The Documents by Jack Hershey

Appendix A. Overall Path for Achieving an Effective Money Making
Program

Summary

Below, in five Parts, are a series of questions that can be considered by anyone. I feel that
they will lead to success, in a fairly efficient manner. Completing partial answers is a fine
way to begin. You get a status report by just taking an inventory of where you are. This set
of questions provides an overall path and I am posting it to get a scope and bounds for what
I will contribute as my views on each and every question. I am also going to try to do some
learning about linking references and going back many many years in different computers
where I have stored materials that are full of write ups that are in differing software.

1. Markets

1. What is the basic principle for making money?
2. How do markets work?
3. What are the variables?
4. How do the variables relate?
5. What are the mathematics of making money?
6. Specifically, where can money be made?

2. People

1. What is the particular scope of involvement for making money?
a. Gathering Data.
b. Doing analysis
c. Making decisions
d. Taking actions
2. How does a person begin to get involved?

3. Just Doing It (Getting Going)

1. How does a person choose the place to make money?
2. How does a person set up a money making plan of action?
3. How does a person build a track record using the plan?
4. Learning to gather data.
5. Learning to analyze.
6. Learning to decide.
7. Learning to act.

4. Iterative Refinement (Knowing How to Know)

1. Knowing how to improve gathering data.
2. Interrelating facts to know what is going on.
3. Knowing what you believe and making it complete.
4. how to know all about profits and losses.

5. Be, Do, Have Results.

1. how to debrief yourself.
2. The prime value of passing it forward.
3. Enlarging your works.

 

Appendix B. Business Plan Outline

This section contains the standard components of a commercial business plan. Your
business plan for trading is a business in the real sense of the use of your time and money.
It is however, not conducted in competition with anyone else but it has to be considered an
alternative use of your time which precludes doing other business. A lot of people who get
involved in investing and trading do not construe themselves to be business people because
they largely work at salaried jobs based upon their professional training. These people
consider themselves participants in a business but they often rarely come in contact with the
actual decision makers who deal with running the business. They, on the other hand
perform services that just contribute to making the business work.

Each of the sections outlined in this appendix will be described in detail from the viewpoint
of all the considerations necessary to get into trading and investing to make money. By
using a convention business plan it is possible to bring up all the issues and concepts that
need to be on the table. Completing the business plan will make it clear to the planner how
and why each of the parts play their role.

 

1. Introduction

The introduction scopes and bounds the whole picture. This paper recommends two
essential and concurrent trading programs: position trading stocks and inter day trading of
commodity index futures using SCT. A general description of each is provided in the
introduction and a reference to section VII (Products and Services) in which the detailed
description is found. Another reference is section IV (history) can be named. In this section
a total historical narrative of the past investing is a requirement.

2. Funding Requested

This section presents a breakout on the source and application of capital to be used for
trading and a detailed description of how it is going to be applied. It is very important that a
trader know exactly how they are going to use the capital that they have designated for
trading. This capital, in a sense, is in competition for use in other venues they have
available. The trader must know why they have chosen to use their capital to build wealth
through trading. This business plan does not apply to the trader’s whole existence in their
family and life setting. This plan is focused on using capital to make money and knowing
that money will be disposed of for other lifestyle purposes.

3. Organization Chart

The organization chart shows exactly how the trader relates to every facet of their trading
regime. It includes their set up, the trading platform support organization, their connection to
the data supply system and the financial organization where unused capital resides.
The set up section includes their equipment configuration, space requirements and all cost
incurring items
The trading platform is accomplished through contracts with their stock broker and with their
introducing broker (commodities trading).

The trader connects to the internet through their data provider. This is also done on a
contractual basis and represents an ongoing expense. Attendant to this they may use
internet consultant services for specific trading projects.
Besides the active capital accounts in the trading platform the trader will keep a separate
banking account for utilization when they are transferring capital to other uses. This
intermediate account serves as a record keeping support.

4. History

Most people doing investing and trading informally when they first place capital into various
markets a trading business plan usually comes about when the trader has learned to treat
this part of their life as a business. Everything that has been done up to the point of creating
the business plan must be annotated in the History section. Often appendices are used for
details of annual operations and a summary chart is presented within the History section.

5. Assets and Liabilities

The assets and liabilities contain the key chart of the beginning status of the trading
business plan. Assets include capital and equipment and resource materials, such as
libraries and subscriptions. Liabilities are made up of the standard contractual obligations
and the cost of equipment resources and contracts. The net worth is simply a statement
which primarily contains the retained earnings developed as stated in the history section.

6. Pro Forma

The pro forma is a detailed statement of incoming expenses that is pre-entered in two parts:
The initial 5 years and thereafter. The initial 5 years is detailed monthly for the first 2 years
(24 months) and quarterly for the next 3 years (12 quarters). All years thereafter are
included on an annualized basis us to the time when the plan is completed (retirement, at
which time the plan is taken over by contracted management).

Trading and investing will be done for several accounts all of which are broken out
individually. Generally Accepted Accounting Practices (GAAP) will be used throughout the
pro forma. All expenses will be included as line items for each of the items shown in the
organization chart. The net will be derived from the consequences of the income and
expenses.

To complete the pro forma for trading and investing it is necessary to have an additional set
of information prior to the normal annotations. In this first section there is a breakout of the
use of the compound interest formula to articulate the projected profit. Each application of
the compound interest formula is kept separate and the variables of the compound interest
formula are adjusted for each of the 8 stages (see 8 doublings appendix) of improvement of
knowledge, skills and experience.

By using these improvements in the context of when the come into play an incentive is
established to reach those skill levels at those times. The result of having those skills is “the
bottom line”. This section also has breakouts on how the future will be unfolding in
economic terms. While real dollars are used in the pro forma these continually changing
coefficients will be used to adjust the net income to the real purchasing power anticipated at
that time...In effect, the fact that no wealth is built until the increase in cost of living, etc. are
taken into account.

Line items will be included in this section for coefficients of estimated
tax consequences. These consequences will be shown financially as an additional
compliment at the bottom of the pro forma.

7. Trading Paradigms

Products and services is a misnomer for the trading business plan. This section is used to
detail out both of the trading paradigms. Think of it as a way of servicing the investment
capital. Much of the detailed content (services done by the trader) of this paper may be
placed in this section of the business plan.

8. Applications of Wealth

Again this section is not named properly for the trading business plan. This is the section
where the trader articulates how they are going to use the bottom line over the course of the
plan. The primary of the trading business plan is to use the rewards to conduct the lifestyle
desired by the trader. All of the major milestones of a lifetime for the family must be blocked
out here. How the profits will be used to partially or fulfill these lifestyle needs may be
articulated here. Tables can be made for this to show the disposition of the bottom line.

9. Effectiveness and Efficiency Through Iterative Refinement

Trading and investing is not a competitive endeavor. At no time is there a competition
among all traders and investors for the potential of the markets. The substitute for
competition is extracting the potential of the markets effectively and efficiently. It may seem
that the timing aspect of trading is an endeavor to “beat other players”. The fact that other
traders are called players seems to denote competition.

In this section the planner articulates how operating more and more effectively and
efficiently, through iterative refinement, is accomplished. The orientation to this write up is
“meeting the competition”. That is, the write up depicts how the trader excels compared to
other traders.

This takes out of the picture all of the components that have been inbred through other
competitive life experiences. Money made by trading is not made by competing but it is
made by excelling.

10. Downside Risks

Downside risks are a tabulation of all the considerations and concerns that have to be dealt
with to excel. It is a listing of how and why to avoid common mistakes that are made in the
market place. Use chapter 20 of How to Make Money in Stocks by William J. O’Neal, as a
topical guide for the stock market. Parallel this with the common mistakes made by traders
in commodity futures indexes. Be particularly cognizant of stating how and why to avoid
these downside risks.

 

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11. Summary

Now that you have produced trading business plan you are able to state cogently how all of
the pieces fit together. In the summary take careful steps to show the synergistic effects of
the parts as thy produce the whole. This is a good place to emphasize how specific skills of
section VII go to produce the 8 doublings characterized in section VI of pro forms

 

Appendix C. The 8 Doublings

Doublings refers to doubling your money velocity on your equity curve. As you acquire
knowledge, skills and experience your performance improves. It improves as an iterative
refinement process that is focused on you effectiveness and efficiency. The market is there
and offering you it’s potential as a consequence of continual price change. Your job is to
latch on to every means of being able to collect that offering and bank it.

Your money velocity doesn’t improve as a postage stamp curve does by specific steps. It
moves to a steeper and steeper curve as a consequence of improved performance that is
related to the 8 factors below. Each contributes strongly and the impact of each
approximates a doubling of your performance. Most of the contributions are found in how
your mind works to perform the job of extracting what is being offered.

 

1. The PV Relationship

Historically, the PV relationship came into being after DOW invented his measures of the
conditions, circumstances and situations of the market. DOW dealt with the big picture and
characterized it to benefit all market participants. The second fork in the road came about
with respect to the variables of the market and their relationship. (PV relationship). Price
and volume depict the market action at all times. It is natural that, among the market
participants, someone would emerge who had determined the relationship between price
and volume. Granville characterized the price volume relationship that can be shown as two
Boolean statements that covered the dynamic portion of the market. If a corollary is added,
the static condition of the market may be articulated quite easily.

Knowing the PV relationship is one thing and using it is quite another. The bridge that
connects the statement to its having utility and practice is the manner in which price and
volume are characterized and measured individually and how they are connected using
these characterizations. In Section 5, Scoring, below, the periodic relationship of these
variables and the Accumulation/Distribution variable are inter-related.

Price and volume can be ranked in importance. Price is most important and has the lowest
periodicity. Volume on the other hand, has twice the periodicity and may be used as a
leading indicator of price. Here volume is characterized first using the characteristics of its
size, primarily. The magnitude of volume measures the point of agreement buyers and
sellers have as they disagree on everything else but price. In keeping with Section 8,
sufficiency (below), a minimalistic approach is used for volume. Three measures, DU (Dry
Up), FRV (First Rising Volume), and Peaking (Maximum Volume) are sufficient.

Where do these come from? They appear as a consequence of one pragmatic concept: to
make money it is necessary to have the timing of the market in hand and understood. A
common beginning for money making is when price breaks out from its former pattern and
begins a price change period. Money is made when price changes. It is not difficult to
quickly realize and understand that it is necessary to know what is going on just before price
begins to offer trading profits through price change. What is the characteristic of volume
before this event? What is the characteristic of volume as price begins to change? Finally,
to take profit, it is a good idea to know the characteristics of volume when it is time to take
profit. The three volume characteristics mentioned above provide answers to all of these
questions.

With regard to the above paragraph it may be possible that these characterizations of
volume are new to you. If they are it is because you did not think them up before now nor
did you become aware of them as a consequence of your efforts to make money. In the
following paragraph there is a story that is worth reading from the viewpoint of how a person
can come to the mental orientation for delving into how volume works. Read the story and
see how it parallels the volume characteristics.

Almost everyone learns to drive a car. In doing so the person usually on any trip has
to deal with traffic intersections. Busy intersections have traffic lights. The objective
when driving is to navigate the intersection with the correct timing. The single major
consideration is to know when to go. Everyone knows the time to go is when the
light turns green. By considering what comes before the light turns green and
knowing precisely and exactly what that condition is any person can anticipate when
the light is going to turn green. The condition preceding a green light is a red light.
For everyone who drives a car who pulls into an intersection when light is red and
sits and waits till the light turns green and then the person proceeds through the
intersection on the green light.

For making money the condition before the green light in terms of volume is Dry Up. What
follows Dry Up is the First Rising Volume. FRV is the buy signal that corresponds to the
green light to drive through the intersection. DU on the other hand corresponds to the red
light that tells you to not drive through the intersection but to wait. How is it that most people
who trade, don’t know how to do the equivalent of drive a car? The reason is this; they do
not have to cooperate in any way with the public to be able to choose to go from here to
there. Not many people who trade ever take the trouble to figure out the equivalencies in
trading or driving a car at busy intersections. The market is a busy place and it is a very
good idea to know when to stop and go.

From this analogy it can be seen that volume can be used equally well as a means of timing
the exit when there are no more profits to be made at the end of a price change. Peaking
volume is used for this and of course it follows First Rising Volume. Thus two pairs of
volume conditions are used for entering and exiting, respectively.

Price is characterized by formations. Formations are used to discern where in the price
cycle price is operating at any given time. Conveniently, approximately 5 formations may be
used to cover the waterfront. They are double tops and bottoms and head and shoulders
and three types of pennants: flat top pennant, flat bottom pennant and symmetric pennant.
In all cases the PV relationship applies to the progress of these formations. In effect, the
formations and the PV relationship verify each other. This interlocking connection between
price and volume allows any trader to become very confident of their performance. Skills in
using all of this lead to greater and greater effectiveness and efficiency. Using drills is the
practical way to fast track skill and expertise in the utilization of the PV relationship.