esign of solids is the process of coming up with a suitable solid shape that later determines our actions in the market. To make the design process quicker and easier, we normally start from a particular shape that we call “foundational shape”. This shape has been specially devised for the purposes of Solid Wealth Strategy. It has certain measures and characteristics that we can define. During the design process, we can easily modify the shape by changing its measures according to our needs.
We want to show you how the foundational shape was obtained. That way, it gets easier later on to understand the definitions of terms related to the shape.
We can start from an ordinary 3D pyramid. Pyramid is a body defined in geometry and for our purposes we look at a special case of a pyramid that has a square base. Since we are interested in two dimensions only, we will look at the cross section of a pyramid, which is a triangle.
This simple triangle is obtained from a regular, symmetrical pyramid using perpendicular cross-sectional plane. It has two sides equal in length and it is called isosceles triangle.
[Click on images on the left to open enlarged versions]
Solid Wealth Strategy is based on price diversification. When we say price, we normally think of different “price levels”. At this stage, let’s represent price levels as thin horizontal lines superimposed to our triangle.
Now, let’s clip the top of the triangle to obtain a flat top instead of a vertex of a triangle. We can clip it in such a way that new shape has its top and bottom sides parallel. This shape is called trapezoid. Its left and right sides are straight.
We can modify straight sides and make them look like stairs so they intersect better with price levels. This shape can be imagined as a pyramid built from a number of rectangular blocks, stacked up on top of each other.
Lastly, we can collate rectangular blocks so we can more easily distinguish widths of particular blocks. Each price level corresponds to one block and its associated width. Width represents the amount of trade or how much we buy or sell at a particular price level.
F
inally, the shape we obtained is our foundational shape. Next, we will use this shape to define number of Solid Wealth Strategy terms that we refer to in the process of making shape modifications.
The design process boils down to adjusting this foundational shape until we obtain the desired solid we can use for our investing purposes.
