Profit Magic of Stock Transaction Timing by J.M. Hurst - Review Part II
In the first part of our extended review of the Profit Magic of Stock Transaction Timing by J.
M.
Hurst (Prentice-Hall, 1970) we laid out the basics of Hurst's price-motion model.
The keynotes are that Hurst determined by mathematical modeling that 75% of stock price movement is due to relatively foreseeable fundamental factors.
Aside from being a confidence vote for Wall Street's traditional fundamental analysis methods, this finding confirms that old saying that you will never make a silk purse from a sow's ear.
No matter how technical your trading method you need to be involved only with trading vehicles whose trend direction can be logically and fundamentally explained.
The price-motion model attributes only an accumulative 2% of stock price movement to news events, extrinsic shocks, and purely random individual investment decisions.
Although the immediate, short-term affect on stock prices can be substantial, it is clear enough that you cannot make a successful trading plan based upon these random factors.
The remaining 23% of stock price movement is attributed to semi-predictable, accumulative cyclical factors.
And, indeed, most of Hurst's book is an explanation of how to capitalize on this 23% factor.
As important as how is why.
Remember, the title of the book is "Profit Magic...
" Appropriately, Hurst's first chapter is an explanation of where the magic comes from.
Although Hurst did not address it this way specifically, this first chapter is the foundation of a wealth building trading plan.
Imagine three fictional stock market participants who start with $10,000 each and are equally adept at making exactly 10% per trade, but who trade at different frequencies.
Trader A buys and sells once a quarter, Trader B once a month, and Trader C once a week.
If each trader reinvested his profits in his next trade, and continued trading at the same frequency, and earning exactly 10% profit per trade for one year, how different would the accounts of each of our fictional traders look at the end of one year? Trader A trades once per quarter: $14,641 Trader B trades once per month: $31,384 Trader C trades once per week:$1,420,429 Did you imagine that the results would be so overwhelmingly different? The message is clear.
If you are starting with a limited amount of capital, and want to build wealth from the stock market, you need a trading plan that incorporates an acceptable risk/reward method for short term trades.
The mathematics of profit compounding are immutable.
Hope or desire is not a plan, however.
The 30,000 hours of computer research underlying Hurst's book were all aimed at one target - a reliable method to shorten the holding period per trade.
As Hurst put it, "improved timing permits shortened trades.
" If you thought the Profit Magic of Stock Transaction Timing was just a good read about stock market cycles you missed the magic, and the point.
In subsequent reviews we will cover how Hurst welded the laws of compounding into his price-motion model to produce a practical method of extracting the profit magic from stock transaction timing.
M.
Hurst (Prentice-Hall, 1970) we laid out the basics of Hurst's price-motion model.
The keynotes are that Hurst determined by mathematical modeling that 75% of stock price movement is due to relatively foreseeable fundamental factors.
Aside from being a confidence vote for Wall Street's traditional fundamental analysis methods, this finding confirms that old saying that you will never make a silk purse from a sow's ear.
No matter how technical your trading method you need to be involved only with trading vehicles whose trend direction can be logically and fundamentally explained.
The price-motion model attributes only an accumulative 2% of stock price movement to news events, extrinsic shocks, and purely random individual investment decisions.
Although the immediate, short-term affect on stock prices can be substantial, it is clear enough that you cannot make a successful trading plan based upon these random factors.
The remaining 23% of stock price movement is attributed to semi-predictable, accumulative cyclical factors.
And, indeed, most of Hurst's book is an explanation of how to capitalize on this 23% factor.
As important as how is why.
Remember, the title of the book is "Profit Magic...
" Appropriately, Hurst's first chapter is an explanation of where the magic comes from.
Although Hurst did not address it this way specifically, this first chapter is the foundation of a wealth building trading plan.
Imagine three fictional stock market participants who start with $10,000 each and are equally adept at making exactly 10% per trade, but who trade at different frequencies.
Trader A buys and sells once a quarter, Trader B once a month, and Trader C once a week.
If each trader reinvested his profits in his next trade, and continued trading at the same frequency, and earning exactly 10% profit per trade for one year, how different would the accounts of each of our fictional traders look at the end of one year? Trader A trades once per quarter: $14,641 Trader B trades once per month: $31,384 Trader C trades once per week:$1,420,429 Did you imagine that the results would be so overwhelmingly different? The message is clear.
If you are starting with a limited amount of capital, and want to build wealth from the stock market, you need a trading plan that incorporates an acceptable risk/reward method for short term trades.
The mathematics of profit compounding are immutable.
Hope or desire is not a plan, however.
The 30,000 hours of computer research underlying Hurst's book were all aimed at one target - a reliable method to shorten the holding period per trade.
As Hurst put it, "improved timing permits shortened trades.
" If you thought the Profit Magic of Stock Transaction Timing was just a good read about stock market cycles you missed the magic, and the point.
In subsequent reviews we will cover how Hurst welded the laws of compounding into his price-motion model to produce a practical method of extracting the profit magic from stock transaction timing.
Source...