Who this entry is for — "Trading by logic instead of by guess": the chapter that welds every element into a system and shows it at work — first on a single trade, anatomized day by day, then on forty-two.
Source: J. M. Hurst, The Profit Magic of Stock Transaction Timing, Prentice-Hall, 1970 — Chapter 8, Trading by Logic Instead of by Guess (pp. 123–140).
Prerequisites
Everything before it: this chapter is the full-system shakedown of Chapters 1–7.
The arsenal, inventoried
In plain words — Before the test, the inventory: the general tools (understanding cyclicality, understanding why timing multiplies profit, scan and stable) and the specific ones (the ten techniques that turn the model into objective signals).
The specific tools, listed: envelope analysis; cyclic resolution of chart patterns; identification and resolution of triangles; valid trend lines; edge- and mid-band timing; cyclically-based cut-loss and trailing levels; non-real-time envelopes; half- and full-span averages; the interplay of moving averages with the model; the inverse averages. Each has its entry in Chapters 3–6 — here they are wielded together.
The anatomy of a trade
The chapter's heart is a dated sequence, executed step by step:
| Phase | What happens | Entry |
|---|---|---|
| Market side | 1 Nov 1968: the Dow's three clocks + half-span check (target 1001±14) → long for ~a month, then short | Cyclic market state |
| Selection | The scan brings Screw and Bolt: cyclicality, volume, 1.66M shares, earnings turning | Case Screw and Bolt |
| Analysis → signal → management | Envelope + inverse + nest of lows + VTL + half-span potential/risk → buy 15½, trailing, 21–23 zone, blowoff, sell 23⅞ | Case Screw and Bolt |
| The test at scale | 42 transactions in six weeks, 90.5% success, +11.1% gross / 9.7 days | The 1968 experiment |
The teaching contrast — Same stock, two crafts: Screw and Bolt held 57 days returned 49.7% (318%/yr); in the experiment, bought and sold within one day, 3.2% net (1,168%/yr). The short interval wins — if you have a stable ready to put the funds back to work the moment after.
What the chapter demonstrates
- The system is probabilistic and logical: every decision in the anatomy descends from a declared technique, never from an opinion.
- Minimal analysis suffices in easy markets — but the book warns that such "paucity of analytical effort" would not have handled varied market conditions.
- The big numbers (90%, 9.7 days, ~2,400%/yr) are consistent with Appendix III's theoretical maximum — and should be read with the experiment's caveats, editor's note included.
- The remaining enemy is not technical: it is the psychological barriers — the direct bridge to Chapter 10.
Warning — The chapter's most precious advice is also its least spectacular: the average individual does best with the deep analysis of a few issues (2–4 commitments at a time) rather than chasing many. The 42-trade version took a team of five.
Links
- Cyclic market state · Case Screw and Bolt · The 1968 experiment
- Selection and tracking — pillars 2 and 4 at work
- Psychological barriers — the remaining enemy (Ch. 10)
- Hurst tradition — chapter index