November 1999 Letters To The Editor

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REGRESSION FOR FORECASTING

Editor,

May I compliment Dennis Meyers for his interesting article on the use of second- and third-order regression to forecast the price behavior of IBM stock ("IBM, Cubed," STOCKS & COMMODITIES, August 1999)? It would be interesting to compare the results obtained with those from the use of similar parameters using a three-day moving average in place of the least-squares calculations. In this way, it should be possible to determine the contribution made by the regression process.

Some of your readers might like to be reminded of the work by the noted statistician Robert C. Brown titled "Detection Of Turning Points In A Time Series," published in Decision Science, Volume 2, October 1971, pages 383-403. Brown used linear regression together with a parabolic mask technique to determine the turning points in the price of IBM by a rigorous mathematical argument. Brown always writes in a straightforward, readily understood manner, and makes only a limited demand on the readers' knowledge of mathematics.

W.G.P. (Percy) Lamb, Ph.D., via E-mail


EXIT STRATEGIES

Editor,

First off, I love your magazine! I feel it is a key part of my continuing educational process.

After reading the interview with Moe Ansari in your September 1999 issue, I feel that a lot of traders underestimate the exit aspect of trading strategies. Ansari notes it as being "the biggest difference between the professionals and beginners." The problem is that there is very little information or books focused on this aspect of trading. Could you please point me in a good general direction for this sort of information or include more of it in your wonderful magazine?

I would also like to give a big hats off to art director Christine Morrison for the great work she does with the illustrations in your magazine. She keeps the humorous side of all this intact. I always look forward to the next cover!

Troy Cornelison, via E-mail

You are correct that exit timing is just as important for profitability as entry timing. In fact, exit strategy is a main focus of technical analysis. 

Since it's a big part of technical analysis, we often spend time in our pages dwelling on the topic. Here's a sampling of articles we've published that discuss exit strategy and placement of stops: 

Arnold, Curtis [1993]. "Developing A Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 11: August. 

Barrie, Scott [1997]. "Trading The Wheat/Corn Spread," Technical Analysis of STOCKS & COMMODITIES, Volume 15: August. 

Cartwright, David [1991]. "RSI As An Exit Tool," Technical Analysis of STOCKS & COMMODITIES, Volume 9: April. 

Katz, Jeffrey Owen, Ph.D., and Donna L. McCormick [1998]. "Barrier Stops And Trendlines," Technical Analysis of STOCKS & COMMODITIES, Volume 16: July. 
_____ [1998]. "Exits, Stops And Strategy," Technical Analysis of STOCKS & COMMODITIES, Volume 16: February. 
_____ [1998]. "Testing Exit Strategies," Technical Analysis of STOCKS & COMMODITIES, Volume 16: March. 
_____ [1998]. "Using Trailing Stops In Exit Strategies," Technical Analysis of STOCKS & COMMODITIES, Volume 16: April. 

Sweeney, John [1987]. "Using Maximum Adverse Excursion For Stops," Technical Analysis of STOCKS & COMMODITIES, Volume 4: April.
_____ [1987]. "Where To Put Your Stops," Technical Analysis of STOCKS & COMMODITIES, Volume 3: May. 

Weinberg, Jack L. [1995]. "The Range Indicator," Technical Analysis of STOCKS & COMMODITIES, Volume 13: June. 

White, Adam [1993]. "A New Exit Strategy," Technical Analysis of STOCKS & COMMODITIES, Volume 11: November. 
_____ [1995]. "A Weekly S&P Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 13: June. 

Zamansky, Leo, Ph.D., and David Stendahl [1997]. "Evaluating System Efficiency," Technical Analysis of STOCKS & COMMODITIES, Volume 15: October. 

Thank you for writing, and thank you also for your compliments on the art in our magazine. We try to use art and graphics whenever possible to illustrate, explain, and add interest to our pages. We will pass your comments along to our Art Director.-- Editor


SIMULATING THE PERFORMANCE OF THE PROFESSIONALS

Editor,

As I understand it, the Vanguard Index 500 fund takes the Standard & Poor's 500, puts it into a sequence and allocates a percentage of investment to each. Currently, Microsoft at the top gets about 5%, and each stock gets a fraction of a percentage less on down the list (which adds up to 100%). I have tried to replicate this approach, but without success. Vanguard publishes the list every six months. I would love to take the Vanguard list, modify it weekly according to hard data: ROE, P/E, and so on, and six months later, when Vanguard publishes the listing anew, I'd like to find out if my ranking is very close to theirs.

Could anyone give me a hint as to what hard data the biggies use to rank their S&P pick lists?

Could you get someone to do an article on it? I realize the precise formula might be proprietary and that fuzzy rather than hard data may come into play (for example, perception of management quality), but anything that helps me maintain a weekly rational ranking will increase my confidence and would be appreciated.

P.S. I really love STOCKS & COMMODITIES magazine. It's the best thing out there.

Reggie Creighton, via E-mail

Thanks for your article suggestion. S&P index funds adjust their holdings to replicate the capitalization-weighted S&P 500. The weights change microscopically every day. Only the fund's managers can tell you exactly how they adjust their holdings to match the S&P.-- Editor 


SWING TRADES

Editor,

I am looking for a program or Website that highlights companies at their support levels. Do you have anything that might help me pick companies for swing trades?

Matt Hudson, via E-mail

We've published several articles regarding swing trades, including "The New Gann Swing Chartist" by Robert Krausz in the February 1998 STOCKS & COMMODITIES (Volume 16). 

The software used in that article was Fibonacci Trader; you can download a demo from www.fibonacccitrader.com. See the Gann Swing Chartist in the indicator section.-- Editor


APPRENTICESHIP

Editor,

I have been working diligently for the past two years to teach myself the art/science of technical analysis and day trading, with mixed results.

I am writing to inquire how I could find a professional trader who would consider taking a person under his or her wing and train them in real time. In essence, I am interested in serving an apprenticeship. 

Bernie Claydon, via E-mail

See also the next letter. -- Editor


TRADING MENTOR

Editor,

Trading, as you know, is an individual endeavor, requiring self-discipline and a number of psychological strengths. I often hear it recommended that traders find a mentor. I believe this would help speed my trading process beyond the books and discussion forums I use. Is there a good way to find and develop a relationship with a person who could become a mentor? Are there upcoming regional futures industry meetings for which S&C could publish schedules of events? Any suggestions would be appreciated. An article on this would be interesting. 

Michael Clark, via E-mail


Newport, NH

Thanks for writing and for your article suggestion. It's true it often helps to have a mentor to further trading skill -- or, for that matter, to help further almost any professional skill. Occasionally, trading tutors advertise their services in our Classifieds ads. Our Trade News & Products section lists upcoming events and conferences if we've been given notice of them in time. Upcoming conferences include the Futures Industry Association show on November 10-12 and the 21st annual Technical Analysis Group conference on November 19-22. 

You may also want to consider joining a professional organization such as the Market Technicians Association (MTA, https://www.mta-usa.org), or a local user group for the trading software you use. People in these groups are often willing to help.--Editor


AUTOMATED PROGRAM TRADING

Editor,

I am looking for a command line utility that can buy and sell stocks through the Internet. My intention is to use a computer program to make the transactions without any intervention from me.

I've looked at several Windows packages, but they require the user to type everything in related to the buy/sell. Does anyone know of a brokerage or software package that can do this?

By the way, I am a PERL programmer, if that helps any. So if there is a PERL module that does this, that would help also.

Robert Vaughn, via E-mail


Albuquerque, NM

Sorry, we can't suggest a package that offers this. Maybe one of our other readers can. Anyone? -- Editor 


GETTING STARTED IN TRADING

Editor,

I have been reading your magazine every month. Now I'm finally ready to start trading, but I am confused about what system to go with and which software is best to buy. There is so much stuff out there, I don't know where to start! Should I backtest all the systems I read about and see which comes out with the best returns, or should I go to a trading school and get a year of support? 

In addition, what should I look for in a brokerage house? What are the best educational resources to learn how to place orders with a broker? I'm interested in learning how to place orders for futures contracts. 

What system do you recommend to trade? Also, what software should I use? I have read and studied numerous books, charts and systems. Now I don't know where to start. 

Debbie, via E-mail

For you and readers like you who are in the same situation, we have been preparing more articles for beginning traders. You may have noticed that we've been publishing more Novice Trader articles, and we plan to publish more short, easy-to-read articles on introductory topics. Next year, we plan to publish a special section in every issue, called Traders' Resource, focusing on products and services in various categories related to trading (such as software, courses and seminars, brokerages, and so on). 

First, though, determine how you want to trade -- fundamentally, with charts, using support and resistance, technically. Try your idea out on paper until you are comfortable with it. Then seek out hardware, software, and a brokerage that supports your approach. Otherwise, you're at the mercy of the vendors.

For instructions on how to place orders, request literature from your broker. It's usually provided upon opening an account.

We are unable to make specific recommendations to individual readers on which software or system they should use. And although long-term system-testing is out of the scope of STOCKS & COMMODITIES magazine, one publication that tests and reports on futures trading systems is Futures Truth, https://www.futurestruth.com.

For some guidelines on how to go about purchasing investing products, visit the Securities and Exchange Commission's Website at https://www.sec.gov. For background information on companies and services related to the futures industry, visit the section called Background Affiliation Status Information Center (BASIC) at https://www.nfa.futures.org, offered by the National Futures Association. -- Editor


SELECTING A BROKER

Editor,

I am interested in index futures trading and am looking for a good reliable broker to open account with. So I started to look through back issues of STOCKS & COMMODITIES to find information about brokerage companies, hoping that in such a respectable magazine as S&C, there would be no place for companies with doubtful reputations. Am I right? Do you make any inquiries about enterprises before you let them advertise in your magazine?

Second, while reading your magazine I often encounter references such as "For more information circle No. ..." beneath ads. Could you explain what that means?

Serge Parakhnevich, via E-mail


Minsk, Belarus

The circle numbers printed beneath advertisements make it convenient for readers to request product literature from these companies. To use the circle numbers, turn to the yellow reader service card in the magazine and circle the corresponding number(s) on the card. Drop the card in the mail, and look for information from that company in your mailbox. 

Like most magazines, we maintain certain advertising standards set by the magazine industry. But we don't police the securities and futures industry -- the SEC and CFTC do that. Advertisements in publications don't constitute endorsements. While we can't guarantee any product or service outside of our own, we generally encourage readers to look for products that come with money-back guarantees. For background information on brokerages, visit the Background Affiliation Status Information Center (BASIC) at https://www.nfa.futures.org, offered by the National Futures Association. 

Next year, as part of the Traders' Resource series that will be appearing in STOCKS & COMMODITIES magazine, we will be publishing a special section on brokerages. The section will list brokerages and what services they offer. The information will also be available at our Website all year long.-- Editor


ONLINE ACCESS TO STOCKS & COMMODITIES

I have received your fine magazine for more than five years now, and I was wondering if there were any plans to allow subscribers online access to the full version. The Economist currently offers this feature to its subscribers, and I find it very handy, as I am online many hours of the day. If I want to access a specific article, I can do so from any PC with Internet access. Thanks for the consideration. 

Matt Kaune, via E-mail


Boulder, CO

Thanks for writing. We currently offer individual articles for purchase over our Website; we offer a free index to STOCKS & COMMODITIES articles on our Website and to paid subscribers on CD-Rom; and we offer a CD-ROM with full copies of all past STOCKS & COMMODITIES articles for purchase. Right now, however, there are no plans to put the entire magazine online.-- Editor


HISTORICAL INTRADAY DATA SOURCES

Do you know of a retail source for historical intraday data (six months' worth) for equities and/or indices? I would like to study trading patterns for the first and last hour of the day; minute bars would suffice for the purpose. 

Terry Kurtz, via E-mail

You could try the following data sources, in no particular order:

 Quote.com (www.quote.com)
 CSI (www.csidata.com)
 Dial Data(www.tdc.com/dialdata.htm)
 DBC (www.dbc.com)
 DTN (www.dtn.com)
 CQG (www.cqg.com)
 TICK DATA (www.tickdata.com)

For a more complete listing of data vendors, check out our 1999 Bonus Issue or the Traders' Resource at our Website.-- Stu Evens, Staff Writer


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