April 1998
Letters to the Editor
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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?

EDWIN PEOPLES
via E-mail
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!-- Editor

GANN SWING CHARTIST

Editor,

I would like to thank you and Robert Krausz for the very insightful article about Gann swing trading ("The new Gann swing chartist," February 1998). It was very kind of Krausz to share this method with us.

On page 48 of the article, Figure 2 defines a downswing, from up to down, as occurring "only if the market makes two consecutive lower lows." But the detailed graphs (for example, Figure 29), do not seem to bear out this definition. Figure 29 shows a peak on September 17, 1997, which is formed by two higher highs. In the same figure, a peak on October 3 is again formed by two consecutive higher highs, not two consecutive lower lows.

Is the definition correct, or are the figures correct? Keep those good articles coming!

JACK WEINBERG
via E-mail
I believe you are confusing peaks and swings. As Figure 2 states: "The swing direction can change to down only if the market makes two consecutive lower lows."

Let's back up two days from where you begin your question. In Figure 29, the swing is considered to have turned up on the high of September 15, because this high was the second consecutive higher high. The trend also turned up because the peak from August 29 was surpassed. The swing is up until September 18, because the market is making consecutive higher highs. After September 18, the upswing ends and turns down, only because the low on September 30 was the second consecutive lower low. Thus, the high on September 18 can be considered a peak. Two consecutive higher highs did not occur between September 18 and September 30; that is why the peak is considered to have occurred on September 18. If there had not been two consecutive lower lows, the swing would have remained up, but two consecutive lower lows occurred after September 18.

Then, on October 2, 1997, the market made two consecutive higher highs, so the swing changed to up.

I hope this helps. See also the errata on this article at the end of this section. --Editor

EFFICIENT MARKET HYPOTHESIS 
AND RANDOM NUMBERS

Editor,

I very much enjoyed reading your interview with Andrew Lo of MIT. The interview made interesting points, especially concerning the efficient market hypothesis. I've always suspected that financial markets are at least partly inefficient, because otherwise, no trader would ever make any money in those markets.

At least some of the traders make money in the markets at least some of the time. Thus, there must be at least temporary market inefficiencies and less than perfect information in the markets part of the time.

I was intrigued by comments on the dangers of applying engineering tools to markets without an underlying understanding of those markets. Although I'd strongly prefer to deeply understand the markets, there is some value in developing and trying new tools even without that understanding. This is because developing and trying new tools of technical analysis may in fact lead to better and deeper understanding of the financial markets themselves.

I agree with the comment that it's extremely challenging to develop good random number generators for use in modeling. I wonder if anyone has considered using the roots of imaginary numbers to flip polygonal dice on a computer. Connecting these roots with lines generates perfect polygons that can be rotated or flipped like many-sided dice.

I continue to enjoy your magazine.

RANDALL J. COVILL
Atkinson, NH
DIVERGENCE ANALYSIS

Editor,

I have noticed that most of the indicators covered in most books on technical analysis are indicators designed to be used on one chart at a time. For example, the MACD indicator might be used to analyze the S&P contract. However, many successful traders look for divergences between two charts. In that type of analysis, they use indicators that compare two charts and isolate significant divergences. Since divergence indicators are so useful, it seems as though they deserve more coverage than they get. Could you recommend any books or past S&C articles that pertain to divergences between two charts?

JIM WILMORE
via E-mail
John Murphy is a technician who has done much work with intermarket analysis. Pick up a copy of Intermarket Technical Analysis (John Wiley, 1991), or find out more information about Murphy's work at https://www.murphy-morris.com. For S&C articles by John Murphy, look at the Back Issue Archive area of our Web site (https://www.Traders.com) and search the abstracts for articles by Murphy. Here is a partial listing:

Murphy, John [1992]. "The link between bonds and commodities," Technical Analysis of STOCKS & COMMODITIES, Volume 10: May.

____ [1992]. "The link between bonds and stocks," Technical Analysis of STOCKS & COMMODITIES, Volume 10: June.

____ [1992]. "The CRB index/bond ratio," Technical Analysis of STOCKS & COMMODITIES, Volume 10: July.

____ [1992]. "Utilities and bonds," Technical Analysis of STOCKS & COMMODITIES, Volume 10: August.

____ [1992]. "Utilities and stocks," Technical Analysis of STOCKS & COMMODITIES, Volume 10: September.

____ [1992]. "Interest rates and the US dollar," Technical Analysis of STOCKS & COMMODITIES, Volume 10: October.

____ [1992]. "Gold and the US dollar," Technical Analysis of STOCKS & COMMODITIES, Volume 10: November.

____ [1992]. "Gold and the CRB index," Technical Analysis of STOCKS & COMMODITIES, Volume 10: December.

INTRADAY TRADING

Editor,

With the advent of real-time market quotes over the Internet, more and more traders trade during the day for small profits. You need to consider greater coverage of intraday trading with an emphasis on the art and science of tape reading.

HAROLD S. ERWIN
via E-mail
Here are some S&C articles from recent issues that may interest you:

Marisch, Gerald [1998]. "Breaking out of channels," Technical Analysis of STOCKS & COMMODITIES, Volume 16: January.

Marisch, Gerald [1998]. "Combining Gann's 50% rule with VIDYA," Technical Analysis of STOCKS & COMMODITIES, Volume 16: March.

Smith, Gary [1997]. "Tape reading and daytrading stock index futures," Technical Analysis of STOCKS & COMMODITIES, Volume 15: May.

MUTUAL FUND TIMERS

I am looking for a trading service that would time mutual funds with my money. However, I am very busy and don't have time to follow E-mailed or faxed buy and sell recommendations.

Could you tell me about any services that manage clients' accounts and make the trades? I cannot locate a service with discretionary control over clients' assets.

RICH GATES
via E-mail
The MoniResearch Newsletter (800 615-6664), edited by Steve Shellans, tracks the performance of market timers. I interviewed Shellans in the September 1997 S&C ("Monitoring the market timers: Steve Shellans of MoniResearch Newsletter"). -- Editor

USER OPINION ON SOFTWARE

Editor,

I am looking for a user comparison of some of the better-known technical analysis software packages. I am looking for insight on the completeness of packages -- that is, how extensively they provide technical support, documentation, customer support, and so on. I'm not looking for additional marketing hype but rather the comments and criticisms of someone who has used, evaluated and compared them. I have checked the main search engines on the Internet for this kind of information without success. Any direction? How do I get a copy of your latest Bonus Issue containing the software survey?

BRICE
via E-mail
The Bonus Issue containing the Software Comparison and Readers' Choice Awards is automatically mailed to paid subscribers. Contact our circulation department at 800-TECHNICAL or circ@Traders.com about how to subscribe. When you subscribe, you will find that we publish product reviews every month that discuss issues such as those you mention -- documentation, support, features and so on. The reviews also incorporate users' comments. For additional user opinion, try asking software vendors for customer referrals. Or try an Internet forum related to trading, such as RealTraders.com. But be careful about opinons -- opinions reflect personal preferences, and your specific needs may differ.

See also the next letter and response for more on the Software Comparison feature. -- Editor

SOFTWARE COMPARISON FEATURE

Editor,

I looked at the Software Comparison Table in your 1998 Bonus Issue, but I didn't find the comparison itself. To me, this term implies discussion of the strong and weak sides of the different programs and the opinions of experienced users. So I looked for reports of customer opinion, but I saw only the simple counting of the program's options.

I'm not interested in whether this or that program is the best in the industry, but rather I am interested in finding out if some programs give users the same options for a cheaper price.

Where I can find the information I need?

SERGEY SHEVELEV
via E-mail
The Software Comparison feature does not include users' opinions. The information was compiled from surveys we sent to software vendors in the industry. The feature was designed to show a side-by-side comparison of product attributes. While the table presented in the Bonus Issue summarizes information for brevity, a more complete listing of information is provided at our Web site (https://www.traders.com) in the Software Comparison area. However, it also does not contain users' opinions. For that, see the Readers' Choice Awards in the Bonus Issue, which reflect our readers' votes for the best products and services. -- Editor

S&C ON CD FOR THE MAC?

Editor,

It's a pity your CD-ROM is not available to the Apple Macintosh community.

ALBERT M. KLEIN
via E-mail
The S&C on CD update scheduled to be released in mid-1998 is planned to be cross-platform. Thank you for your interest. -- Editor

ERRATA

Editor,

Wonderful article by Robert Krausz in the February issue ("The new Gann swing chartist"). However, there is an error in the article on page 53. In Figure 17, the caption should have read:

TREND CHANGE, SELL RULE 2. Sell on bar A when prices drop below the previous valley, provided the hi-lo activator sell-stop line is above the bars.
WILLIAM Q. SMITH
Woodland, CA
You are correct. Thank you for writing. Also, the fax number listed at the end of Krausz's article was incorrect. The correct fax number is 512 443-7119. -- Editor
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