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A Theory of Matched Trend Time
Chapter 1 The Discovery of Matched Trend Time
Originally written November 1996 by Terrence H. Laundry
T Theory is a method of analyzing general stock market trends using a time symmetry property discovered in the early 1970's by Terrence Laundry, then an engineer at Hughes Aircraft Company (BSEE M.I.T 1966). This time symmetry was christened "The Theory of Matched Trend Time" and basically states the duration over which investors can obtain "superior equity returns" will always be equal to the previous time period in which returns were subnormal. The practical purpose of the theory is to anticipate the periods of "superior returns".
This time match can be shown to be accurate and reliable historically which I have proposed as a natural law of market trends but of course we have no real knowledge of its origion, so results can not be guaranteed. The time symmetry is most easily represented by the graphical "T" thus the name T Theory. ¡¾½»Ò×֪ʶmacd.org.cnÊÕ¼¯ÕûÀí¡¿
Since its discovery there have been a number of successes which I have referenced for interested readers. During the early years, as an advisor, I became acquainted with Marty Schwartz, who took a very early interest in the Magic T concept, and applied his exceptional talents to become one of the greatest stock market traders. His exploits, philosophy and comments on T Theory were presented in Market Wizards by Jack Schwager1 in 1989. To this day I still receive inquires on how to obtain the "secrets to wealth" that Marty discussed in this book. On this point I am sorry to to inform many of you that there are no easy secrets, only powerful tools with which you might learn to uncover major opportunities before the masses arrive.
Marty and I have often talked over the years about the special advantages conferred on us by US Marine Corps training. It takes a special state of mind to "sign up" for a short boat trip, in a flimsy landing craft, to a beach completely controlled by hordes who have anticipated your arrival and have set up every imaginable way to do you in. Buying into major market opportunities presents a similarly discouraging picture. You may have good reason to anticipate profits, but if a great opportunity does indeed exist, nearly everyone will be against you, including your friends, and the predominant opinion expressed by your peers, including people you respect, will be that you are embarking on a foolhardy enterprise.
I believe that T Theory's major contribution will be to show you why it will always be difficult to buy at major lows but using its reasoning you may be able to overcome these obstacles. At each and every great buying point you must struggle at the "moment of truth" where you face seemingly overwhelming negative odds. In T Theory this moment of truth is called "The center post of the T"; the point in time where all the bearish negatives of the past turn themselves into an emerging new bull market.
Finding this key juncture is a potentially dangerous occupation, but as with all good Marines, one eventually remembers during the heat of battle, to keep ones head down, shoot straight when it's your turn and always be faithful to your core principles in order to keep casualties to a minimum. In this regard it is wise to keep in mind a few basic T concepts which I am including as Remembers.

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Remember: The center post of a T can simply be viewed as a "Mirror in Time" in which the future is seen as an inverted reflection of the recent past. Therefore it is essential that you understand at the center post low, the pessimism of the recent past will give way to optimism in the future; the conservatism of the past will give way to speculation in the future, and the poor rates of return of the recent past will turn into superior rates of return in the future. If you don't get this straight you will never make any money trading the equity market.
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The Early History
During the early 1970's I stumbled onto the curious observation that strong market up trends often lasted for the same number of weeks or months as the prior correction or decline. This was very apparent in certain cyclical stock market indexes such as the Dow Jones Transportation Average, the value Line unweighed average of some 1600 stocks, and other cyclical indexes of stock prices. As I built up a history of these time symmetry relationships it was clear there were certain periods in which the duration of every cyclical uptrend nearly exactly matched the duration of the prior downtrend. Over the years, my job of keeping "T Theory" current in an ever evolving environment is finding straightforward examples that illustrate this so called "Theory of Matched Trend Time". I am continually researching methods that can be applied to the practical matters of finding superior equity investment opportunities.
Historically T Theory has evolved through three stages, starting with the Transport chart on the next page taken from an early study which was appropriate for its time. Later the same simple principles were used to establish equity mutual fund projections using the value Line Unweighed Composite Index as I have shown in the next chart. For the modern era I have shifted to the Daily Cumulative Advance-Decline line for the New York Stock Exchange as the primary indicator of this presumed "natural" law. It can be seen in the color charts that follow and will be the basis for future projections. ¡¾½»Ò×֪ʶmacd.org.cnÊÕ¼¯ÕûÀí¡¿
I should point out that one objection to the T concept over the years is that the Theory of Matched Trend Time is unlikely to be true because it implies the market can only be strong for 50 percent of the time. Many contend that the market goes up "most of the time". The reconciliation of this conflict centers around the broad toppy phases of market trends where a positive rate of return may well develop during a sideways trading pattern but the rate of return in such shallow advances is no better than the yield on risk-less Treasury Bills. For this reason the Law of Matched Trend Time is more accurately stated as: "Superior rates of return (i.e. better than T-Bill rates) can last only as long as the prior period of inferior returns".
A practical example of the Law's consequence can be seen in the independent study by Nelson Freeburg in a Technical Analysis of Stocks and Commodities magazine article covering the period from 1957 to 1994. (see reference 2 at the end of this article). Using interest rate information and relative shorting divergences between the Specialist and the Public (a contrary opinion indicator), Freeburg showed an optimized mutual fund trading strategy justified owning mutual funds 51% of the time over the last 37 years. In fact it can be shown that any long term study of investment trends that attempts to make superior rates of returns will move towards a 50/50 split as the Law suggests in order to capture the best returns while avoiding the potential for losses.
The Ts are a great help in picturing how this occurs through the analogy of the mirror reversal I summarized. To provide a clear picture of how this plays out historically let us review the original Ts I discovered in the early days.

The Original Dow Jones Transport Ts (1956 to 1976)
The simple symmetric Ts in the monthly Transportation bar chart below illustrate the way in which the Law of Matched Trend Time could be used to interpret trends. This chart is taken from my early publication and has become somewhat faded with time so I have reproduced the chart's original 1977 text.

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