PHYLLIS Rules Developed by: PHYLLIS EDMUNDSON, (edmundson@prodigy.net) 11/07/94 modified 05/08/95, 04/23/96, 9/14/97, 10/30/99 This is the latest version of my "Rules". The basic rules have not changed since I wrote them years ago for my own use. At that time each rule was one simple sentence. Now I have expanded the content of each rule to explain it for others. You must also realize that in order for these rules to work, you are going to have to use some of your own judgment. I like to keep the number of funds I watch small, so prior to finding a fund that is a buy or sell candidate, I find it best to make a family of 50 to 100 funds that consists of the best four or five funds in each sector of the market. For your own "Watch" family, you may want to exclude loaded funds or include only NTF funds, or you may want to use only the funds of one mutual fund company. But if you keep your "Watch" family on the small side, it will speed up the use of these "Rules" to screen your funds. You will be able to set up your screen, enter your family, and quickly 'down arrow' down through your family to spot funds that have changed. Your "Watch" family should be revised periodically as the market changes. Set up your screen as outlined below, then frequently go through your family for possible buys and sells. FT Setup: Screen: P = RTTII (or RRTTII in FT4WIN) Time Span: E = 6 (for 6 months) Relative Strength (R): A (Accutrack) = 6,24 Relative Strength Index (I): I = 14 While I normally use 30% as the index, there is some choice in this. The percent used determines the time when a buy or sell is signaled. In a very flat market, you might want to use 20% or you will never see a buy, and in a sky-rocketing market, more aggresive investors might want to use 50% or more in order to catch the very fastest movers. If you ever need to use less than 20% to find a buy candidate, you are either looking at a very conservative type of fund or else it may be time to switch to a money market fund. BUY AS SOON AS POSSIBLE AFTER ALL THE BELOW HAPPEN, but don't let little whipsaws influence you too much. Wait a day or three. 1) The R (Relative Strength) blue line is below the purple line. 2) After being in a downtrend, the blue R line has flattened out for a week or two, or it has quickly started upward. 3) The yellow R line is going up and has recently crossed the blue R line. 4) The RSI line (Relative Strength Index) has recently been at or near the bottom. The closer in time the better, for this is what shows a beaten down fund that may soon be a real winner. However, if we are in a prolonged upward moving market, you may also buy a fund that had its RSI line bottom a while back. In prolonged bull markets, the yellow RSI line of most of the good funds has already gone up far above the bottom line. 5) The T (Price) trendline is at least on it's second leg up, meaning it has had a higher low, and has started up again. If the market has been in a long upward trend, and you still want to buy a fund, you are going to have to ignore 'Buy Rules' #1, 3 and 5, for the good funds have probably gone way past these "Buy" indicators. However, occasionally a new fund does pop up even though we are well into a bull market. SELL WHEN ANY OF THESE HAPPEN: (Once again, it does not hurt to wait a day or more to make decisions using the "Rules"). 1) Sell if the previously set allowable percent down for the fund has been reached. I think this is the ultimate "Rule". Before you ever buy a fund, you must determine what percent you will allow that fund to drop from a high. Sell if that percent is violated. More volatile funds should be allowed a higher percent drop than conservative funds. Find the proper percent by checking the history of the fund price to see how far it commonly drops but then quickly recovers to its former price. 2) Sell if the yellow RS line, after being above the purple line, PIERCES it going down quickly. Watch for whipsaws here and don't act too quickly especially if the fund price starts up the next day or if the yellow line starts dragging along the purple line. 3) Sell if the yellow RSI line drops more than 25% to 30% in one or two days. Volatile funds deserve use of a higher RSI line percent drop than do conservative funds, so the higher the allowable price percent drop is in Sell Rule #1, the higher the RSI line percent may drop in this rule. Check the percent the fund has dropped by using the poles and looking at the yellow percent displayed near the top right of the chart. To see this, the RSI chart must be the bottom chart on your FT screen. 4) Sell when a negative divergence is shown between the yellow RSI line and the red T price line. This is exhibited by three consecutive major yellow RSI line tops descending, while at least the first two of three (and perhaps all three) red price line tops are still ascending. To be taken seriously, the last of the three descending top points on the yellow I line should be well below the top horozontal grid line of the rsI chart. 5) Sell if the blue RS line turns down before going up through the purple line, but don't let little fluctuations scare you off. Look at the overall picture, for perhaps all this indicates is a flat period in the fund or market, and not a downright failure. 6) Sell if the "Market" in general is precipitous, but don't decide this by the action of one day such as when an economic report briefly skews market action. This one takes real judgement. 7) Sell if a better fund is available and you want to upgrade. Your own judgement is needed for this system to work, but I guarantee (not a money back guarantee) that most of the time you will be in the very best money making funds, be they fast paced sector funds or simple money market funds if the market is going down. I have never seen a time when there were no funds that were buys, though once the only buys were Japan funds. Usually there is a good group for choices. Please remember I am not a market pro or anything. I just like to try to learn how to make money. Phyllis