure 2 – Original Chart from Library – Lower / Upper Parallel Horizontal Lines Pattern

 

 

 

 

 

 

 

 

 

A similar chart, but obtained from the internet (subsequent to the investment a few years later), is shown below in Figure 3. 

 

 

Figure 3 – Observed Pattern, and Buy / Sell History

 

 

 

 

 

 

 

 

The transaction summary for this investment is shown below in Figure 4.  Note that this does not account for transaction costs.

 

 

Figure 4 – Transaction Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a side note, interestingly I unknowingly invested and sold out during the beginning – 1992 – of a formation of a classic triangle, as shown below in Figure 5. 

 

Figure 5 – ABF Formed a Classical Triangle Pattern during 1993 – 1996 Time Period

 



 

 

 

 

 

 

                                                              

Alternative Return on Investment

 

There was still a lot of upside to this stock – from the time of purchase, the stock increased in value by 148.7% in 19 months – as shown below in Figure 6.  Obviously it would be not be easy to figure out exactly where the stock was going to top out before declining again.  However, while I sold out with a respectable 21% ROI in 4.5 months, I left a lot on the table since the total upside potential was 148.7%, which left plenty of room to sell out at a 50% or 100% ROI comfortably.  The point is that this horizontal pattern successfully predicted that ABF would be a high-performing stock if the investment was made near the lower horizontal line.

 

 

Figure 6 – Illustration of Actual ROI vs Potential ROI

 

 

 

 

 

A projected transaction summary of the “maximum projected ROI” of 148.7% (assuming that I’d sold out at the maximum ROI percentage) is shown below in Figure 7.  Note that this does not account for transaction costs.

 

 

Figure 7 – Projected Transaction Summary

 

 

 

 

 

 

 

 


 

Conclusions

 

Warren’s approach was to typically wait until the upper horizontal line had been exceeded by the stock price – that would be the point to make the investment.  However, I somewhat operated on “gut feel” for this particular stock and decided to get in near the lower horizontal line.  The reason being that even if the stock price later hit a ceiling around the upper horizontal line (was not ready to “break out” yet), the ROI would be more than adequate for this investment (almost 100%).  However, I sold out much earlier because of a lack of patience.

 


 

Appendix – Transaction Receipts

The records of the purchase and sell transactions are shown below.

 

 

Stock Purchase Receipt

 

Stock Sell Receipt