AFTER-HOURS TRADING
Editor,As a long-time reader and recent subscriber, I wish to compliment you on your magazine. I look forward to receiving it each month in my quest to improve my current methods and learn new ones.
Perhaps you might consider answering this question: With the advent of after-hours and overseas trading, I am concerned that current technical analysis techniques that depend on opening and closing prices will become obsolete or ineffective. I am having success with volatility breakouts (based on average true range) and candlestick patterns, both of which require opening and closing prices, combined with traditional technical analysis. A stock may be up one point today based on yesterday's close but down three from overseas trading. Which will become the true measure of today's change?
Thanks again. You don't have to change STOCKS & COMMODITIES magazine at all to keep me happy.
Most traders will use the open and close of the highest-volume market as the best indicator. For a US investor, that might be overseas! -- EditorRick Patton, via E-mail
MARKET PROFILE
Editor,Jayanthi Gopalakrishnan is to be commended for her excellent S&C articles on the Market Profile (December 1999) and the Liquidity Data Bank (January 2000). She has grasped the essence of the data quite nicely. As she noted in the first article, the data and concept go back to the mid-1980s, but not listed is the fundamental reference work, Markets And Market Logic by Steidlmayer and Koy, Porcupine Press, 1986.
We have been convinced for years that this is the best data available to the public trader. However, many traders (including us) had trouble using profiles and LDBs in actual trading situations. While the profile or LDB is excellent at clarifying what has happened, more background is needed for trading decisions. Some traders posted many days of profiles on their wall and would sight along them to get a sense of the market condition -- that is, the general market situation in which the current activity is taking place. Knowing the condition is crucial, because the interpretation of a given profile in a balanced market can be quite different from the same exact configuration in a trend. One finds the market condition by expanding on the old "sight along the wall" trick, simply by combining several days of profiles into a longer-term, master profile. Sometimes this leads to surprising results: An example of one such five-day aggregation, called a five-day Overlay, can be found in our text "Value Based Power Trading" (available on our Website at www.cisco-futures.com).
A day-to-day evaluation of those particular five Market Profiles would show a clear uptrend the first three days, then a balance day and the last day down. In fact, all this activity took place within an overall balance, and the day-to-day changes merely reflect minor changes in the market over time, all within the normal rotational price behavior of a balanced market.
A trend trader does not want to enter a rotating market since there is risk (from the rotation), but little of the directional movement that offers a potential for profit. If the trader knows the market is in balance, it is then a simple matter to avoid trend trading in the balance region.
All of this powerful information comes from the simple Market Profile!
Again, thanks for two excellent articles.
Donald Jones, via E-mail Cisco Futures
Aurora, CO
VOLUME DATA
Editor,In the January 2000 S&C in your Letters column, a reader wrote about incorrect volume data from his data vendor. With my data service, I often see that it is wildly different from volume statistics published in The Wall Street Journal and other authoritative sites. In response to E-mail complaints, my data vendor's answer is that it is only a conduit from the exchanges. This is not an acceptable answer. What can we do?
Barbara Rockefeller, via E-mail
Stamford, CT
The best thing to do is subscribe to a service that has an active refresh capability. Intraday volume numbers are often incorrect and many vendors do little to check them for reasonableness. Some, however, do fix the numbers at day's end and retransmit them, thus cleaning up the historical values. A very few fix things on the fly as they become aware of errors. If your data service doesn't do one of these, it's time to move on. -- Editor
INTRADAY VOLUME AND MFI
Editor,In the August 1996 STOCKS & COMMODITIES, Thom Hartle wrote an article on Bill Williams's MFI indicators ("The Market Facilitation Index"). In it, he provided the TradeStation PaintBar formulas for input, which were highlighted in blue. After the formulas, he states: "Be sure that your last bar has volume, such as estimated volume for today's daily bar; otherwise, you will see an error window due to a zero located in the denominator of the formulas." The indicators work fine on the daily chart, but I couldn't bring them up on the intraday charts, where tick volume is used, due to the error window.
For the benefit of your other readers, I have a simple solution. All you need to do is substitute the word "ticks" for "volume" everywhere in the formulas. Volume on intraday charts is really a measure of price changes or ticks rather than the number of contracts traded as on the daily chart. Hope this helps someone.
John Gates, via E-mail
FUTURES & OPTIONS COURSES
Editor,I wish to enroll in a certification program on the futures and options markets. Do you offer such a course, with an attendance certificate given at the completion of the course? If you don't offer this type of program, where can I get it? I will appreciate any suggestions, but please keep in your mind that I am not interested in courses over the Internet.
Many thanks for your kind assistance and best regards.
We do not offer certification courses, but 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 ShelleyMTA@aol.com, www.mta-usa.org.Deniz Baskaynak, via E-mailAs for formal 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 them at New York Institute of Finance, 2 World Trade Center, New York, NY 10048, 212 390-5000 or 800 227-NYIF (6943), 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.
On the West Coast, the Institute for Technical Market Analysis of Golden Gate University in San Francisco offers a curriculum of graduate-level classes that leads to a master's degree in finance or a certificate in technical analysis. Those classes cover technical analysis topics. Contact Dr. Henry Pruden, Institute for Technical Market Analysis, Golden Gate University, 415 442-6583, fax 415 442-6579.
Perhaps someone reading this will let us know of other programs. -- Editor
SOFTWARE FUNCTIONS
Editor,After reading "Detecting New Trends Early" by David Steckler in the November 1999 issue, I spent several hours trying to write EasyLanguage code to test the validity of the article's subject, only to find out that the mass index and money flow index were known EasyLanguage functions. A simple statement by the article's author in the sidebar to this effect [actually, the sidebars were prepared by the S&C editors--Ed.] would have saved me a lot of brain effort and, more important, time.
We simply can't provide details about various software capabilities for every technique discussed in our articles, and we prefer not to single out software (except when an author has used a particular program to document the results of the technique being explained). The point of the two sidebars on the mass index and the money flow index was to explain in generic language how to calculate the indicators, as many of our advanced readers want the mathematical background behind techniques to better evaluate their effectiveness. We often use Excel to demonstrate how to calculate an indicator, because we have found that this application is most widely accessible to readers.A.C. Body, via E-mail
Chagrin Falls, OH
Please check your user manual for your particular software's capabilities before setting out to hand-code techniques, and you can check Omega Research's Website at www.omegaresearch.com for custom EasyLanguage code.
On the other hand, manual implementation of a technique can often give you the best understanding and appreciation for it. -- Editor
MAC USER
Editor,I'm a trader living in Amsterdam. I'm using a Power Mac G3 with virtual PC to monitor the markets in real time. I was very impressed by the trial version I received of ProTA. It's really great that there's a technical analysis program for the Mac. I wonder if I could use it to monitor the Amsterdam and eventually other European markets? Can it be connected to other programs with a DDE link?
You can contact ProTA at 847 854-3360, or at https://www.beesoft.net, for information about Beesoft's product. -- EditorAlf W.G.Mayer, via E-mail
The Netherlands
PIVOT POINTS
Editor,I read Jayanthi Gopalakrishnan's recent article on pivot points ("Pivot Points") in the February 2000 S&C and enjoyed it greatly ... thanks for all the detail! Any suggestions for other books that delve into this topic so I can read more about it?
I don't know of any books devoted exclusively to pivot points, but there are surely some technical analysis books that cover it. Check with a technical analysis book distributor such as Traders' Press, Traders Library, or Ino.com. In the meantime, see the next letter for additional S&C articles detailing the topic of pivot points. -- EditorJeff Ramsey, via E-mail
PIVOT POINT AND PARABOLIC
Editor,
I have been subscribing to STOCKS & COMMODITIES magazine for a year now. I am looking for information on the pivot point and parabolic indicators, and I was wondering if any articles on these topics have been published in earlier issues. If so, could you please provide me with the details?
Wendy Yap, via E-mail
Here are some STOCKS & COMMODITIES articles on the pivot point:French, Thomas E. [1985]. "Median Line Market Analysis," Technical Analysis of STOCKS & COMMODITIES, Volume 3: February.Greenspan, William [1994]. "The Pivot Point For Trading," Technical Analysis of STOCKS & COMMODITIES, Volume 12: August.
[1996]. "Three Turns On The Pivot Point," Technical Analysis of STOCKS & COMMODITIES, Volume 14: July.
Hartle, Thom [1998]. "Truth In Futures: John Hill," interview, Technical Analysis of STOCKS & COMMODITIES, Volume 16: July.
Hill, Holliston [1985]. "Chart Congestion Analysis," Technical Analysis of STOCKS & COMMODITIES, Volume 3: January.
Hill, John [1989]. "Trading & Scalping Techniques," Technical Analysis of STOCKS & COMMODITIES, Volume 7: February.
Jaenisch, Ron [1996]. "The Andrews Line," Technical Analysis of STOCKS & COMMODITIES, Volume 14: October.
Kosar, John J. [1991]. "Support And Resistance Levels," Technical Analysis of STOCKS & COMMODITIES, Volume 9: January.
Labuszewski, John W., and John E. Nyhoff [1988]. "Intraday Trading Techniques," Technical Analysis of STOCKS & COMMODITIES, Volume 6: September.
Star, Barbara [1995]. "Support And Resistance With The Andrews Pitchfork," Technical Analysis of STOCKS & COMMODITIES, Volume 13: November.
Here are some articles on the parabolic system (in addition to these, many other articles have touched on the topic):
Aan, Peter [1989]. "Parabolic Stop/Reversal," Technical Analysis of STOCKS & COMMODITIES, Volume 7: November.
Hartle, Thom [1993]. "The Parabolic Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 11: November.
Meyer, Dennis [1995]. "Modifying The Parabolic Stop And Reversal," Technical Analysis of STOCKS & COMMODITIES, Volume 13: April.
Sweeney, John [1997]. "Parabolics," Technical Analysis of STOCKS & COMMODITIES, Volume 15: July.
-- Editor
AS THE BOND TURNS
Editor,
I've been a subscriber of your magazine for more than five years. You should give more weight to academic authors who analyze the market's behavior from a statistical point of view: for example, different forms of price distribution on several time frames to detect eventual meaningful bias.
I was very interested in Alex Saitta's December 1999 article, "As The Bond Turns." Is it possible to get EasyLanguage coding of his trend definitions (as described in the article)? And to export these analyses from TradeStation to Excel? Many thanks for your help and congratulations for your work.
Kuntharo Henry, via E-mail La Garenne Colombes, France
Thank you for writing. Please check with Omega Research regarding EasyLanguage for TradeStation at www.omegaresearch.com or 800 328-1312. -- Editor
OPTIONS RISK MANAGEMENT
Editor,
I've been looking for an options analytic software package that can perform higher-end options analysis along with complete risk evaluation. Is there something you can recommend?
Randy Ramirez, via E-mail
Without knowing what you mean by "complete risk evaluation," I can only suggest you try the demos that nearly every package offers these days. -- Editor
MARKET TOPS
Editor,
Your magazine is a gem for any serious trader or investor.
As you have some of the most sophisticated readers of any magazine, I'd like to present my current stock market observations. In technical terms, as I write this, the stock market exhibits major top characteristics. The three peaks and a dome pattern in the S&P 500 portends a major top, while a broadening top is clearly evident on the S&P 500 weekly bar. Stock margin debt is at record highs, and sentiment measured by the individual investor is at record bullishness. When the smart money sells at high prices, who will be left to buy? Please give us some articles about the nature of major tops so we can save precious trading capital.
Thanks for writing. For now, try "Technical Studies And The Primary Cycle" by Raymond A. Merriman in the March 1999 Stocks & Commodities. -- EditorAndre W. Zupans
METHODS, STRATEGIES, AND PLANS
Editor,
I am confused about some of terminology used in S&C articles, and I cannot find clear definitions from any technical analysis books. Would you mind helping me to understand the following terms: trading plan, trading system, trading methodology, trading strategy, and trading approach? Are these terms different? If possible, please give an example for clarification.
You forgot trading technique! These are not strictly defined terms and some of these are used interchangeably. Trading plan usually refers to the trader's daily discipline and should include your daily evaluation of the market, a trading idea based on the current market, risk/reward considerations, and adherence to a money management strategy.Kelvin Tai, via E-mail
Sydney, Australia
The best plans are documented and some traders keep daily notes and trading journals. According to trader Tushar Chande, a trading plan is like a game plan and should clearly specify actions to take under different conditions. Here are a few past S&C articles on developing a trading plan:
Bryce, James Covington [1989]. "Discipline In Trading," Technical Analysis of STOCKS & COMMODITIES, Volume 7: April.Chande, Tushar S., Ph.D. [1992]. "Forecasting Tomorrow's Trading Day," Technical Analysis of STOCKS & COMMODITIES, Volume 10: May.
Guppy, Daryl [1999]. "Some Rules To Live By," Technical Analysis of STOCKS & COMMODITIES, Volume 17: April.
Hartle, Thom [1991]. "Keeping A Trading Journal," Technical Analysis of STOCKS & COMMODITIES, Volume 9: February.
[1995]. "New Market Wizard Robert Krausz," interview, Technical Analysis of STOCKS & COMMODITIES, Volume 13: September.
[1998]. "Be Rich Or Be Right? CTCR's Courtney Smith," interview, TTechnical Analysis of STOCKS & COMMODITIES, Volume 16: November.
Kaeppel, Jay [1995]. "Should You Trade Futures?", Technical Analysis of STOCKS & COMMODITIES, Volume 13: August.
Sweeney, John [1985]. "Novice Speculator Trading Plan," Technical Analysis of STOCKS & COMMODITIES, Volume 3, February.
A trading system tracks market prices and produces buy and sell signals. According to system developer Greg Morris, a trading system is one or more indicators used in a systematic fashion. Systems are made up of rules that tell the trader precisely and objectively when to buy and sell. They can be simple or complex, and they can be manually implemented or automated by software. Trading systems are often at the heart of technical analysis, since the goal of technical analysis is better timing of trades.Here are just a few S&C articles on trading system development. Many other articles in S&C, such as those contributed by Dennis Meyers, describe trading systems that you can use in your trading.
Alfonso, Frank [1987]. "Building A Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 5: August.Altman, Roger, Ph.D. [1993]. "Designing Trading Systems For The Stock Market," Technical Analysis of STOCKS & COMMODITIES, Volume 11: October.
Arnold, Curtis [1993]. "Developing A Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 11: August.
Katz, Jeffrey Owen, Ph.D. [1996]. "On Developing Trading Systems," Technical Analysis of STOCKS & COMMODITIES, Volume 14: November.
Morris, Greg [1996]. "Developing A Trading System," Technical Analysis of STOCKS & COMMODITIES, Volume 14: March.
Sweeney, John [1991]. "Developing A System," Technical Analysis of STOCKS & COMMODITIES, Volume 9: November.
Methodology, strategy, technique, and approach are often used interchangeably, and the definitions are not necessarily specific to trading. But strategy is often more narrow, such as the Martingale money management strategy or the new Dow strategy. Methodology is often a technically defined way of looking at the market based on observation and testing, such as the Wyckoff method. For more elaboration on strategy and methodology, see former Editor Thom Hartle's July 1994 S&C article, "Trading A Stock Using Technical Analysis."According to trader Robert Krausz, methodology should incorporate a simple philosophy of analysis and concepts that will work in any time frame. It should define the support and resistance areas that you're trading and it should give you warning of trend change.
And as for approach, technical analysis is the one we prefer! -- Editor
ASSET ALLOCATION BOOKS
Editor,
I am new to stock trading and I was wondering if there are any introductory books on asset allocation and money management. It appears that this is a very important part of developing a trading plan, so I am very curious to learn more about it.
James Howse, via E-mail
Here are some books on money management:
Balsara, Nauzer [1992]. Money Management Strategies For Futures Traders, John Wiley & Sons.Bernstein, Peter L., and Aswath Damodaran, eds. [1998]. Investment Management, John Wiley & Sons.
Bernstein, Richard [1995]. Style Investing: Unique Insight Into Equity Management, John Wiley & Sons.
Bresnan, Bill, and Eric Gelb [1999]. Getting Started In Asset Allocation: Comprehensive Coverage Completely Up-To-Date!, John Wiley & Sons.
Gehm, Fred [1995]. Quantitative Trading And Money Management, Irwin Professional Publishing.
Sweeney, John [1993]. Maximum Adverse Excursion, John Wiley & Sons.
BACK ISSUES OF S&C
Editor,
Let me compliment you on your magazine. I would like to order your September and October 1999 issues, but I couldn't find how to do so, either in the magazine or at your Website. Could you show me the way ?
Xavier Donat, via E-mail
Single back issues can be purchased through our Circulation Department at 800-Technical or 206 938-0570, fax 206 938-1307, E-mail circ@traders.com. We usually have back issues for the current and recent years. Past S&C articles are also usually available individually from our online store at Traders.com; as a one-year collection in our Professional Traders' Series of books; or on our S&C on CD as a complete collection (17 years' worth). -- Editor
TRADERS' RESOURCE: SOFTWARE
Editor,
In your Bonus Issue, it was mentioned that the software listing in that issue can be found in more detail at your Website. How do I activate this very interesting feature?
Mark Belkin, via E-mail
From Traders.com, which is our homepage, click on Traders' Resource. From there you can select the category of software (or go directly to https://technical.traders.com/Products/catsearch.asp?cat=120). We have expanded the feature to include other categories of products and services as well, so you can also review information on brokerages, trading systems, courses and seminars, publications, data services, and more. We have even added a search engine to the feature, so you can search particular products or features, or simply browse. -- Editor
ERRATA
In the STOCKS & COMMODITIES 2000 Bonus Issue, an error appeared on page 94 in our Traders' Resource: Software section. The product CycleTrader 5.0 is offered only by DH Financial. DH Financial can be reached at 800 331-1250, www.dhfinancial.com, or by E-mail at info@dhfinancial.com. We regret the error.