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
Alternative Return on Investment
Appendix – Transaction Receipts
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”). 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.
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The following is a synopsis for
this stock investment.
Return on Investment (ROI) |
72.4% in 1 year 8 months |
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ROI if I’d been patient |
Up to 244.8% in 35 months |
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Reason for Purchase |
Sloped Parallel Lines pattern |
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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.
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.
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Figure 1 – Original Chart from Library – Sloped Parallel Lines Pattern |
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.
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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.
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Figure 3 – Transaction Summary |
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.
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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.
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Figure 5 – Projected Transaction Summary |
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.
The records of the purchase and
sell transactions are shown below.
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Stock Purchase Receipt |
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Stock Sell Receipt |