Stockpiling strategy by Phil Town

Requirements:

1) 5 or 10 year average return on Invested Capital (ROIC) > 10%
2) 5 or 10 year average equity growth rate (Book value per share) > 10%
*Check current BV per share by dividing Total Equity by Total Shares Outstanding

3) 5 or 10 year average Sales growth rate > 10% 

4) 5 or 10 year average earnings growth (EPS) > 10%

5) 5 or 10 year average growth rate of cash from operating activities > 10%

6) Total long term debt/Total income < 3
7) Payback time < 10 years
- Find market capitalization of company
- Find ttm earnings
- Grow it forward at 5/10 year average earnings growth rate until the cumulative earnings exceeds market capitalization. 

Find the sticker price:

Sticker price of a business is determined by the kind of surplus cash it can produce for its owners in the future.

1) Earnings per Share (EPS) for the last twelve months(ttm)

2) EPS growth rate for the next ten years

- Use the 5 or 10 year average earnings growth rate
- Retrieve from analyst reports

3) Price to earnings (PE) ratio in ten years
- Find 10 year average PE ratio

- Double the estimated future earnings growth rate (Use analysts' average estimate of future growth of earnings or use 5 to 10 year average earnings growth rate)

- Use the lower figure of the two methods above

4) Minimum Acceptable Rate of Return (MARR) = 15%
5) Run the numbers through calculator on paybacktime.com

Find the Margin of Safety Price

50% of sticker price calculated above

Capital Allocation

Capital	Number of businesses	% of capital allocated to each initial buy
$1,000 - $20,000	1	25%
$20,000 - $40,000	2	25%
$40,000 - $70,000	3	25%
$70,000 - $100,000	4	25%
$100,000 - $100,000,000	5	25%

Note: Time purchases with the help of technical analysis using Floor and Ceilings.
*A price move of over 3 percent above the Ceiling or below the Floor, accompanied by 150% of the average volume, is a significant sign of a breakout that will last

Project Freedom (7): The Galaxy Chart

Good day,

This article is a continuation of the previous entry of the blog...

----------8<    (Cut and paste from Wikipediaon Dow Theory     >8------------
The Dow Theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. 
------------------------------------------- 8<--------------------------------------------

As one can see from the above statement that the idea of Sector Rotation had been officially around for at least a century,  but, if one were to flip through the whole library of Technical Analysis books in the library, he may not find more than 3% of the books mention about it(been there, done that).  And, even if one can find such topic in the book, most of them merely touching the surface by introducing that there is such thing around.
Personally, I think that the traditional way of analyzing the price chart is hard to VISUALIZE how these rotation take place.   Here is to introduce a tool that could facilitate the user to visualize and understand how the Rotational of the stocks/sectors are taking place in the market.    Thanks for the exponential grow of personal computer's speed over the years and these CPU intensive tasks can be handled with ease nowadays. :-)

(1)  Transformation of Traditional Chart into a X-Y Cartesian Plane.
Figure 1: Transformation of Traditional Chart into a X-Y Cartesian Plane.

Figure 1 shows how a normal chart can be transformed into The Galaxy Chart in showing the Relative Momentum and Trend of multiple stocks.   Though the human eyes can ONLY see the 2-dimensional chart, it is up to the programmers' IMAGINATION to incorporate N-dimensional information into it.  For instance, add a filter to get rid of those stocks that are moving side way.


(2) Understanding the meaning of The Galaxy Chart

Figure 2.  The Galaxy Chart


 
Figure 2 shows a typical Galaxy Chart.   Every stock is represented with a comet-like diagram with multiple dots in its tail.  The POSITION of the biggest dot in the comet represent the last bar's RELATIVE STRENGTH  of the momentum and trend with respect to others stock in a same watch list.  The length of the comet tail can be set by the user, and each additional dot appears on the tail mean an additional look-back period.  Therefore, the DIRECTION and LENGTH between the dots show the change of strength in Momentum and Trend dynamically over time.   So, it provides more information than a normal static list of stock scan from explorer as it shows the dynamic trail.


Figure 3. Zooming-in to the Upper Right Corner where both Momentum and Trend are both Postive.


















Figure 4. Statiscal and Probability wise...

.
Figure 4 is to illustrate how to focus on the fastest moving stocks visually.  Note that there is a criss- cross with grid lines in the center of the chart, which represent the (0,0) origin position of the X-Y co-ordinate.  The upper half of the chart represent the +ve momentum and lower half of the chart represent -ve momentum.  While the right hand side of the chart represent the +ve trend, and the left hand side represent the -ve trend.

Therefore, the top right corner of the chart can only be populated with stocks that are both +ve in momentum and trend.  The further away from the center are the faster the runner, and they are not range-bound.  While the bottom left corner is just exactly opposite.  (Note that the distribution chart in the figure is for illustration purpose ONLY, it does not mean that the stocks in the market have normal distribution in +/- profits over time.)


Video 1.  Play back of Rotational Movement


The above video shows the SPY and its 9 sector ETFs on how Rotation in the sectors take place over time. 

(3) Set up
Figure 5. An example on dual monitors intra-day set up

This is user preference... 

It can be in various time frame.  Start from Intra-day to Monthly.

(4) Caution!

Although any programmer with graphic programming experience can build up this platform within a week or so...

And: 

(a) Knowing to use the right alogrithms to feed in the X-Y co-ordinate is the key. GIGO(garbage in garbage out)!

(b) The sector rotation concept is simply another form of Trend Trading.  Therefore, it inherited a drawback from the Trend Trading Methodology.  That is the deep drawndown during the change of trend, where the fastest stocks could fall the fastest and weakest stock rebound the fastest.   Therefore, a very STRONG filtering technology MUST be built-in to the system to prevent such thing to happen during such period -> take the profits or cut losses quick.  Such as Vibration Energy Filter or any equivalent... Then it can be considered as a complete system.

(5) Conclusion

The last few articles are shared not because the author/programmer, I AM, do not understand nor under estimate their value and shared them accidentally.  Rather, they are shared because I strongly believe that when these concepts is fan out openly...  it may be duplicated to a certain degree that could help the general public to equip themselves with a better understanding and tools to handle the market.

Just to side track with a small story that happened in my kid's science class not long ago...

The teacher in the class asked the students that "What If Thomas Edison did not invent the light bulb?"  Then looking for the standard answer: "Oh!  We are still having to light the candle at night!"

"NO! NO! NO!" I told her... 

"If Thomas Edison did not invent the light bulb.  Someone else would have invented it just slightly later.  Or, if someone else did not invented the light bulb, daddy - me could have invented the light bulb.  And, if I don't invented the light bulb, you may have the chance to invent the light bulb yourself!"   Then I had to add, "Now you know the real answer, BUT, in the school test or exam, you MUST use your teacher's answer."

The morale of telling this story is that...  If one don't share it, someone else down the road would share it anyway. 

Happy reading.

KH Tang

<Home>

Control your Finances with Top Financial Tips

At present there are numerous people who are unable to control their expenses and feel that they can never recover from their financial mayhem. But nothing is impossible; if you feel that attaining financial stability is out of your reach, here are some steps that can be taken now to put you in a better financial position in the future.

Tip 1: Spend within your Means

The initial step you need to take is to know how much you spend monthly and how much you are earning; spend only within your earnings never exceed it. The best way to implement is to stay away from your credit cards; when you are in financial difficulties, credit cards dig a deeper financial hole for you. If there are some emergencies arising and you are in need of instant cash you can opt for a payday loan, it will provide you with the cash instantly and you can pay it back with your next paycheck.

Tip 2: Organise your Finances

If you neglect paying your bills on time and ignore your credit card payments thinking that you can do that later on, it would ultimately lead you in late payment fees and penalties. This could also lead you in tarnished credit reports and a lower credit score. To avoid such situations the first thing you need to do is to be financially organised. Prepare a cash-flow calendar for everyone in the home who earns money. Then write down which bills are to be paid on what dates and by whom. This will help to get in a good financial position and become more financially stable.

Tip 3: Track your Expenses

It is very important for you to know where your earnings are being spent. Keep a proper track of all your spending’s for a month this will give you a detailed plan who is spending how much and where. Then according to your spending’s in the house you can prepare a monthly budget plan covering all the necessities and save up some money for the future requirements.

Tip 4: Improve your Credit

If your credit reports are becoming weak because of your recent spending, then work on improving it. Start to prepare a plan for repayments of your debts; initially begin to pay with a smaller amount and then increase it gradually. Your recent payments will create a stronger impact on your credit score and ultimately improve it.

By following each of the above mentioned tips you pave your way to a stronger financial ground.

My name is Michelle. I am a tech writer from UK. I am into Finance. 

Insuring Your Home Inexpensively And Effectively

The process of buying a new home can be exciting, but it can also get very expensive. There are a number of different items that you'll have to pay for along the way which you may not expect on the front end. One of the expenses that many people do not plan for is homeowners insurance. If you want to insure your home inexpensively and effectively, there are a few different types of policies that you could buy:

HO-1

HO-1 is one of the most basic forms of insurance coverage that is available. With HO-1, you get covered against 10 specific types of damage to your property. This type of insurance does not cover anything related to liability coverage. This type of policy is not commonly purchased, but it can save you some money if you are strapped for cash.

HO-2

HO-2 is another type of home insurance that provides a little bit better coverage than what you'll get with HO-2. This type of policy only covers against specific perils, but it has more named perils than HO-1.

HO-3

HO-3 is the most commonly purchased type of homeowners insurance. With HO-3 coverage, you are covered for every kind of damage except those that are specifically excluded by the policy. This provides some of the broadest homeowners insurance coverage that is available.

HO-4

HO-4 is a type of renter's insurance that tenants can buy. This type of policy covers only the things that you have inside the property and protects you from liability claims. If you are a renter, using this form of insurance and resources like Rentler can help you save money.

HO-5

HO-5 is a policy that provides a very broad coverage for your home. It is similar to the HO-3 policy in that it provides coverage for everything that is not specifically excluded by the policy. There are only a few things that are excluded, and everything else is covered by the insurance policy. This probably isn't the policy that you want to get if you are trying to save money. It is one of the more expensive policies out there.

Regardless of what type of policy you choose, make sure that it provides the coverage that you need to achieve some peace of mind. You'll be able to protect your home and your financial position for the future.

Entrepreneurial Traits to Start and Run a Business

Entrepreneurial Traits to Start and Run a Business

By Dean Pax Lapid 

I had the opportunity to do a workshop called “Planning for Early Retirement” last week that was attended by 30 faculty and administration staff from an established university in Manila. It was difficult to encourage these ‘retirees’ to pump all their hard-earned money into a business. During the workshop, I was confronted with two interesting questions: 

1.) How much should one invest in business? and

2.) Are there essential traits to start and run a business?

Hardware

On the first question, I cautioned the retirees to only invest “business” money based on a personal formula (age you want to die minus current age). The basic principle here is that the younger you are, the more risks you can take. The closer you are to “kicking the bucket” (72 years old is the Filipino average) the more cautious you should be.

In my case, 90 (age I want to die happily) - 55 (current age) = 35 percent, meaning I can only invest one third of my liquid assets in any of my new venture. When I retired, I got a hefty retirement (22 years of work) that I invested in an IT company (US private limited corporation) doing SAP (ERP package) projects in North America. I lost 500,000 only with the consolation that it was shared with my Fil-American partner.

The bad thing was that it was in US dollars! Life is good and God is good that I have recovered from that big loss and even got more eventually! On the second question about entrepreneurial traits, I shared the story of a mentee – Carline who was my graduate of 2006. These were interview notes done by Dr. Leah Macatangay, also former dean of ESA. Let me share the story of Carline that I gave to the retirees…

Woman’s Opportunity in a Man’s Business

Carline believed that it was more of destiny and duty that made her pursue a hardware business. She did not exactly choose it but rather received it from her family. Being the eldest child, she had been singled out to eventually manage the hardware store located in Valenzuela City.

Carline’s father had set it up many years back to cater to the residences and buildings in that area. After Carline’s graduation in 2006, her father handed the business over to her and decided to retire. Carline asserts, “I believe that even if I am a woman, I can manage the business the way that men manage it, with the infusion of hard work, the things that I have learned from school, the advice of my father, and my own experiences.

Nowadays gender is not an issue anymore in the choice of job. Our capabilities cannot be measured by gender. I believe that we can do a lot of things if we believe in ourselves and of course, with hard work and prayers.

When I learned that I was tasked to manage our family business, I did not find it easy to accept because I had different plans for myself. But it was my responsibility to take the managing position since my father wanted to retire already. It was a tough decision to make but eventually, I learned to appreciate and even love the hardware business.

Sometimes you cannot choose the opportunity that knocks on your door. If the opportunity does not correspond to your passion, are you going to let it pass? I grabbed the opportunity and learned the business with hard work. I was able to manage it because I kept an open mind and made the best of the situation. I’m glad that I had accepted it. I can say that it had been the right choice to pursue the hardware business because I have realized this is where I want to be.

Preparedness and Mentoring

Carline recalled that she learned a lot from school in terms of running a business. “Managing a business is not an easy task; one has to be fully dedicated to it. I learned that one has to consider several things: capital, vision for the near and long-term, target market, location, price, customer satisfaction, the market, the industry.

I observed that people previously used advertisements like TV and radio ads to promote their products. But I believe that today, satisfying customers is what marketing is all about. If we are able to satisfy customers, it means that our business is doing alright. The main goal in putting up a business aside from earning is to be able to satisfy customers.

Something that I treasured most from school were the lessons of Dean Pax Lapid. He was my professor from Venture Planning to Venture Initiation, during my senior year from Venture Management to finally Venture Assessment. It wasn’t easy to be a student of Dean Pax but it really was worth it because of the invaluable knowledge I obtained in managing a business. 

Managing with Her Team

It was a bit difficult to be young and female and running the business, especially in the Chinese culture, as well as dealing with suppliers and customers who were male, much older, and more experienced than her. She had to try to mature quickly and be serious and responsible enough in order to be taken seriously. 

Hardware

As for her employees, she tried to deal with them as a team. They were older than her and had been working in the business for almost 20 years. She respected them and they respected her because she was proving herself to them that she could run the business competently, with their cooperation. 

She had been managing the business the way she thought that it should be managed. She acknowledged that problems will always be present but she believed that in every problem there is always a solution. With respect to decision-making, Carline learned of the importance of weighing things before making a decision. She learned to deliberate on the advantages and disadvantages and to consider the consequences of an action before making a decision. 

In 2008, Carline was able to put up a second branch of the hardware store. She set up the branch in Meycauayan, Bulacan. Because of the proximity of her warehouse, she was able to offer lower “city” prices even if her competitors were offering higher prices due to the provincial location. The branch is doing well and is establishing itself in the area. Carline’s vision for her business is to expand to more branches and to create new concepts such as additional products offerings. 

At her steady pace, Carline is headed straight for that destination. 

Here’s My Summary on Why Carline Has Been Successful: 

* She knew what I’ve been harping all along that “Luck is the ability to recognize an opportunity and take advantage of it”. Luck is preparedness + opportunity. 

* She had the belief in her capabilities to organize and execute the courses of action required to manage prospective situations especially with customers and her employees. 

* Finally, Carline had the ambition and persistence to be a woman entrepreneur in a man’s business and carry on the family legacy out of duty. I’d say it was more out of love and respect for her parents. 

Lessons of entrepreneurial success can be shared but the ability to implement these lessons in each individual situation is something else. I feel proud as her mentor that Carline has cemented and nailed our lessons on entrepreneurial traits and has painted her success now and in the near future! 

I pray that you may have the PASSION, PERSISTENCE and POTENTIAL to PROSPER your dreams. God bless you all! 

About Dean Pax Lapid 

Dean Pax

Dean Pax Lapid is the former Dean of Entrepreneur School of Asia. He is also a Professor of Entrepreneurship at Asian Institute of Management, one of the most prestigious business schools in Asia. He is a prolific entrepreneur, creating one new business a year.

A New Baskets System For People Who Can’t Budget

A New Baskets System For People Who Can’t Budget


Why Bro. Bo Sanchez don't use budget to his personal life? Here's why.

Basket System

If you’ve been a TrulyRichClub member for quite some time, you’ll know that I don’t use budgets for my personal life. I know that’s a mortal sin for some financial planners, but I gave up making budgets years ago. I’m one of those individuals who doesn’t like to sit down and write down a budget—like how much I’ll spend this month for grocery, for clothes, for haircuts, for snacks, etc…

I don’t know why, but when I see a page with numbers, I zonk out. My mind gets fried. If I keep reading the page with numbers for more than 10 minutes, I get a nervous breakdown.

I’ve learned that budgets work for some people. Like my friend Wilma. She’s got her monthly budgets in an Excel program, complete with colors and categorized in folders with nice labels around them. She’s so organized, her room is like a museum. Goodness, her clothes in her closet are numbered. Even her toothbrush has two dates written on its side—when she first used it and when she’ll throw it (exactly three months).

But early on, I learned that I’m not Wilma. Budgets didn’t work for me. Through the years, as I talked to lots of people, I know that budgeting doesn’t work for many others too. Instead of a complicated BUDGET system, I use a simple BASKETS system. And that has worked for me splendidly.

Here’s what I did… 

Three Baskets Following the 30/70 System 

Years ago, when I received new money, I’d divide my money into three baskets: my tithes (10 percent) and my investments (20 percent) and lived on the rest (70 percent). Note: Actually, these aren’t my percentages anymore. I tithe and invest much more now.

That, in gist, is my 30/70 Basket System. This simple fund allocation system is one of the biggest reasons why I’m a millionaire now. Years ago, I remember days when the 70 percent was gone before my needs were all met. How did I cope? I gritted my teeth, tightened my belt, and postponed purchases until new money came in. Difficult to do but that was how I did it.

It worked. And I know it worked for a lot of people too. Because of my simple Basket System, my retirement fund has grown tremendously. Investing 20 percent of my income over the past years has compounded and multiplied my money beyond my wildest imagination.

If you’re like me who can’t make a budget or follow one, just use my Basket System: The moment you receive income—any kind of income—just set aside your Tithes and Retirement. And live on whatever is left.

That’s it! But here’s something I found out. After helping a lot of people organize their finances, I realize that some people may need a more nuanced Basket System. So I developed a new Basket System for your money. Here it is (drum roll please)… 

The 5W Basket System 

I know it has more Baskets, but bear with me. I’ve checked with other financial teachers and they teach similar categories. Let me explain the 5W Baskets...

First, 10 percent is your Worship Fund(Tithes).
Second, 20 percent is your Wealth Fund(Long-Term Investments).
Third, 10 percent is your Want Fund (Yes, Splurge!).
Fourth, 10 percent is your Wellness Fund(Short-Term Savings).
Fifth, 50 percent is your Wallet Fund (Regular Expenses).
Let me explain the two new Baskets: Want Fund and Wellness Fund. 

10 Percent for Your Want Fund 

There are needs and there are wants. This specific fund is for your wants. They’re not necessities. You can live without them. Why this Fund? You see, there are two extremes you want to avoid. First is the Spender.

Want Fund

The impulsive buyer. The shopaholic. The one-day millionaire. The person with the latest gizmos and gadgets, but who has six credit cards, all maxed out. The person with the Louis Vuitton bags, but has zero savings. You don’t want to be this person.

The other extreme is the Scrooge. The miser. The penny pincher. The person who hasn’t bought a new shirt since President Marcos declared Martial Law. The person who eats crackers every day from a large tin can—bought in Divisoria—for breakfast, lunch, and dinner.

The person who is so addicted to saving and investing because of crazy fears, he doesn’t spend anything for himself. You don’t want to be this person too. I honestly believe you should spend a portion of what you earn as your way of loving yourself, honoring yourself, and celebrating yourself.

Every time you earn something, set aside 10 percent and buy what will make you happy. (Note: I suggest you start doing this when your finances are no longer in crisis mode. For example, when all your major debts have been paid.) It could be eating in a favorite restaurant. Or watching a movie. Or having a massage.

Or going on a vacation. Or buying a new shirt. Or getting a new watch. If you’re saving for a big vacation to Boracay or Batanes or Bohol—you could save this 10 percent for a few months—until you reach your goal. And then splurge!

But splurging that amount each month is great too. Rewarding yourself regularly is fantastic motivation to earn more.

Next… 

10 Percent for Your Wellness Fund 

This is for Short-Term Savings for specific projects. Perhaps you’re saving for your new house. Or your new car. Or the college fund for little Pamela and 5-year-old Julius. Or a Holy Land pilgrimage that you want to take five years from now.

If you have various projects, then you can divide this 10 percent according to each specific project. Or increase the 10 percent to 15 percent or 20 percent, depending on your income.

Will the project happen before five years? (For example, Pamela enters college in four years.) If so, the stock market may not be the place for your Wellness Fund. Put it in a Retail Treasury Bond (RTB) or Time Deposit. The interest growth isn’t as big, but it’s better than the less than one percent that a Savings Account gives you.

But if the project will take place after five years, you can still put it in the stock market—but you need to follow our Stocks Update eReport closely. (For example, when we warn you of a big downtrend, you may want to pull your money out.) 

Take Your Pick and Use What Works 

So you have a choice. You can use the 30/70 Basket System or the 5W Basket System. They’re not budgets. They’re just Fund Allocation System where you divide up your money when your income arrives. Unless of course you’re like my friend Wilma who can make budgets work.

Choose which works for you. And tell me about it!

May your dreams come true.

Bo Sanchez

Project Freedom (6): Back to Basics

About 5 years ago, I came across an old and experience trader in a forum...  In asking for advice, he said that "All you need to read and understand about trading is in a few classical theories already exist about a century ago: 

(1).  The market waves in Dow Theory, 
(2).  The Vibration Energy by WD Gann, and
(3).  The philosophy of riding the Leaders by Richard Wyckoff or Jesse Livermore.
All the modern books are more of repeating and re-phrasing what had been said."

That's very true.
And, I find that to add in another guru would be more complete:
(4).  The trading psychology aspect by Mark Douglas.

The following charts are used to illustrate the implementation for these gurus' theories.

(1).  On Dow Theory.
Dow Theory is the grandfather of all Technical Analysis.  It consists of a set of 12 "Basic Tenets" (ref: Technical Analysis of Stock Trends - Edwards & Magee).  
Over here, the follow charts just focus on the implementation on one of the Basic Tenets - "The Three Trends in the Market".

Here is the definition cut and paste from wikipedia on this particular tenet:
-----------------------------------------8<-----------------------------------
The market has three movements

(1) The "main movement", primary movement or major trend may last from less than a year to several years. It can be bullish or bearish. (2) The "medium swing", secondary reaction or intermediate reaction may last from ten days to three months and generally retraces from 33% to 66% of the primary price change since the previous medium swing or start of the main movement. (3) The "short swing" or minor movement (momentum)varies with opinion from hours to a month or more. The three movements may be simultaneous, for instance, a daily minor movement in a bearish secondary reaction in a bullish primary movement.

-----------------------------------------8<-----------------------------------
Now let see how to apply these theories on the following chart.  This is China Shanghai Stock Exchange Index.

On the following diagram, when Zoom in, it can see that there are three indicators below the price chart.  Which are (1.) Momentum, (2.) Medium Swing, and (3) Trend.  These are corresponding to the 3 movements (waves) in the market.

At any one time, these 3 three indicators may run into different direction (up or down), and when the 3 movement are in sync into one direction (either up or down), then usually there will be significant movement on the price.
As shown in the price chart area, it is labeled with green when color when all the three movements are up.  Red when all the three movements are down.  And, yellow when there are moving in different direction - usually at the stage of consolidation or pull back.

If one were to use some kind of multiple moving averages such as, 25,100, 200 to determine buy or sell, then he is also using this theory.  Just that normal MA, EMA are having too much lag that will not produce good result.  It got to be dynamically mapped. (Inspired from reading "Holophany - a New Philosophy and Logic" by Clara Szalai.)

The Multiple-Time-Frame concept using daily and weekly chart is another form of waves analysis.

The JM Hurst Cycle Analysis aims to find the synchronization of shorter cycles within longer cycles is also another form of wave analysis.

Their COMMON goal of these analysesis to LONG when all the waves are moving in the up direction while SHORT when all the waves are moving in the down direction.

(2). On Vibration Energy.
The Law of Vibration in the stock market was introduced by W.D. Gann.  Gann's work is hard to understand as it involves astrology, ancient geometry and mathematics.  But, nevertheless, if one were to study and think about them long enough, he may get something out of it...  Just that if a group of ten persons doing the same research, they might get twenty versions of the interpretation.   And, this is merely my personal interpretation...

If the stock is in its steady state of vibration towards up and down direction, it would has certain amount of vibration energy level pointing in the same direction.  If it is on the sideway, it is pretty much random and will cancel themselves.  Therefore an adaptive filter can designed to capture such energy.  As compare to the previous diagram, the price chart is now built-in a filter to detect the state of trend (up, sideway, and down trend).  Also just below the price chart, there is an Adaptive  Vibration Energy Indicator to indicate the worthwhile trend. 

Adding this filter to the Dow Theory would very much reduce the trading frequency as its goal is to eliminate trading when the stock in it consolidation state.

(3). On the Philosophy of Always Riding the Leading Sectors/Stocks
In reading Richard Wyckoff and Livermore books, one can find that they put emphasis on trading the leading stocks in the leading sectors.  This philosophy itself has the following important implication:

1)  Benchmarking the stocks with their Relative Strength.
In order to find the Relative Strength of a stock among all the other stocks in the market, the indicators used MUST NOT be range-bound to certain value.  For example, many popular indicators are swinging between a certain ranges, such as 0 to 100, -100 to 100, etc.   When one compare APPLE COMPUTER to bond market, these range-bound indicators can't differentiate which is stronger in relative sense. 

2) Rotational Trading.
In rotational trading philosophy, it recommends jump to the faster running horse when it find one (of course, one need to set the period of doing so, say one week or so...  And, very much depends on individual perference time-frame of operation.)

One simple way to achieve these two KEY POINTS is to insert a reference ticker inside the current monitoring stock indicator.  For example, in the following diagram, the Momentum, MediumSwing and Trend indicators are inserted with the SPY (S&P500) as reference ticker. 

Note that there are some circles highlighted in these indicators.  Without the reference, the indicators would have give green signals when they are above "Zero Line", and give red signals when it is below "Zero Line".  Now, with such reference line, they must be greater than both the reference strength and the zero line in order to generate a green signals...  Same idea applies to the downside.  Or it would just generate a yellow signal.

One can use this idea to find the stronger sectors in the market using SPY as reference strength, then find the stronger stocks using that particular sector as reference strength.

To further illustrate the point on Relative Strength Benchmarking....  Below is diagram showing the Strait Time Index (STI) and its 30 components. 

Most Benchmarking methodology is to compare the percent price movement over a period of time.  This could be useful most of the time.  BUT during the transition of changing trend, it would produce a great lag that is not acceptable.

Instead, one can compare their indicators strength in the same pane and rank it... It would definitely produce much timely result.

(4). The Trading Psychology

There are quite some materials on Trading Psychology in the market today.  Recommend to go through the material by Mark Douglas as they are very helpful.  Especially when he talks about the Probability and Edge.   Here has a snapshot:->

http://blessedfool.blogspot.sg/2012/01/project-freedom-3-why-and-how.html

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"Our most valuable possessions are those

which can be shared without lessening;

those which when shared multiply."

I DARE YOU - William H. Danforth

To be continue with  ->The Galaxy Chart.<-