Summary & Discussion of My Trading History of Pacific Scientific (PSX) in 1992 Based on the Sloped Parallel Lines Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New World Technologies, Inc.
www.nwtai.com

Michael Fouche
mfouche@nwtai.com

Table of Contents

Introduction. 3

PSX Trading Executive Summary. 4

Discussion, Chart & Results. 5

Original Return on Investment. 6

Alternative Return on Investment. 8

Conclusions. 10

Appendix – Transaction Receipts. 11

 

 

 

 

 

 

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.


 

PSX Trading Executive Summary


The following is a synopsis for this stock investment. 

Return on Investment (ROI)

72.4% in 1 year 8 months

 

 

ROI if I’d been patient

Up to 244.8% in 35 months

 

 

Reason for Purchase

Sloped Parallel 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 & Results

 

I studied stock charts obtained from the library and the internet – in this case it appeared that PSX was following the sloped parallel lines pattern as shown below in Figure 1.  Note that this copy of the chart obtained from the library was not the original but an updated copy after I’d purchased and was tracking the stock.  Also note that this chart shows the 2-for-1 stock split values that occurred after I’d purchased and sold the stock.

 

 

Figure 1 – Original Chart from Library – Sloped Parallel Lines Pattern

 

 

 

 

 

 

 

 

 

Original Return on Investment


I got in after it came back from bottoming out at the lower parallel line – it was purchased near the upper parallel line – as shown below in Figure 2.  I sold it one year and eight months later for a 72.4% ROI (was unusually patient in this case) – but just before a big rise!!

Note that this chart shows the stock profile after the 2-for-1 stock split.  So the original purchase price of $14.50 became $7.25, and the sell price of $25.00 became $12.50.

 

Figure 2 – Observed Pattern, and Buy / Sell History

 

 

 

 

 

 

The transaction summary for this investment 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 244.8% in 35 months (just under 3 years) – as shown below in Figure 4. 

Note that this chart shows the stock profile after the 2-for-1 stock split.  So the original purchase price of $14.50 became $7.25, the sell price of $25.00 became $12.50, and the top end price (maximum sell region) of $50.00 became $25.00.

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 72.4% ROI in 1 year and 8 months, I left a lot on the table since the total upside potential was 244.8%, which left plenty of room to sell out at a 100%, 150% or 200% ROI comfortably.  The point is that this sloped parallel lines pattern successfully predicted that PSX 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 244.8% (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

 

Warren’s approach was to typically wait until the upper horizontal or sloped parallel line had been exceeded by the stock price – that would be the point to make the investment.  Instead, I bought near the top parallel line and the stock languished for months – then it broke and began moving upwards.  Thus heeding Ted’s advice in this case would have had me in the stock for a lesser period of time.  And with more patience, the ROI would have been a light higher.

 

 

 

 

 

 

 

 

 

 

Appendix – Transaction Receipts


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

 

 

Stock Purchase Receipt

 

Stock Sell Receipt