Point and Figure Charting by Thomas J. Dorsey

Author:Thomas J. Dorsey
Language: eng
Format: epub, pdf
ISBN: 9781118799369
Publisher: Wiley
Published: 2013-07-05T00:00:00+00:00

In conclusion, this matrix concept can be applied to any number of universes. For instance, a matrix can be built to compare all sector ETFs to each other, or one that conducts an arm-wrestling match between all the different commodities. The results will be the same—the matrix will identify those securities that are outperforming; it will tell you who has won the round-robin arm-wrestling tournament.

■ Summary

Throughout this chapter, we have tried to demonstrate to you the robustness, and more notably, the adaptability of RS; and how this simplistic tool enables you to capture the large winning trades, while helping you to avoid the big losers. You have hopefully learned that RS is not only useful for individual stock evaluation, but that it can be applied across a broad range of financial products. Moreover, the calculation is consistent across the board, as is the interpretation of the RS chart, with the overall goal being the same regardless of what you are measuring—to determine outperformance or underperformance.

The adaptability of RS is amazing in that it allows you to analyze so many different pieces of the investment puzzle. As discussed, RS is a must with respect to sector rotation, as this is where the majority of risk resides in any given stock. Not only that, a broad appreciation of where to tactically maneuver with respect to your strategic asset allocation pie can be accomplished with just a few RS charts. Basic but important questions on asset class, market cap, and style can be easily answered with a glance at an RS chart. And new horizons can be traveled to, with greater confidence, by consulting RS charts on different regions and countries. Without a doubt, the possibilities are limitless.

In the end, these different RS applications provide great insights into where best to allocate your investment dollars. Put together, they create a dramatic and discernible picture and, from that, an understanding of what is happening in the financial world. All told, the final result is the same—you focus your buying on those securities, sectors, indexes, or funds exemplifying the strongest RS, and sell or avoid those vehicles that display the weakest RS. Remember, as Yogi Berra used to say, “You can observe a lot just by watching.”

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