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I draw my trendlines "by hand", and then label them with what I call a
"rate", rather than a slope. A rate of 1.0 would be a horizontal
line, a 2.0 would double the stock price in one year.
The formula for the rate is (P2 / P1) ^(12 / D2 - D1)
where P1 and P2 are the first and second prices,
and D2-D1 is the number of months between the prices.
For example, I draw a trendline under Ascend that is three months
long. Let's say on 8/1/96 the line is at 39.8 and on 11/1/96 it is at
59.4. Dividing gives 59.4/39.8 = 1.49. Since this is only for 3
months, you must raise this number to the 4th power (12/3), giving
4.96. This rate means that if ASND were to stay on that line for one
year, the stock would be worth 5 times as much, for a gain of 400%.
Don't let the exponentiation put you off. There are only three
numbers to remember: If you take two points 12 months apart, then the
exponent is 1. 6 months apart, use 2. 4 months apart use 3. And 3
months apart use 4.
Obviously, growth at a steeper rate is very desirable. However,
numbers above 8 are nearly impossible to maintain. From July 1996
until the present correction, the DOW, S&P 500, and NASDAQ were all on
lines with a rate of about 1.5 (50% per year).
For two whole years, ASND was on a 7.2 rate line. My very best find
was PAUH, which was on a 15.0 rate line for the entire year of 1996.
The stock went from $1 to $15. Wow!
The big advantage of labeling trendlines with a rate is to make it
easy to compare two stocks. Since Metastock automatically scales
charts, you cannot tell by looking at two charts which one is rising
faster. I like using the Rate because it can be translated into
dollars so easily. But it has some drawbacks. For example, it grows
too high very fast. A vertical line would have a rate of infinity.
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Now, how can any of this be automated?
I suggest you use the ROC (Rate of Change) function on a moving
average. Use a three or five day MA for short term trading, and a 26
or 50 day MA for intermediate term.
I have found that no one MA works for all stocks. I like to pick the
MA period visually by finding the shortest period that smooths out the
changes I don't want to see.
For example, if INTC tends to move up and down within a channel every
two weeks (10 trading periods), then a 20-day MA will smooth out those
cycles and show the longer term trend. But if you wanted to trade
those cycles, you would need to use a very short MA such as 5 days.
On Sat, 3 May 1997 09:48:20 +0700, you wrote:
>I have the formula for the slope of a line for metastock. But I am trying to
>write a custom formula to explore stocks whose angle is more than 30 degrees.
>
>Can anyone suggest how this can be done using the arctan function?
>Do you agree that if the slope of the closing prices is say more than a
>certain angle over the past number of days, that stock can be selected as a
>candidate for purchase?
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