A stock timing system’s analytical device, such as a chart, must recognize certain pricing patterns and its decisional mechanism must produce an output signal to indicate whether the stock’s price is rising or falling.
Exactly how one interprets historical price data and produces an indicator depends upon their buy/sell philosophy. My philosophy is to buy a stock when it is going up in price and sell it when it is going down.
This philosophy may sound strange to many people, but it is grounded on the principle that stocks going up in price tend to continue going up and stocks going down in price tend to continue going down. This philosophy is also consistent with the buying patterns of most investors. Investors flock to the market when it’s going up and shy away when it’s going down. Favoring stocks which are rising in price is at the root of Value Line’s celebrated timing system. It’s also inherent in the “Relative Strength” approach to timing.
Relative Strength is simply a measure of a stock’s price performance compared to the market. High Relative Strength stocks are those which are out performing the market. Many extremely successful investors use Relative Strength as their primary timing system.
The trick with all timing systems is in knowing when a stock’s price is going up or down. One of the simplest ways to analyze a stocks price behavior is to compare its price pattern to a moving average of its price history. If a stock’s price is above its moving average price and is moving away from the moving average, the stock is in an uptrend. The reverse is also true. VestorVest provides charting and moving average capabilities on over 8,000 stocks.
Investors who use moving averages to time their buy and sell transactions can do very well. However, they will never "get in at the bottom” or “get out at the top” because of the nature of moving averages. On the other hand, good chartists can capture 70 to 80 percent of a move and can avoid disastrous losses. And that ain’t bad.
VectorVest computes (13 week) moving average prices for over 8,000 stocks each day. It publishes a stop-price for each stock based upon its moving average. Thus, if one sees that a stock’s price is above its stop-price, they may conclude that the stock’s price is above its moving average. But they would not be able to tell whether the stock is in an up or down price trend. This is done with an indicator called “Relative Timing”.
VectorVest’s Relative Timing, (RT) indicator analyzes the direction, magnitude and dynamic of a stock’s price movement. It’s reported on a scale of 0.00 to 2.00. When RT is above 1.00, the stock’s price is in an uptrend. When RT is below 1.00, the stock’s price is in a downtrend.
RT has all the characteristics of a guided missile system. Consistent with modern technology, it’s extraordinarily fast. Once it locks in on a stock, it tracks the stock relentlessly. It explodes upward off of bottoms and dives off of tops. It can see things not visible to the naked eye and automatically returns to 1.00 when a stock’s price flattens out.
Since RT works within a framework of 0.00 to 2.00, all stocks may be searched, sorted, screened and ranked on a consistent basis. Week-to-week comparisons of RT, easily done by PC users with VectorVest, discovers many great winners, just as they are beginning to make big moves.
No fundamental analysis could find these stocks at the critical point of eruption. They need not necessarily be undervalued, or of low risk. Investors must employ technical analysis and timing to complete their stock selection arsenal. Timing, it’s the ultimate weapon.