No. The account net worth is irrelevant. You would like enough so that you can have several positions, and so you can size them for risk but there is no difference between a $1000 position and a $10000 one when you simply do the math backward and set up your R/R for no more than your allowable nominal loss. I wonder that perhaps the PnF buy/sell signals are being taken as absolute action points and this is where some confusion lies... ... 5k, 10k or 25k into 3 names, 5 names or 10, sizing can be adjusted easily.
From page 126... All, Traditionally, the PnF relative strength charts are plotted as a normal price chart and bullish or bearish (buy or sell) signals will emerge to depict strength versus the designated benchmark. Before the advent of Al Gore's interwebz and the abundance of sector ETF's, a stock's RS was calculated against the DJIA with the following formula (I'll use Friday's values - 01/29/10 - to begin a chart of WMT for illustration purposes): (Stock MV / DJIA) * 100 = RS value WMT MV - 53.43 DJIA - 10067 So, (53.43/10067) * 100 = .53074 RS This is plotted in a price chart and (was) addressed each week thereafter. (With modern technology, they are as up-to-date as the price data is.) They move slowly, but when they speak, they speak clearly. Right now, that value (above) is unreasonably small and there is a reason. The stock has been split frequently and the Dow has not. It used to be that these RS values were higher and easier to plot against benchmarks with default scaling. Plotting this name (WMT) against the SPY gives a much more usable number, but better yet is to plot it against a sector benchmark such as the .RLX or a similar ETF (which you can subsequently plot against broad market indexes). Eventually, this chart will move into a reversal column (showing short term relative performance) or will give an actual signal such as a PnF buy or sell signal (which is much more meaningful and long lasting -- 2 to 3 years on average). Mike Moody and Harold Parker had work on the significance of PnF RS published in the February '93 issue of Technical Analysis of Stocks and Commodities. They continue to manage money based on that work. PnF RS is fairly different from other measures of strength and is the backbone of successful PnF portfolio construction, along side the Bullish Percent Indexes. Its use in short term trading is no less valuable; it's easy to set the strong names apart from the weak ones, and it makes long/short decisions much easier. Going long... 1) Identify the market posture with low risk BPI's, in X's 2) Identify sector posture with low risk BPI's, in X's 3) Identify strong sectors with RS charts on a buy signal (or at least in X's) 4) Identify strong stocks with bullish patterns in those sectors 5) Enter and manage the trade Going short... do the opposite. Markets represent half the risk to a trade, 30% is due to sector risk and 20% or less is do to the actual stock.
Page 126... You raise a good point here. Mike Burke (at I.I.) does read buy and sell signals into the patterns of the Bullish Percents. However, getting to the "nuances" someone pointed out on an earlier page - the primary utility of BPI's lie in their range, the levels of their bullishness and their status. On a scale of 0 to 100%, anything above 70% is regarded as high risk and low opportunity, and the converse is true at/below 30%. Additionally, you have six statuses within the index... Bull Alert, Bull Confirmed and Bear Correction (demand - columns of X's). On the flip side, you have Bear Alert, Bear Confirmed and Bull Correction (supply - in O's). The Alerts can only come when a column crosses from one side of the lines of demarcation toward 50% (from beyond 30/70). Confirmed statuses occur after a reversal when a column assumes the same direction and overtakes the previous one - changing from O's to X's back to O's and vice versa; this is where you will see the adjacent buy/sell signal. Corrections are pauses... changes (usually temporary if oriented toward a higher or lower level) from demand to supply or vice versa. (NOTE: Again, it's important to regard PnF "signals" as bullish or bearish signals first, then as buy or sell signals. If you get a "buy signal" at 70% or above and act on it, the result will likely disappoint since 70% or more of the stocks are bullish and everyone who wants in is probably already in. These indexes are contrary indicators.) Melding the field position (level) and status together take some understanding and practice, and that is where the art meets science to make it a craft. Postscript - perhaps now that it's 8 months after most of these posts were made, this point has already been addressed. But, I've only made it 1/2 way through this great thread. Fortunately, it's a slow, cold weekend. MS
Next page (??)... Another good question - time indirectly has an effect because the posture of the market is changing. Remember, market risk, sector risk, stock risk. The NYSE BPI was approaching 70% in May/June (getting overbought). Don't know what the sector risk was - probably up there, too. The stock pattern looks great in mid may of '08. However, RS versus the SPX was waning since late '07. The stock broke out/up and printed in the 48 area right about the time the BPI reversed down. Being weak, it went with the market. A bullish catapult in a different market (lower risk position) would have a much better outcome, most likely.
Scratch the above. I replied to the Tiffany chart with it's Bl. Cat pattern rather than Emerson. Otherwise the same rules apply with a similar outcome. MS
From page 143... The post following this one - by HG - segues right into what needs to be considered. Even as this is after the fact (8 months), the primary market and sector indicators were/are getting toppy. I suspect you may be generally right with the positions, but it is the market that is exerting its will upon your names. Especially those that may not have superior PnF RS. Fast forward a few weeks from this original post and it becomes clearer with the chart action of the BP's. It happens with any methodology - you end up seeing fewer objectives met and more stops getting hit at turning points in the market. You doubt your stock-picking abilities, but - in reality - the market is whispering to you. It was most likely saying that finance related names, among other key market components, were most vulnerable and market breadth was fading. (I remember urging a friend to stay short BAC in early May of that year. He didn't.) Plenty of longs were beginning to fail. At the risk of being impolite, your timing was/is just off. That's all. Market, sector, stock.
Hello - There are no time frames, only box values and box reversal requirements. Also - this does not lend itself easily to intraday charting unless you can segment it into sessions and immediately chart any changes. Many vendors cannot translate the data correctly. There seems to be some confusion on how a traditional 3 box reversal chart develops. It only requires high and low price data. That's it. Jump into a hand created chart anywhere, in a default scale. (Print out a stockcharts PnF on your favorite $40 name to make it easy.) Make an X or an O - at this stage it doesn't matter... the chart will develop. Let's assume: We're in X's, so ask --Did my chart go up one more box? If so add the X (as many as needed to reflect a complete fill of the upward boxes). --If my chart didn't go up, did it reverse down by three or more boxes (not 2, not 1 - three boxes)? If so, move to the right and down 1 box and create a column of 3 or more O's, as needed. --If you can do neither, the chart remains static. Move onto your next chart. If the chart is in O's simply ask the questions to the downside. Remember, you must stay in your present column unless: A) you can't add to it, AND B) you CAN reverse. Otherwise - do nothing. I've experienced this dilemma many seem to be struggling with. I tried to use information from our Bloomberg machine (yes, Bloomberg machine - we used quotron stations too, back then...) and there was no way to create a proper chart. 5 minutes on the phone with Watson Wright and I was straightened out. I went on to chart between 80 and 100 charts by hand each day for the next 3 or 4 years. Took me 20 minutes a day, tops. It MUST be learned. You will get to know your stocks intimately. The entire process will make sense, as well.
From page 146... Staffpro, It'd be much easier to keep the three box reversal and simply adjust the box values to get the pattern sensitivity you seek. I'm not afraid to throw a .125 box value at a $4 closed end fund. On the other hand, you have to throw 10 or more at GOOG to get it to slow down. Regarding price objectives - Bullish objectives on both vertical and horizontal counts are taken from a fresh column of X's that is a NEW buy signal. (Horizontals are taken across the widest part of the base.) Multiply the width or height by three and again by the box value(s) and add the result to the base of your formation or new column of X's. Crossing changing box scales makes it interesting, but it isn't hard. The result is a potential objective and is influenced by the posture of the market and/or any trendlines in its way. For bearish objectives - first NEW sell signal, use a factor of 2... again giving credence to trendlines and market posture.
From page 150... Stockchart's NYSE BPI includes 1700 names. Chartcraft and DWA's NYSE database includes more than 2700, I believe (ex closed end funds). A bigger universe is slower to respond. MS
From page 154... When it reverses, it will be a complete count. Until then, it is an incomplete count - still worth heeding. It won't be reduced. It's fair to call it an "at least" price objective... market posture withstanding.