Summary & Discussion of My Trading History of LSI Logic Corporation (LSI) in 1998 Based on the Triangle Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New World Technologies, Inc.
www.nwtai.com

Michael Fouche
mfouche@nwtai.com

Table of Contents

Introduction. 3

LSI Trading Executive Summary. 4

Discussion, Charts, & Discussion. 5

Original Return on Investment. 6

Alternative Return on Investment. 7

Conclusions. 9

Appendix – Transaction Receipts. 10

 

 

 


 

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.

 

 


 

LSI Trading Executive Summary


The following is a synopsis for this stock investment. 

Return on Investment (ROI)

108.5% in 7 months

 

 

Maximum possible ROI

961.6% within 19 months

 

 

Reason for Purchase

Classic triangle pattern

 

 

Time Frame When Purchased

1998

 

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, Charts, & Discussion

 

I studied stock charts obtained from the internet – in this case it appeared that LSI was following the classic triangle pattern as shown below in Figure 1.  Part of the chart is blocked out in white because I had scribbled some buy / sell notes in the past that would distract from this figure.

 

 

Figure 1 – Classic Triangle Pattern Formation

 

 

 

 

 

 

 

 

Original Return on Investment

I purchased the stock in August of 1998 and sold in March of 1999 with a 104% ROI as shown below in Figure 1 and Figure 2.  Note that later on there was a stock split and thus the difference between the scaling in the chart on the left and the one on the right.  It was a 2-for-1 stock split – so my original pre-split purchase price of $13.188 (13 and 1/8) became $6.59 post-split.

 

 

Figure 2 – Classic Triangle Pattern Formation

 

 

The transaction summary is shown below in Figure 3.  Note that this does not account for transaction costs.

 

 

Figure 3 – Transaction Summary

 

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 961.6% in 19 months – as shown in Figure 4 and Figure 5.  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 108.5% ROI in 7 months, I left a lot on the table since the total upside potential was 961.8%, which left plenty of room to sell out at several hundred percent ROI comfortably.  The point is that this triangle pattern successfully predicted that LSI would be a high-performing stock.

 

 

Figure 4 – Illustration of Actual ROI vs Potential ROI

 

 

 

 

 

A projected transaction summary of the “maximum projected ROI” of 961.6% (assuming that I’d sold out at the maximum ROI percentage) is shown below in Figure 5.  Note that this does not account for transaction costs.

 

 

Figure 5 – Projected Transaction Summary

 

 

 

 

 


 

Conclusions

 

This was a “perfect” triangle pattern and I decided to buy in below the horizontal line, taking the chance that this would be the start up the long-term upward movement.  In some cases, there are “false breakouts” which means that the stock will go up for a while, and then retreat back down, only to later demonstrate the genuine profitable rise.  In this case, it was a good decision to get in at this point – however, I left a lot on the table – had I stayed in longer, over a period of another year, the ROI could easily have been several hundred percent up to 961.6% (the latter only being if I sold out near the top).


 

Appendix – Transaction Receipts


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


 

Stock Purchase Receipt

 

 

Stock Sell Receipt