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      Publishing details

      HARRIMAN HOUSE LTD

      3A Penns Road

      Petersfield

      Hampshire

      GU32 2EW

      GREAT BRITAIN

      Tel: +44 (0)1730 233870

      Fax: +44 (0)1730 233880

      Email: [email protected]

      Website: www.harriman-house.com

      First published by Qudos Publications 1989

      Published by John Wiley & Sons 1997

      Published by Harriman House in 2010

      This eBook published 2011

      Copyright © Brian Millard

      The right of Brian Millard to be identified as the author has been asserted in accordance with the Copyright, Design and Patents Act 1988.

      ISBN: 978-0-85719-150-2

       British Library Cataloguing in Publication Data

      A CIP catalogue record for this book can be obtained from the British Library.

      All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher.

      No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Author, or by the employer of the Author.

      Preface to this Edition

      Since Channel Analysis was first published in 1989 the technique is now widely used by private and institutional investors. It has become recognised as an excellent method for improving the timing of investments, thereby reducing risk to a minimum. It appeals to the small private investor who does not use a computer, but is content to draw charts and channels manually. It also appeals to the computerised investor, since software programs are available to carry out the channel calculations automatically.

      Whichever method, manual or computer, is used by the investor, stress is once again placed on a totally disciplined approach as being the only way to make and hold on to profits. It is only through discipline that the investor ignores the inner voice that says that a falling share price will turn around if only more time is allowed. It is only through discipline that an investor avoids jumping in too early before a buying signal is confirmed. It is only through discipline that an investor ignores the torrent of investment advice in the press.

      The availability of software programs has made it easy to investigate the various cycles present in share price data, and this topic is addressed rather more fully than in the first edition. Finally, it is shown how the powerful technique of probability analysis greatly improves the estimation of channel turning points, thereby increasing the profit potential considerably.

      Brian J. Millard, Bramhall

      Preface to the First Edition

      In my previous book Stocks and Shares Simplified I just touched on the underlying principles by which the future course of share prices could be estimated by means of boundaries based on long-term moving averages. I then became aware of the work of J. M. Hurst in the United States, and came to realise that we were both heading in the same direction by slightly different routes. These two approaches have been combined in the technique of Channel Analysis, and readers of this book will soon begin to see that this is the most powerful technique available for predicting the direction of share prices over the near future.

      The book does not claim 100% success in predicting price movement, since a considerable proportion of price movement is random and therefore not predictable. Where the book does claim success is in determining the status of the various cycles present in share price data. This knowledge is of paramount importance in identifying buying and selling points only a short time after they occur. This reduces the risk to the investor while giving him a large proportion of the subsequent gain made by the share price.

      The book also shows that the policy of buying a share and then holding on to it through thick and thin is a flawed one, and that much greater profits can be made by trading on a short-term basis even when dealing costs are taken into account.

      Finally the importance of a disciplined approach to investment is stressed, enabling the investor to hold on to the profits which he has made.

      October 1989

      Brian J. Millard, Bramhall

      Chapter 1. Buy and Hold?

      There has always been a difference of opinion between those investors who believe that the best policy is to buy a share and then virtually forget it and those investors who believe that better profits can be made by constant forays in and out of the market. Market professionals obviously belong to the latter category, since they appear to spend their whole day engaged in buying and selling operations. During the privatisations of British Telecom, British Gas, the water and electricity companies, etc., many amateur investors came to the conclusion that the best profit was the quick profit that could be made by selling the shares within a few days of issue, and therefore they took the same view as the professionals. However, if we look at the vast majority of investors in the privatisation issues, we find that they have no clear objective. They firmly believe that the share price will rise consistently over the foreseeable future, and have no inclination to sell unless sudden demands for capital are made on them. In other words, for most of these investors, their selling action will be dictated by personal circumstances and not the behaviour of the share price itself.

      This view of buying shares and then holding on to them for long periods of time has much to commend it: it makes no demands on the investor in terms of having to manage the various shares that go to make up the investor’s portfolio, and it has resulted in good profits for most of the quality shares over the last 15 years or so. Looking at this statement more closely will lead to the conclusion that this buy and hold policy makes no demands on the investor simply because good profits have been made in most shares. If shares had been much more mixed in their long-term performance then it would have been necessary for investors to have taken a much more active stance. The fallacy in most investors’ reasoning is therefore that share prices will inexorably rise in the future if a long-term, say 10- or I5-year view, is taken. This long-term view can even accommodate drastic crashes in the market such as occurred in October 1987. On this long-term view, most falls in the market can be accepted merely as blips in the steady upwards progress, the October crash being just a slightly larger blip than has been the norm since 1929. We shall see later in the discussion on cycles in the market that the rise we have seen over the last 15 years cannot continue forever, and that once the very long-term cycles start to reach their peaks, then the long-term rise will turn into a long-term fall.

      GAINS AND COMPOUND GAINS

      Before we can proceed any further with a discussion of the merits of different investment strategies, we have to get clear in our minds the various ways in which we can calculate and compare gains (or losses) in investment capital. The most common way of calculating a gain is to express it as a percentage change from the starting value. Thus if an investor starts with £1000 and turns it into £2000 over a certain period of time then quite obviously he has made a gain of 100%. A different way of expressing the gain is to consider it as a factor by which the starting amount has to be multiplied. In this present example the investor has doubled his money, and therefore the gain factor is 2. If we deal with numbers that are not so round,

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