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HowtoBecomea

WealthyInvestor

ListentotheStockMarketanditWillTellyouWhatToDo

SydneyTremayne

SecondEditionPublishedbyWealthyInvestorLimitedHOWTOBECOMEAWEALTHYINVESTORPAGEI

HowtoBecomea

WealthyInvestor

ListentotheStockMarketanditWillTellyouWhatToDo

SydneyTremayne

SecondEditionHOWTOBECOMEAWEALTHYINVESTORPAGEIIPermissiontodistributefreely

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Note:PrincipalsofWealthyInvestorLimitedmayactivelytradetheirownstockrecommendations.ThefollowinglegalnoticesarerequiredbytheU.S.SecuritiesandExchangeCommission(SEC):

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testingresultshavecertaininherentlimitations.Unlike an actual performance record, simulated trades do not represent actual trading. Also, the

tradesmaynothavebeenactuallyhavebeenpossibletoexecute.Theresultsmayhaveoverorundercompensatedfortheimpact,ifany,ofcertainmarketfactorssuchaslackofliquidity,moneyflow,etc.Yourresultsmayhavebeenbetterorworsethantheresultsportrayed.Norepresentationismadethatanyaccountwillorislikelytoachieveprofitsorlossessimilartothoseshown.HOWTOBECOMEAWEALTHYINVESTORPAGEIV

No independent party has audited the results shown in this book, nor has any independent partyundertakentoconfirmthatitadherestotheassumptionsorconditionsspecifiedinthemethodology.

Whiletheresultspresentedatthisbookarebasedoncertainassumptionsthatarebelievedtoreflectactual trading conditions, these assumptions may not include all variables that can affect, or haveaffectedinthepast,theexecutionoftradesindicatedbyWealthyInvestorLimited.Thehypotheticalresultsinthisbookarebasedonthefollowingassumptions:1.Therecorddoesnotincludedeductionsforbrokeragecommissions,exchangefees,orslippage.2.ThesimulationassumesthatpricesarenotinfluencedbythetradesofWealthyInvestorLimited,itsowners,oritsrepresentatives,regardlessofthenumberoftradesexecuted.3.Thesimulationassumespurchaseandsalepricesbelievedtobeattainable.Inactualtrading,thepricesattainedmayormaynotbethesameastheassumedorderprices.4. The hypothetical results do not take into account any tax implications arising from the sale orpurchase of securities, which in actual trading have an impact on net gains and losses.Terms andConditions

Reproduction,duplication,orfreeredistributionofthisbookispermittedbutonlyinitsentirety.Theentirebookmaybedistributedwithoutchargeandwithoutanychanges,deletionsoradditions.YouarenotpermittedtouseanypartofitinanyotherwaywithoutpriorwrittenconsentfromWealthyInvestorLimited.

Youagreethatbyyourself,orwithothers,youwillnotcompetewithWealthyInvestorLimited,orhave any business interest in such enterprises that shall be engaged in competition, as proprietor,partner, employee, shareholder, principal, agent, consultant, director, officer, or in any capacity ormannerwhatsoever,anywhereunlessasastockbroker.YoualsoagreenottolendmoneytoanyoneforthepurposeofcreatingaservicethatcompeteswithWealthyInvestorLimited.Wesincerelyhopeyoubenefitfromtheuseofourmaterialsandincreaseyourinvestmentsuccess.HOWTOBECOMEAWEALTHYINVESTORPAGEVCONTENTS

Introduction:MakingitonYourOwn...............................11.First,aWarning.............................................................92.Fear,GreedandGettingtheTimingRight...............123.ThreeUniqueTools.....................................................194.Basicsthatmustbeincluded.......................................285.Stopordersandemotions............................................446.Patience:MoreThanaVirtue....................................637.BalancingAct,InvestmentStyle.................................668. The Last Train Leaving the Platform Heads Downhill With Everyone Aboard...............................................68

9.PuttingAllthePiecesTogether..................................7210.Rules:QuickSummary...............................................8011. In my Opinion, the System is Simple; You May Not Agree, So Here's a Solution........................................81 AnnotatedCharts,Warts andAll...................................... 84 HOW TO

BECOMEAWEALTHYINVESTORPAGE1

INTRODUCTIONMakingitOnYourOwn

In the summerof1983,after the stockmarkethadmadeadramatic recovery following the then-worst recession sinceTheGreatDepression an otherwise stableman in hismid-50s toldme hewasquittinghisjobtoplaythestockmarket.Hehadputasizeablechuckofcashintostocksinmid-1982andmadeabundlefollowinghisbroker'stips.Easy.Tooeasyforhisowngoodinfact.

He knew nothing about investing. He'd sent away for a welladvertised home study course. Hisbrokers (I think he had about six with a number of different firms) told him what to do. His totalinvolvementwas to agreewith them, count hiswinnings, and to dream of a life of ease and riches.Nothingtoit!

Naïve?Most peoplewould think so, particularly if theyhad any experience at allwith the stockmarket.Yethisstoryissimilartothatofthousandsofnewinvestorswhoflocktobrokerageofficeseachtimestocksheadupward.(Therearenotsomanyaroundwhentheyshouldbe:whenstockpricesarelowandheadlinestalkofeconomichardtimes.)We'llgetyouoverthanproblemwiththisbook,asyouwillsee.

Themanwassoexcitedifhehadbeenaballoonhewouldn'thaveneededhelium.Heneededtobebroughtdowntoearth.HadhisnamebeenVirginiaperhapsIwouldn'thavehadthehearttogivehimthereallow-downonSantaClaus;sinceitwasn't,Ithoughthe'dbebetteroffwitharealdoseofreality.Anumberofchatslater,whichincludedanorchestratedglimpseofthepitfallsawaitingtheunwary,hecametorealizehe'dbeenjustplainlucky,asgamblerssometimeare.Hekepthisjob,wasabletotakesome profits before the market's subsequent decline, and then had the capital (and a little moreknowledge)tohaveareasonablechanceatfuturesuccess.

"Fiveofsevenofmybrokers' recentofferings lostmoneyand twobrokeeven,"he toldmesomeweekslater."IguessalmostanyonecouldhavemademoneywhenIdid.Now,it'snotsoeasy."

He learnedat leastonevaluable lesson:Thekey tomakingmoney in the stockmarket is correcttiming.Eachtimethemarkethitsbottom,aproportionofrankbeginnersgetluckyandbuy.Somemakespectaculargainsandtheirstoriesspread.Peoplearequicktoboastoftheirwinnings,reluctanttotalkaboutlosses.

Thismakes it all look soeasy to someof theuninitiated–and therein lies the trap. "Uncle Joe'sbrokergavehimarealwinner.I'llgivehimacalltoseewhathe'sgotforme."

UncleJoe'sbrokerwillalwayshavesomething.Thatinitselfisaproblem;therearetimestostepbackfromthemarket.AndevenatthebestoftimeswhatUncleJoe'sbrokeroffersyoumaynotbearthe slightest resemblance to the goodies Uncle Joe got. And if what you get doesn't live up toexpectations?Whodoyouturntonext?Weallhavetostandonourowntwofeet.

Brokers and analysts, some of them excellent, have their uses.With few exceptions, they wanthappyclients.Happyclientsmeanmorecommissionsinthefuture.Whythendothemajorityofstockinvestorslosemoneymostofthetime?Themostcommonbeliefisthatthe"professionals"havetheimportantfactsfirstandthelittleguyisleftoutinthecold.Butifstockpricemovementsarebasedsolelyonfacts,whydon'ttheprofessionalsdobetter?

DozensofstudieshavebeencarriedoutintheU.Sduringthepastmanydecadesinvolvingrecordsofhundredsofanalysts,pensionfundandmutualfundmanagersandthousandsoftheirfavoritestocks.Awhopping71%performedworse than theaverage for theStandard&Poor'sbasketof500 stocks.Sincethosestocksatanygiventimeincludeanumberofdudscommonsenseshouldsaytoavoid,onemightsupposethesepeopleshouldoutperformtheaverage.

Andiftheprofessionalshaveatoughtime,whatchanceforyouandme?Surprisingly, we have a better chance. We can make decisions in minutes while institutional

decisions often involve committees.Managers under pressure to perform often try to play it safe –whichmeansgoingalongwiththepack,whichisusuallywrong.

Analysts, particularly those working for stock brokerage firms, must avoid upsetting themanagementofthosecompaniesonwhichtheyreportfortworeasons:todootherwiseriskscuttingofftheir sourceof informationand,perhapsmore importantly, corporations seeking to issuemore sharesmaynotgivethelucrativeunderwritingtoabrokeragehousethathasbeencriticalinthepast.

Theessentialconclusionstobedrawnfromallthisare:•Wemusttakechargeofourowndestiny.It'sourmoney;wemustnotexpectsomeoneelsetodoalltheworksowecanreapallthebenefits.This,amongotherthings,meansavoidinghigh-pricedfull-servicebrokersandusingmuchcheaperdiscountbrokerswhodonotnecessarilyofferadvicethat,inanycase,youwillnotneedonceyoustarttofollowthesystemlaiddownhere.

•Sincewecannothaveall the factsall the time (and ifwecould,howcouldweputanaccuratevalueoneachfact?),weneedtoknowhowtousethetoolsthatareinstantlyavailabletoeveryoneinmakingdecisions.Thisbookwillshowyouhowtodothat.•Weneedasystemtoknowwhentobuyand,perhapsmoreimportantly,whentosell.•Weneedtobeabletoassessriskandtoapplythatassessmentsothe"risk"ofmakingmoneyisgreaterthantheriskoflosingit.

You wouldn't expect to start a business without knowing something about it. You wouldn't hiremanagerstomakeallthedecisions.You'dalsomakesureyouwerepsychologicallysuitedtothenewbusiness.The same rules apply to the stockmarket. Ifyou'reprepared toworkat it, tomake it yourbusiness,youshouldfindthisbookhelpful.Ifyouwantachanceofmoneywithoutwork,wewillevendotheworkforyouforaverylowprice.

Westartedthisintroductionbytalkingaboutamanintheearly1980swhothoughthewouldquithisjobtoplaythestockmarket.Believeme,heisquitetypical.Maybeyourecognizehiminyourselforinafriendorrelative.

Fastforward20yearsandwewerejustcomingoutofanotherstockmarketslump.Forwardafewmoreyearsandwe recordedanexceptional event, the first sinceTheGreatDepression: Investorsonaveragelostmoneyoveranentire12-yearperiod.Thatperiodiscoveredinthisbookandyouwillseeitprovidedgreatprofits.

Morepeoplenowaredubiousabout the stockmarket.Asalwaysafterabearmarket,manyhavelockedintheirlossesandleftnevertoreturn.

Retirement savings, shepherded socarefullyby somany,weredecimated,planschanged,dreamsabandoned,retirementsweredelayediftherewasthatoptionamongthemillionsoflostjobs.

Butitdidnothavetobelikethat! Idon'tknowhowmanytimesIhavetosayit,but investingwithaplan is theeasiestwayIknowof tomakea lotofmoneywithoutworkingfor it.Contrary topopularopinion,youdonotneeda lotofmoney tostart.Theoddsare strong thatmoneyyouwastedailywithouteventhinkingaboutitcansoonbequitesufficienttobeginwith.

Ask yourself this very important question: Was it the stock market that was wrong? Did it doanythingithadnotdonebefore?Orwasitthatsomanyplayerswerenotabletodealwithitinawaythatwouldhaveincreasedtheirwealthratherthandecreasingit?

The stockmarket is not as complex as the average person is led to believe.Most of it needs nounderstandingbecauseyoushouldnotbeinvolvedwithestablishingyourownstrategiesunlessyouareapro.Fornow,youneedabasicwinningstrategyunclutteredbyalltherest.HowtoBecomeaWealthyInvestoristhatstrategy.Ifyouhaveafewthousanddollarsleft inthepiggybankafter therecentdebacle,pleasedon'tdespair

that thereare fewerdollarsnowthan therewerebefore. Iamgoing toshowyou– toprove toyou–suchanidiot-proofwaytohavestockstellyouwhenandhowtoinvestinthem.That'sright:thestocksthemselveswilltellyou.

In reality shares,when they are notmerely computer entries as is the casewithmost today, aremerely pieces of paper incapable of telling you anything. But knowing how to read instantly whatpeoplearedoingwiththemandbeingpreparedforwhattheymaydonextweekcantellyoueverythingyouneedtoknowtoberightalmosteverytime.It'slikehavingamapforanareawithonlyonestreet.Youdon'tneedbrains,sixdegrees,amagicwand–justtheabilitytoreadatrail,justlikeahunter,butaloteasier.

Let'stalkaboutsomethingyoualreadyknow:stockssometimesriseandtheysometimesfall.Surelyeventhemostskepticalcanagreewiththat.Thatsimpleandwidely-knownfactisthestartingpointforour journey.At the end of this book, after I have given you a handful of very simple rules you canfollowwithnofurtherhelp,wewillseethestatisticsforeachstockandeachtradecarriedoutwiththe30stocksintheDowJonesIndustrialAverage.Thedatagoesbackbeyond1970forsomestocks.

Iurgeyoutoprovetheresultsforyourself.Followthesummaryofrulesshowninthisbookwitheachchartandknowwhycertainthingsweredoneatparticulartimes.Getcomfortablewithwhatyoudiscover.Youwillhaveseennothinglikesomeofthesystem'selementsanywhereelse.

You be the judgeofwhetherwhat you learn reallyworks.Those30Dow stockswere chosen toprovideagroupofseniorcompanieswithoutanyabilityonmyparttochooseonesthatproducedbetterresultsthanothers.Acomputerprogramwaswrittentomakesureexactlythesameruleswereappliedtoeverystock;nofudging.Oncethecomputerisswitchedon, thereisnohumanintervention.Theprogramreadsmarketsallbyitself.

Ican'tsweartoyouthatifyoufollowtherulespreciselyyouwillgetexactlythesameresultduringthenext30or40years.Timesandcircumstanceschange–theydidduringthepastseveraldecades,too.Butdoesn'titseemprettyobviousthatifthedeercomeoutofthewoodsinearlyspringtograzeinafieldtheywilldosoagainnextyear?

Iwilltellyouinthesmallestdetailandassimplyaspossibleeverythingyouneedtodo.ButI'malsogoingtotellyouitwillmeanregularwork,nothard,butperhapstedious.I'mnotgoingtofoolyou.

ButIwillalsotellyouhowtogetalltheanswersfrommycompanyforeachoftheS&P500stockseveryweekwithnowork;youwillknowexactlywhattodoandwhatnottodotobeassuccessfulasyoucanbe.Wewilldoalltheworkforyouforapittance!Ifthatdoesn'tinterestyou,nothingeverwill.

Speculators,gamblersandmanywhoconsiderthemselvesinvestorsspendhours,weeksandmonthstryingthefigureoutwhenisthebesttimetogetintothemarket.Theyarealmostalwaystoolate(ortheysufferedall thewaythroughthepreviouscrash).Whenthemajorityissurethetimeisright, thebestprofitshavelonggoneandthebullmarketisclosertodyingthanrisingfromtheground.

Theaverageinvestorbuysclosetomarkettopsandsellsclosetomarketbottoms(ortheybuyandholdwithnochangesalongtheway).Howcananyoneexpecttomakebetterthanaveragereturnsthatway?

Thisbookwillleadyouwithoutthinking,worryingorwonderingtobuylowandsellhigh.Youwillusuallybuynearthebottomandsellnearthetop.Whatdoyouthinkwouldhappentoyourreturns,toyournetworth,ifyouwereabletobuylowandsellhighmostofthetime?

Think about this for amoment:What would change in your life?What would you do that youcannot do now?Howwould it feel not to have toworry aboutmoney again? I have been there andbelievemeitmakesahugedifference.

Youwillseethatwhatiswrittenhereispurecommonsense.YouwillknowthatwhatIteachworks

asadvertisedbecauseyouwillbeabletoproveitandseeitforyourself.Notallwillhavethesameexperienceorunderstandingaswestartsoforgivemeforincludingsome

basicswiththenutsandbolts.Readytogetstarted?HOWTOBECOMEAWEALTHYINVESTORPAGE9

Chapter1First,aWarning

UntilyouprovethissystemforyourselfyouwillnotfinditbelievableCompletedTradesS&P500Dow30

Numberoftrades95597Profitstrades84287Losingtrades11310Averageprofitpershare$13.12$10.73

Averageannualreturnon49.08%64.40%investmentAveragelengthofinvestment5.88years6.70years

In fact, ithasbeenanunbelievable journey thatstartedmore than25yearsagowhenIwrote theCanadianbestsellingbook,TaketheGuessingoutofInvesting.Thatbookandtheprogramassociatedwith it led to a career in the investment industry. The program averaged a fraction over 22%...but Ialwayssuspecteditcoulddobetter.

InMarch2009Iscratchedoutaplanonascrapofpapertornfromanexercisebook.Theintentwasto simplify the old program, reduce the losses it had and increase profitability. Instead of trying tocaptureeveryhop,skipandjumpofastockIwantedamorepatientapproachthatwouldreducelossesandcommissionexpenses.

Butyouknowhowit is:youhavewhatyouthink isagreat ideaandifonlyyouaddedthis...andthis...and a little of that!Cooks know that does not alwayswork.When the programwaswritten toincludealltheseextralittletwists,resultswereadisappointing11or12%.

(Eventually, the program designed on that scrap of paper was written by our excellent in-houseprogrammerandchieftechnicalofficer.Asexpected,theaveragerateofreturnwasaround30%.)

ButbeforethatprogramwaseverwrittenIgotveryfrustrated.IthrewoutrulesthatforyearsIhadunderstoodwere commonsense staples in the industry.Then lateonenight I just about fell over: theaverageannualreturnforthe30stocksintheDowJonesIndustrialAverageforsome40yearswasthen56.46%.

Iwasreadytodancearoundtheoffice...foralloftwoseconds!ThenIrealizedthatnosanepersonwouldbelievethisreturnandourbusinessdreamscameclosetoimitatingtheHindenburg.

Our answerwas to hire professionals to help us to show you thatwhatwe say here and on thewebsite is absolutely true. There cannot be the slightest whiff of smell or our credibility (and ourbusiness)isgoneinaflash.That'swhyeveryefforthasbeenmadetoprovideyouwithallthedetailsofhowwedowhatandwhyinthisbook.

Meanwhile,despitethereturns,allwasnotrosywiththeprogram.Fromtimetotime,itgavegut-wrenchingdropsof50%ormore.

Wecontinuedtotinkerwithitand,reallybyaccident,foundawaytoeliminatemostofthoselosses,cut outmost of the gutwrenching drops along theway and – tomakemattersworse! – improve theaverageannualrateofreturn.

Losingtradeswiththeadditionofthefinaltoolwerecutto10.31%forthe30DowJonesIndustrialsand11.83%forthe500stocksintheStandard&PoorIndex.Ifyouarea typical investor,youknowhowphenomenalthatis.ThestatisticsatthestartofthischapterarefromFebruary112011.

Chartsforall97DowJonestradesareatthebackofthisbook.Theyareannotatedsoyoucanseeexactlywhatwasdonewhenandwhy.Spendsometimewith themtounderstandwhat ishappening;thatshouldgiveyousomeconfidencetomoveaheadwiththesystemyourself.HOWTOBECOMEAWEALTHYINVESTORPAGE12

Chapter2Fear,GreedandGettingtheTimingRight

There'satimetobuystocksandatimetosellthem.Knowingwhichiswhichisvitaltoourfinancialhealth.EvenGeneralElectricorIBM,solidthoughtheyare,cancauselossesofsickeningproportionsifourtimingiswrong.

It isoften said thatpeoplewho try to time themarket,who try togain frommarket fluctuations,typicallymakelessmoneythanthosewhohunkerdownandhangontotheirstocksregardlessofwhatthemarketdoes.

Frankly,formostpeople,thiscounseliscorrect.Whatthosewhoquoteitforgetisthatthemajorityofinvestorsrelyonemotion.Theytypicallybuytoolateinacycleandthenselltoolate.Theyhavenodisciplinedapproach.

Ourobjective,quiteobviously,istobuylowandsellhigh.Therecipeforsuccessisinrecognizingwhen'low'reallyislowandwhenthelatestinaseriesofhighsistheendoftheride.

Ifwe'retoosubjectiveinmakingourdecisions,thosedemons–GreedandFear–tendtoraisetheiruglylittleheads.Joinedbytheirgoodoldbuddies,EgoandImpatience,theycancreatehavocwithabankbalance.Here'showtheyoftenwork:Let'ssupposethatBlunderCorp.tradedashighas$20threemonthsago.It'sagood,solidcompanywithbrightprospectsbutitisnowtradingat$15."Just$15?"Greedasks.Itonlyhastogobackupto$20andwehavemade33%profit.Surelyitwilldothatandmore.""But,"we,theguyswiththemoney,ask,"howdoweknowitwon'tgodownfurther?"

"Let'sfigureouthowlowitwillgo,"Egochimesin."Wouldn'twebesmartifweboughtitatapricelowerthanallthoseotherfolkpaid?""Yes,"agreesGreed,"andwe'dmakeevenmoremoneythenwhenthepricegoesbackup."

Andsomedayslater,withthepricejustanotchhigherthanthetargetsetbyEgo,Impatiencesays:"Hey, guys, the price doesn't look as if it's going to drop anymore. Let's buy now before the thingsquirtsuponus.Wedon'twanttomisstheopportunity."

Sopressuredbythefourdemons,weletthemmakeourinvestmentdecisions.Ourrole?Standbywiththecheckbook.Andsweatalittle!

Farfetched?We'd never allow such a thing to happen to us, right? Be truthful! In thousands ofhomesandofficesacrossthecountryvariationsofthisskitareplayedeverydayofthetradingweek.

Objectivityisouronlyprotectionandeachofusmustapplyitinourownindividualways.Weaskthemarkettotellusinwhichdirectionitismostlikelytomovenext;ittellsthetruthoftenenoughtomake the questioningworthwhile.The questions and answers are communicated through stock pricetrends.

These trends are set by a combination of fear, greed, reason, calculation, invention, corporatesuccessorfailure,luck,thewishofonepersonorgrouptoacquiremoresharesortodumpthem…thereissuchavastarrayoffactors,mostinoppositiontoothers,occurringinthesameinstantandinsecrecythatitisquiteimpossibleforyouormetofigureoutwhatwillhappeninthenextsecond,letalonethenextweek.Butthemarketgivesusprettyaccurateinstantcluesifwewillbutlisten.

Itwouldbesupremelyconvenientif,inabullmarket,stockswentsteadilyandpredictablyup,and

inabearmarkettheywentsteadilyandpredictablydown.Reallifeain'tsoconvenient.Anyonewhohas followed stocks knows they are damnable critters thatwobble a lot, sometimes

goingdownongoodnews,uponbad,oftenuponrumor,downonfact–evenifthefactsconfirmthepositiverumor.

Forallthat,theyarenotnearlyasunpredictableasonemightsuppose.Theytendtomoveintrendsrather than in completelyhaphazard fashion.Spot those trends soonenoughand theprofits aregoodwhenweareright,thelosseslimitedwhenwearewrong.

Towork theHow toBecomeaWealthy Investorsystem,weneedup-to-dateweekly bar charts ofstock prices over the past several years, a ruler, a sharp pencil, a bit of intuition, and an inviolabletradingplan–oh,andthepsychologicalattributesofarobot.We'rebacktothatword'discipline'.Ifyoudon'thaveitorifyouarenotwillingtomakeacommitmenttodevelopit,stayrightawayfromwhatIamabouttotellyou.Youarebeinggivenavirtually-guaranteedwaytomakealotofmoneyeasilyandwithagoodmarginofsafety.Butitneedsyourrobot-likecontribution.Don'ttryto'improve'ontherulesthattookme57yearstodevelopandimproveforyou.Justdon'tdoit!

Therearemorethan1.5millionsourcesofchartsontheInternetofvaryingqualityandusefulness.Severalarefree.Manyhavefartoomuchinformationthatcansimplyservetoconfuseyouandleadyoutoexperiment.

Re-readtheprevioustwoparagraphs!Thenchoosethesimplestbarchartsyoucanfind.Makesuretheyareadjusted for splits,dividendsandspecialcashpayouts.Andmakeascertainasyoucan thattheyareaccurate.Ifyouseestocksdoublinginpriceandplungingbackdownthenextweek,anticipatedataentryproblems.YahooFinanceandGoogleFinancebothhavelongtermcharts.

There aremanydifferentways to represent prices, theirmovements and trends.Our systemusessimplebarchartsinpartbecausetheydeterminemoreeasilythebreadthofatrendandtheyareeasierforyoutodrawextensions.(Beultracareful toget thespacesbetweenthebarsconsistentwhenyouaddtothesechartsoryouwillgetthewrongresults.)

In a weekly bar chart (and that's what you want; not a daily or monthly one) the upright barrepresentsthepricerangefromhightolowofalltradinginthatweek.Totherightisaveryshortlinerepresenting theclosingprice for theweek.Therecanalsobea shortbar to the left representing theopeningpriceforthatweek.

Openingandclosingprices representone instant in timeand forourpurposesmeannothing,anymorethanwouldatradeat10.43a.m.onaWednesday.

Wewant tomeasurewhathappensinsuccessiveweeks:are theweeklyhighshigheroverall?Aretheweeklylowslower?Whatistheiroveralltrendandifthetrendchangesatwhatlevelwillitconfirmthatchange?

Dothiswellenoughandwewillbewayaheadofthepackmostofthetime,actuallysettingtargetsforaspecificbuyorsellasmuchasaweekinadvance.Whatanadvantage!

Ifweareusingcharts,howmuchfundamentalknowledgedoweneed?Doweneedareallydetailedanalysisofacompany'sbalancesheet,ortoknowacompanyinsideandout?Inmyopinion,theanswerisusuallyno–whichisgoodnewsforuspoormortals.

Somechartwatchersdon'twant toknowanythingatall about thecompany,believing the stock'spricefullyreflectsatanygiventimeallthereistobeknownorassumedaboutit.

That'sabittooradicalformyblood.Iwantatleasttoknowthecompanyishealthyandprofitableorlikelytobesoon.WhatImostwanttoknowmostiswhetherweareinabullmarket,whensome75%ofallshareswillrise,orinabearmarketwhenabout90%ofshareswillfall.Iwanttheoddstobeinmyfavor.Butdon'texpectanalystsandnewspapercolumniststotellyouthedirectionofthetrend(sixmonthsafteritisobvious);listentothecharts

Howdoweknowwhenistherighttimetobuyorsell?Howdoweknowwhenastockistoolowortoohigh?Thesimpleanswer is thatwedon't forsure.But–and this is fundamental to these tradingmethods–wecaneasilyknowwithagreatdegreeofprobabilitywhenpriceschangedirection.Itisthischangewhichtellsuswhentobuyortosell.

The only practical way to tell directional change in a timely fashion is with charts; we cannoteffectively determine price changesmerely by keeping numbers in our heads.Andwewould be tooinfluencedbyemotionthatway.

Sometimestheendofadownwardtrendisdeterminedbyapricelevelingoffratherthanmovingup.Atothertimes,accelerationintherateofdecline(orclimb)cansignalthenearbyendofatrend.

Even more obvious in a falling market is the occasional mighty crash at the end with, at leasttemporarily,asuddenreversal.Itdoesnotalwayshappenbutyouwillcertainlyknowitwhenitdoes.

Arisingmarketoftenterminateswithafrenzyofbuying–andjoiningthismadrush(andlisteningtothegushingwordsinnewscommentaries)isoneofthereasonssomenoviceinvestorslosetheirshirtsandwonderwhatonearthhappenedtothem.

Chartsofmoststocksotherthanthemostvolatileusuallyshowperiodsofseveralmonths'durationwhenpricesfitneatlyintochannels,up,downorsideways.Thesechannelscanbepathwaystoprofitsifwekeepwithintheirbounds.

Aparallellineofaspecificminimumlengthtouchingtheweeklyhighofafallingstockthatplacesit the greatest distance from its accompanying trendline can eventually signal a buying point whenpricescrossabovethatline.Thetrendlineandtheparallellineareatextremeswhichprovidethewidestpossiblechanneloveraperiod.Itisnotquitethateasy,butalmost.

Ashorttermhighisthesecondimportantindicator;justcrossingtheparallellineisnotenough;thatcouldleadtomanyfalsetrades.Wealsoneedtopassthroughresistance.

Themirrorimageistrueforstocksthathavebeenrising.Atrendlineacrossprominentrecentlows,when violated by subsequent prices, is often a strong indicator that, depending on certain otherconditions,weshouldgetoutfastandenjoyourprofits.

Nosinglesetofruleswillproduceidealtrendandparallellinesforallstocks.Inthatcase,don'ttrytomakethemfit.Therearesome500stocksintheS&P500Index,morethanenoughtosatisfyallbutthelargestmutualfundcompany.TherewillbetimessimplytoavoidaparticularcompanyandyouwilllearnaboutthoseinWealthyInvestorWeeklyifyousubscribe.HOWTOBECOMEAWEALTHYINVESTORPAGE19

Chapter3ThreeUniqueTools

TherearethreekeytoolstothesystemIhavenotseenanywhereelse:•Flexibletrendlines

•Shorttermhighsandlows•RedLineAlerts

Let'sdealfirstwithflexibletrendlines.Mostsystemsusetrendlinesthatmeasurearelativelyshorttimespan.Andtypicallyinabullmarkettheyareallowedonlytomovemoreacutelyupwardwhenthatispossible,nevertheoppositeway.

Oursystemusestrendlinesof161weeks,anunusuallength.Thepotentialdangeristhatinabullmarket of less than three years (not too common) youmay not reapmaximum benefit. Testing hasproved,however, that161weeks is theoptimumlength.The fact thatyouare typicallycompensatedrichlyforasickeningridedowndoesnothingtolessentheanguishwhileabearmarketeatsintocapital.Thequestionyouhavetoaskyourselfiscanyoustandtheheatinthekitchen?

(Wedevelopedanothertoolwe'lltalkaboutlaterthatpreventsfingersfrombeingburnedtoobadlyeveninawarmkitchen.)

Therearenoprotectivestoplossesuntiltrendlinesareinplace.Thatmeansyouareatthemercyofwhateverthemarketthrowsatyoufor161weeksbeyondthecyclelow(notbeyondthedateonwhichyoubuy).We testeddozensofdifferentcomputations, someofwhichhad trailingstop losses.Theprogramwesettledonhad fewer and smaller lossesbecause itwasgiven freer rein toplayout to an appropriateconclusion.Thepriceforthiswasenduringsharpupsanddownsonceinawhile,particularlyneartopsandbottoms.

Thereisnothingnewabouttrendlinesbutwhatisdifferentaboutours,apartfromthelength,isthattheycanmoveineitherdirection.Theyaresimplytheretomeasuretrendsandtowarnwhenatrendischangingdirection.

Inmostcases,apricecrossingatrendlineisasignaltosell(ortobuy).Oursneedacertainlevelofpenetrationbeforeactioniscalledfor.Butwhathappensifthepenetrationisnotsufficienttotriggerabuyorasell?

Here'swhereourtrendlinesaredifferent:weassumethelineisnotcorrectlyfollowingthetrendandmoveitslightlyawayfromthedirectioninwhichitwasheaded.Anysortoftravel–tograndma'shouseor to the moon – requires thousands of minor course corrections. Just watch the steering wheelmovementonanyvehicle.Sowhyshouldn'ttrendlinesadjust?Thoseminorcoursecorrectionstendtokeepusheadedtowardevengreatprofits.

ShorttermhighsandlowsThisisnotanewtool;Idevelopeditbackinthemid-1980sfortheforerunnertothissystem.

I'lltalkhereaboutshorttermhighs;justimagineshorttermlowsasbeingthemirrorimage.Ariseinastock'spricefollowedbyapullbackgraphicallyillustratesthetug-o'-warbetweenbuyersandsellers.On theway up, buyers aremore aggressive than sellers.On theway down, sellers aremoreanxiousthanbuyersareeager.

Ashorttermhighinoursystemisahighthatishigherthanatleastthehighsofthetwopreviousandthetwofollowingweeks.Chartshavedozensofthemscatteredaboutlikemeasles!Theyareveryweaksignsoftemporaryresistancetohigherprices.

Tobesurethatthecrossingofatrendlineisreal,wewantalsotoexceedtheleveloftheclosesthighofashorttermhighthatisabovetheleveloftheline.Ifyoudrewahorizontallinefromthetrendlineinaparticularweek,whichwouldbethefirstshorttermhightoexceedit?Apointjustabovethatleveliswherewewouldbuy.

Ifthereisnoviableshorttermhighlessthan5%abovetheline,afrequentoccurrence,weusethelineplus5%asabuytarget.Thetrendlineisalwaysdrawnoneweekaheadsoyouhaveatargetforthefollowingweek.Shorttermlowsareusedtoindicatewheretosellonceatrendlineispenetrated.

RedLineAlertsAstrongandmost-recentpartofthesystemcameaboutbyaccident:theRedLineAlert.

Forallthethingstheycando,computersaresimplygadgetsfilledwithelectronicbitsandpieces.Thehavenointelligence.Theonlyreasonourcomputers"know"a line isrisingorfallingis throughmathematics.Oncecorrectlyprogrammed,acomputercantellupfromdown,butnotinthewayyouorIwould;wecansee,acomputerhastocalculate.

Acomputercannot"see"whereithasbeen,either,iftheconnectionisbroken.It'slikefollowingawallwithyourfingersinabsolutedarkness.Thisiswhyonourchartsyouwillseeoldtrendlinesorwhythere might be a line from a previous cycle low that appears to have nothing to do with a currentinvestment.Linesoftenexistjustsothecomputerdoesnotgetlost.Withoutlinestoguideit,itwould

beblind.Duringdevelopmentoftheprogram,Iusedtomutternonetoogentlyabout"dumb"trades,buysthat

weremadetooclosetowhatwasapresumedcyclehigh.YouorIwouldlookatachartwithoureyesandseewewereclose to the levelofa recenthigh.Ourcomputerscouldnotdo that; theycannow!There'sa"dumbtradefilter".

Whenthesystem"bought"atahighleveltherewasinvariablyanastydropinpricesoonafter.Thatshould be easy to imagine.Now imagine this: the computer "thinks" it has bought and it should bedrawinganupwardslopingtrendline.(Itcan'twait161weeks;itwouldgetlost,sonon-activetrendlinesstarttobedrawnimmediatelythereisanassumedbuy.Youwillseetheseonthechartsatthebackofthisbook.)

Maybethisinvestmentrisesforafewweeks(andsoitiscoloredblue).Isaidcomputersaredumb,not color-blind! Imagine this common chart pattern: anM, a double top.We are nowheadedup theupwardslopeofthesecondhalfoftheM.Blue!Fine!

ButthencomesthefinallegoftheMandthelineisnolongerheadingupbutdownbelowwhereitbegan.Thenon-color-blindcomputer,withalittleprogramminghelp,switchesthecolorofthelinetored.Wehaveabulltrendlinethatisheadedthewrongway:down.

Once I had stopped muttering about "dumb" trades I realized that these red lines without faileventually found thenextcycle low.Thatwas theironly function.Therewerenostop loss levels setfrom them.Thesystem,as faras stop lossesareconcerned, ignored themuntil161weeksafter theyturnedacornerandstartedheadingupinthedirectiontheyweresupposedtobegoing.AndsowasbornRedLineAlert.

Atfirstwethoughtwewouldhavetorelyonyoutoignorebuysignalsthatweretooexpensive.Wetoldyouwheretofindchartsandhowtosimplyseewhensomethinglookedtoohigh.Thethoughtwasthat ifyouavoidedtheseexpensivepositionsaredlinewouldultimatelybedrawnandwewouldtellyouinWealthyInvestorWeeklyashorttimeafterithadturnedthecorner–afterithadfoundbottom.

Therewasaproblem,ofcourse.Isn't therealways?Howwouldweavoidshortcorrections in thedownwardslopethatwouldfoolthecomputertemporarilyintothinkingithadfoundthecyclelow?Ah,wait16weeks(thefirstguesstobesubjecttorigoroustesting).Thatshouldallowacorrectiontogetoveritself!

Well,itdidn'tmakealotofdifference,butadelayoftwoweekswasmorethan1%betterthan16weeksandbetter thanall theotherpossibilities.Sometimeabuywillbemade tooearly,but thesumresultwasbestwithadelayofjusttwoweeks.

Butthatleftanotherproblem:wehadverycarefulstatisticsfortheregularprogram;howcouldwekeeptrackofwhatRedLineAlertsweredoing?Howcouldweknowwhatexpensivetradesyouwouldavoid?

The end of this story is thatwe have nowmanaged to foldRedLineAlerts into the rest of theprogram.At the same time,wehave shutoutpotentialbuys that seem tooexpensive.Youno longerneedtomakethatjudgmentunlessyouaremakingcalculationsmanually.

Thecomputerstill"makes"thedumbtradesbutispreventedfromtellingyouaboutthem,justasitisprevented fromtellingyouaboutshortsales,whichwenevergot toworkverywell. (Sofar!)Thecomputerneedsto"make"thosetradessoitdoesnotgetlost.SometimesI thinkweshouldtieabellarounditsneck!

Tomyknowledge,noneof these toolsareusedanywhereelse.But, also tomyknowledge, thesereturnsarenotgeneratedanywhereelsewithoutagreatdealofriskandhardwork.Ascloseaspossible,thisisset-it-and-forget-itinvesting.Let'slookatacoupleofreallifeexamples.

Figure1:BankofAmerica,1998–2002

BankofAmericafrom1998to2001givesanexcellent illustrationofhowRedLineAlertworks.ThecyclehighofJuly131998at$27.98wasfollowedbyarapidplungeto$14.01.Therewasthenanalmost equally rapid rise that fooled the system. Had it not been suppressed, it would haverecommendedabuyonJuly51999at$24.64.Theprogram,however,willnotallowabuywithin16%ofthecyclehigh.

Justaswell,givenwhatwecannowseewouldhavebeentheresult.Butbecausethepricefell,thesystemdrewafallingbulltrendline(red)andthislineeventuallygovernswhereanallowablebuywillbemade.Notice the tworedpinsabovetheendof that line.Youwouldhavebeenalerted toeachofthemintheweeklyreport,butforourstatistics(sincewecannotseeintothefuture)wealwaysusethefirstofmultiplealerts.

Theoriginal red lineon thischart,beforeautomaticadjustment, restedon theshort termlowtwoweeksaheadofthefirstpin.Thepiniswherethetriggerwasforfirstbuyorderwhichwouldhavebeenissuedtwoweekslater.Theredlineadjustsforeachlowerlow.ThesecondandlowestpinistwoweeksaftertheabsolutelowofDecember4.Usingthefirstalert,however,thesystemboughtatmarketontheopenthenexttradingday,October302000,at$15.20.

Iftheoriginaltarget(beforeRedLineAlert)hadbeenused,profitover8.32yearswouldhavebeen$15.57ashare,anannualizedrateofreturnof7.60%.ButwithRedLineAlerttheprofitfromBankofAmericawas$25.01over7.00years,annualizedat23.52%.

Figure2:AmericanExpress,1987–1991

AmericanExpressgivesadifferent exampleofRedLineAlertusefulness.The firstbuyat$4.66(thebluepin)onJuly251988islegitimateaccordingtoallthesystemrules.Itis27.1875%belowthepreviouscyclehighof$6.40onMarch161987.

Thestockrosequitenicelyfromthereto$6.78onOctober91989andatemporary(notactiveatthattime)bluetrendlinewouldhavebeentrackingthetrendclosely.Butthe161weeksneededtomakethelineactiveandtosetstoplossprotectionfromitwouldnottakeplaceuntilDecember311990,161weeksafterthesecondofthedoublelowsat$3.35onNovember301987.

However, justbeforetheredpin, thelowonOctober151990was$3.12,lowerthanthepreviouscyclelowthetrendlinestartedfrom.Thisentiredeclinehadforcedthetemporarylinelowerandlowerandassoonasiswasbelowthestartinglevelof$3.35itbecamearedline.

Somepeoplemaynothaveboughtatthetimeofthefirstsignal(bluepin)butnowhaveasecondchancewithaRedLineAlert.Justtwoweeksafterthenewcyclelow,itcalledforabuyatmarketand,ifcarriedoutontheMondayopening,wouldhaveboughtat$3.15.

Thefirstinvestmentlastedalengthy12.65yearsbut,bythetimeitwassoldonMarch19,2001at$28.01 ithadanannualized returnof39.67%.Notshabby,but theRedLineAlert tradeproducedanannual76.21%over10.39years.

The obvious question is, if you had bought the first time, could you buy again off theRedLineAlert?Yes,thereisnothingtostopyoubutthatwouldreduceyourdiversificationandexposeyoutoaslightlyhigherriskasaresult.HOWTOBECOMEAWEALTHYINVESTORPAGE28

Chapter4Basicsthatmustbeincluded

Therearesomebasicinvestmentstrategiesthatyoumustincludeinyourinvestingprogram:•Properdiversification

•Approximateportfoliobalancing•Patience•StopordersWe'lldealwithdiversificationfirstasitmaybeoneofthemostimportantelements.

Properdiversification isessential foryourwell-beingasan investor.Properdiversificationmeans

choosing10to20stockseachfromentirelydifferentindustriesDiversificationismoreimportantthanmostpeoplerecognize.Buyasinglestock–asIdidmyfirst

time–andit'slikebettingyourentirebankrollononerollofthedice.Youmightwin.Thatwilltemptyoutodoitagain…andagain…untilyouloseitallandyouhaveto

explaintoyouriratespousewhythere'snorentmoney–orfoodmoney–thismonth.Amansaidtomeawhileback:"I'vehearditsaidthatstockdiversificationisaprotectivestrategy

butdoesn'titguaranteeyouwillhavesomenot-so-hotinvestmentsamongthewinners?"Thatisexactlywhy,inmyearlydays,IstuckwiththebestsinglestockIcouldfind–oftentofinditwasoneoftheworst!

Of course diversificationmeans youwill have some better and someworse choices than others.Theycan'tallbethebest,afterall.

WhenIbegan investing Iwonderedwhyanyonewould thinkdiversificationwasagoodstrategy.Likemostbeginning investors, Iwanted to find theverybestopportunity therewas. Ididn'twant towateritdownwithalso-ransanddivertscarcecashintosomethingnotlikelytodoaswell.

Harshexperiencesoon taughtme thatnobodycanpick just themostprofitablesharesandputalltheirmoneyintothemallthetime.

Don'tpaytoomuchattentiontoselecting"thebest"stocks.Justpickreasonableoneswithafairlyreliabletrackrecord.MostpeoplegaspwithhorrorwhenIsaythat.Afterall,thisiswhatmostseriousinvestorsdo:spendhoursresearchingtheirnexttarget.

Itdoesnotmatter!Toprovethepoint,onourwebsiteIstartedaportfoliowith12stocks.Sixwerepickedbyan11-yearoldgirlfromaverypoorPanamanianfamily,sixbyher9-year-oldbrother.Neitherhaveacluewhatastockis,nevermindwhichmightbethebestones.Oh,andneitherspeakEnglish.Theyweregivenasinglerulebyaninterpreter.Thatwasall!Theyliveinacinderblockhousewithnowindows;survival,notriches,istheirgoal.

The rule: pickoneonly fromeachof the12major industrial groupsprintedon several sheets ofpaper.Theyweregivendifferentcoloredpensandthelistyouwillseeattheendofthischapter.Thatwasit!

MybeliefisthatresultsforthefirstwhilewillberoughlythesameasfortheS&P500Index.But,usingtherulesinthisbook,theywillmissmostofthenextbearmarketandgetthebestfromthenextbullmarket.Soontheirresultswillbefarbetterthanthoseforthestockmarket.Followtheirprogresshere.IfJuliesyandAndycandoit,socanyou...andthat'sthepointoftheportfolio.

But doesn't diversification lead to merely being average? Well, yes, the Dow Jones IndustrialAverageandtheS&P500Indexcollectivelyarebothaverages.

Theirreturnshaveaveragedbetween10%and11%since1928,atimethathasincludedtwoworldwars, numerous regionalwars (havewe ever truly beenwithoutwar somewhere on the planet sincethen?),naturaldisasters,recessions,assassinations,financialturmoil–younameit.

And yet stocks have managed to move ahead and provide between 10% and 11% on averageincluding dividends throughout all that difficult time. Those numbers include bear markets andcompaniesthatsimplywentbroke.

Whatifwecouldmissoutmostofthemajordownturns?Whatifwecoulddothatwithveryfewlosses and low commission costs, too? Wouldn't that absolutely produce returns greater than theaverage?That'swhatHowtoBecomeaWealthyInvestordoes.Let'sstartoffwithanexplanationofproperdiversification.

Butfirst,a lookatwhatproperdiversificationclearlyisnot.Amancameintomyofficeonedayandwantedtobuyafewthousanddollarsworthofacommonstockmutualfund.Heshowedmewhathealreadyowned:about20othercommonstockmutualfundsallfromthesamecountry.Hewantedadifferentonetofurtherdiversify.

"Butthat'snotdiversification,"Icomplained."Yesitis;theyallhavedifferentmanagers."

"But thosemanagersallbuyfromthesamepoolofstock.Theremaybeslightvariations inwhattheyeachown,butthat'snotdiversification."

HewasmorestubbornthanmeandIcouldnotconvincehimsowepartedcompany,himpossiblythinkingIwassomekindofajerk.Iwouldnottakehismoneyforsomethingthatcouldnothelphim.

Tobeproperlydiversified, youneedanumberof stockseach fromadifferent industry. If youhaveSchlumberger(anoilfieldservicescompany),Transocean(acontractoilandgasdrillingcompany)and Ultra Petroleum (an oil and gas producer) among a list of 10 or 20 stocks, you are not fullydiversified.Ifoilgoesintoatailspin,allthreewillgethammeredatthesametime.

IprobablyshockedafewpeoplewhenIsaiditreallydoesn'tmatterwhatstocksyoupicksolongasyouchoosethemfromdifferentindustries.Mostinvestorsspendthegreatestpercentageoftheirtimeaskingquestionsandpouringoverstatisticsjusttofindthebeststockstoincludeintheirportfolio.Sorry,guys,it'snotworththebotherasJuliesyandAndywillprove.Whatisworththebotherisgoodportfoliomanagement.

Youdon'tbelievewhenIsaychoicedoesnotmatterasmuchasmanybelieve?AmaninEnglandsetoutafewyearsagotoprovehisdogcoulddobetterthanhisstockbroker.(I'mnotsurewhetherhehadasmartdogorauselessbroker.)Hespreadthestockquotationpagesfromthenewspaperonthefloorandboughtthestocksthedog"picked".Don'task!

Thedogmadeabundleand,ofcourse,thetaxmanwantedhisshareoftheproceeds.ThemanwenttocourtandwonbecausetherewasnoprovisionintheBritishtaxcodetotaxdogs."But,"thejudgewarned,"ifanyonebutthedogspendsthemoneyitwillbetaxable!"

Sodon'tsweatthechoices.Certainlydon'tlookfortipsfromanewspaper(unlessyouhaveasmartdog!);mostofthosepeoplearejournalists,notstockgurus.Don'tlistentotipsfromyourneighbortosatisfyhisegoatyourpotentialexpense,orfromanyoneoranywhereelse.

Doyourownthingandfeelmoreproudandmoreindependentattheendoftheday.YouwillnotgethurtwithwhatI'mgoingtoshowyou.

Use the list a fewpages hence of the various industrial groups and sub-groups togetherwith theS&P500 companies that comprise them.Don't pickmore thanone fromeachgroupor sub-group. Ihopethathelps.

People think they need professionals to tell them what to buy. No you do not! That's whatprofessionalswantyoutothink.Youalreadyknowwhattobuy.Somepeoplemakemuchtoomuchhardworkoutofstockinvesting.Truly,itiseasywithasystem.

Let'sdealwithafewthingsoneatatime:Whatisyourfavoritebrandatthegrocerystore?Dotheysellalotofthatbrand?Why?Isitthequality?Themarketing?Thecost?Addjustonegroceryitemtoyourpossiblelist.Ifyouliketwopickthebestorgoeeneymeeneymineymoe!Don'tchooseboth.

What car do you drive?Why?What do your friends drive andwhy? Is it easy to service, safe,comfortabletodrive,getgoodgasmileage?Isitapopularbrand?Doesthecompanymakegoodprofitsorhavetooffertoomanydiscountstoattractsales?

Ifyoudohouserepairsoryouarebuildinganextensionorevenanewhouse,wheredoyouliketobuyyoursupplies?Why?Dotheygiveyouserviceaboveandbeyondthecompetition?Dotheyseemtohaveplentyofcustomers?Isthestaffpoliteandknowledgeable?Aretheirstoresconvenientandinbusylocations?Thequestionsaboutthingsyoubuyarevirtuallythesamewhateverthecategory.

Youprobablydon'tbuysteelgirders,butit'snottoodifficulttoaskaroundtoseewhichcompanyofthosethatmakethemisthemostconsistentlyprofitable...ifforsomereasonyouthinktheyareagoodinvestment.What are your hobbies, where do you buy your clothes or shoes for the kids, what health care orcosmeticproductsdoyoufindtobethebest?

Alittlethoughtwillprovideanalmost-unlimitednumberofgood,solidcompaniesabletosurvivethenextdownturnand thedownturnsafter that. Just think, for instance,howmanydownturns in theeconomyKrafthaslivedandprosperedthrough.YouseewhatI'mtellingyou?Youcandoit.Youdon'tneedsomeoverpricedbrokerwhodoesn'tknowhis…nevermind!

Youcandoitandpityyourfriendswhoworryovertheirchoicesorhavetoruntootherstoholdtheir hand.Youdon't need it; you alreadyknow how todiversify properly–more in fact thanmostbrokers.

If you're still unsure (and that's understandable) choose 10 to 20 companies, follow all the ruleshere,andinvestonpaperforawhile.SlightlychangetheoldNikeslogan:"Youcandoit!"Okay,here'sthelistIpromised:ConsumerCyclicalFootwear:

NIKE,Inc.(NKE)RecreationalProducts:Hasbro,Inc.(HAS)Harley-Davidson,Inc.(HOG)Mattel,Inc.(MAT)AudioandVideoEquipment:HarmanInternationalIndustriesInc./DE/(HAR)

FurnitureandFixtures:Leggett&Platt,Inc.(LEG)Tires:

ConsumerCyclicalTheGoodyearTire&RubberCompany(GT)AutoandTruckManufacturers:FordMotorCompany(F)PACCARInc(PCAR)AutoandTruckParts:

GenuinePartsCompany(GPC)JohnsonControls,Inc.(JCI)

ApplianceandTool:W.W.Grainger,Inc.(GWW)Snap-onIncorporated(SNA)

ConsumerCyclicalStanleyBlack&Decker,Inc.(SWK)WhirlpoolCorporation(WHR)

Apparel/Accessories:PoloRalphLaurenCorporation(RL)V.F.Corporation(VFC)

CapitalGoodsConstruction-RawMaterials:VulcanMaterialsCompany(VMC)

ConstructionServices:D.R.Horton,Inc.(DHI)

FluorCorporation(NEW)(FLR)JacobsEngineeringGroupInc.(JEC)LennarCorporation(LEN)

PulteGroup,Inc.(PHM)QuantaServices,Inc.(PWR)

Misc.CapitalGoods:CumminsInc.(CMI)DoverCorporation(DOV)FlowserveCorporation(FLS)ITTCorporation(ITT)IllinoisToolWorksInc.(ITW)PallCorporation(PLL)

UnitedTechnologiesCorporation(UTX)AerospaceandDefense:

TheBoeingCompany(BA)RockwellCollins,Inc.(COL)FLIRSystems,Inc.(FLIR)GeneralDynamicsCorporation(GD)

GoodrichCorporation(GR)HoneywellInternationalInc.(HON)L-3CommunicationsHoldings,Inc.(LLL)LockheedMartinCorporation(LMT)

CapitalGoodsNorthropGrummanCorporation(NOC)RaytheonCompany(RTN)

Constr.-SuppliesandFixtures:FortuneBrands,Inc.(FO)MascoCorporation(MAS)Constr.andAgric.Machinery:CaterpillarInc.(CAT)

Deere&Company(DE)FastenalCompany(FAST)TransportationAirline:

SouthwestAirlinesCo.(LUV)Railroads:CSXCorporation(CSX)NorfolkSouthernCorp.(NSC)UnionPacificCorporation(UNP)AirCourier:FedExCorporation(FDX)UnitedParcelService,Inc.(UPS)

Misc.Transportation:C.H.RobinsonWorldwide,Inc.(CHRW)ExpeditorsInternationalofWashington(EXPD)

UtilitiesNaturalGasUtilities:ElPasoCorporation(EP)NicorInc.(GAS)ONEOK,Inc.(OKE)SpectraEnergyCorp.(SE)SempraEnergy(SRE)

ElectricUtilities:AmerenCorporation(AEE)

AmericanElectricPowerCompany,Inc.(AEP)TheAESCorporation(AES)AlleghenyEnergy,Inc.(AYE)

UtilitiesConstellationEnergyGroup,Inc.(CEG)CMSEnergyCorporation(CMS)

CenterPoint Energy, Inc. (CNP) Dominion Resources, Inc. (D) DTE Energy Company (DTE) DukeEnergyCorporation(DUK)ConsolidatedEdison,Inc.(ED)EdisonInternational(EIX)EntergyCorporation(ETR)ExelonCorporation(EXC)FirstEnergyCorp.(FE)NextEraEnergy,Inc.(NEE)NiSourceInc.(NI)NRGEnergy,Inc.(NRG)NortheastUtilitiesSystem(NU)PG&ECorporation(PCG)PublicServiceEnterpriseGroupInc.(PEG)ProgressEnergy,Inc.(PGN)PinnacleWestCapitalCorporation(PNW)PepcoHoldings,Inc.(POM)PPLCorporation(PPL)SCANACorporation(SCG)TheSouthernCompany(SO)TECOEnergy,Inc.(TE)IntegrysEnergyGroup,Inc.(TEG)WisconsinEnergyCorporation(WEC)XcelEnergyInc.(XEL)TechnologyComputerPeripherals:

LexmarkInternational,Inc.(LXK)CommunicationsEquipment:CiscoSystems,Inc.(CSCO)HarrisCorporation(HRS)JDSUniphaseCorporation(JDSU)

TechnologyJuniperNetworks,Inc.(JNPR)Motorola,Inc.(MOT)QUALCOMM,Inc.(QCOM)RockwellAutomation(ROK)Tellabs,Inc.(TLAB)

Semiconductors:AnalogDevices,Inc.(ADI)AlteraCorporation(ALTR)AppliedMaterials,Inc.

(AMAT)AdvancedMicroDevices,Inc.(AMD)BroadcomCorporation(BRCM)FirstSolar,Inc.(FSLR)

IntelCorporation(INTC)KLA-TencorCorporation(KLAC)LinearTechnologyCorporation(LLTC)LSICorporation(LSI)MicrochipTechnologyInc.(MCHP)MicronTechnology,Inc.(MU)NationalSemiconductorCorporation(NSM)NVIDIACorporation(NVDA)NovellusSystems,Inc.(NVLS)QLogicCorporation(QLGC)Teradyne,Inc.(TER)TexasInstrumentsIncorporated(TXN)MEMCElectronicMaterials,Inc.(WFR)Xilinx,Inc.(XLNX)

ElectronicInstr.andControls:AgilentTechnologiesInc.(A)AmphenolCorporation

(APH)EatonCorporation(ETN)

JabilCircuit,Inc.(JBL)MolexIncorporated(MOLX)SoftwareandProgramming:

TechnologyAdobeSystemsIncorporated(ADBE)Autodesk,Inc.(ADSK)BMCSoftware,Inc.(BMC)CA,Inc.(CA)CompuwareCorporation(CPWR)CognizantTechnologySolutionsCorp.(CTSH)CitrixSystems,Inc.(CTXS)ElectronicArtsInc.(ERTS)IntuitInc.(INTU)McAfee,Inc.(MFE)MicrosoftCorporation(MSFT)Novell,Inc.(NOVL)OracleCorporation(ORCL)RedHat,Inc.(RHT)SAIC,Inc.(SAI)SymantecCorporation(SYMC)Verisign,Inc.(VRSN)

ComputerServices:AkamaiTechnologies,Inc.(AKAM)CernerCorporation(CERN)salesforce.com,inc.(CRM)ComputerSciencesCorporation(CSC)TheDun&BradstreetCorporation(DNB)Fiserv,Inc.(FISV)GoogleInc.(GOOG)InternationalBusinessMachinesCorp.(IBM)TeradataCorporation(TDC)TotalSystemServices,Inc.(TSS)Yahoo!Inc.(YHOO)

OfficeEquipment:PitneyBowesInc.(PBI)XeroxCorporation(XRX)ComputerHardware:

TechnologyAppleInc.(AAPL)DellInc.(DELL)Hewlett-PackardCompany(HPQ)

ComputerStorageDevices:EMCCorporation(EMC)NetAppInc.(NTAP)SanDiskCorporation(SNDK)WesternDigitalCorp.(WDC)

Scientific and Technical Instr.: Danaher Corporation (DHR) Emerson Electric Co. (EMR) RoperIndustries,Inc.(ROP)WatersCorporation(WAT)

FinancialInsurance(Prop.andCasualty):ACELimited(ACE)AmericanInternationalGroup,Inc.(AIG)Assurant,Inc.(AIZ)

TheAllstateCorporation(ALL)BerkshireHathawayInc.(BRK-B)

TheChubbCorporation(CB)CincinnatiFinancialCorporation(CINF)HartfordFinancialServices(HIG)LoewsCorporation(L)TheProgressiveCorporation(PGR)TheTravelersCompanies,Inc.(TRV)XLCapitalLtd.(XL)

S&Ls/SavingsBanks:CapitalOneFinancialCorp.(COF)HudsonCityBancorp,Inc.(HCBK)NorthernTrustCorporation(NTRS)People'sUnitedFinancial,Inc.(PBCT)

FinancialConsumerFinancialServices:AmericanExpressCompany

(AXP)DiscoverFinancialServices(DFS)FidelityNationalInformationServices(FIS)GeneralElectricCompany(GE)MasterCardIncorporated(MA)SLMCorporation(SLM)VisaInc.(V)

InvestmentServices:AmeripriseFinancial,Inc.(AMP)FranklinResources,Inc.(BEN)CMEGroupInc.(CME)

E*TRADEFINANCIALCORP(ETFC)FederatedInvestors,Inc.(FII)GoldmanSachsGroup,Inc.(GS)IntercontinentalExchange,Inc.(ICE)InvescoLtd.(IVZ)JanusCapitalGroupInc.(JNS)LeggMason,Inc.(LM)

MorganStanley(MS)NASDAQOMXGroup,Inc.(NDAQ)NYSEEuronext(NYX)TheCharlesSchwabCorporation(SCHW)T.RowePriceGroup,Inc.(TROW)

Insurance(Life):GenworthFinancial,Inc.(GNW)

LincolnNationalCorporation(LNC)MetLife,Inc.(MET)

PrudentialFinancial, Inc. (PRU)TorchmarkCorporation(TMK)Insurance(AccidentandHealth):AetnaInc.(AET)

FinancialAFLACIncorporated(AFL)CIGNACorporation(CI)CoventryHealthCare,Inc.(CVH)HumanaInc.(HUM)

PrincipalFinancialGroup,Inc.(PFG)UnitedHealthGroupInc.(UNH)UnumGroup(UNM)WellPoint,Inc.(WLP)

RegionalBanks:BB&TCorporation(BBT)

TheBankofNewYorkMellonCorporation(BK)ComericaIncorporated(CMA)FirstHorizonNationalCorporation(FHN)FifthThirdBancorp(FITB)HuntingtonBancsharesIncorporated(HBAN)JPMorganChase&Co.(JPM)KeyCorp(KEY)

Marshall&IlsleyCorporation(MI)M&TBankCorporation(MTB)PNCFinancialServices(PNC)RegionsFinancialCorporation(RF)SunTrustBanks,Inc.(STI)

WellsFargo&Company(WFC)ZionsBancorporation(ZION)

Insurance(Miscellaneous):AonCorporation(AON)Marsh&McLennanCompanies,Inc.(MMC)

MoneyCenterBanks:BankofAmericaCorporation(BAC)CitigroupInc.(C)StateStreetCorporation(STT)U.S.Bancorp(USB)

CasinosandGaming:InternationalGameTechnology(IGT)WynnResorts,Limited(WYNN)

Retail(CatalogandMailOrder):Amazon.com,Inc.(AMZN)eBayInc.(EBAY)RentalandLeasing:

RyderSystem,Inc.(R)MotionPictures:DiscoveryCommunicationsInc.(DISCA)

Retail(Technology):BestBuyCo.,Inc.(BBY)GameStopCorp.(GME)RadioShackCorporation(RSH)

RealEstateOperations:ApartmentInvestmentandManagementCo.(AIV)AvalonBayCommunities,Inc.(AVB)BostonProperties,Inc.(BXP)CBRichardEllisGroup,Inc.(CBG)EquityResidential(EQR)HealthCareREIT,Inc.(HCN)HCP,Inc.(HCP)HostHotels&Resorts,Inc.(HST)KimcoRealtyCorporation(KIM)PlumCreekTimberCo.Inc.(PCL)ProLogis(PLD)

PublicStorage(PSA)SimonPropertyGroup,Inc(SPG)VornadoRealtyTrust(VNO)Ventas,Inc.(VTR)

PrintingServices:EastmanKodakCompany(EK)R.R.Donnelley&SonsCompany(RRD)

Retail(Specialty):AutoNation,Inc.(AN)AutoZone,Inc.(AZO)

BedBath&BeyondInc.(BBBY)BigLots,Inc.(BIG)CostcoWholesaleCorporation(COST)FamilyDollarStores,Inc.(FDO)

CarMax,Inc(KMX)OfficeDepot,Inc.(ODP)

O'ReillyAutomotive,Inc.(ORLY)Tiffany&Co.(TIF)

RecreationalActivities:CarnivalCorporation(CCL)Retail(HomeImprovement):TheHomeDepot,Inc.(HD)

Lowe'sCompanies,Inc.(LOW)Sherwin-WilliamsCompany(SHW)

BusinessServices:AutomaticDataProcessing(ADP)EquifaxInc.(EFX)IronMountainIncorporated(IRM)Moody'sCorporation(MCO)MonsterWorldwide,Inc.(MWW)Paychex,Inc.(PAYX)priceline.comIncorporated(PCLN)RobertHalfInternationalInc.(RHI)TheWesternUnionCompany(WU)

Schools:ApolloGroup,Inc.(APOL)DeVryInc.(DV)TheWashingtonPostCompany(WPO)

WasteManagementServices:RepublicServices,Inc.(RSG)Stericycle,Inc.(SRCL)WasteManagement,Inc.(WM)Retail(DepartmentandDiscount):

J.C.PenneyCompany,Inc.(JCP)Kohl'sCorporation(KSS)Macy's,Inc.(M)

SearsHoldingsCorporation(SHLD)TargetCorporation(TGT)TheTJXCompanies,Inc.(TJX)Wal-MartStores,Inc.(WMT)

Restaurants:DardenRestaurants,Inc.(DRI)

McDonald'sCorporation(MCD)StarbucksCorporation(SBUX)

Yum!Brands,Inc.(YUM)Retail(Apparel):

Abercrombie&FitchCo.(ANF)Coach,Inc.(COH)

TheGapInc.(GPS)Nordstrom,Inc.(JWN)LimitedBrands,Inc.(LTD)RossStores,Inc.(ROST)UrbanOutfitters,Inc.(URBN)

BroadcastingandCableTV:CBSCorporation(CBS)ComcastCorporation(CMCSA)TheWaltDisneyCompany(DIS)DIRECTV(DTV)

ScrippsNetworksInteractive,Inc.(SNI)TimeWarnerCableInc.(TWC)TimeWarnerInc.(TWX)Viacom,Inc.(VIA-B)

CommunicationsServices:AmericanTowerCorporation(AMT)CenturyTel,Inc.(CTL)FrontierCommunicationsCorp(FTR)LeucadiaNationalCorp.(LUK)MetroPCSCommunications,Inc.(PCS)QwestCommunicationsInternationalInc.(Q)SprintNextelCorporation(S)AT&TInc.(T)VerizonCommunicationsInc.(VZ)WindstreamCorporation(WIN)

Retail(Grocery):TheKrogerCo.(KR)SUPERVALUINC.(SVU)SafewayInc.(SWY)SYSCOCorporation(SYY)WholeFoodsMarket,Inc.(WFMI)

PrintingandPublishing:GannettCo.,Inc.(GCI)MeredithCorporation(MDP)

TheMcGraw-HillCompanies,Inc.(MHP)NewsCorporation(NWSA)TheNewYorkTimesCompany(NYT)

Advertising:InterpublicGroupofCompanies,Inc.(IPG)OmnicomGroupInc.(OMC)

HotelsandMotels:StarwoodHotels&ResortsWorldwide,Inc(HOT)

MarriottInternational,Inc.(MAR)WyndhamWorldwideCorporation(WYN)

PersonalServices:CintasCorporation(CTAS)Expedia,Inc.(EXPE)H&RBlock,Inc.(HRB)

ServicesRetail(Drugs):CVSCaremarkCorporation

(CVS)MedcoHealthSolutionsInc.(MHS)WalgreenCompany(WAG)

ConglomeratesConglomerates:3MCompany(MMM)TextronInc.(TXT)TycoInternationalLtd.(TYC)

HealthcareHealthcareFacilities:QuestDiagnosticsIncorporated(DGX)DaVitaInc.(DVA)ExpressScripts,Inc.(ESRX)

LaboratoryCorp.ofAmericaHoldings(LH)TenetHealthcareCorporation(THC)

MajorDrugs:AbbottLaboratories(ABT)

BristolMyersSquibbCo.(BMY)Johnson&Johnson(JNJ)

EliLilly&Co.(LLY)Merck&Co.,Inc.(MRK)PfizerInc.(PFE)

BiotechnologyandDrugs:AmerisourceBergenCorp.(ABC)Allergan,Inc.(AGN)Amgen,Inc.(AMGN)BiogenIdecInc.(BIIB)CardinalHealth,Inc.(CAH)CelgeneCorporation(CELG)Cephalon,Inc.(CEPH)ForestLaboratories,Inc.(FRX)GenzymeCorporation(GENZ)

HealthcareGileadSciences,Inc.(GILD)Hospira,Inc.(HSP)King Pharmaceuticals, Inc. (KG) Life Technologies Corp. (LIFE) McKesson Corporation (MCK)MylanInc.(MYL)WatsonPharmaceuticals,Inc.(WPI)

MedicalEquipmentandSupplies:BaxterInternationalInc.(BAX)C.R.Bard,Inc.(BCR)Becton,DickinsonandCo.(BDX)

BostonScientificCorporation(BSX)

CareFusionCorporation(CFN)IntuitiveSurgical,Inc.(ISRG)Medtronic,Inc.(MDT)PattersonCompanies,Inc.(PDCO)

PerkinElmer,Inc.(PKI)St.JudeMedical,Inc.(STJ)StrykerCorporation(SYK)ThermoFisherScientificInc.(TMO)

VarianMedicalSystems,Inc.(VAR)DENTSPLYInternationalInc.(XRAY)ZimmerHoldings,Inc.(ZMH)Consumer/Non-CyclicalBeverages(Alcoholic):

Brown-FormanCorporation(BFB)ConstellationBrands,Inc.(STZ)MolsonCoorsBrewingCompany(TAP)

PersonalandHouseholdProds.:AvonProducts,Inc.(AVP)Colgate-PalmoliveCompany(CL)

TheCloroxCompany(CLX)Consumer/Non-CyclicalEcolabInc.(ECL)

TheEsteeLauderCompaniesInc.(EL)CorningIncorporated(GLW)Kimberly-ClarkCorporation(KMB)

NewellRubbermaidInc.(NWL)TheProcter&GambleCompany(PG)

FoodProcessing:ArcherDanielsMidlandCompany(ADM)ConAgra Foods, Inc. (CAG) Campbell Soup Company (CPB) Dean Foods Company (DF) GeneralMills,Inc.(GIS)H.J.HeinzCompany(HNZ)HormelFoodsCorporation(HRL)TheHersheyCompany(HSY)KelloggCompany(K)KraftFoodsInc.(KFT)MeadJohnsonNutritionCO(MJN)McCormick&Company,Incorporated(MKC)TheJ.M.SmuckerCompany(SJM)SaraLeeCorp.(SLE)TysonFoods,Inc.(TSN)

Tobacco:LorillardInc.(LO)AltriaGroup,Inc.(MO)

PhilipMorrisInternationalInc.(PM)ReynoldsAmerican,Inc.(RAI)

Beverages(Nonalcoholic):Coca-ColaEnterprisesInc.(CCE)DrPepperSnappleGroupInc.(DPS)TheCoca-ColaCompany(KO)

Consumer/Non-CyclicalPepsiCo,Inc.(PEP)OfficeSupplies:Staples,Inc.(SPLS)EnergyCoal:

PeabodyEnergyCorporation(BTU)CONSOLEnergyInc.(CNX)

MasseyEnergyCompany(MEE)OilWellServicesandEquipment:

BakerHughesIncorporated(BHI)CameronInternationalCorporation(CAM)DiamondOffshoreDrilling,Inc.(DO)FMC Technologies, Inc. (FTI) Halliburton Company (HAL) Helmerich & Payne, Inc. (HP) NaborsIndustriesLtd.(NBR)National-OilwellVarco,Inc.(NOV)RowanCompanies,Inc.(RDC)SchlumbergerLimited.(SLB)

OilandGas-Integrated:ConocoPhillips(COP)ChevronCorporation(CVX)HessCorp.(HES)

MarathonOilCorporation(MRO)ExxonMobilCorporation(XOM)

OilandGasOperations:ApacheCorporation(APA)

AnadarkoPetroleumCorporation(APC)ChesapeakeEnergyCorporation(CHK)CabotOil&GasCorporation(COG)DenburyResourcesInc.(DNR)

EnergyDevonEnergyCorporation(DVN)EOGResources,Inc.(EOG)EQTCorporation(EQT)MurphyOilCorporation(MUR)NobleEnergy,Inc.(NBL)OccidentalPetroleumCorporation(OXY)PioneerNaturalResources(PXD)QEPResources,Inc.CommonStock(QEP)RangeResourcesCorp.(RRC)Sunoco,Inc.(SUN)SouthwesternEnergyCompany(SWN)TesoroCorporation(TSO)ValeroEnergyCorporation(VLO)WilliamsCompanies,Inc.(WMB)BasicMaterialsChemicalManufacturing:

AirProducts&Chemicals,Inc.(APD)Airgas,Inc.(ARG)

CFIndustriesHoldings,Inc.(CF)E.I.duPontdeNemours&Company(DD)FMCCorporation(FMC)InternationalFlavors&FragrancesInc.(IFF)MonsantoCompany(MON)PPGIndustries,Inc.(PPG)Praxair,Inc.(PX)Sigma-AldrichCorporation(SIAL)GoldandSilver:Freeport-McMoRanCopper&GoldInc.(FCX)NewmontMiningCorporation(NEM)MetalMining:

BasicMaterialsAlcoaInc.(AA)CliffsNaturalResourcesInc

(CLF)TitaniumMetalsCorporation(TIE)

Misc.FabricatedProducts:AlleghenyTechnologiesIncorporated(ATI)PrecisionCastpartsCorp.(PCP)Parker-HannifinCorporation(PH)

ForestryandWoodProducts:WeyerhaeuserCompany(WY)IronandSteel:

AKSteelHoldingCorporation(AKS)NucorCorporation(NUE)UnitedStatesSteelCorporation(X)ContainersandPackaging:AveryDennisonCorporation(AVY)BallCorporation(BLL)

BemisCompany,Inc.(BMS)MeadWestvacoCorp.(MWV)Owens-Illinois,Inc.(OI)PactivCorporation(PTV)SealedAirCorp.(SEE)

PaperandPaperProducts:InternationalPaperCompany(IP)Chemicals-PlasticsandRubber:

TheDowChemicalCompany(DOW)EastmanChemicalCompany(EMN)HOWTOBECOMEAWEALTHYINVESTORPAGE44

Chapter5Stopordersandemotions

Inthepreviouschapter,afterdiversification,Imentionedotherimportantelementstoyourinvestingsuccess.Innoparticularorder,theywere:

•Approximateportfoliobalancing•Patience•StopordersLet'sdevotethischaptertostoporders,whattheyare,andwhytheyaresovitaltoyoursuccess.

Oneof themoredifficult thingsaboutbuyingorsellingshares is toknowwhen todoso.This ismostoftendonebyguessingorbygut feeling,yoursor someoneelse's, and isoften a timeofgreat

stress.Toooften,itisablindactionbasedonhopeorfear.Selling,perhapssurprisingly,ismoredifficultthanbuyingformostpeople.Oneofthefirstthings

weneedtorecognizeisthatalllossesarereal;justbecausewecontinuetohangontostocksthathavegonedowninvaluedoesn'tmakethelossanylessreal.

I can't counthowmany timespeoplehave said tomewhenholding stocksworthpennieson thedollar:"Ohit'sonlyapaperloss."Theinferenceisthatthestocksarestillworthwhattheycostandthatthedifferencebetweencostandwhatthemarketiswillingtopaynowisamerebookkeepingentrysolongasthestockscontinuetobeheld.

Nonsense!Astockisworthtodaynomoreandnolessthansomeoneiswillingtopayfor itrightnow.It'srealmoney,notMonopolyplaystuff.Stocks,justlikechecks,canbecashed.

Tendollarsinthecookiejarand$10fromstocksbuysexactlythesameamountofgroceries.Thereisnosuchthingasa"paper"profitorloss;thetermisapsychologicalcrutchthatcanbehazardoustoyourfinancialhealth.

You've heard the expression time ismoney; even if youwait through amajor dip and the stockcomesbackuptobreakeven,youhavestilllostmoney.JustsittinginadulloldT-bill,themoneyyouhavepatientlybeenwaitingtoreturnwouldhaveearnedsomething.Timeismoney:ifaninvestmentisnotworkingforyouthewayitshould,getridofit!

Money is rarelymadewith any consistency in the stockmarket by being stupendously right: it'smade–andkept–bynotbeingfatallywrong.Onceweacceptthefactthatwe'renotgods,thatsomeofoursure-firewinnerswillturnsour,wecandevisestrategiesforcuttingbaitquicklywhenwehaveto.

Ausefuldeviceisthestoplossorder,anorderspecificallydesignedtopreventlosingtoomuchorgivingbacktoomuchoftheprofitwehavemade.Thistool,surprisingly,isnotusedbythemajorityofsmallinvestorsandIbelievethat'sthereasonmanyofthemownportfoliosinwhichremainstocksthatarenowvirtuallyworthless.

Mosthow-tobookshave little tosayon thesubjectofstop lossesandmostbrokerswhohavenohands-oncommodities experience (where theymust beused all the time)usually fail to recommendthem.

Areaderofoneofmynewspapercolumnswastoldbyhisbrokernottousestoplosses."Youriskbeingsoldout(ofalosingposition)andhavingthepricegorightbackup."That'squitetrueanditisthereasonperhapsthatstoplossordersarenotauniversaltechnique.Thereadershouldhaveasked:"AndwhatdoIriskifitfallsfurther?"

Thereisnosuchthingasaguaranteeofsuccessforanyactionrelatedtothestockmarket.Ourtaskistofindstrategiesthatworkmoreoftenthantheyfail; letothersoccupythemselveswithexceptionswhichwillalwaysexist.

Myreadersentmealistof10stockshethenowned.Hehadinvested$46,500andhadalreadylost$18,000.Hewrotethatmoststockshadbeenrecommendedbyhisbroker.

Hadhemerelyapplieda10%trailingstoploss(andIdonotrecommendsomethingsountailoredtospecific situations) to each of the stockswhenhe bought them, his total losswould have been $850instead of $18,000. (And if he had used the techniques described in this book hewould have had aconsiderableprofit.)

Let's lookatabetterwaytooperate thanwithasimple trailingstoplossorder.Butfirst,whatonearthisastoplossorder?Andwhatisatrailingstoploss?

Astoploss(oftenreferredtosimplyasastop)isatypeoforderloggedwithyourbrokeraheadoftimethatbecomesanordertosell"atmarket"(forwhateverthebrokercanget)ifthestock'spricefallstothelevelofthestoplossorder.

Let'ssupposeastopissetat$19.75forthenextweek.Thatdoesnotmeanyouwillreceive$19.75

foryoursharesiftheyfalltothatlevel.Ifthenextbidisat,say$19.74,thisisthepriceyouwouldget.Butifyouhaveputa10-centlimitonyourstoploss(notsomethingIadvise),itcouldnotbesoldforlessthan$19.65.

Stoplossordersarequiterudimentarytactics.Farmoreusefulisthetrailingstoploss.Theyhavethe added advantage of preserving asmuch as possible the profit that has accumulated in awinningposition,protectingusagainstgivingbacktoomuchofourhard-wongains.Atrailingstopisonethatismovedupinarisingmarketassuccessivehighsareachievedbyyourstock.

Atrailingstopisaone-wayproposition; inabullmarket itcanbemovedupbutneverdown.Solongasthestock'spricecontinuestorisethetrailingstopwillrisewithitlockinginincreasinglygreaterprofit.When,asiteventuallymust,thestockpricestartstofallthelevelofthestoplossremainsstationary.Ifthestock'spricefallsfarenoughthestockwillultimatelybesold.Nodecisions,noanxietyattacks,nowonderingwhetherornotthedropistemporary.Cleanandsimple!It'sdone!Next?

Theeasiestway tomanagestop lossorders is toactuallyplaceyourorderat thestartof thenewweek. (Do thiseven if theyareunchanged;mostbrokerageswillnotholdstopordersopen formorethanoneweek.)

Settingstopstakespressureoffyouandpreventsyoufromgettinglast-minutejittersduringapriceplungeandthinking,"Oh,I'msurethis is just temporaryandthepricewillriseagain."Yourdecisionwasalreadymadeincalmer,more-reasonedtimes.

Inoneoftheearlierversionsofourprogram,weappliedstopswhenastockhadrisen25%.Thenwe used a 25% trailing stop. It seemed reasonable; in theory, we could lose nothing. But thoroughtesting showed that applied thisway these stops reducedprofitabilityby aboutonethird. Instead, ourprogramwaitsuntilatrendlinehasbeendrawnandthensetsastoplossjustbelowthelevelofthatline.Inasense,itisatrailingstopbuttrailingthetrend,notthestockpriceitself.

Sometimes,toallowthestocktosettleonanewandhighertrend,astoplosscanbesofarremovedfromactualpricesastobevirtuallyworthless.Butresultsshowthatusuallythetrendlinewillaccelerateeventuallyand thestopbecomesmore realisticanduseful.When theshareprice isunrealistically farremovedfromwhereyourstopshouldbethereisnoabsoluteneedtoenterastopwithyourbroker.

Mypreferenceistoentertheorderwheneverthecurrentpriceiswithin20%andcouldbetriggeredbyacatastrophicevent. Just remember tochange it the followingweekwhen thestop loss levelwilllikelybeatadifferentprice.

Setting the selling (or buying) level is then done in the cold light of day with zero emotionalinvolvement.Doyouthinkthesedecisionsmightbeofbetterquality,probablyleadingtomorewealth?Canyouseehowthedegreeofworryorpressurewouldbereduced?

Nowlet'sdiscusshowWealthyInvestorusesstopordersbycombiningthemwithtrendlinestomaketrendlinesandstoporders"livingaccomplices"ingainingwealth.

There'sasayingamonginvestorsthat"thetrendisyourfriend".HowtoBecomeaWealthyInvestorfollowstrendsandchangeshorseswhenthetrendchanges.

Buthowdoyoudothat?Let'slookatitthisway:Ifyouwantedtodrawastraightlineyouwoulduse a ruler. The logarithmic mean of a stock's directional trend over decades is typically also areasonably straight line but we know they also meander a lot within that general trend, sometimesviolently.

Wealsoknowthattrends,althoughfollowingthesamegeneraldirection,oftenchangetheirangleofclimbordescent.Suchchangewouldrequireacurvedrulertomakeanaccuratemeasurement,buthowcan we find one with the right degree of curve – especially since every stock and every curve isdifferent?

Theansweris tousetrendlinesandlinesparallel to them.Imaginethemasparallelcurbstoneson

eithersideofastreet,thestreetitselfbeingthetrend.(Look at a typical old curbstone; they are rectangular blocks of stone, usually granite, each of a

certain length. Ignore theconcreteones thatareformedinanydesiredshape today.Laidendonend,thesegranitecurbstonescanquitehappilyfollowbends.Trendlinesbeingstraightonalogarithmicchartcan do exactly the same thing: follow changes in trend direction depending on the length of thetrendline.)

Wewilltalkmoreabouttrendsandtrendlineslater.Fornow,let'sjuststatetwothings:atrendlineinarisingmarket isbelowprominentweeklylowsalongthepath; itwill touchat least twoof themostprominentoftheseweeklylows.Atrendlineforafallingmarketisabovethemoreprominentweeklyhighs.

Thosetrendlinesandtheirparallelsarethereforasinglepurpose:togetusinandoutoftradeswhenthegeneraltrendgivesanindicationofchanging.

BeforeIgoontoexplainmoreaboutvarioustypesofstoplossorders,let'sjustaddonemorethingabouttrendsandthelinesweusetodeterminetheirtypicalvarianceanddirection.Atrendneedstoestablishitselfbeforetrendlinescanbedrawn.Wecannotwakeuponemorninganddecide:"Oh,thetrendwillchangetodaysoIwilldrawsomelinesonapieceofpaperforittofollow."Remember this crucial point:We need themarket to tellus the direction is it taking andwillmostlikelyfollowforanunknownperiod.Wemustnottry(futilely)Therearealreadytoomanyforecastersintheworldcreatinglossesformanyoftheinvestorswhofollowthem.

Markets,eitherrisingorfalling,followchannelsnotstraightlines.Theyflowtypicallybetweentwoparallels.Sometimesthoseparallellinesarereasonablyclosetogether;forotherstockstheymaybefarapart. But even with the measurement between those two lines showing us the typical extent offluctuationsinprice,theyarenotperfectlimits,likestrongconcretewalls.

Theyareresistancepointsbutthatdoesnotmeanstockpricescannotcrossthem.Eventually,theywillcrossandthetrendwillbebroken.

Ifwe used the trendlines themselves as buy and sell points (asmany systems do),wewould bebuyingandsellingfartoofrequentlyasstockszigzagbetweenthetwolines.Stocktradingisanart,notascience.Sometimes,stockswillblipacrossa linewithout triggeringa trade inoursystem.Assumethese blips are false breakouts and use them to correct the position of the line. That is an unusualtreatmentfortrendlinesprobablymakingtheHowtoBecomeaWealthyInvestorsystemuniqueinthisregard.Trendlinescannotusuallyreducetheirangleofclimb;oursdoundercertaincircumstances.Thestoplossorderinarisingmarketisplacedjustoutsidethelowerline.Itdemandseitherashorttermlowbeexceededaswellasthetrendlineor,intheabsenceofausefulshorttermlow,thatthelinebeexceededby5%.

If the stop is too close to the line, you risk having an otherwise excellent trade cut short by atemporaryblipinprice;ifitistoofarbelowtheline,yougiveuptoomuchprofit.

Thereisalsosomethingcalledastopbuythatmanybrokersdon'tfullyunderstand.Ihadtoteachentirebrokeragestaffs in twodifferentnational firms the logicbehind them.Theyare for initiatingatradeinarisingmarketatapriceabovethecurrentone.

SomebrokershavemerelyshakentheirheadswhenIexplaintheprinciple."Whywouldn'tyoujustbuythestocknowatthecurrentlevelinsteadofwaitinguntilitrises?"theyask,lookingatmeasifIamtotallymad.IhopeyouwillunderstandwhenIexplain.

Itisoneofthekeypointsinyoursuccess.Youwantpricestogivesomereasonableevidencetherearemorebuyersthansellersaround.

In the1980sIdevelopedasystemsimilar insomeways to thisone(thesubjectofanow-out-of-printbestseller,TaketheGuessingoutofInvesting).Thesystemwasprofitablewithaveragereturns,ifIremembercorrectly,inexcessof22%afterfull-servicecommissions.(Discountbrokeragewasinits

infancy.)But frankly itwas far tooconvolutedandbusy. It attempted toprofit fromevery twitch stocks took.Therewerealotof losingtradesandhighcommissioncosts, too.Someclientsenjoyalotofactivityand,Isuppose,excitement.

The current system has stripped out most of the finetuned stuff and allows the market morebreathingroom,asitwere.Theresultinmostcasesisoneoroccasionallytwotradesperstockforabullmarket.Thegreatestnumbersoflosseswiththeoldersystemwerecausedatmarketbottoms.

HowtoBecomeaWealthyInvestordoesnotworryabouteverylittletwitch.Itseekstogetintothemarketreasonablyclosetothebottomandinitiallyusesnostoplosses.Forsomepeople,includingmyearlyadvisors, this is a radical approach,butextensivecomputer testinghasproved that evenwithastoplossallowingasmuchasa25%lossthechancesofbeingwhipsawedorofmissinganexcellentinvestmentaltogetheristoohighandoverallprofitisactuallyconsiderablyreduced.

Letmeexplainthereasoning.Asanextreme,ifahealthyindividualstockisalreadydown50%,doyoureallyexpectittofallafurther50%?Tenpercentmaybe,whichitmustsoonmakeup,butafurther50%oranywhereclose?Not toolikely.Youwouldprobablylosemoremoneyprotectingagainst thispossibilitythansimplyignoringit.Infact,weprovedyouwouldduringtesting.Somepeoplewhohaveheld stocks throughoutmost of a downturn apparently think the danger of afurther precipitous fall actually exists; that'swhen theyget out…inpanic at the bottom. If they everreturn,itwillnotbeuntilpricesarehighenoughoncemoretogivethemrenewedconfidence.Theyhaveitbackwards.

HowtoBecomeaWealthyInvestordoesnotimmediatelyapplyprotectivestoplossorderstoalongposition(abuy)attheendofabearmarket.

Letpricesbouncearoundatthebottomforawhileifthat'swhattheywanttodo.Letthemfalleven,ifyouhavepickedsolidcompanies.There'salotofinvestoruncertaintyhere.That'swhymarketsareoftensochoppyatthebottom.

Justbeinplacewhentheystarttotakeoffatthebeginningofthebullmarket.Thisslowerpaceoftradingsavesalotofwear,tearandcommissions–evenatdiscountbrokeragefees.

Stoplossesarenotuseduntilatrendlineisinplace.Thentheyareplacedjustoutsidethetrendline.Unfortunately, youwill suffer through rough patches that occur before a valid trendline is in place.Again,testresultsshowitisworththeuncertainty.

Isthisanappropriateapproachtolongterminvesting?Justlookatthetestresultsandthenconsiderthat theS&P500 Indexwasat the same level inOctober2010as itwas in July1968,more than12yearsearlier.Wethinkyouwillagreethefiguresspeakforthemselves.

Wewilltalkmoreabouttrendlineslaterbecausestoplossordersandtrendlinesgohandinhandlikebreadandbutter.

But,forthemoment,itmayhelpyourunderstandingtoknowthattrendlinescannotbeputinplaceuntil161weeksafter themarketbottomwhenat least thebeginningsofa trendcanbedetectedandmeasured.Thisstrangenumberistheresultofmanythousandsofteststofindtheoptimumdelay.

Whenatrendlineisinplace,thestoplossfollowsupwardweekbyweekjustoutsidethetrendline,alwayslockinginincreasingprofitandprotectingagainsttheeventualtrendreversalthatmusthappen.Unlikeatrailingstop,thereisnofixedrelationshipbetweenthepriceofthestockandthestoploss.

Whenthetimecomesto takeyourprofit,you'renotassailedbyananxietyattack; thedecisiontosell at a particular pointwasmade earlier andwithout emotion.Youmade a business decision in areasonedmanner–thewaythatdecisionsinthestockmarketmustbemadeifyouaretobeaconsistentwinner.

Stop losses cannot protect us against unexpected calamitous news. If trading is suspended, the

company announces receivers havewalked in and the stock subsequently resumes trading down $5,nothingisgoingtospareusabeating(unlessyouhavealimitonyourstop, thenyoumightholdthesharesthroughtobankruptcy).Buthowoftendoesthathappenwiththetypeofstocksweshouldevenbeconsideringasinvestmentvehicles?

There is another very real hazard: stops should not be used to trade large numbers of shares inthinly-tradedcompanies.BystickingwithcompaniesthatmakeuptheS&P500indexyouwillavoidthisproblem.

WealthyInvestorWeeklystickstotheS&P500stocksbutyoumightdecidetoexploreothermarketsmanuallywiththissystem.

Thereisashortageofpublishedmaterialoutliningasensiblestrategyforstoplosses.Whentheyarementionedatall,theygetpassingreferenceasausefultool,butdetailedrulesfortheirapplicationareusuallymissing. Investorsareoften told todetermine theamountofmoney theyareprepared to loseandtosetstoplossesaccordingly.

Whatanidioticidea!Thathasnothingtodowiththestockyouholdanditsnormalbehavior.Whynotthrowdartsandpickanumber?

Inbygoneyears,beforeworkingitoutformyself,Iaskedanumberofbrokerswhattheythoughtwasanappropriategapbetweenastock'shighanditstrailingstoploss.

When I gotmore than a shrug, the consensus seemed to be "about 10%".But analysis of just ahandful of charts quickly showed that 10% is insufficient room to allow for some fluctuations,particularlyshortlyafterastockentersameaningfulupwardchannelfollowingasignificantdowntrend–andthisiswherethebigandquickprofitsaremade.

(Therearereasonsforthisquickrise.Shortsellers,anticipatingtheendofabearmarket,scrambletounwindtheirpositionsbybuying.Lesstimidmembersofthepublicseethisasabuysignalandaddtothebuyingvolume.Professionalsanddaytradersarealsobuyingatthislevel–andgettingreadytosellquickly.Pricesrockethigher–forawhile,untilalltheshortsalesareunwound.)

Astopthat'stoocloseatthispointwouldoftengetusoutofthemarketonatemporarydownwardblipaftertheinitialbuyingbingedriesupandjustwhenweshouldbehangingin.

Weneedamoreflexiblesetofrulesthatmaximizeprofitsbycreatingfewertradesandcommissionsandfewershort-termlosses.Therulesmustalsoallowthestock tomovemore freelyuntil it truly istimetoleavetheparty.

Sometimes,whencombinedwithatrendline,astoplosscanbe25%ormoreawayfromthestock'sprice.Atothertimesitcanbelessthanhalfofonepercentawayfromtheprice.

The result of using stop losses in the manner you learn here is that we have true moneymanagement, not some sloppy pin the tail on the donkey hit ormiss action. Inviolablemanagementrulesareonesignificantkeytosuccess.

Nolongerdowehavetoguess,toworryoverafallingstockortoworryaboutwherethetopmaybeforastockthatisrising.Themarketwilltellusallweneedtoknow.Whenit'sappropriateforustosell,we'llusuallybegone…butnosystemisperfect.

Apartfromlettinglossesgrowtoolarge,anotherreasonunseasonedinvestorstendtolosemoneyisthattheysettleforlowerprofitsthanthestockispreparedtooffer,particularlyiftheyhavetakenrecentlosses.

Winning, as any significant or sudden winner will attest, is not as easy on the nerves as theuninitiated may assume. When a stock's price turns positive, especially after a bumpy ride, thetemptationistogetoutandheadforthehillsassoonasthere'sasmallprofit.

Reducedprofitandunfetteredlossesgiveaone-twoblowtoaspirationsofsuccess.Anappropriatestoplossstrategywillnormallydomuchtoovercomebothoftheseproblems.

Acommoditiestraderwhospendshisdayswithchartsandstout-heartedclientswhocanwinorlosethousandsofdollarsinmereminutes,clientsforwhomstoplossesareessential if theyaretosurvivefinancially,hadthistosayaboutthestrategyIuse:

"Justthefactthatyouusestopsisuseful.Mostinvestorsdon't,andtheygethurtbecauseofthat.Ifstops are used and youhave only average success in picking stocks that go up you'llmakemoney."Laughing,headded:"YouronlyproblemwillbedecidingwhetheryouwantacondominiuminFloridaoravillainthesouthofFrance!"

In my more innocent days, a seasoned trader once told me: "Forget about making profits,concentrateonlimitinglosses."Forgetaboutmakingprofits?Whyelse,Iwondered,wasIinthemarket?

"Rideherdon the losses," he said, "and theprofitswill take careof themselves.Concentrate toomuchonmakingaprofitandyou'llgetintotoomanyspeculativesituations.Managethelossesoryou'llsoonhavenocapitalleftforthegoodopportunities."

Thatsimplepieceofadviceboughtmeanocean-fronthomeinalocationIcouldnototherwisehaveafforded.Italsoboughtaspankingnewsailboatthat,whenIwasn'toutsailing,bobbedpeacefullyatitsmooringjustoffmyproperty.

It brought peaceofmind as an investor and, becauseof theway someof theprofitswere spent,peaceonapersonallevel.

Butfindingthemethodsforachievingallthis,inmyopinion,washarderthanitshouldhavebeen.Alltoooften,theadvicereadilyavailabletothenoviceislongongeneralitiesbutshortonspecifics.There's something almost immoral about an enterprise that lures with visions of wealth and thenobscures thepath. It's easy to learnhow toopen abrokerage account; stock tips are asnumerous asraindropsinathunderstorm.

Bookshavetitlespromisingrichestotheirreaders.Suchtitlessellbooks.ManyareeagertotellMr.InnocentVictimthebasicsofthegame,buthowtowinatthatgameisanothermatter.Isuspectmany"advisors"withafreshMBAsimplydon'tknow.

Mr. I.Victimis largely left tohimself todiscovereven thesimplest techniques.Result: toomanypeoplehavethefrustratingandpainfulexperienceofoneofmyfinancialcolumnreaderswhoaskedmetocommentonhisholdings.

Despitetwosmallprofitswhichbroughtaquestionablerateofgainconsideringhowlongheheldthestocks,hehadalossof$4,355excludingcommissionsonasmallportfolio.Asimple10%trailingstop lossapplied toallhis trades,withnootherfancyfootwork,wouldhavereducedhis total loss toaboutthepriceofaregularcoffee:$2.50!

Notechniquecanundopoortimingorturndogsintothoroughbredstallions.Norwasanybattleeverwonwithoutgooddefensivestrategy.Almostallmytrades,winnersandlosers,aredeterminedbystoplossorstopbuyorders.Stops,asIhavealreadymentioned,canalsobeusedtobuy,notmerelytosell.Theysaveusalotofheadscratchingandguesses.

Let'ssupposeastockistradingat$5andwethinkitisaprettygoodbetatthatprice.Itusedtobe$10.Thenaturalinstinctistogoinandbuyit.Buttheveryfactthattradesaretakingplaceat$5meansthesellers'viewsareopposedtoourown;ifastockcanbeboughtfor$5,someonemustbesellingitatthatprice.

Supposethesellersareright.Thestockmightdriftto$3–ortonothing.Howdoweapplycautiontoouractions,assuringourselvesofthebestpossiblechanceofsuccessifwebuy?

Oneway is to look at recent price performance, searching for the lowest price above the currentmarketthatwouldconvinceusthatthestockhadchangeddirectioninapositivesense.Thatlevelmight

beanywhereabove$5.Wewanttotravelwiththenaturaldirection,notfightit,sowedecidenottobuythestockuntilit

hasprovedithaschangeddirectiontothewaywewishtohead.Ofcourse,HowtoBecomeaWealthyInvestoralsohasasystemforsettinga"reasonableprice".

If we buy with a normal buy order at a price above the current market level we'd be filledimmediatelybyamostanxiousandrelievedseller.Toavoidthis,wetellourbrokerto"buyonastop",oftencalledastopbuyorder,atthepricewe'vedetermined.If the stock continues to drop or to remain at the current level no purchase ismade andwe've keptourselvesoutofapoorinvestment.

Butifourearlierjudgmentwascorrect(thatthestockisabouttomoveup)someonewilleventuallytradeatthelevelofourstopandourorderwillbeentered"atthemarket"(protectedbywhateverpricelimitation,ifany,wemayhavesetontheorder.)

Theoddsarethatwehavenowboughtastockthatisonitswayupandwehavepaidareasonablepriceforit.Theextrafewpennieswepaidarethecostofinsuranceandforpeacefulsleep.

Manyinvestorsbuystocksthathavebeenfallingonthebasisthat"surelyithasfallenfarenoughandnowwillstarttogoup."Moreoftenthannot,theyarewrong.Thebestprofitsaremadebybuyingstock thathas just started to rise (good timing)andbyprotectingcapitalas fiercelyasa femalebearwithcubs.HOWTOBECOMEAWEALTHYINVESTORPAGE63

Chapter6Patience:MoreThanaVirtue

Thesystemyouarelearningheremightbecalledponderous!Butyouwouldn'texpectaracehorsetolastverylongpullingaplow.Thebigguythatdoesthatisponderous;hewouldnotwinraces.

This isasystemfor long-terminvestorsbentonaccumulatingmoneyforretirementassafelyandsurelyaspossiblewhileatthesametimemakingsurethereisenoughforretirement.

Recent years have been tough on savers. In this past decade alone, we had two recessions, thesecond themostsavagesinceTheGreatDepression. In fact therearesomanysimilarities it isbeingcalledTheGreatRecession.Atonestagein2010,themarkethadnotgainedacentin12½years...andthatwasbeforefactoringininflation.

Ifyouarelookingtomakeaquickbuck,thisisthewrongplace.ThecurrentlengthoftheaveragecompletedS&P500tradeis5.88years.Addtothattheperiodyouwillbeoutofthemarket,sittingoutadownturn,whileyoursavingsaretuckedawaysafelyinalow-yieldingmoneymarketfundandyou'reprobablylookingatsomethingnotfarshortof6.5yearstocompletelyturnyourmoneyover.Butifyouarelookingtomakeanexcellentreturnwithagoodmeasureofsafetyyouwillhavetolookelsewhereforexcitement.

Foryourprotectiondonotconsideraninvestmenthorizonoflessthan10yearsanddonotconsiderinvestinginfewerthanthreestockseachinentirelydifferentindustries,andpreferablyin10to20.

Threestocks?Onlyifyoudonothaveenoughmoneytoinvestinatleast10.Threeclearlymeanslessdiversificationthan10.Let'ssayyouhaveonly$6,000savedpatientlyinmutualfunds.Dividethisamount into three equal portions. Put $2,000 into your first available choice.Keep the other $4,000asideuntilyoufindtwomoreopportunitiesindifferentindustries.Asyoucontinuetosaveandtostarttakingprofits,workyourwaytowardalargernumberofstocksuntilyoureachatleast10.

(Ifyouuseadiscountbroker,itdoesn'tmatterif$2,000buysanoddnumberofshares,suchas57.Inmostcases,thebrokeragefeeisthesameasitwouldbefor100or1,000shares.)

Because the systemfollowsmarket trendsmostbuyor sellorderscome inclumpswhileatothertimestherewillbenone.Attheseinactivetimes,thesystemisdoingitsbesttokeepyououtoftrouble.

Remember,it'snotjustaboutmakingmoneybutaboutkeepingwhatyouhave,andthesystemisverycarefulaboutthat.Inearly2011,forexample,therewerealmostnonewpositionsbeingtaken;thebullmarketwasalreadytwoyearsold.Thatdidnotmeantherewerenofurtherprofitstobemade,justthattheeasiestprofitshadalreadybeenaccumulated.

This is not a system requiring you to be at your computer every day.Youwillwork hard everyweekendifyoufollowthesystemmanually.ButifyousubscribetoWealthyInvestorWeekly,youwillneedafewminuteseachweekendtoreviewyouropenpositionsornewpossibilitiesandthentocontactyouronlinebrokerwithnewordersorprotectivestoplossorders.That'sit!

Patience,planningandpersistencearethekeystosuccess.Haveaplan,thepatiencetoletitwork,andthepersistencetofollowitevenwhen,temporarily,itletsyoudown.Ifwearetomasterthemarketwemustfirstlearntomasterourselves.

Chapter7BalancingAct,InvestmentStyle

The last of the basic spices to be added to the recipe needs just a small pinch. That's why thischapterissoshort.Butwithoutityoucouldruinthemeal.

Itisacommonfailingamonginvestorstohavefavorites.Dothisandyouwreckyourdiversificationplan and risk large losses. Stocks do not know you own them; don't get attached to them or overlyexcitedoveroneversustheothers.Onestockisjustonepartofyourinvestmentbusiness,nobetterorworsethananyotherintermsofopportunity.

Ideally, andas closelyaspractical,you shouldhave the sameamountofmoney invested ineachcompany.Ifyouarestartingwith$20,000and10stocks,put$2,000intoeach.Asyourprofitsincreaseandyouselloneormorepositions,trytomakesureyourinvestmentineachnewcompanyisroughlyequal,inthecaseofa10-stockportfolio,toonetenthoftotalvalue.

Therewillbetimeswhenyouhavemoneythatisnotinvested.Putcashintoamoneymarketfunduntil you see another opportunity you like. Compare money market returns because they can varywidely.Moneyinamoneymarketfundcanbewithdrawnquicklyforyournextstockinvestment.Somediscountbrokerswillautomaticallysweepcashintoamoneymarketfundforyou.

Butremembertoincludethismoneyinthetotalvalueofyourportfolio.Ifyouhaveboughteightstocks of a planned 10-stock portfolio you can quickly calculate howmuch cash is needed for yourninthstockinvestment.

Ontheotherhand,let'sassumeyouoncehad10stocksandallweresoldattheendofabullmarket.Assume you made a tidy profit, all now sitting in a money market fund. You might decide at thebeginningofthenextbullmarketyouwantedtospreadyourinvestmentacross12stocks.That,too,iseasy todo; just dividewhat is in themoneymarket fundby12 and restrict the initial valueof eachsingleinvestmentaccordingly.

Asnearlyasispossible,keepindividualinvestmentstoroughlythesameamountofmoneywhentheinvestmentismade.Don'tdotheusualrebalancingtrickofsellingsomesharesinonetobuymoreinalaggard.Thatisadifferenttypeofinvestmentstrategyandhasnoplacehere.

Chapter 8 The Last Train Leaving the Platform Heads Downhill With EveryoneAboard

Withthesystemoutlinedinthisbookitisunlikelyyouneedtobewarnednottofollowthecrowd.Morelikelyyouwillbeweeksaheadofitandwondering(untilyougetmorecomfortablewiththeidea)ifyouareheadedinthewrongdirectionsinceyourfriendsareheadedtheotherway.

Forgetthatfear:you'llbeheadedintherightdirectionthevastmajorityofthetime.Some people just can't resist the attraction of a good crowd. Ever noticed how the majority of

camperscrowdintoonesmallspaceleavingthepeaceofthewildernesstoatinyhandfulofthequietertypes?Animportantpartofyourstockmarketeducation–stockmarket101ifyouwill–istoavoidcrowdsasmuchaspossible.

We'vetalkedalotaboutstrategyandalittleaboutthepsychologyofinvesting.Inthischapterit'stimetospeakaboutwhattypicallydrivesfearandgreed,twoinvestorfoeswetalkedaboutearlier.

Humansareverymuchaffectedbytheoutwardappearancesofotherpeople.Yawninaroomfilledwithothersandsoonthosewhoobserveyouwillalsoyawn.Scratchatickleandseewhathappenswithothers.Onepersonstandstogiveapplauseandsoontheentireauditoriumisstanding.That'sjusthowweare.

The same is true of retail investors – but next time you have the urge to follow the crowd justremindyourselfofthefateoflemmings.(Afewheadtheoppositewayandsurvivetoproduceanewcrop;youwillbeoneofthefew.)

Enthusiasm is highly infectious; so is pessimism.When everyone else is excited about the stockmarket's future it is easy to get caught up in the optimism. It ismuchmore difficult to be the onlypessimist;it'salltooeasytodoubtyourviewwhentherestoftheworldthinksyouwrong.

That'swhyI'mtakinganentirechapter rightnow,short thoughit is, toprepareyouforwhatwillcomeandtosupportyoudaringtobedifferent.

Otherstepsinyourstockmarketeducationhaveshownrelativelysafeandsurewaystoearngreatercomfortandperhapsluxuryinyourretirement.Itwillnothappenovernight;mostworthwhilethingsdonot.Butalongthewayyouwilllivethroughmarkettopsandmarketbottoms.

Wewereenjoyingamarkettopinthesummerof2007,thoughmostpeopleatthetimedidn'trealizeitwasatop.Next?Mostpeopletookawhileandalotofreassurance-longaftertheeasiestmoneyhadalreadybeenmade–torecognizethebottominMarchof2009.RedLineAlertsaresetuptobuytwoweeksafterapresumedcyclelowisreached.

If you look at charts of previous market highs and lows you will frequently see at least oneextremelysharp rise,oftenalmostvertical, justbeforemarket topsandadramaticoff-the-cliff fall atmanymarketbottoms.Thesearetypicallyaccompaniedbysignificantincreasesinthevolumeofshareschanginghands.

Atmarkettops,hungrybuyersarelikepiranhas,snappingupeverythinginsight.Atmarketbottomsthere's amad scramble for the exits, something professionals watch for every time as they snap upbargainsnotseenforsometime.Theprofessionalsgainattheexpenseofthosewhoarefearful.

Retailbuyers,thoselikeyouandmebutwithoutavalidplan,areveryslowtostartbuyingagain.Many neverwill, hoping the little they can save from their earnings can by itself produce sufficientincometopayfortheirfuturedreams–amostunlikelycircumstance.

You'd thinkpeoplewould learn, but the samemistakes are repeatedover andover again. If onlyinvestorshadtopassStockMarket101beforeputtingtheirmoneyatrisk!Eachtime,it'salmostasifthereisafreshgenerationofinnocentsbeingledtotheslaughter.

Thelong-termsuccessfulinvestor,asIhopeyouwillbe,shouldnotbeswayedbygeneralmarketpsychology.But it canbedifficult to remainoncoursewhileeveryonearoundyou is eitherdroolingwithgreedorparalyzedwithfear.Thesearehighlyinfectiousemotions.

When those times comeoncemore– as theywill – just remember this stockmarket101 lesson:standasidefromtheswarminghordesandyourstockmarketexperiencewillimprovetremendously.

Ifyourchartstellyoutobuywheneveryoneelseisboltingfortheexit,rejoice.You'regettinginatapproximatelytherighttimeandatpricesnotseeninmonthsoreveninyears.It'stheNewYear'sDay

sale!Attheotherend,getoutwhenthechartstellyouto.They"know"farmorethanyoueverwill.Will

yougrabthelastpennyleftonthetable?Probablynot,butwhocaresifyouhavethelion'sshareofthewinnings?Leavesomethingfortheotherguyortherewillbenobuyersforyourshares.HOWTOBECOMEAWEALTHYINVESTORPAGE72

Chapter9PuttingAllthePiecesTogether

Allright,we'veseenthepieces–butthat'sliketryingtotellthetimefrompartsofawatchthathaveyettobeassembled.Let'sseehowallthebitsworktogether.

We'll go througha fullmarket cycle frombear tobull andback tobear.Thenwe'll lookatwhatwouldhavehappenedoverthepast40yearswitheachofthe30stockscurrentlyincludedintheDowJonesIndustrialAverage.(Somedonothavedatagoingback40years.)

Tobeginourjourney,assumewehavebeeninabearmarketforafewmonths.Atsomepointweknowthebearwillend,butafewmonths.Atsomepointweknowthebearwillend,butweekparallellineforthebearmarketandashort-termhigh.Thirty-nineweeksistheminimumlengthofthisline.Itwillcontinuetogrowuntilthestockisbought.

Pricesneedtoexceedtheparallellineandthehighofashort-termhigh(seedescriptionbelow).Thelatterindicatesatemporaryresistancelevel,howeverfleeting.Buttherecouldbedozensofshort-termhighsinafallingmarket,sowhichoneisused?Weneedthelowestshort-termhighthat,ifahorizontallinewasdrawntouchingthe

Figure3:Shorttermhighprojectedforward(dashedline)untilitcrossesthetrendline

top,wouldexceedthelevelofthetrendlineatnextweek'sprojectedlevel.By exceeding both of these points, not only have we seen the trend broken but we have also gonebeyondarecentlevelofresistancetorisingprices.Whilenotinfallible,exceedingtheresistancegivessomemeasureofprotectionagainstfalsebreakouts.Whathappensifabuyisnotmade?Therecanbetworeasonsforabuynotbeingmadeafterabreakoutabovethedownwardtrendline:

1.There is nonearby short termhigh thatmeets the rules. If stockprices continue to rise in theabsenceofaviableshorttermhigh,buyatalevel5%abovethetrendline.

2. Prices pop above the trendline and then back below it without passing a short term high orexceedingthelineby5%.Inthatcase,thetrendlineisadjustedupwardandusesthebreakouthighasPoint2.

Figure4:Beartrendlinebefore(purple)andafter(blue)severalupwardadjustmentsforfalsebreakouts.

Butwhat happens if all these conditions aremet but the recommended buy price is close to therecentcyclehigh?Inthatcase,ifyouarefollowingtheprogrammanually,ignoretherecommendation.Wealthy Investor Weeklywill ignore a potential recommendation within 16% of the previously-recognizedmarkethighandsubscriberswillneverseeit.TheprogramthenwaitsforaRedLineAlert.RedLineAlert

Whenthereisanapparentbuyrecommendationyouthinktobetopricey,startalinefromthepointabulltrendlinewouldstart.Ifyouwereright,thestockwilleventuallyfall.Keepchangingtheangleofthelinedownward.Itwilleventuallyreachthecyclelow(usuallywheneveryoneelsethinkstheendoftheworldiscoming).Assoonasyouaresurethebottomhasbeenreached,buy...atmarket,notevenonastop.

WealthyInvestorWeeklysubscribershavenodecisionstomake.Buyrecommendationsconsideredtoohighareignoredbythecomputerotherthantokeepitselfontrack.Subscribersarealertedtobuyjusttwoweeksafterapresumedcyclelowhasbeendetected.

TherecanbesuccessivelylowerRedLineAlerts.Ourstatisticsassume,ifwedonotalreadyhaveanopenposition,thatthefirstalertisused.Youhavechoices.Youcannotinvestin500stockssoyoumaychoosethewaituntilonehasasecondorevenathirdalertandinvestonlyinthose.

Figure 5: Three successively lowerRedLineAlerts

LongpositionOnce you buy,many adviserswould tell you to apply a stop loss immediately to protect against

pricesfallingtoofar.Thissystemdoesnosuchthingforoneverysimplereason:marketextremesarevolatile.Thereisalotoffearanduncertaintyatmarketbottoms(andalotofgreedattops).Investorsworkingwithoutacutanddriedsystem,andthat'smost,wanttofeelcertainthebottomreallyhasbeenseen.Figure6:Volatilityatmarketbottomsisclearlyvisiblequiteoften.

Astoplossatthistimewillresultinfarmorelossesduetowhipsawingthanitwillsave.Here'swhatweknowforsureatthistime:wehaveboughtatalowpricerelativetopricesatthebeginningofthebearmarket.

Sowhatifthepricefallsanother10%or20%oneinfivetimes(notthatitnecessarilywill)?Inagood company that additional drop should come back quite quickly;meanwhile other stocks in ourportfoliowilllikelycompensateintheshortterm.Thisispartlywhydiversificationamonganumberofstocksindifferentindustriesisvital.Corrections,temporaryreversalsoftrend,areperfectlynormal.Themarkettakesabreatheronceinawhile. Look at what happened and the concern it caused starting in May, 2010 when somecommentatorssuggestedadouble-diprecessionwas in theworks.Wedonotwant tobeknockedoutbeforearealisticandmeasurabletrendhasbeenestablished.Thewaytoensurethatisnottousestoplossordersintheearlymonths.Infact,serioustestingprovedtheyshouldnotbeuseduntilthereisameasurabletrend.Trendlines

Thesystemisextravagantintermsoftrendlinelengthtoallowamorereliabletrendtobemeasuredandtoavoidearlyvolatility.Manyanalystswouldbeshockedbutit'shardtoarguewithresults.

Testingproved the ideal length is 161weeks even though thatmeans a stockmight occasionally

suffer through an entire bearmarket. This 161week periodwas tested in one-week increments andshowedthebestoverallprofitwith500stocksover40years.Thetrendlineisdrawn161weeksaftertheabsolutecyclelow(regardlessofwhenthebuywasmade)andFigure7:Temporarydownturnsinbullmarketsareafrequentoccurrencebeginsonthatcyclelow.

Itneedsatleasttwopointsonwhichtorest.Tofindthatsecondpoint,imagineanchoringaruleronthecyclelowandthenswingingthefreeendupuntilittouchesthefirstofthelowsalongtheway.

Figure8:Thetwosupportpointsofatrendline

Sometimes the cycle low and the low of the followingweekwill be the same. In that case, thetrendline will be horizontal and useless for setting a practical stop loss. The line will change thefollowingweektoamoreacceptablelevel.

Thatweek,161weekswillexistbeyondwhathadbeenthesecondpoint.ThatpointbecomesthenewPoint1andthelineswingsupwardtofindanewPoint2.

ThisprocesscontinuesuntilthereistheappropriatenumberofweeksbeyondthatnewPoint2.IfthelinecanFigure9:161weeksafteraPoint2anew,moreacutetrendlineisputintoeffect.

moveatamoreacuteangleitdoesso,repeatingtheprocessasoftenasitcan.Thereisonlyonewayinwhichatrendlinecanmovetoalesserangle.Ifthereisafalsebreakout,

definedasonethatdoesnottriggerliquidationofthelongposition,the"blip"becomesanewPoint2.Lookatthisasacorrectionofthetrendnowthatwehaveadditionalinformation.Thismethodofaddingflexibilitytotrendlinesisnotfoundinanyotherprogramtoourknowledge.

BythesuccessivechangesinPoints1and2andthecorrectionscausedbyfalsebreakouts,youcanseethelinehasflexibilitynotonlyindirectionbutalsoinlengthsinceanewlinecannotbedrawnuntilafter161weeksfollowingaPoint2.Figure10:Beartrendlinescanadjustjustlikeonesinbullmarkets.

Thisisofmajorimportancetothesysteminthatitallowsthemarkettotelluswhattodo.Onceatrendlineisinposition,ourstoplossissetbelowthelevelofthelineandtheclosestshort

term lowor the level of the lineplus5%whichever is closest to the line.As the line risesweekbyweek,sodoesthestoplossorder.Justrememberyouareforecastingoneweekaheadwiththetrendline.Wrong-waytrendlines

Therecanbeacircumstanceinabullmarketinwhichthereisapausewronglyidentifiedinitiallyasabearmarket.Initially,adownward-slopinglineisdrawnbutfalsebreakouts–thosetoosmalltoresultinabuy–canpushthelineupuntilitisrising,notfalling.Inreality,itisafalsetrendline.SellBuy

Figure11:Afalsebeartrendline(red)risesinsteadoffalling.

This ispossiblebecauseof thebrevityofbearmarket trendlines.Often, tradingwillbe relativelyflat.Inreality,themarketistakingabreakbutinsodoingtriggersthesaleofanexistinglongposition.

Therulesforbuyingofafalsebearlinearedifferent.Itneedstobepenetratedbyjust1%anditspricerelativetotheassumedcyclehighisnottakenintoaccount.

Whatisashort-termhigh(orlow)?Ashorttermhighisaweeklyhighthatishigherthanthatofatleasttheprevioustwoweeksandalsohigherthanthehighsfor

Figure12:Theshort-termhighisclearlyvisiblehere.

atleastthefollowingtwoweeks.It is aminor 'bump' in thechart and indicatesveryweak resistance toprices risingabove it.The

bullsfailedatthislevelbefore.Pricesrisingabovethislevelwouldindicatebuyersfinallywonasmallskirmishwithsellers.

Althoughminorintermsofresistance,thisisanimportantaspectofthissystemandofthemarkettellinguswhatweshoulddo.Combinedwithadownwardtrendlineitgivesusatargetabovewhichtogolong.Next?Afteralegitimatebear,thecyclebeginsagain.Wesimplytrytofollowthemajortrendsandavoidthehiccups.

Chapter10Rules:QuickSummary

•Trendlineinarisingmarket:161weeks•Trendlineinafallingmarket:39weeks•Trendlineinitialsupportpoints:Point1atthecyclelow(or

highforafallingmarket).TofindPoint2,swingarulerfromPoint1inthedirectionofthemarketuntilithitsthefirstprominentlow(inarisingmarket)orhigh(inafallingmarket).

•Falsetrendlines:Seedetailedcommentsinpreviouschapter.Marketsarerarelyasorderlyaswemightlikeandtherulesfordealingwithdisorderlymarketsarequitecomplicatedanddetailed.Afalsebeartrendlinetypicallyisseenduringasidewayscorrection.Thebuytargetisjust1%abovetheline.Noshorttermhighisneeded.•A short term high works in conjunction with a falling trendline to indicate when to take a longposition.Entrypoint is just above the short termhighor5%above the line,whichever is closest.Ashort term high is represented by the high of oneweek that is higher than the highs of at least theprecedingtwoweeksandthefollowingtwoweeks.Thehighmustbeabovenextweek'slevelfortheextendedtrendline.•Stoplossesforalongposition:

oNostoplossisuseduntilatrendlineisinposition.Thissometimesresultsinalongpositionbeingheldthroughoutanentirebearmarket.

oWhenatrendlineisinplace,stoplosseswillbesetfromitandnoothertypeofstoplosswillbeineffect.oWithanormaltrendline,astoplossisplaced5%belowthetrendline,roundeddown,toaccommodatefalsebreakouts.

Chapter11InmyOpinion, theSystemisSimple;YouMayNotAgree,SoHere'saSolution

WhathasbeendescribedinHowtoBecomeaWealthyInvestorisstraightforwardandeasy.Itisalsoassafeasitcanbemade,butthatdoesnotguaranteetherewillnotbeoccasionallosses.Nosystemcanavoidthementirely.Testinghasrevealedanaverageofroughlyonelossineverynineor10trades.Thatdoesnotmeanyouwillgetthesameresults.

AverageannualreturnoninvestmentperprofitabletradefortheS&P500toFebruary112011was53.08%.Theaverageforalosingtradewas-6.02%.ThesystemissosimpleIexpectyouhave'got'mostofitinoneveryshortreading.

Butithasafailing:Ittakespainstakingandmonotonousworkeverysingleweek.Chartshavetobeextendedandeven the slightestdifference in spacingbetweenoneweekand thenextwill eventuallythrowoffcalculations.

IntheDarkAgesofthe1980s,Iusedtosubscribetomonthlyprintedchartbooks,photocopychartswithlargemagnificationandspendaverylongdayaddingtosome500chartsintheU.SandCanada.Notonlywere thosechartsexpensive in the firstplace,butwhatwas thecostofmy time?Thatwasbeforeasomewhatclunkycomputerprogramwaswritten,usingupfourprogrammersinthreeyears...atleastoneofwhomhadanervousbreakdown.

Today,therearefreechartsontheInternet.Yahooisoneplacewheretheycanbefoundalthoughithasoccasionalerrors.Butyoustillhave tomagnifychartsandmakevisualcalculations todetermineexactlywherestoplossordersorbuyordersshouldbeplaced.ThereisplentyofchartingsoftwarebutnoneIknowofthatcandowhatthissystemcallsfor–orinplainvanillamannergetitsresults.

Somepeoplewillderivepleasurefromthechallengeofworkingwiththeirownchartsandmayevenregarditasahobby–inwhichcasethisbookisallyouneedalongwiththecharts.

But themajorityofpeople,Ibelieve,aremuchlikeme: theywouldratherspendtheir timedoingsomethingelse(andsowouldtheirspouse:"AreyougoingtomowthelawnthisweekendordoIhavetodoeverythingaroundhere?").

Ifyouareoneofthesepeople,wehaveanabsoluteno-brainersolutionforyou.EverySaturdayyoucanreceivebyemailall theanswersyouneedregardingbuying,sellingandprotectivestop losses inoneneat,simple,no-fluffnewsletterforallS&P500stocks.Youwon'tbelievetheprice.Checkitoutathttp://wealthyinvestorweekly.com.

InsteadofwrestlingwithchartsyouneedonlytolookatthelistofpreciseandclearinstructionsinWealthyInvestorWeeklyastheyrelatetoyourstocks.PhoneorusetheInternettocontactyourdiscountbroker,makeanyadjustments to thestop lossorders for stocksyouholdand look tosee if thereareothersthatinterestyou.That'sallthereistoit.

You've read thebook; there'snomagic. It's straightforwardand itworks. Ifyouspendsome timewiththecharts,theirnotesandthesummaryofrulesyouknowitworks.Whatyoudowithitnowisuptoyou–butitwillnotmakeyoumoneyifyoudon'tuseit!

Turntotheannotatedchartsnowtoseeexactlyhowtheruleshavebeenappliedtoeach.Takeyourtime;itwillbethemostworthwhilethingyoucoulddorightnow.YouwillseeexactlyhowandwhyeverymovewasmadewiththecurrentDowJonesstocksasfarbackas1967.Doingthiswillbuildyourconfidenceandyourabilitytomakemoremoneyovertimethanperhapsyouhaveeverdonebefore.Maybetherecessionhasnottrashedyoureventualretirementdreamsafterall.HOWTOBECOMEAWEALTHYINVESTORPAGE84

APPENDIXAnnotatedCharts,WartsandAll

Overthenext197pageswewillshowyouchartsofthestockspresentlyintheDowJones30howthesystembehaves:thetrendlinesitdraws,whatadjustmentsitmakes,andwheretobuyandsell.

April17,1978,boughtat$1.05May4,1981,marked161

weekssincethislinebegan.aIerexceedingabeartrendlineandtheshorttermhighof$1.04createdMarch20.

ThelinewasadjustedtoaOctober22,1979,wastheoriginalPoint2forthistrendline81weeksaIeritsstart.lesserangleJuly13,1981andagainonseveralsubsequentweekswhenthepricepenetratedthelinebutdidnottriggerasale.October12,1981,soldat$1.37whenthelinewaspenetratedby5%andtherewasnoviableshorttermlowbeforethatlevel.Profit33centsashare;annualizedreturn:9.18%.March29,1982,boughtat$1.52aIerexceedingbearlineandshorttermhighof$1.51.May6,1985,originalPoint2fortrendline.

August12,1985,lineis161weeksoldandwouldhavebeendrawnatJuly12,1982,161-weekthisUme.Nostoplosseshaveexistedlineabletoaccelerate.unUlnowotherthansomefairly

uselessonesofftheoriginalline.

November5,1990,istheoriginalPoint2forthenewline.October19,1987,exisUngtrendlineadjusted.Ithasnowbeenrunningfor275weeks.

161weeksaIerthenextweekanewtrendlineisdrawn.January31,1994:Falsebreakout

reposiUonslineaIer87weeksturningitintoafalsebeartrendline(onethatrisesinsteadoffalling).ThistypicallyindicatesthatwhatwastakentobeabearmarketwasmerelyapauseinaconUnuingbullmarket.February7:Differentrulescomeintoplaywithafalsebearline.Webuyonastop1%abovetheline,inthiscaseat$7.38.February1,1993,

June1,1992wasthePoint2forbearline.anchorpointforanoriginal39-weekbeartrendline.

April5,1993:AIeraddiUonal

adjustmentsalongtheway,thetrendlinewaseventuallyexceededby5%(inabsenceofaviableshort-termlow)andtheposiUonwassoldat$5.38foraprofitof$3.87andanannualizedrateofgainof23.17%.

ApotenUalbuyJanuary41999at$15.96wasignoredasbeingtoohighrelaUvetothethen-perceivedcyclehigh.Infact,itwouldhavemade$7.68ashare,anannualrateofgainof13.64%over3.53years.Thesystemerrsasmuchas

August24,1998:PosiUonissoldat$12.27possibleonthesideofcauUon.exceedingthelinethelineby5%inabsenceofaviableshorttermlow.Pricedidnotmeetnormalsellcriteriabutashortselltargetwassurpassedandtookprecedence,eventhoughweusepotenUalshortsalesonlytoknowwhentomakethenextbuy.Profit:$4.91;annualizedrateofgain:14.64%.HadwetakenpartintheJanuary1999tradewewouldhavehadaveryuncomfortableride.

AlcoaInc.2003-2007

April7,2003:thepricecrossedthebeartrendlineandexceededashorttermhightobuyat$18.70.

AlcoaInc.2008–present

Thetrendlinewasbrokenbymorethan5%.Soldat$24.78foraprofitof$6.09ashare;6.01%annualizedover5.42years.SUMMARY: There were four profitable completed trades and no losers for an average annualrateofreturnof23.17%.

ThereisacurrentopenposiUonbought$10.91lessthanthreemonthsaIerthestock'sabsolutelow.Therewasagainofcloseto$7byearlyFebruary2011.July31,1978:Beartrendlineanchoredonthispoint.

May21,1979:BeartrendlineandApril16highof$0.92exceeded.Boughtat$0.93

October12,1987:Thislineiseventuallyexceededby5%inlieuofaviableshorttermlowand the holding is sold for $4.99. Profit per share: $4.07; annualized rate of gain:52.34%.

August9,1982:Point2fortheoriginalbulltrendlineeventuallybecomesthestarUngpointforthesubsequent161-weektrendline.

BoughtJuly251988at$4.66whenpricecrossedboththebeartrendlineandashorttermhigh.SincethisisthefirstUmeyouhaveseenit,Ihadbebertellyouwhattheredlineandthe red pin is about. When prices fall below the previous or the assumed cycle low theprovisional(notyetacUve)bulltrendlinestartstoslopedowninsteadofup.Eventually,theredlinewillalwaysfindthenextcyclelowandwillissueabuysignaltwoweekslater.However,itwilldosoonlyifthereisnolegiUmateposiUoninplace,onethatwhenboughtwasatleast16%belowthepreviouscyclehigh.SeethedescripUonofRedLineAlertsinChapter 3. In some cases, there can be a series of ever-lower red pins providing moreopportuniUes,butourstaUsUcscountonlythefirst(leastadvantageous)ofthesepins.AseriesofincreasinglyacutetrendlinesfollowAXPonceithassebleddown.AnotherbuyismadeDecember242001at$27.58.

ThistradefinallyendedMarch192001aIerthetrendlinewasexceededby5%intheabsenceofaviableshorttermlow.Thetradelastedmorethan12years,gained$23.36ashareandshowedanannualizedrateofreturnof39.67%.IftheRedLineAlertposiUonhadnotbeenignored,itwouldhavelasted10.39yearsandhadanaverageannualrateofreturnof76.21%.ThisposiUonhasanothergoodrunbutvolaUlityaccompaniedbynumerousfalsebreakoutskeepsthechannelwiderthanwewouldprefer.ItmeansgivingupsomepotenUalprofit.

AmericanExpressCompany2008–present

Weexitbeforethecalamitousplungeof2008at$43.75,aprofitof$16.18pershareandanannualizedrateofreturnof9.72%over6.04years.

AbuywasmadeJuly132009at$26.76aIercrossingthebeartrendlineandexceedingthe$26.69shorttermhighofJune8.TheposiUoniscurrentlyaheadabout$20ashare.

SUMMARY:Therewerethreeprofitabletradesandnolosingtradesshowinganannualrateofreturnof33.91%notincludingtheopentrade.Asolidandwell-definedbearmarket began July 31 1967. The trendline was greatly aided by adjustments for several falsebreakouts.Iteventuallyledtoabuyat$0.40January51970,butthemarketkeptfallingforanothersixmonths.

Thereareseveralredpinshere.EachwouldhaveissuedaRedLineAlertbuttheonlyonewecountinourstaUsUcsistheiniUalone.WedonotcountanyRedLineAlertbuyinourstaUsUcsifabuyhasalreadybeenmadeaccordingtonormalrules,aswasthecasehere.

Glubonsforpunishment,weboughtbackinat$0.25June101974whenthepriceexceededthebeartrendlineandashorttermhigh.Theearliersaleandthesubsequentbuyatahigherpricejustprovesthatstoplossescanoccasionallyworkagainstus!

Thefirsthalfofthe1970swasnotkindtoBoeing.Itresultedinalosswhenthetrendlinewas

penetratedbymorethan5%onNovember261973andthestockwassoldatjust$0.19,alossof$0.20andanannualizedrateoflossof13.06%in3.89years.WeboughtbackonOctober191981at$2.09whenthebeartrendlineandashorttermhighwereexceeded.

VolaUlitycreatedawidechannelthatworkedagainstuswhenthetrendlinewascrossedJune11981andwesoldearlyfor$2.38tomakewayforapending(ignored)shortsale.However,thatwassUllaprofitof$2.14ashareandanannualizedrateofreturnof122.84%foreachof6.98years.Again,theRedLineAlertswereignoredinourstaUsUcsbecauseoftheearlier(andlegiUmate)buy.(ThefirstalertJanuary41982wouldhaveproducedanannualizedrateofreturnof71.55%.)

AIeranicerun,theposiUonwassoldat$7.60whenthetrendlinewascrossedbymore than 5% in absence of a valid short term low. The investment gained $5.53 a share, annualizedat54.27%over4.89years.ThesystemignoredtheiniUalbuyrecommendaUonastooclosetothepreviouscyclehigh.ThatavoidedthenastyjoltinOctober1987.ThefirstRedLineAlertwasissuedtwoweeksaIerthecyclelow,resulUnginabuyat$5.22.Themarketwentstraightupfromthere.

AIer reaching what turned out to be a cycle high in 1990 Boeing crabbed sideways throughout1991unUlthepricebrokethroughthebulltrendlineonDecember2.TheposiUonwassoldfor$14.79,anannualizedrateofgainof44.94%.Lessthantwomonthslater,thesystemwasreadytobuybackin...andthatwouldhavebeenamistake.Fortunately,thepotenUalbuyat$18.80January201992waswithin16%ofthecyclehighandignoredbythesystem.

ThefirstRedLineAlerttookoverandSeptember282002boughtat$12.80.ThebuyApril121999at$32.93waslegiUmateinthatitwasmorethan16%belowthecyclehigh.Becauseofthis,theRedLineAlertwasignoredbythesystem,thoughithindsightshowsitwouldhavebeenabeberbuy.

Thetrendlinewaspenetratedbymorethan5%July201998andwesoldat$33.68,againof$20.89ashare,28.11%annualizedover6.5years.ThesecondRedLineAlertwouldhavebeenevenbeber!Boeingfinallytookoff.(Sorry,couldn'tresistthat!)

TheBoeingCompany2007–present

WeboughtagainonApril272009for$37.72lessthantwomonthsaIertheS&Plow.ThepricehadvirtuallydoubledbyearlyFebruary2011.Wesoldjustbeforetheworst

SUMMARY:TherewerefiveoftherecessionJanuary72008profitableinvestmentsandoneloserfor$79.25,againof$43.33aintheperiod.Not

includingtheshare,anannualrateofgainofnicelyprofitableopentrade,the16.10%over8.74years.averageannualreturnoninvestmentwas42.20%.Theaveragelengthofeachtradewas5.73years.TotalUmeyoucouldhavebeeninvestedelsewherewas3.62years.August24,1987:StarUngpointofbeartrendline

May30,1988:Boughtat$2.55whenthebearlineandtheFebruary29shorttermhighof$2.54werebothexceeded.

December31,1990:AIeranexhilaraUngrideupandroller-coasterplungedown,a161-weektrendlineisdrawn.ThelowofOctober29,1990,eventuallybecomesthestarUngpointforthenexttrendline.

September 19, 1994: AIer several trend line adjustments in February and March, theposiUonisfinallyliquidatedat$6.77aIerexceedingthetrendlineby5%.Profit:$4.23;annualizedrateofreturn:26.39%.ThebuyindicatedforMay81995wasignoredbythesystemasbeingtooclosetothepreviouspresumedmarkethigh.ThesystemiscauUousbutwithhindsightitisnotalways

clever!Theannualizedrateofreturnover3.30yearswouldhavebeen50.03%July51999:anotherignoredbuyforthesamereason:$24.64wastoopriceyforthesystem.

August24,1998:Thetrendlineisexceededby5%beforeaviableshorttermlowisfoundandwesellfor$20.46.Profit:$12.74;annualized

rateofgain:50.03%.ARedLineAlertcameintoplayOctober302000withabuyat$15.20.Anunevenlulridemadepossiblebytrendlineadjustmentsmostlyin2005.

BankofAmericaCorporation2007–present

IftheUmingwasgoodbefore,itwasterriblethisUme.Thebuyat$36.88September152008just qualifiedunder the rules. It wasmorethan$20downearly in February2011thougheitheroftheignoredRedLineAlertswouldhavebeeninthemoney.

AlmostperfectUmingatthestartoftherecession,thetrendlinewaspenetratedbymorethan5%andtheposiUonwassoldat$40.20.Thatwasaprofitof$25.01 per share, an annualized SUMMARY: BAC had two profitable rate of return of23.52%over7.0completedtradesandnolosses,years.

althoughanopenposiUonislosingmoneyatUmeofwriUng.Averageannualrateofreturnis24.95%.Theaveragelengthofeachtradewas6.65years.Yourmoneywasfreetobeinvestedinsomethingelseforatotalof6.11yearsduringtheperiod.November11982:Bearlineandshorttermhighof$2.79establishedOctober11arebothexceeded,resulUnginabuyat$2.80.Theprovisional(notyetacUve)bulltrendlineeventuallyheadsdownwardinpreparaUonforaRedLineAlert.

ThebuyisclearlylegiUmateandsotheRedLineAlertwillbeignoredbythesystem.(Thisdoesnotmeanyouhavetoignoreit;itwillbepostedintheweeklyreport.)AsuccessionofadjustedtrendlinesgetsusthroughthisperiodandthroughasidewayscorrecUon.

June25,1990:PosiUonsoldatthestartofabearmarketfor$4.28whenthetrendlineispenetratedby5%.Profitwas$1.49,notbadfora

$2.80investmentbutwiththistradelasUngalmosteightyearstheannualrateofreturnwasjust6.96%

February10,1992:Buyat$4.11aIerexceedingtrendlineandthemost-recentviableshorttermhigh.

August24,1998:Thistrendlineperformedwellwithfewadjustments.PosiUonsoldfor$16.92aIercrossing trend line and short term lowof $16.97 set August 3. Profit per share: $12.81;

annualizedrateofreturn:47.86%.ThepotenUalbuyoffthebeartrendlineislessthan16%belowthecyclehighandisthereforeignored.Aswecannowsee,therulesavedusfromapileoftrouble.NoUce,too,whatappearstobeaveryclearMtop,eventhoughthehighswereexceededafewmonthslater.

Thefirstoftheredpinsoffersabuyat$13.74February212000.TherearesUllseveralmonthsofdeclineleItogobutweavoidedachunkofit.Anallowablebuyhadtobenohigherthan$61.76,sothisproposedbuyonApril162007wasignored.

ThisturnedouttobeanexcellentinvestmentandwesoldatwhatlookslikethefirstlegofanMdoubletopOctober16,2006for$55.75.Thiswasagainof $42.02ashareandanaverageannualrate ofreturnof46.01%foreachofthe6.65years.

CaterpillarInc.2008–present

SUMMARY:NotcounUngthecurrentopenposiUon,therewerethreetrades,allprofitableforanaverageannualrateofreturnof33.61%.Theaveragetradelasted6.94years.(WithoutRedLineAlerts,therewouldsUllhavebeenthreeprofitabletradesbutthecombinedrateofreturnwouldhavebeen26.80%.)

Savedbytherules!WeavoidedmuchofTheGreatRecession.WeboughtfromthefirstRedLineAlertNovember32008at$35.30.Eventhoughthiswasalibleearly,noUcehowthesecondalertwastwoweeksaIerthecyclelow.ThistradeissUllopenandtheearlyFebruary2011pricewasjustshyof$100.TheproposedbuyofDecember191994wastoopriceyforthesystemandignored.

Unlikeourearliestdays,thesystemisnowcompletelyautomated.AllitknowsisthatishassomedataforaparUcularstockandjustfromthatitdecideswhattodo.Thiswouldhavebeenanicetrade(withanannualizedrateofreturnof199.19%over3.28years)buttheiniUal"trade"isalwaysignoredtomakesureourresultscannotbetaintedinanyway.Andthatcostusanothergreatopportunity.SomeUmessafetyprovisionsdon'thelpatall!

TheRedLineAlertwasignoredgiventhattheearlierbuymetalltherules.

Boughtat$16.34crossingthedowntrendlineintheabsenceofaviableshorttermhigh.ThepotenUalbuyofNovember62006wassuppressedbytherulesandwouldnotappearintheweeklynewsleber.

SUMMARY:Therewasasingleprofitablecompletedtradeover4.75yearsthatresultedinanaverageannualrateofreturnofjust2.57%.Diversify,diversify,diversify!

Soldat$18.32July102006foraprofitofjust$1.99over4.75years.Theannualizedrateofreturn:aliblebeberthanabanksavingsaccountat2.57%.EvenfabulousprogramscansomeUmesgeteverythingwrong!ThatiswhyproperdiversificaUonissoimportantandstressedinthebook.TheRedLineAlertwouldhavegainedanaverageof20.87%over3.72years.Thesystemboughtat$16.68onthefirstRedLineAlertNovember32008aIermostofthebearmarketwasover.ThatposiUonwasaheadmorethan$7ashareinFebruary2011.BuyNovember41974at$0.97whenbeartrendlineandshorttermhighareexceeded.

SoldJanuary91978at$1.51whentrendlineexceededby5%.Annualizedrateofreturn17.78%over3.18years.HindsightshowsthetradeendedwithasidewayscorrecUon(whenthemarkettakesabreatherfromrisingpricesbystayingatroughlythesamelevelwithoutfalling).

AlegiUmatebuywasmadeOctober111982at$2.79whenboththedownwardtrendlineandashorttermhighwereexceeded.SubsequentpotenUalbuyofAugust141978at$1.93wasignored;itwasalmostashighasthethen-presumedmarkethigh.WeavoidedtheOctober1987plungeandwentontofreshhighs…

...onlytostumbleonwhatwasanothersidewayscorrecUon.Wesold

at$9.03whenthetrendlinewaspenetratedby5%.Profitwas$6.25pershareover9.1years,anannualizedrateofreturnof24.65%.WiththebuyofFebruary11993at$10.42youseeafalsebeartrendline(onethatrisesinsteadoffalling)atwork.Thelinehadstartedoffnormally,fallingandcoloredblue.FalsebreakoutsforcedthelinehigherunUlitwasrising.Itspurpose,wherepossible,istodetectsidewayscorrecUonsandtoresumeaposiUonassoonasthecorrecUonappearstobeover.Thefalsebeartrendlineneedstobecrossedbyjust1%.WemadesteadyprogressunUlJanuary251999whenthetrendlinewaspenetratedby5%andwesoldat$25.64,againof$15.23ashareover5.98yearsandanannualrateofreturnof24.46%.

Sixmonthslater,onMarch291999anotherfalsebearlinegetsusbackinat$31.11.Atfirst,thatlookedlikeanawfulidea……but…

ChevronCorporation2007–present

June12009:Buyat$67.85.WesUllhold

thisposiUonat$97.11earlyinFebruary2011.

SUMMARY:ExcludingtheopenposiUon,...althoughwesufferedthefirsthalfof

therecessionwecameoutOctober6,2008at$72.44withaprofitof$41.34over9.52years,anannualizedrateofgainof13.96%.TheduraUonwouldhavebeenreducedto8.58yearsifwehadusedthefirstoftheRedLineAlerts.Thegainwouldthenhavebeen$46.17,annualizedat20.47%.there were four profitable trades and no losers for an average annual rate of return of20.21%.Averageprofitpersharewas$15.84.Theaveragelengthofeachtradewas6.95yearsandduringthatUmeyoucouldhavebeeninvestedelsewhereforatotalof6.13years.Boughtat$1.25crossingabovethedownwardtrendlineandashorttermhigh.

August121974:$0.62profitsoundslikechumpchange,butitwasanaverageof11.71%over4.22yearswhenwesoldfor$1.86.(Allpricesinthesechartsareadjustedforstocksplits.)

WeboughtbackinonApril71975for$1.40andmorethan

threeyearslaterhadmadenoheadway.March241980:WhenwebrokethroughthetrendlinewehadsUllvirtuallymadenothing.Wesoldfor$1.59,aprofitof$0.19over4.96years,andannualizedreturnof2.77%.

ThepotenUalinvestmentat$2.23onJuly71980wasignored.Withhindsightthisisoneweshouldnothaveignored!Absolutelynot!

Whatcanwesaybut“Isn’thindsightwonderful”

Talkaboutpain!

February72000:Theembarrassmentisfinallyover.Thetrendlineiscrossedby5%and the stock we could have had at $2.23 is sold for $39.64, a profit of $37.42 over an incredible 19.59 years. That would have been an annual rate of gain of 85.91%.Notembarrassedenough,webuybackinat$32.15onDecember42000.SincethebuyislegiUmate,theRedLineAlertat$26.19isignored.

Anotherskimpylibleprofit

whenwesellOctober62008for$33.57,aprofitof$1.43in7.84yearsannualizedto4.02%.

E.I.duPontdeNemours&Company2009–present

July202009:Atlastitlooksasifwemightmakesomemoneyoffthisbeast!Webuyat$28.46crossingthedownwardtrendlineandbyFebruary72011theclosewas$53.33.SUMMARY:Weaveragedadismal5.02%peryearduringthe17.02yearsweheldthisstock.Fortunately (in one sense) there were 21.35 years in which our money could have beenworkingelsewhere.DidwemenUondiversificaUon?

January131975:Boughtcrossingtrendlineat$0.45.TheUmingofthetrendlineacUvaUonwasunfortunate;wecaughtthetailendofabearmarketandsoldat$0.53January231978,aprofitof$0.08andanaverageannualreturnover3.03yearsof6.18%.

WithhardlyenoughUmetocatchourbreath,weboughtagainMay151978at$0.65whenthedownwardtrendlineandashorttermhighwerepassed.AIerawhile,thewayaheadlooksreasonable......butitisn'treally.Yes,there'sanotherprofitbutit'saskimpy$0.17over5.48years.That'sanannualizedrateofreturnof4.81%,marginallybeberthanabankdeposit.

WesufferedandwerestungbytheOctober1987crash,butsUllsoldat$2.93foranannualizedrateofgainof59.09%over3.6years.Itissurprisinghowmuchdifferenceafewweeksand$0.10canmake:theRedLineAlertwouldhaveaveraged

77.51%foreachof3.26years.Undaunted,wetryagainMarch12

1984,buyingat$0.94.TheRedLineAlertfourmonthslaterisignoredduetotheexisUngposiUon.Itwouldhaveboughtfor$0.10less.

OnSeptember51988we'rebackwithabuyat$4.51aIerexceeding

thedownwardtrendlineandashorttermhigh.LifeseemedtobegoingsmoothlyunUlwewerecaughtbywhatwecannowseewasasneakyliblecorrecUon.WesoldApril151994for$11.44,againof$6.94ashareoranaverageof27.46%over5.62years.

Pitywecan'tseethefutureandthenchangetherules!ThepotenUalbuyat$12.96onDecember191994wastooclosetothepresumedcyclehighandhadtobeignored.Ifmissingthatonewasn'tfoolishenough,webuyagainat$28.77onJanuary32000andcelebrateforallofsixmonths.

ThatignoredopportunitywouldhaveTheRedLineAlertsareignoredgainedus18.46%overeachof3.74years.becauseoftheexisUngtrade.

AIerridingthebuckingbroncofrom2000to2003,Disneyseblesdown...

TheWaltDisneyCompany2008–present

July202009wearebackagainat$25.41.ThisposiUonissUllopenandatFebruary72011closedat$40.94.

SUMMARY: Therewerefive completed tradesandno losers (bya whisker). Averageannual...anddropsthroughthetrendlineJanuary72008toavoidtheworstofthebearmarket.However,ittook8.01yearstoearn$0.73,anannualizedrateofreturnof

rateofreturnwas19.57%.0.32%.

Lengthoftheaveragetradewas5.15years,wewereinvestedforatotalof25.74yearsandhadcashavailableforinvestmentelsewherefor7.24years.From1967unUlnowtwonicelyprofitabletradeswereignoredasbeingtooexpensive.Then,onDecember211998wegetthisone!Afalsebeartrendlineispenetratedandwebuyat$23.74.

Wesellat$21.63aIerexceedingthetrendlineby5%.Thelossis$2.09over3.45yearsforanaverageof2.56%.

Ah!That'sbeber!ThepriceexceedsthetrendlineDecember102007by5%andwesellclosetothemarkettopat$31.97,aprofitpershareof$11.50,anaveragereturnof11.87%peryearfor4.73years.

Nowwhat?WebuyagainMarch172003at$20.48aIerexceedingthebeartrendline

andashorttermhigh.

GeneralElectricCompany2008–Present

Wefinallyseemtobegeungitright.PaUencepaysoffinthisbusiness.WeavoidTheGreatRecessionandbuyGEagainJuly272009for$12.56.ThisposiUonissUllopenandclosedonFebruary72011at$20.87.

SUMMARY: Despite a rocky start with two missed opportuniUes, we eked out twoprofitable trades and one loser. Average annual rate of return was a poor 4.66%. Theaveragelengthofeachtradewas4.09years.May20,1985:Thebeartrendlinestartedfromthispoint.

Whenashorttermhighismorethan7%away,webuycrossingthetrendline,inthiscaseat$0.29.Arewehavingfunyet?Nowyouseewhyyoushoulddiversify-unlessyouthinkyoucanpulltradeslikethisoutoftheboxanyUmeyoufeellikeit.

Itistradeslikethisthatmakeupforsome

ofthepoorones.

ButthencomesMay142001whenwecrossthedownwardtrendlineandexceedashorttermhigh.Webuyat$44.41andenduremostofthefirstbearmarketofthecentury.

Thetrendlineisfinallyexceededby5%andwesellat$37.24,anamazinggainfroma$0.29investment(adjustedforstocksplits).Ourprofit:$36.96over14.6years,equaltoanannualgainof893.83%.

ThevariousRedLineAlertsareignoredgiventhatwehavealegiUmateopenposiUon.TheproposedbuyofJanuary12007istooexpensiveandisignoredbythesystem.Itwouldnothaveappearedintheweeklyadvisory.

Thetrendlinecutsoff-justinUmeasitturnsout-anyhopeofrecoveringourinvestment.Wesellat$34.61foralossof$9.79over5.0yearsor4.4%annualized.However,thefirstofthefourRedLineAlerts,theonewecountinourstaUsUcsbecause,likemostpeople,wecannotseeintothefuture,createsabuyAugust272007at$31.64.

TheHomeDepot,Inc.2009–present

AlthoughwesufferedthroughtheenUreGreatRecession,bythecloseFebruary72000wehadagainof$5ashare.Ifigureweearneditinstress!

SUMMARY: There were two trades, one loss and one of winner bordering on theridiculous.Catchingsomethinglikethisispurelucksodon'tevenbotherlookingforitscousin.Withoutthatfirsttrade,HomeDepotmighthavebeenanoverallloser.Asitwas,thecombinedaverageannualrateofreturnwas444.71%.Theaveragetradelasted9.8years.Wesellat$3.49forawildgainof$0.54in3.89years.That'saheady4.71%annualizedreturnoninvestment!

AIergivingupagoodtradebecauseofitspricerelaUvetotheprevioushigh,webuyat$2.96aIercrossingthedownwardtrendline.PenetraUngthedownwardtrendline,thesystembuysat$3.74onMay141990.

ThisacUoncausedthesubsequentRedLineAlertstobeignored.CrossingthefalsebeartrendlineMay101999createsabuyat$29.41.

Thetrendlineispenetratedbymorethan5%onJune151998andwesellat$20.42.That'sagainof$16.69in8.09years.Theannualizedreturnoninvestmentwas55.18%.AIerapoorstartandanignoredRedLineAlert,thestockstartsasteadyclimb.

TheproposedbuyofNovember92009at$49.09wasignored.Thesystemjudgedittooexpensive.AtthecloseFebruary72011thepricewas$48.14proving,fornowatleast,thesystemwasright.

Closetothetopofthemarket,wesellfor$39.93aIerexceedingthetrendlineby5%.Thatwasagainof$10.53butittook8.7yearstoachieveit.Asaresult,theannualizedreturnoninvestmentwasjust4.11%.SUMMARY:Therewerethreetrades,allprofitable.Theaveragereturnoninvestmentwas21.34%.Theaveragelengthofeachtradewas6.89years.

AIerafairlystandardbullmoveincludinganine-monthcorrecUonstarUnginOctober1983,wesellfor$18.46June101985whenthetrendlineispenetratedby5%inabsenceofaviableshorttermlow.Gainis$11.20foranannualaveragerateofreturnof44.18%over3.49years.

Bearmarkettrendlineandshorttermhighexceeded;boughtat$7.27December14,1981rightaIerthefirstrecessionofthedecade.Falsebeartrendlines(theupperofthetworedlines)haveanenUrelydifferentsetofrules.Foronething,theyfrequentlyidenUfymerecorrecUons,aswasthecasehere.Thestockmovedsidewaysforlongenoughthattherisingtrendlineispenetrated.StocksinthissituaUonareoIenmerelygatheringstrengthforanotherpushupward,sooncethebearmarketturnsfalseandthelinerisesinsteadoffallingabuyismade1%abovetheline.

Whetheritisatorabovethelevelofaprevioushighisnottakenintoaccount,asitwouldbeforaregularbuy.WebuyNovember181985for$21.30.

Thelaberhalfofthe1980swereroughonIBMandwesufferedthroughthe1987crashwithnoprotecUon.Red(wrong-way)bulltrendlinesdonotsetstoplossorders.

BecauseoftheexisUngposiUon,theRedLineAlertisignoredbythesystem.AwholeclusterofRedLineAlertsareignoredin1992and1993whileIBMconUnuestohaveproblemsbutfinallyfindsbobominthefallof1993.

Wesell closetothetoponJuly32000, just beforethestart of a recession. Price: $91.51.That'sagainof$70.22ashare,averaging22.55%returnover14.62years.Itpaidtohavefaithandenduretheroughyears.TheproposedbuyonDecember32001at$105.51waswithin16%ofthecyclehighandwasignoredbythesystem.ThatbroughtRedLineAlertintoplay.Webuyonthefirstalert,May202002for$74.46.FromtheperspecUveofourdata,thefollowingthreeRedLineAlertsareignored.

Thesteepplungeof2008didnotallowsufficientUmeforthebeartrendlinetoadjustclosertothemarket.Weboughtat$104.56whenthebearlineandashorttermhighwerepassed.Thisopentradestoodat$164.82February72011.

The excepUonal width of the trend channel gets us out late in the last recession, at$74.47foramarginalprofitof$2.58andanannualizedrateofreturnofjust0.54%over6.42years.Theignoredregularbuywouldhavelost$28.45.SUMMARY:Therewerethreeprofitabletradesandnolosers,notcounUngtheopentrade.Averagerateofreturnoninvestmentwas22.42%overthe24.53yearswewereinvested.

Theaveragelengthofeachtradewas8.18years.

TrendlineandshorttermhigharepenetratedApril101989andwebuyat$0.73.Asolidgaininthemaking.Seehowsuccessivetrendlinesaretrackinghigherasthestockgainsmomentum?Thisshouldmeanwedon'tgiveuptoomuchwhenweeventuallysell.Widechannelscauseustomisstoomuchoftheprofit.

Weget knocked out early in the recession that began in 2000 when the trendline isexceededby5%.However,frompennies,ourholdinghasgrownto$34.19ashare,aprofitof$33.46withanannualizedrateofreturnoninvestmentof400.13%averagedovereachof11.48years.WebuybackinonJune42001whenthelineisexceededandthenearestshorttermhighismorethan7%away.Price:$26.88.

ThesubsequentRedLineAlertsareignoredinviewoftheexisUngposiUon.November132006qualifiedasalegiUmatebuywhenthelineandshorttermhighwerecrossed.Weboughtat$20.00.

Thetrendlineisexceededby5%andintheabsenceofausefulshorttermlowwesellat$19.81onJanuary162006foralossof$7.06over4.62years,5.69%annualized.AIera

roller coaster ride, which included The Great Recession, one of the comparaUvely rareholdingstoendurethatperiod,weignoredtheRedLineAlertsduetotheearlierposiUon.

IntelCorporation2009–present

Havinggonethroughjustabouttheworstthatcouldbethrownatus,thisopenposiUonwasat$21.69February72011foraslightgain.ThefirstignoredRedLineAlertwouldhavebeenaheadalmost$9.

SUMMARY:Thereweretwocompletedtradesforthisstock,onewinnerandoneloser.Becauseoftheunusualgainer,theannualrateofreturnwas197.22%averagedover16.10years.ThepotenUalbuyat$0.79wasignoredasbeingtooexpensivecomparedtotheearlierhigh.

TheRedLineAlertcameintoplaytwoweeksaIerthecyclelowandweboughtonOctober291970at$0.73Whenthebeartrendlineandashorttermhighareexceeded,webuyinagainat$1.30November51984.

Andit'sstraightupfromthereunUlwemeettheOctober1987plungeandsellat$2.55.Profitis$1.27over2.95yearsgivinganaverageannualreturnoninvestmentof33.32%.

Thedifferenceinpurchasepricewasjustsixcents,butourreturnwas17.62%comparedtotheignoredbuy's13.63%.Wemadeaprofitof$0.55over4.27years.Thebuyat$3.31onAugust11988isjustlegalandsetsoffonanothernicerun...

...unUlOctober51992whenthepriceexceedsthebulltrendlineby5%andweWeekslater,onDecember141992the"tooexpensive"rulekeepsusawayfromabuyat$9.35.

sellat$7.68.Thatwasagainpershareof$4.38over4.18yearsforanannualizedrateofreturnoninvestmentof31.69%

Instead,webuyMarch81993offthefirstRedLineAlertat$7.21,closetothebobomofasaucer-shapeddip.JNJbreaksthroughthetrendlineby5%justasthecompanystockchangesmomentum.Wesellfor$21.36,aprofitof$14.16over4.64years,annualizedat42.36%.

Afalsebearlinegetsusinagainafewweekslaterat$26.07.Thechangeinpricemomentumisclearonthischart.Wesurvive(endure?)thefirstbearmarketofthedecadeandmeanderalongthesameroute.

Johnson&Johnson2007–present

ThebeartrendlinekeptgeungThenweexitbeforetheworstofthemost-recentrecessionat$59.00onOctober62008.Profitper

shareover10.81yearswas$32.94foranannualizedrateofreturnof11.69%.pushedupbyfalsebreakoutsunUlitwasatsuchananglethattheproposedentryat$60.15onOctober52009wasignoredasbeingtooexpensivewhencomparedwiththeprevioushigh.WewouldhaveshownaverysmalllossatUmeofwriUng.SUMMARY:FiveinvestmentsweremadeinJNJandallwereprofitable.Theaverageannualreturnoninvestmentwas27.32%overthe26.85yearswewereinvestedinthisstock.Therewere2.32yearswhencapitalwouldhavebeenavailableforinvestmentelsewhere.Lengthoftheaveragetradewas5.37years.AIertheplungewasover,weboughtagainMay301988for$4.16whenwecrossedthetrendlineandnoviableshorttermhighwasinsight.

Almostthreeyearslater,October191987,itgotstoppedoutcrossingthetrendlineinthemarketcrashofthatyear.Price:$4.50;profit:$0.82over2.88yearsThisstockbeganwithafalsebeartrendlineandbought1%aboveitat$3.68December31984.

Itwasnotasmoothride,however.TheRedLineAlertwasperfectbutwasignoredduetotheearlierposiUon.

Wefinallystarttobecompensatedfortheearlierscare.

JPMorganChase&Co.1998–2002

Wearecaughtnearthetopofthemarket(notthatwecouldknowitattheUme)byafalsebearlinethatcausesabuyat$36.86onFebruary11999.I'msurewewerereadyto

groanandmaybethrowinthetowelaIerbuyingat$27.74April152002.Themarketplungedandwesawourinvestmentfalltoasickeninglowof$12.02.Ifyouarediversified,learntotrustthesystemandtohavepaUence.Don'tevenlistentothenews;reportersandmostotherpeoplearealwaysfighUngtherecessionwhenitisalreadyover.ItjusttakesUmetorecognizethatfact.

AsharpdropendstheposiUonwhenthepricecrossesthetrendlineby5%inabsenceofaviableshorttermlowandwesellAugust241998for$26.44.Thatwasagainof$22.28over10.23yearsforanannualizedreturnoninvestmentof52.35%.HadtheRedLineAlerttradebeenopentous,thegainwouldhavebeenmorethanthreeUmesgreater,notsomuchbecauseofthepricedifferencebutmorebecauseoftheUmedifference.AIersufferingaroundedtop,wesellexceedingthetrendlineby5%andtakea$16.36lossat$20.49.WeheldtheposiUonthrough3.05painfulyearsandtheannualizedreturnoninvestmentwasnegaUve14.57%Giventhatbuy,wepassupthetwojuicierRedLineAlertsthatfollowed.

Weturnthecornerandhaveafairlydecentriseinterruptedbyan18-monthsidewayscorrecUonhalfwaythrough.Weeventuallysellat$42.52whenthetrendlineispenetratedby5%.Wegained$14.79over5.27yearswhichannualizedat10.12%.

JPMorganChase&Co.2008–Present

WewereingravedangerofbuyingatthemarkettopandwouldhavedonesoiftheredlineatthetopleIofthescreenhadbeenpenetrated.

ButthanlinewaseventuallyabletoUpdownward(eventhoughitwaspushedbackupagainafairbitbyfalsebreakouts)andweboughtat$39.59.TheposiUonissUllopenandtradedat$45.50February72011.SUMMARY:WehadthreewinninginvestmentsandonefairlysignificantlosswiththisstockbutsUllachievedacombinedaveragereturnon

investmentof13.92%.Theaveragelengthofeachinvestmentwas5.36years.

KraftFoodsInc.2001–2006

Wefirst boughtKraIaIerthe 2002-2003bearmarketat $24.72, closetothepriceatwhichitwasfirstsoldtothepublic.AlthoughKraI,asKraICheeseCompany,wentpublicin1924,ithasbeenthroughmajorcorporateandownershipchanges.The last major one was when Philip Morris acquired the company, took it private andcombineditwithGeneralfoods.PhilipMorrissold16.1%tothepublicin2001,explainingwhywehavestockdataextendingonlyfromJune112001.

KraftFoodsInc.2006–2010

WeseemtobedoingbebersecondUmearound.July132009weboughtbackinfor$25.92.YoumaythinkyoucouldhavedonejustaswellstayinginforthewholeUme,andmaybeyoucouldhave.Butremember,Umeismoneyintheinvestmentbusinessandyouwould have addednine months for virtually no gain. The investment is sUll openandFebruary72000stoodat$30.87.

Andthestockwentnowherefromthere.WeexitedOctober62008beforethescariestpartofTheGreatRecessionwithalossoftwocentsover4.89years.Theannualizedreturnoninvestmentwasminus0.01%SUMMARY:Therewasonecompletedtradethatlost0.01%annualizedover4.89years.Thecashlosswas2centspershare.ThefirstrecommendaUon,at$0.58November91970,wasignored;itwastooclosetotherecognizedcyclehigh.Itwouldhavemadeanexcellent$0.43profitandanannualizedreturnoninvestmentof25.0%.

WehadtowaitunUlMarch171975forourfirstrealinvestmentat$0.60whenthebearlineandashorttermhighwerecrossed.Itlookedreasonableatfirstbutthepricedroppedjustenoughin1979andearly1980tocostusfivecentsandanegaUveannualreturnoninvestmentof1.47%over4.96years.HereyoumighthavekickedyourselffornothanginginbutwecanneverknowhowfarafallingmarketmightfallsoitisbesttopayabenUontoallprotecUvestoplosses.Webuy

backinat$0.67andheadaslowas$0.56beforestarUngtostruggletogetourheadsabovewater.

ThemarketdriIedsidewaysforalmostayearandwebuyjustasitbreaksoutofthatpabern.Ourprice:$3.28onAugust221988

AndabovewaterisexactlywherewegetthembeforewearecaughtbytheOctober1987crashandsellat$2.51.ButsUll,thatwasagainof$1.85

(roundedforsplits),annualizedat38.4%over7.28years.

AndbreakoutitcertainlydoesinaniceUghtchannel.WesellpartwaythroughwhatmighthavebeenasidewayscorrecUononApril51993at$14.38.Thegainis$11.12over4.62yearsforanannualizedreturnoninvestmentof73.6%.AnothercleanrisefollowsandwesellOctober271997for$42.25,aprofitof$25.44over3.2years,annualizedat47.26%.

Andyes,itwasjustasidewayscorrecUon.Webuyasitendsat$16.82August151994.

WeshouldbegeungworriedwiththenextrecommendaUon.Wehavecomealongwaysince1980withnorealbadnews.ButthisisafalsebearmarketlineandtherearenorestricUons.Theruleistobuy1%overtheline,whichwedoat$57.01.Incidentally,weexperimentedwithrestricUonsandtheyworsenedtheoverallresults.SomeUmewehavetotakeonefortheGipper!AndwesuredidthisUme.WewentthroughanenUrebearmarketfrom1999rightthroughtoMarchof2003,ignoringalltheRedLineAlertsalongthewaybecauseoftheopenposiUon.

Forawhileitseemedwemightbesavedbythebell...butthenthebellranganditwas2008.

TheCoca-ColaCompany2009–present

Themarketshotstraightupfromthebobom,crossedthedownward

trendline,andonJuly132009weboughtagainfor$48.45.TheposiUonissUllopenandonFebruary72011closedat$62.52.

Thebearmarket'slastgasp,literally,knockedusoutat$38.18foralossof$18.82over10.96years.BecauseitwasspreadoversuchalongUme,theannualizednegaUvereturnoninvestmentwasjust3.01%.HadwebeenabletousetheearliestRedSUMMARY:Wehadanunusualtwolossesinfivecompletedtradesyettheaverageannualreturnoninvestmentwas30.96%overthe31.03yearswewereinvested.Theaveragetradelasted6.21years.OvertheenUreperiod,wecouldLineAlert,wewouldhavelost81havetakenourcashandinvestedcents.

elsewherefor2.93years.Ourfirstbuycrossingthetrendline

andashorttermhighwasat$0.79July91979.

TheRedLineAlertwasnotcountedinthestatsduetotheearlierposiUon.MickyDcrabbedsidewaysforsixorsevenmonthsandthenbrokethroughthebeartrendlinetobeboughtat$4.05.

Aswithsomanyothers,weweredoingfineunUlOctober1987.Wecrashedthroughthe

trendlinestopandsoldfor$4.18.However,thatwasaprofitpershareof$3.40in8.26yearsandanannualizedreturnoninvestmentof52.44%.Andoffwewenttotheracesagain!

ButattheendofthesidewayscorrecUonwecrossthefalsebearlineandweareoffagain,thisUmeat$13.00.

AsidewayscorrecUonbrought

anendtothatfunandwesoldJuly181994for$10.50,againof$6.45in6.13years.Thatwasanannualizedreturnoninvestmentof26.03%.Butthehorsetrippedbadlyoverthefirstrecessionofthecentury.Wemissedmuchofitwhenwesoldat$21.80foraprofitof$8.80over5.61years,anannualizedrateofreturnof12.08%.Wewerenotyetfinishedwiththerecession.WejustUckledhighenoughoverthebeartrendlineandashorttermhightobuyat$28.09thefirstweekofJanuary2001.Becausethepricequalified,allsubsequentRedLineAlertswereignored..

AbigsighofreliefasthebearmarketcametoanendinMarch2009andMcDonald'srose handsomely. Thestock evenweatheredTheGreat Recessionquite well but wesoldwhenthetrendlinewascrossedby5%October62008at$52.83,aprofitof$24.75andanannualizedrateofreturnover7.76yearsof11.35%

McDonald'sCorporation2009–present

Thefalsebearlinehasprovedhelpfulsofar.Thestockwasboughtfor$64.37February12010andoneyearlaterwas$73.45.SUMMARY:Therehavebeenfourcompletedtrades,allprofitable.Averageprofitpersharehasbeen$10.35andaverageannualreturnoninvestmenthasbeen25.48%overthe27.77yearsduringwhichwewereinvested.Lengthoftheaveragetradewas6.94years.

Ourfirstbuyof3Mwasat$2.27April211975whenpricesspikedupthroughthedownward trendline and almost immediately dropped back again. It did not look toopromising.

ThenthingssebleddownandactuallygotexciUngin1982.

TheykeptbeingexciUngunUlthedreadedOctober1987crash.Ofcourse(hesayswithsarcasm),wesoldnearthebobomat$5.85.Butallwasnotlost.Wemade$3.59over12.5years,annualizedat12.65%.AswehaveseenonsomanyotherchartstrippedbytheOctober1987crash,themarketshookoffthesurpriseoverthenextnineto12months.Webought3Mbackagainat$8.53whenitcrossedthebearlineandashorttermhigh.Ifweweren'tsalivaUngbynow,weshouldhavebeen!Wegetthroughtheearly

decadebearalrightbutwithnoUceablymorevolaUlityoncewebuyat$30.30March61999.

Butallgood(andbad)thingseventuallycometoanend.ExtravolaUlitycausesthetrendlinetobebrokenandwesellat$25.84foraprofitof$17.32in9.95years.Annualrateofgain:20.42%.ThenextpotenUalbuy,at$70.47April32006wasignored.Itwaswithin16%ofthepresumedcyclehigh.

Butfour months later there was a RedLineAlert creaUnga buy August 7 2006at$60.74.Fora

Midwaythroughthedecade,onApril15,while,itlookedlikeexcellentwecrossthelineby5%andsellat$65.88,aUming...gainof$35.58ashareover6.11years.Thatwasanannualizedgainof19.22%.

3MCompany2008–present

...thenpricesplungedandwesufferedtheenUreGreatRecession.SUMMARY:Therewerethreecompletedtradesduringthe28.56yearswewereinvested.Averagereturnoninvestmentwas17.43%.Averageprofitpertradewas$18.83pershare.

ThetwolaterRedLineAlertswereignoredbyoursystemalthoughyoumayhaveusedthem,andeventuallywesurvived(unlesswepanickedattheend).TheposiUonissUllopenandstoodat$88.79February72011.ThebearlineUppeddownjustinUmetogetusabeberpricewhenweboughtMerckNovember301970for$0.42.

IthadagoodrunupunUlithitthestartofthebearmarketin1973.WesoldJanuary71974crossingthebulllineat$0.69,againof$0.28ashareover3.1years.Remember,allthesepricesareaIerseveralstocksplits.Theannualizedreturnwas21.91%.It'swonderfulhowmuchwecanseewithhindsight!Clearly(asweseenow)thebuyat$0.79onMay51975mighthavebeenbeberconsidered.

Undaunted,acoupleofmonthslaterwebuyagain(andperhapsholdourbreath?).Evenwherewesoldmighthavebeenbeberconsidered!We,likesomanywhopanic,

caughtthetailendofabearmarketandsoldfor$0.82,anannualizedreturnoninvestmentofjust0.86%.Abanksavingsaccountinthisrarecasewouldhavebeenbeber.Butwe'renotsaUsfied;it'slikeanappealtotheumpire!Afewweekslater,January91989we'rebackinthankstothetrendlineandashorttermhigh.Price:$5.04.

Okay,breathagain!Wearewellrewardedbutforcedoutat$4.53bythetailendofa sideways driI following the October 1987 crash. The gain was $3.58 in 6.21 years,annualizedat60.68%.

Anyhow,aIertakingabreatherforeightmonthswe'rebackinat$9.56March22,1993.Ifyoulookatthischart,I'dhavetosaythesale(theyellowpin)wasprebypoorUming,

butthathastodowiththestandardlengthoftrendlinesinthissystem.Manydifferentlengthsweretestedwitheachstockand161weeksprovedbest.Atanyrate,wesoldfor$9.93,aprofitof$4.90over4.2years.Theannualizedreturnoninvestmentwasarespectable23.17%-soI'llstopcomplaining

aboutwhatweleIonthetable!Butwe'resUllnotdone!Afalsebearlinegetsusbackinat

$34.96lessthanthreemonthslater,onJanuary121998.

AndthisUmeweclamberupthehillnicelytosellonatwitchat$28.49October271997.Thatwasagainof$18.93ashareover3.95years.Theannualizedreturnoninvestmentwasapleasant50.17%.Becauseofthepreviousbuy,theRedLineAlertsareignored.Sad!

Thebeginningsofthefirstbearmarketofthedecadepushesusoutat$40.19fora$5.24gain.What?Youthoughtthebigoneswouldlastforever?Duringthe3.91yearswewereinvested,ourannualgainwas3.84%.Yes,wetriedexpandingthe16%ruletocutoutmoresillytradesbutthatmerelyreducedtheoverallrate

ofreturn,sowe'restuckwiththisbuyonOctober282002at$37.25.WedidnotleaveourfriendsatMerckverylong.WewerebackinagainJanuary52009at$29.08whenwecrossedthedownwardtrendlineandashorttermhigh.TheRedLineAlertwasignoredduetothisearlierbuy.

Becausethemarketsproutedupsoquicklyinthefinaltwoyearsofthebullmarket,thetrendlinewasinthenextcountyandprebyuseless.Wesoldnearthebobomofthedebaclefor$23.20October62008.Thatwasalossof$14.04,annualizedat6.34%over5.94years.CanwepleasegobacktoGoandcollect$200?

Merck&Co.,Inc.2010–present

ThisposiUonissUllopenandwasat$33.00February72011.

SUMMARY: We complete seven trades in this period, all but one of which were profitable. Over the 34.42 years during which we were invested, the average return oninvestmentwas22.04%.Theaveragelengthofeachtradewas4.92years.Ourfirstbuyisprebystraighlorward.WecrossedthebeartrendlineSeptember41989andboughtat$0.35allowingforstocksplits.TheiniUalrisewasgraUfying.

GraUfying?Isthatallyoucansay,Tremayne?WesoldApril3,veryclosetothetopandwererewardedwith$35.63,almostallofwhichwaspureprofit.Theannualizedrateofreturnover10.58yearswasabreathtaking966.45%.Itwasadifferentkebleoffishwhenweboughtat$24.85onApril162001.ThischartgivesagoodillustraUonofwhyweusenostoplossprotecUonearlyinatrade.ThevolaUlitycanbenerve-wrackingifyoupaytoomuchabenUontoit.Thesimpleanswer:havefaiththattheresultsyouseehereinallkindsofmarketsarelikelytoconUnuewithinreasonanddon'tpaymuchabenUontoyourholdingsforaboutthreeyearsunUlstoplossesstartbeingrecommended.Itismucheasieronyouthatway...andyourbankaccountwillprobablythankyoutoo!

Thenextrecommendedbuy(thegreenpin)at$28.21onDecember112006wasignoredastooexpensive.Itwouldhavelostmorethan$7inlessthantwoyears.TherewerenoRedLineAlerts.Thenextbuy,offamuch-adjustedbearline,wasonJuly132009at$23.94.Thestockwasat$28.20February72011.

SUMMARY:MicrosoIwasanotherThetrendlineispenetrated

April242006andwesellat

$22.32foralossof$2.53over5.04years.Thatequateswithanannualizerateoflossof2.01%.oneforpeopleneedingtorecapturetheirreUrementlossesinahurry!Therewereonlytwocompletedtrades,oneofwhichwasforaloss,buttheotherwasadoozy.Duringthe15.62years in which we were invested, the average return on investment was an incredible 482.22%.Thelengthoftheaveragetradewas7.81years.Pfizer'sfirstrecommendedbuywasjudgedbytheprevioushightobetooexpensivesoitwasignored.Pity!Itwouldhavereturned27.48%annualizedover3.09years.

WedobeberwiththesecondrecommendaUon:abuyat$1.27September121988.

Thenwegetcaughtbyahiccupandsell(yellowpin)at$3.19onFebruary71994.Thegainwas$1.94ashareover5.4yearsandtheannualizedreturnoninvestmentwas28.41%.Notshoddyforthecheapseats!

Crossingthebearlineandashorttermhighgetsusbackinat$3.62onAugust81994andtherewasalongabeauUfulriseahead.Wesoldat$22.36foragainof$18.75asharein5.41years.Theannualizedreturnon

investmentwas95.9%ButsomewherethereisusuallyapricetopayforexcepUonalresultsanditwasUmetopaythatpricenow.OnApril32000weboughtat$27.59whenthebearlinewascrossedinconjuncUonwithashorttermhigh.ThatshutoutallfutureRedLineAlerts.Wewereatthestartofabearmarketthatlastedalmostthreeyears.

ButPfizerdidn'tjustsinkduringthebearmarket;itconUnueddownanddownanddownthroughthenextbearmarkettoo.

PfizerInc.2009–present

ByFebruary72011,11yearsaIertheinvestmentwasmade,thestockhadstruggledbackto$19.04.ItsUllhasawaytogotobreakeven.

SUMMARY: There were two completed trades for an average return of 62.15% on investment.Thatreturnmaydropwhenthecurrenttradeiscompleted.Averageinvestmentlengthwas5.41years.Ifanystockrunscountertothemarket,parUcularlythoseinthesameindustry,alwayscheckforreliablecorporatenews.Theproposedbuyat$1.15onJune31974istoohightobeactedupon.

AfalsebeartrendlinestartsusoffonNovember91970withabuyat$0.63.TheposiUonisheldfora

fracUonoverthreeyearsandis soldDecember101973at $1.04whenthetrendlineisexceededby5%inabsenceofaviableshorttermlow.Profitis$0.42foranannualizedrateofreturnof21.47%.ARedLineAlertcreatesabuyonOctober141974at$0.89.

TheposiUondoesnothingbuthopupanddownlikeagrasshopperonsteroidsandwasteUme.Twomonthslater,onMay51980,wemisswhatwouldhavebeenanexcellentinvestment.Thepricewasconsideredbythesystemto

betooexpensivecomparedwiththeprevioushigh.

Wefinallysellfor$0.94crossingthebulltrendlineMarch31980.In5.39yearsweearnedanunnoUceable$0.06foranannualizedreturnonOurnextopportunityisonAugust291988whenwecrossthebeartrendlineandexceedashorttermhightobuyat$2.97.

Sevenmonthslater,penetraUngafalsebeartrendline,wearebackagainat$9.87November81993.

TheposiUonissoldat$8.04whenthetrendlineisbrokenbyasidewayscorrecUon.Thegainwas$5.08over4.6years

foranannualizedreturnonWehaveanicelongride.

WearecaughtbyasuddennosediveMarch62000though,apparentlygeungridoftheearlycenturybearmarketinamaberofweeks.Wesellat$32.21,againof$22.35in6.33years,anannualizedreturnoninvestmentof35.8%.Thebearlineandashorttermhigharepassedandwebuyat$30.75theweekofDecember252000.RightaIerthat,thestockplungestoalowof$22.63.Evenwhenthesystemtestsyourcourage,diversifyandtrustthesystem.

SUMMARY:Therewerefivetrades,allprofitable,foranaveragereturnoninvestmentof21.30%.Theaverageprofitpersharewas$10.73.Wewereinvestedatotalof27.18yearsandcapitalwasavailableforinvestmentelsewherefor10.73years.Averagelengthofeachtradewas5.44years.WehaveanopeninvestmentinP&GtakenJuly132009at$53.27.Thestockwasat$64.64February72011.

AclearMtopandwegetoutonthesecondlegat$56.48October62008.Thegainis$25.74over7.78yearsforanannualizedreturnoninvestmentof10.76%.Thefirstopportunitywehadwiththisstockwasconsideredtooexpensive.Now,wetradeaIercrossingafalsebeartrendlineby1%.Thistrendline,likeallfalsebearlines,startedoffintherightdirecUon(downward)butaseriesoffailedbreakoutsgraduallyUppedithigherunUl it was no longer a normal bear line. A false line like this normally indicates asidewayscorrecUon,asitdidhere.Webuyat$7.40December161991.Wedon'tfeelsobadaboutbeingunabletomakethefirsttradenow.Wearewellintothebearmarketof2000-2003beforewesellat$20.39fora$13.01profitover10.35years.Theannualizedreturnoninvestmentwas17.01%.WebuyagainDecember22002for$19.40missingtheopportunitytousetheRedLineAlertalibleoverthreemonthslaterat$13.64.

WebuybackMay42009at$24.68.

The2008bearmarketcatchesusonOctober6thatyearandwesellat$22.70,againof$3.30in5.84years,anannualizedreturnoninvestmentof2.91%

AT&TInc.2010–present

TheposiUonissUllopenandonFebruary72011stoodat$27.96.

SUMMARY:Thereweretwoprofitabletradesandnolosses.Theaveragelengthofeachtradewas8.1yearsandtheaverageprofitpershare,$8.15.Theaveragereturnoninvestmentwas9.96%.AstraighlorwardstartforTravelersaspricescrossthedownwardtrendlineandashorttermhighforabuyat$3.46.

Pardonthepoorpunbutwekeepontravelingnicely!

Endoftheroadaswesellfor$21.73,againof$18.28overInthemidstofalotof10.06years.Thatwasanannualchoppiness,webuyagainreturnoninvestmentof52.56%May31999at$24.08.

ThetwosubsequentRedLineAlertsareignoredbecauseoftheexisUngposiUon.ThisposiUonstarteddownarockyroad,geungashighas$44.23beforeplungingto$18.67,butthenitseblesdownforarelaUvelysteadyclimb.

TheTravelersCompanies,Inc.2007–present

The proposed buy September 15 2008 at $50.43 was above the cutoff level and wasignored.ThisposiUonissUllopenandstoodat$57.88atthecloseofbusinessFebruary72011.

Thetrendlineiscrossedby5%in

SUMMARY:Thereweretwocompletedtradesduringtheabsenceofaviableshorttermlowperiod;bothwereprofitable.andwesellJanuary14

2008,Wewereinvestedatotalofbeforethebearmarketreallytookhold,at$45.87,relaUvelyclosetothetop.Thegainwas$21.81inInstead,justoveramonthlateron8.7yearsforanaverageannualOctober20weboughtwithaRedrateofreturnof10.41%.LineAlertat$31.38.18.76yearswithanaverageannualreturnoninvestmentof31.49%.Theaverageprofitpersharewas$20.04andtheaveragelengthpertradewas9.38years.Althoughitmaynotlooklikeithere,thenearestshorttermhighwasmorethan7%overtheline.WeboughtcrossingthelineApril291974at$0.30-andtheUmingwasprebygood.

Westarttorunintoabitoftroublein1981butwearenotknockedout.

1981wasreallyabreatherforthestockandweinvestagainwhenthebeartrendlineisbreachedalongwithashorttermlowJuly121982.Price:$1.26.

WebreakthroughthebulltrendlineFebruary11982andsellfor$1.05foraprofitof$0.77over7.76years.Thatmay

seemalongUmetowaitfor$0.77butrememberthesepricesareaIerstocksplitsovertheyears.AttheUme,youwouldhavehadfewersharesatamuchhigherprice.Anywayyousliceit,theannualrateofreturnoninvestmentwas33.56%.Thattradelastsanunusuallyshort2.82years.(The161-weekbulltrendlinestartsatthecyclelow,notattheUmeofpurchase.)Asharpone-weekspikedownpenetratedthetrendlineby5%andwesellat$2.35,aprofitof$1.11andanannualizedreturnoninvestmentof31.46%.AsidewayscorrecUonofalmostayearcreatesafalsebeartrendlineandwebuyagain1%abovethelineonDecember91985for$3.16.TheOctober1987crashissurvivedsimplybecausethathappenedtooearlyinthelifeoftheinvestmentandnostoplossprotecUonwasinplaceatthatUme.

TheRedLineAlertwasignoredduetotheexisUngposiUon.Anyonewhosaystheyknowwhatisgoingtohappentoastock'spriceisdeludingthemselves.Thesystemreactstowhatthemarketdoesandthereforemightdotomorrow.ItdoesnotforetellthefutureeventhoughitseemstoatUmes.

ThespikedowninOctober1998(investorshadlearnedfromthepreviousyeartobenervousofOctober)sentustothesidelines.Thetrendlinewasexceededby5%andinabsenceofaviableshorttermlowwesoldat$15.27August311998.Thegainwas$12.12over12.73years.Theannualizedreturnoninvestmentwas30.20%.Thebrief rest created a false bear trendline and webought again November 9 1998for$20.60, 1%abovetheline, andentereda volaUleperiodthat iniUallysawa widegapbetweentheprovisional(unusedforthefirst161weeks)bulltrendlineanditsparallel.ButthevolaUlityseblesdownwell.

UnitedTechnologiesCorporation2007–present

ThebeartrendlineallowsustomissvirtuallyallTheGreatRecessionandwebuythestockbackJune12009for$52.06.ThisposiUonwassUllopenat$83.66onFebruary72011.

SUMMARY:TherewerefourThetrendlinegetsusoutclosetocompletedtrades,allthetop,sellingJanuary72008atprofitable,foracombined

$68.11foragainof$47.52inperiodof32.47years.Average9.16years.Thatwasanprofitpertradewas$15.38and

annualizedreturnoninvestmenttheaverageannualrateofof25.18%.returnwas30.56%.Infact,thisstockwasprebyconsistent.ThelowestROIwas25.18%andthehighest33.56%.Theaveragetradelasted8.12years.Verizonbeganwithafalsebeartrendlineandthefirstbuywasat$2.67.

ThenextofferingonDecember3at$11.19wasignoredbythesystemandwouldnothaveappearedintheweeklynewsleber.Thesystemassumedthat$11.17setJanuary11990wasacyclehighandtheDecember3pricewaswaytoohightoinvestsafely.

Wesoldat$9.06August201990onwhatatfirstlookedlikethesecondlegonanM-shapeddouble

top.Profitwas$6.39ashareover6.08years.Annualizedreturnoninvestmentwas39.49%.GamblerssomeUmeswinbutthesystemtriesnottogamble.

ThenextofferingonJuly92001at$35.05isalsoignoredasbeingtooexpensiveinrelaUontotheOctober41999high.

ThatbringsintoplayaperfectRedLineAlertcallrightattheendoftheearly-decadebearmarket.Usingit,webuyat$18.42August52002.

Abumpyride that forces us to sell at too lowa price October 6 2008. We sell at$25.48,againof$7.07over6.17years,annualizedat6.22%.The"regular"buyweignoredwouldhavelost$9.56.

VerizonCommunicationsInc.2009–Present

SUMMARY:Thereweretwoprofitabletradesandnolossesduringthisperiod.Wewereinvestedfor12.25yearsandourcapitalwouldhavebeenavailableforotherinvestmentfor11.96years.Averagerateofreturnwas22.85%.

WehaveanopenposiUonwhenthedownwardtrendlinewaspenetratedJuly202009andweboughtat$29.12.TheclosingpriceFebruary72011was$36.02.Wal-Marthashadalargenumberofstocksplitsandsonowsharesinthe1970sappeartohavetradedformerepennies.Thisisoneofthestrangestchartsyouwilleverseeforestablishedcompanies.CrossingthedownwardtrendlineMay201974wepaidallofthreeadjustedcentsforthestock.TheignoredRedLineAlertwasatasinglepenny.

Here'sanotherchartyouwillnotseetoooIen.WhenastockmovesinpenniesitrepeatedlygetsanewPoint2forthebulltrendline.Thatmeanslotsofupwardadjustments-assumingthestockisrising.

ThetrendlinesulUmatelysortthemselvesouttoleaveasingledominantone.WeavoidedtheOctober1987marketcrashbutgotcaughtintheNovember30bouncewhenthetrendlinewasexceededby5%.Wesoldfor$2.08aIer13.53years.Pennies?Itwasn'tbadconsideringthethree-centinvestment.Profitwas$2.05andtheannualizedreturnoninvestmentwasa

massive578.83%.The bear trendline and a short termhigh get us back in at $3.10, 103 Umes our firstinvestment.Anothergoodrunstopswhenthebulltrendlineisexceededby5%inabsenceofaclosershorttermlow.WesellJune141993for$10.86,withagainof$7.77over5.0years.Annualized,that'sareturnoninvestmentof50.15%.WebuybackinagainFebruary271995for$10.35whenthebearmarketisalmostover.

BecauseoftheexisUngposiUon, theRedLineAlert ofJanuary29 1996at $8.53isignored.AfairlylengthybeartrendlinewasexceededalongwithashorttermhighandonJuly232001weboughtthestockagainat$48.60.

Wal-Martfaredwellthroughmostoftheearly-centurybearmarketalthoughwemissedmostofitwhenthebulltrendlinewasexceededby5%andwesoldat$37.37,againof$27.03over5.61years.ThisUme,theannualizedreturnoninvestmentwas46.55%WesufferedthroughanenUrerecession...

Wal-MartStores,Inc.2008–Present

...andyetanother.TheposiUonissUllopenandstoodat$56.07onFebruary7.Unlessthereiscommensurateprofit,thelongerthetradethelowertherateofreturn.

SUMMARY: There have been three profitable completed trades and no losses. Theaverageannualreturnoninvestmentwas225.18%overthetotalof24.15yearswewereinvested. Unusually, the minimum return for any of the trades was 46.55%. The averagelengthofeachinvestmentwas8.05yearsandtheaverageprofitpersharewas$12.29.ThefirstpotenUalinvestmentonAugust141978atasplit-adjusted$0.72wastooclosetothepreviouscyclehighandsowasignored.Wemissedanannualized46.6%overthenext9.18years.Nocomment,exceptgrr!AIerthesharpdropofOctober1987,thisstocklikemanyotherswentintoasortofhibernaUon.Perhapsinvestorsweretooshell-shockedtodomuchelsethanholdonUght.ButeventuallyExxonbegantomoveupwardagainandwhenitdiditpenetratedthefalsebeartrendlineby1%andweboughtat$6.19.

ThetrendlineiscrossedduringwhatnowappearstohavebeenafurthersidewayscorrecUonandwesellfor$9.96,againof$3.77over4.48years.Thatwasanannualizedreturnoninvestmentof13.59%.ThefalsebeartrendlinehappenedonlybecausepricesnibbledawayoIenenoughwithoutcreaUngabuythattheoriginaltruebearlinewasforcedupward.

DifferentrulesapplytofalsebearlinesotherwisethebuyonMarch61995at$11.20

wouldhavebeenignored.

It's a good thing it was not ignored. Wesoldnear the topof the market whenthetrendlinewaspenetratedMarch192001.Price:$32.84,gain$21.64over6.04years.Averageannualreturnoninvestment:32.03%.WejustseemtokeeppilingitonwiththisstockduringaUmewhenOPECwasforcingoilpriceseverhigher.Isupposethisisonewaytopayforgasatthepump.Thesystemboughtat$30.89January62003.

ExxonMobilCorporation2007–present

ThecurrentopenposiUonwasboughtOctober122009for$70.71.Anyonewithaweakheartorlackingfaithintheoverallsystemmighthavesufferedaheartabackinthefollowingninemonths,buttheyareprobablycelebraUngnow.February72011pricewas$83.93.WesoldjusttwomonthsaIerthemarkethigh,onJuly14

SUMMARY:Threetradeswere2008for$76.60,andmissedmostofthebearmarket.Profitcompletedduringtheperiod,allwas$45.52pershareover

5.52profitably.Averagereturnonyears.Annualizedreturnoninvestmentwas24.11%andtheinvestmentwas26.71%.averageprofitpersharewas$23.65. The average length of investment was 5.35 years.HOW TO BECOME A WEALTHYINVESTORPAGE282

SummingUp

There are 30 stocks in the Dow Jones Industrial Average. The ground covered in the precedingchartsshowedresultsfor97completedtrades.Eighty-sevenofthosewereprofitable;10lostmoney.

The worst loss was 14.57%. The best gain was ridiculous! The averagereturn was 64.40%.Obviously,thatwashelpedbythebestgains,butitwasalsoimpairedbythehandfulofflosses.

Kraft,withonecompletedtradethatlostalloftwocentsashareandhadanegativerateofreturnof0.01%was the only stock on the list to have a net loss, and it is doingwell with the current openposition.Studyofthechartstogetherwiththesummaryofrulesonpage80shouldgiveyouasenseofcomfortthroughunderstanding.Butthereareseveralsignificantthingstotakeawayfromthisstudy:•Thisisnotasystemforshort-termtraders.It isforserious investorswhowanttomakemoneyforabetterfutureforthemselvesandtheirfamily;

•Youwillsufferdownturnsthatwillbepainfulforsomepeople.Ifyouthinkyouwillbeunabletotoleratethesetemporarydownturns,closethisbooknowanddonotsubscribetotheweeklypublication.Thefactthatthosedownturnsusuallyrecovershouldbeacomforttoothers;HOWTOBECOMEAWEALTHYINVESTORPAGE283

•Thesystemdoesnotofferafunorexcitinggameas,perhaps,daytradingdoesforsome.Itoffersabusinesslike,managedapproachtomakingmoneyfromsolidcompanies;

• Four stocks on the list (13.33%) had total triple-digit returns. An equal number had single-digitreturns.Youmightormightnothaveinvestedinanyofthem.Butthepointisthis:toguaranteewithinreasonthebest returnpossibleyouhadtobe invested inall. Iamnotsayingyoushould invest in30stocksbutIamreinforcingthemantratodiversify.Wecannotknowinadvancewheresuccessorfailurewillhide.•Finally,youshouldhaveseen thatyouneedpatience.Thosefoursingle-digitgainsI talkedaboutamomentagoeachhaveongoingtrades.Atthetimeofwriting,thosecontinuingpositionshavepushedthree of them to overall gains in excess of 30% and one tomore than 10%. That includes the poorresultsfrombefore.AndKraft,oursinglenetloser?It'snotaloseranymorewithagainofabout$5ashareattimeofwriting.

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