February 1999 Letters To The Editor

or return to February 1999 Contents

TRADERS' TIPS

Editor,

I'm a long-term subscriber to your magazine and I always look forward to the Traders' Tips. However, they seem to have disappeared for the past two issues, even though you referenced them in your December 1998 Letters column. What gives? Will you post November and December tips to your Website? I hope so!

Bob Finkelberg, via E-mail

Traders' Tips was unfortunately cut for space considerations from the November and December 1998 issues, but the section returned with our January 1999 issue. The January Traders' Tips column was posted to our Website in mid-December, and February tips should be posted by the time you read this--Editor

RUSSIAN STOCK MARKET

Editor,

I want to thank you and the staff of your magazine for making great headway in the sphere of technical analysis. Despite some problems in the Russian economy as a whole and the stock market in particular, we often find ways to improve our knowledge of the market using your publication.

Dmitry V. Kazin
Head of Research,Unicom Partner Brokerage Ekaterinburg, Russia

PLOTTING TRENDLINES IN LOG SCALE

Editor,

I read with interest Stuart Evens' "Plotting Trendlines" (STOCKS & COMMODITIES, December 1998). I find that log scales allow a quicker reaction to movement. (Linear is lagged.) Would you advocate using a log scale in preference to a linear scale?

Bill Rook, via E-mail

Thanks for writing. You raise a very good point, and as I personally have not used this method, I can't comment on its effectiveness, although in theory, it sounds like a good idea. Maybe you would like to share your experience using this method with us in the form of an article. We are always looking for articles on improvements to existing methods, or on any subject of interest to our readers. -- Editor 

TRENDLINES AND TARGET PRICES

Editor,

I read Stuart Evens' article, "Plotting Trendlines," in the December 1998 S&C. It was great! I trade in a very similar way, and the article cleared up for me some areas of analysis that I had difficulty with. Still, there are a few areas where I have trouble.

For example, I played Safeskin (SFSK) on the downside as well. I entered this trade on September 23, 1998, at 32 with a target of 17. I determined the $17 target by measuring the top of about 47 to the support area of about 32, of which the difference is 15 points, and 32 minus 15 equals 17. But I never lasted until 17: The stock went down to the 24 area (which was your target), then reversed up, and I got stopped out at 25. The stock still continued higher to about 35 and then finally went down to the 17 area (my target), but I didn't enjoy this ride because I didn't know when to reenter this trade.

As in this example, not knowing when to reenter a position is where I have trouble reading a chart. I realize I should not have expected the stock to shoot straight down from 32 to 17 without any bounceback to the upside before turning back down, but when should I have reentered this position?

You had a target of 24; what method did you use to arrive at that figure? Do I need to have a two-phase target: a short one and a long one?

This Safeskin example was not the only trade in which I had this very same problem. On too many trades where I had a target price, in at least 90% of the trades the stock reached my target price, but I didn't have the pleasure of realizing those gains because I got stopped out without knowing when to reenter. So from the sidelines I watched the stocks go exactly to my target. Very frustrating!

I hope you can help.

Jack Wertz, via E-mail

Thank you for your interest in the trendlines article. The method I used to estimate a target price of 24 was Fibonacci retracement percentages. The start date from which I calculated the retracement was the low in April 1997 at a price of around 9 or 10. I then used the high in July 1998 of about 47, and from this range calculated a 61.8% retracement, which would be approximately a price of 23-1/2. I rounded up to 24.

With regard to your question on the need for a two-phase target, I didn't have one. That is not to say that method would not work, however. On this particular trade, if I remember correctly, once I got to a profitable position, I followed the price down with a trailing stop. On the day (in early October) that Safeskin opened at about 25, I tightened up my stop, and I was stopped out at 24.

Like you, I also get stopped out early from time to time, and I think a way to reduce the frequency of this happening is to choose stops with technical significance in addition to money management criteria. If doing this puts the amount at risk outside of comfortable limits, it may be better to not take the trade. As far as reentering if stopped out, the previous minor low of 32 is a price at which, if violated to the downside, I would consider reentering the position. With 20/20 hindsight, if you entered back in at this price in late October, the position would have produced a profit.

I hope this helps and thanks again for your response. Good luck. -- Stuart Evens, Staff Writer

MOVING POLYNOMIALS

Editor,

Having used polynomial least-squares fit of degrees ranging from zero to 11, I was intrigued by Dennis Meyers' article, "The British Pound Cubed," in the November 1998 S&C, and would like to make a few comments based on my experience with this method.

Moving polynomials may be used in place of moving averages with the added advantage of eliminating lags if a sufficiently high degree is used. In fact, a polynomial of degree zero is the average.

To achieve proper smoothing of data, the degree must be proportional to the length of the datastring. I find that a degree of (n1/2) - 3, where n is the number of datapoints, is satisfactory. If the degree obtained by this method is fractional, use the next-highest integer. Too high a degree will result in the inclusion of noise in the equation, and too low a degree produces lags. In addition, derivatives can be quite easily calculated.

The least-squares method produces an excellent fit near the midpoint of the data, but the fit is weaker at the endpoints. If turning points are important, use of a Fourier series or the discrete Fourier transform is recommended.

Louis Kovacs
Toronto, Canada

INTERVIEWS

Editor,

It would be nice if you could include the dates that interviews are conducted when you publish interviews. On another topic, the new area of basic technical analysis is a good idea, as it's always a good idea to revisit basics. I find your magazine a good investment and I just renewed for three years.

R. McHugh, via E-mail

Thank you. We include the dates of interviews in the Editor's introduction that precedes each interview. -- Editor

MULTIPLE MOVING AVERAGES

Editor,

In "Using Multiple Moving Averages" in the February 1998 STOCKS & COMMODITIES, Daryl Guppy described a multiple moving average that was built by creating a template in MetaStock. However, I am not using MetaStock. Would you have, or do you know how I can obtain, the EasyLanguage code for the multiple moving average for use with TradeStation?

Tony Stride, via E-mail

We don't specialize in encoding techniques for various software, but many software vendors specialize in writing and developing third-party software code. Check the Omega Solution Providers listing each month in our Classifieds, or look through the Omega Research special advertising section in our November 1998 issue for vendors of EasyLanguage code.-- Editor

LOOKING FOR SOFTWARE

Editor,

First, I want to say that I have thoroughly enjoyed reading S&C over the years. Thank you. I do have one problem: How is one to decide which trading software to invest in, given the innumerable products out there all claiming to be the best? Are there any objective, independent studies or tests to verify any of these assertions? (Not that I dispute anyone's First Amendment rights!)

Second, and perhaps more important, I am interested in research that refutes Malkiels' A Random Walk Down Wall Street with his "weak, semistrong or strong" efficient market theory. Could you give me some references? (I am already aware of Colby and Meyers' Encyclopedia Of Technical Market Indicators. Are there other sources?)

As a subscriber and avid reader, I would appreciate a speedy response. I don't want to spend hundreds of thousands of dollars on different systems if I don't have to ... even if I had the money to do so.

Vince Dixon, via E-mail

With regard to finding technical analysis software, good products abound. It's just a matter of finding one that suits your needs. To help readers navigate through the offerings, from off-the-shelf to professional level, we publish product reviews every month and we publish our annual Bonus Issue. Our Bonus Issue, which was mailed to paid subscribers at year-end, contains our Readers' Choice Awards for products and services, as well as our Software Comparison Table, which summarizes product features based on vendor surveys. The full results of this software survey can be found at our Website, https://www.traders.com.

Our Website's Software Comparison Table has been enhanced this year with a search engine, allowing you to select criteria and search for a product based on that. We also recommend that readers call software vendors for product literature, and even ask to contact other users for user opinion. But make your own buying decisions; your needs may vary from those of others.

If it's trading systems you're researching rather than charting and analysis software, we generally don't review individual systems because of what's involved in testing, tracking and reporting on system results over a period of months or years. However, publications and services exist that focus on tracking results of disclosed and undisclosed systems.

With regard to random walk, you might want to check out the December 1997 STOCKS & COMMODITIES, which contains an interview with Andrew Lo of MIT in which he addresses this theory.-- Editor

WYCKOFF TRADING

Editor,

Recently, I purchased a copy of your Charting The Stock Market: The Wyckoff Method, which contains contributions from Craig Schroeder. The back cover of the book lists Schroeder as the educational director of the Stock Market Institute. I wish to contact him with the view of taking a course in the Wyckoff method. Can you provide me with the E-mail address or physical address for the Stock Market Institute?

Kevin Hughes, via E-mail

The address and phone number we have is as follows:

Craig F. Schroeder
Stock Market Institute, Inc.
13601 N. 19th Ave., Suite 1
Phoenix, AZ 85029-1643
602 942-5581
E-mail: smi@abilnet.com

-- Editor

REVERSAL FORMATIONS

Editor,

I have some questions regarding the November 1998 article by Alex Saitta, "Reversal Formations: Predictive Power."

First, the author writes that "a short position is taken at the settlement price the first day the T-bond closes below the neckline." But how can a trader be sure that the market will close below the neckline if he is not an experienced intraday trader? Is this approach a realistic one for an end-of-day-trader?

Second, did the author use closing prices to build the chart in Figure 3?

Third, how did the author arrived at the "32 ticks" parameter of reactionary high/low/low? I agree that this number fits this market. Is there an objective way (such as a particular formula) for calculating this parameter, or is this number a result of trial and error?

In the end, I wish to add that your magazine is a brilliant source of trading information, and that Saitta's articles really benefit it.

Alexei Losev, via E-mail

Your broker should be able to tell you if they accept the type of orders that are used to place this kind of trade. The chart in Figure 3 uses closing prices. Finally, the use of 32 ticks, or one point, was an arbitrary choice.-- Editor  

NEWSSTAND READER

Editor,

I am not currently subscribing, but I have been reading STOCKS & COMMODITIES off the newsstand for almost a year now. I have thoroughly enjoyed the informative articles, the interviews, and the product reviews.

If I could make a suggestion, I would like to see more articles on Elliott wave, Gann methods, Bollinger bands, and Fibonacci methods (I especially enjoyed Kevin Murphy's October 1998 article, "Long-Term Fibonacci Support And Resistance"). The math behind some of this stuff is very intriguing.

Also, please expand the Novice Trader area at your Website. I'm fairly new to technical analysis and system trading and could use all the help I can get!

Jeff Romanowski, via E-mail

Thank you for writing. We have published many articles on all those topics in past issues of STOCKS & COMMODITIES, and we promise we'll publish many more. You can search our article abstracts at our Website at https://www.traders.com, in the Back Issue Archive area, for these topics. To obtain copies of past articles, you can purchase the single back issue if we have some left, or you can purchase one of our past Volume Books (compilations of the year's articles), or our S&C on CD.

We will continue to develop our Novice Trader's Notebook at our Website to add new topics. In fact, we just published two more Novice Trader's Notebook entries in our 1999 Bonus Issue. We've recently added a new Staff Writer to our team and intend to find the time to add more entries.-- Editor

CAREER TRAINING IN FINANCE

Editor,

I am new to the whole field of technical analysis and behavioral finance, but it has become a new fascination in my life. I read your interview with Henry Pruden of Golden Gate University in San Francisco (STOCKS & COMMODITIES, September 1998), who runs a program that offers certification in technical analysis. I was wondering if you knew of any other educational centers that offer similar programs either for certification or for simply gaining more general knowledge about the techniques for analyzing stocks and commodities. Also, are such programs open to the general public, like me, who already have university degrees and don't want to pursue another four-year degree, but rather just seek career training?

David Lollar, via E-mail

As for certification in technical analysis, the Market Technicians Association (MTA) administers a program for obtaining certification as a Chartered Market Technician (CMT). This professional designation is awarded to members successfully completing a program of two exams and an original research paper accepted by a peer review committee for publication in the MTA Journal. The Market Technicians Association is a national organization of market analysis professionals with the goal of exchanging information, administering educational programs and upholding ethics codes and professional standards among technical analysts. Contact the MTA at:

Market Technicians Association (MTA)
One World Trade Center, Suite 4447
New York, NY 10048
E-mail: ShelleyMTA@aol.com
https://www.mta-usa.org

For formal or continuing education in finance, trading and investing, The New York Institute of Finance (NYIF) offers applied training and education in a variety of formats, such as classroom training at a variety of times, seminars and conferences, customized training, independent study, and exam preparation. You can contact NYIF at the following address:

New York Institute of Finance
Two Broadway, 5th Floor
New York, NY 10004
phone 212 859-5000, 800 227-NYIF (6943)
fax 212 344-3469, 212 514-8423
https://www.nyif.com

In addition, several universities in New York City also offer an assortment of finance courses and programs, including Pace University, New York University and the New York Institute of Finance, among others. Contact any of these schools for a course listing.

Readers interested in Golden Gate University's curriculum that Pruden spoke of in the interview can request more information from:

Dr. Henry Pruden
Institute for Technical Market Analysis
Golden Gate University
phone 415 442-6583
fax 415 442-6579
https://teleport.com/~ifta/TSAA/tsaahome.html

Don't forget to check the Internet as well for online courses from accredited universities as well as for user groups and discussion. -- Editor

ERRATA

Editor,

We are two college seniors researching technical analysis tools and find your magazine to be an excellent source of information. In the article "Combining Statistical And Pattern Analysis" in the October 1998 S&C, we discovered a mistake in the TradeStation code. The code for the SHRK-32 system given on page 60 read:



If C<H[3+C1] and CL[3+C1] then C1=C1+1;
If CH[4+C1] then begin
        Buy on the close;
        RevB=C1+3;
        C1=0;
End;
If C<L[3+C1] then begin
        Sell on the close;
        RevS=C1+3;
        C1=0;
End;

Clearly, the "4" in the line that reads "If CH[4+C1] then begin..." is inconsistent with the 3s used in the surrounding code. We have contacted the author of the article, Walter Downs, and he agrees with our observation.

Cory Doeringer and Jana Yenser
Susquehanna University, via E-mail

Thank you for pointing out the error and good luck with your studies!-- Editor

Back to February 1999 Contents