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NOVICE TRADER NOTEBOOK
Editor,The information you have made available in the Novice Trader Notebook at your Web site has been very helpful. Will the section be completed in the near future?
The Novice Trader Notebook will be added to in the next few months as we find time, so keep checking in at www.Traders.com!-- EditorEDWIN PEOPLES
via E-mail
CHART FORMATIONS ENCODEDEditor,
The article "The head-and-shoulders formation" by Thomas Bulkowski (August 1997 STOCKS & COMMODITIES) was excellent. This is a very important technical analysis signal. Would it be possible to get a formula for MetaStock for Windows? It would be very difficult for an average person to do.
LLOYD MEYEREdina, MNIt would be very difficult for anyone to do. One of the challenges of technical analysis is coming up with specific rules that define, denote and project patterns. Identifying chart patterns and formations from market price movement cannot be reduced to a simple line of code. You could look for software that offers pattern identification, but you could also gain as much from following the technique presented in the article to interpret price patterns manually. --Editor
FOR PROFESSIONALS ONLYEditor,
Congrats on publishing a very good magazine. I'd like to respond to a letter from one of your readers, George F. Vaughn, whose June 1997 letter was titled "Doubting timer."
To lend credence to my response, consider that I have published market newsletters and a book titled The K Factor: A Proven Stock Strategy. The book was not sold in bookstores but was sold to approximately 300 libraries around the country.
In more than 50 years' experience investing in the stock market, I'm convinced that the way to beat the stock market is through timing. I've met hundreds of investors committed to long-term investing, but none are what I'd consider successful.
To time the market, you must be an excellent technical analyst. You must also learn the art of investing: Don't be emotional, cut your losses, and so on. In other words, to be a successful investor, you must study a great deal, work very hard, be very disciplined. All you need is average intelligence and average common sense -- but you must use it.
I end with this advice: Either study and become a professional investor, or stay out of the stock market. The stock market is for professionals only!
JEROME KRUMHOLZ
via E-mail
THE SYSTEM DEFINEDEditor,
In the August 1997 STOCKS & COMMODITIES article, "The turbo A/D, NH, NL market system," author Dennis Meyers describes "the system defined" on page 22 of his article. Specifically, in the "buy rules" section, he writes "... and adr is greater than or equal to one for all of the nbuy days... ." Surely something is missing or mistranslated here, or else what does "or equal to one for all of the ..." mean? Thanks for some clarification here.
JOHN WALKERvia E-mailI believe you are interpreting the word "one" as a label and not as a value. The rule states that "if the advance/decline ratio (adr) is greater than or equal to one (that is, adr = 1 or adr >1) for all of nbuy days (a lookback period), then ...." I hope this clears up your question. -- Editor
ERRATA: FIGURE CAPTIONS SWITCHEDEditor,
An excellent article about monitoring market timers in your September 1997 issue ("Monitoring the market timers: Steve Shellans of MoniResearch Newsletter," interview). Unfortunately, it appears that portions of Figures 5 and 6 are switched. I gather that the chart in Figure 6 is really "Risk vs. return for market timers" and should be inserted in Figure 5, while the chart in Figure 5 should be moved to Figure 6, with captions and list of timers unchanged.
Regarding the uncritical review of the product "The Galactic Trader" (September 1997), I can only say that those of us who share Walton Howes" views (Letters to S&C, September 1997) on correlations without a causal relationship might have been more impressed with some actual examples of forecasting. Product reviewer Raymond Merriman asked the right question: "So when will these aspects occur in the future?" However, his answer, that you manipulate the program "and presto! You have a chronological listing of all the dates, each one potentially a major reversal in the DJIA," doesn't quite hack it.
ORVIS ADAMSvia E-mailThank you for your comments. You are correct that the tables that appeared in Figures 5 and 6 of our September interview, "Monitoring the market timers," were inadvertently reversed.Regarding your comments on The Galactic Trader software review: Our product reviews are designed to explain and demonstrate the attributes of a product. Reviews are not meant to be a critique of a particular technique. I am interested in exposing our readership to information on methods and products available, and I encourage everyone to form and follow his or her own opinions, not mine or anyone else's. The best traders are interested in facts, not opinions.
If a reader wants to pursue the type of research that The Galactic Trader is designed to assist with, then that's his or her prerogative.
I am nearing the 20-year mark in the world of trading, and I'm at the point where I have streamlined my use of technical concepts in my trading. While the techniques are appropriate for me, I encourage readers to find suitable methods of their own. Again, I do appreciate your comments. -- Editor
CODE FOR SUPERCHARTSEditor,
Now that I'm using Omega Research's SuperCharts, I notice that you never provide code for that program in your Traders' Tips section. Do you have some financial arrangements with the companies that are represented in that section, or it is just that Omega Research doesn't bother about sending you these formulas? Thank you very much and continue your incredible work!
You must not have noticed that Omega Research provides code each month in our Traders' Tips section for TradeStation, which is another program of Omega Research's. The reason that code isn't given for SuperCharts is that program doesn't have the programming capability that TradeStation has. (That, by the way, is one of the reasons for the price difference between the two products.)MARTIN S.
Montreal, Canada
via E-mailTradeStation users can find the Easy Language code from each month's Traders' Tips at our Web site (www.Traders.com). Omega Research's Web site (www.OmegaResearch.com) offers code for downloading that SuperCharts should be able to read. -- Editor
CODE INCORRECT?Editor,
In August 1996 S&C's "Historical volatility and pattern recognition," the MetaStock filter code
is not a function as stated in MetaStock explorer.colA< .5AND(colB=1ORcolC=1)Allan McNichol of Equis International replies:JOSEPH KRUZLIK
Wilkes-Barre, PA
via E-mailYou're getting this error message because you don't have a space on either side of the AND and OR statements. Try using the following as your filter:
If you have any further problems with this formula, please E-mail support@equis.com and they will be happy to help you.colA<.5 AND (colB=1 OR colC=1)
MODERN PROGRAMMINGEditor,
I missed the March 1997 issue of your magazine and I was wondering if it's possible to get a back issue from the STOCKS & COMMODITIES office.
Speaking as a programmer, I would also like to say that while your articles are very interesting, the programs that often accompany them seem out of touch. My grandfather programs in that mumbo-jumbo called COBOL. I don't know anyone else who still programs in it. Today, most people program in C, C++, Delphi or Visual BASIC. Why not include code for those languages? You would probably see your sales surge. After looking at code all day, the last thing I want to do while relaxing with your magazine is to strain to understand what the code is meant to do. How many people use COBOL these days? Wall Street and the technology industry calls for Visual BASIC and Java, so why don't you follow suit? Programming the rules is not hard. (I have implemented a number of your trading tools from your magazine that I found interesting.) Please make it easier by including modern code.
Regarding the March issue, single back issues for the current year are available from this office for $8 prepaid. Regarding our use of COBOL, please cite the article and issue you are referring to. I don't know of any use of COBOL in this magazine. Generally, we provide code in Excel (since most readers have spreadsheet programs) and often in TradeStation (Easy Language) or MetaStock. In addition, we publish Traders' Tips each month, which provides code contributed by the developers of TradeStation, MetaStock, WAVE WI$E, TechniFilter Plus and SmarTrader programs. In past years, we provided code in BASIC. -- Editorvia E-mail
DOES TECHNICAL ANALYSIS WORK?Editor,
I must reply to the letter by Walton Howes titled "Classical physics" in the September 1997 S&C. I have been studying technical analysis since 1969 and can tell you anything and everything you want to know about any technique, even the obscure. I was a member of the Market Technicians Association. I have been a subscriber to S&C since goodness knows when. I have often thought of ending my subscription, but what stops me are the interviews, which I enjoy, and the possibility that this month's issue could have something that I haven't thought of.
There are many occasions when I find something interesting in the magazine -- a new slant or angle to an old technique, or a reminder about a technique discarded years ago that could work again. Computers have made it too easy to find good trades! I have stopped doing research, simply because over the years I have come to the same conclusions that Howes wrote about in his letter. I believe the only time a system is presented in S&C is when it no longer works. Why on earth would anyone publish a trading system that makes him or her millions? For that matter, why would anyone sell a computer program that makes him or her millions? I myself use a fundamental program I developed over the years, which, when combined with technical analysis, helps me make trading decisions. I use a commercial technical program, but my fundamental program will probably die with me.
Do I make millions? No. Do I make money? Well, when my fundamental program gives me a buy, the technical software then tells me when to buy, and I do very well. However, in the current market, too many companies are overvalued, so I'm not finding anything new. I'm presently out of the market, with stop-loss orders having taken me out, but I am presently looking at gold and gold companies for a recovery. Why? Because my technical charts tell me to; fundamentally, gold is a dead duck.
To summarize, technical analysis does and doesn't work, both. It's a tool, and as with all tools, it all depends on how you use it. As quickly as you would change from a hammer to a screwdriver, so should you change your analysis technique.
JACK SINGER
via E-mail
ANOTHER RESPONSEEditor,
I'd like to comment on the September 1997 letter to S&C by Walton Howes. It seems to me he makes several errors in simple logic.
He states, "Failure of technical analysis may, itself, be a good technical indicator." But I must wonder how he would know that technical analysis is a "failure." Where are his statistics? Are there statistics?
His second statement was, "... much that is published therein [in your magazine] is worthless." But has he read everything you have published? Has he tested all the ideas? Where is his data? Where is his "scientific method"?
And what is technical analysis anyway? It's simply an attempt to analyze the numbers generated by the financial markets -- the highs, lows, volume and open interest, and an attempt to apply various mathematical, statistical and graphical analyses to these numbers to help identify patterns, which may lead to profitable trading.
And guess what? Technical analysis works! How do I know it works? Because I rely on it to earn my living. I know other traders who also make money using technical analysis.
I think Howes has a lot to learn. You can't be closed-minded if you want to be successful. You must use whatever mathematical abilities and intelligence you possess to try to analyze the markets. And perhaps, if you work very hard, possibly harder than you have ever worked in your life, you might be able to make money trading the markets.
Quite a few mathematicians, physicians and engineers with doctorate degrees have become traders -- and even they have been humbled by the markets. They have found that the markets represent one of the greatest challenges one can undertake.
In sum, traders must be open-minded if they want to develop the most important qualities of successful traders: optimism, enthusiasm and persistence.
TOM LOFFMAN
via E-mail
WORLDWIDE FOCUSEditor,
I find STOCKS & COMMODITIES a very useful journal, but I would like you to consider something: You seem to ignore the existence of futures exchanges outside the US. For example, the monthly Trading Liquidity table should surely include LIFFE contracts, given that it's now the second-largest exchange in the world (in terms of contracts traded), and perhaps you might also consider the DTB, MATIF, and other world exchanges.
Also in that table, you do not explain how effective margin is calculated. I am still trying to work that one out!
Once again, you have a great magazine and I apologize if I am nitpicking, but I sometimes get irritated with US journals' lack of focus toward Europe.
We will look into including foreign markets for our Futures Liquidity page.PHILIP NIXON
via E-mailBecause we receive many inquiries about our Futures Liquidity page, let's take a moment to discuss the concepts behind our efforts in putting that information together.
If you know which futures contracts have a high volume of turnover, you have a much better chance of having orders filled at or near the fair trading range. With that in mind, contract liquidity is one of the prime factors in determining the ranking on the Futures Liquidity page. The information on the Futures Liquidity page is presented to help the futures trader avoid the problems of low contract volume.
Another consideration for the futures trader is how volatile a commodity is. For the purposes of Futures Liquidity, we look back at the high and low for each commodity during the past three years. The amplitude of the price swing over that period, and the distance of the current price from the mean of the three-year amplitude swing are both taken into account. The current deviation from that mean then becomes a prime factor in determining the volatility part of the equation. That's why some markets -- those that have not seen a great deal of movement in the recent past, meaning they have remained in a narrow trading range -- are lower in the ranking, even though they may have a relatively high number of contracts traded. This is also why market indices such as the S&P 500 are often ranked higher. Even if a commodity was trading at the very edge of a narrow trading range, it would have a lower profit probability than a very volatile or widely moving market with a much larger range of trade.
During the last three years, the bull market has kept the market indices at or near the extreme of their deviation from the mean. There have been only a few exceptions. A nearly constant maximum gap between the three-year mean and the ever-increasing new highs gives the indices a higher multiple in the overall formula. It also gives them a higher possibility of being profitable trades.
The predominant cost to the trader is the margin. Each exchange has its own formulas for determining margin requirements, and once the margin has been set, it becomes the lowest possible cost of that particular contract to the trader. The margins for some futures, particularly in the financial arena, are very small relative to the value of the contract. For other futures, such as petroleum and metals, the margin is a much higher percentage of what the total contract would cost. Note also that other costs are associated with trading futures, including commissions, exchange fees and other variables, costs that depend on the brokerage firm used and are not considered in the calculations of Futures Liquidity.
By taking into account contract volume, margin requirements and volatility, the Futures Liquidity page can offer some guidance to those who are new to the futures markets. While it may not suggest which commodities will be the most profitable, it should indicate which futures are best left to the experts. -- Bruce Faber, Staff Writer