June 2000 Letters To The Editor

or return to June 2000 Contents

FIDELITY SELECT FUNDS

Editor,

Last year, I was looking around for a mutual fund trading system, being unhappy with the results I was receiving. At that time, you featured an article by Jay Kaeppel on determining the (internal) relative strength of various Fidelity indices ("A System For Trading Fidelity Select Funds," STOCKS & COMMODITIES, July 1999).

The article intrigued me and, after corresponding with Kaeppel via E-mail, I wrote and tested a program using TechniFilter Plus over all the mutual funds I watch (approximately 700) and was amazed at the results. So much so that I took $10,000 and actually bought $1,000 of each fund the program suggested. By November 1999, the results of that investment persuaded me to recommend the system to various clients, who are today, after two and a half short months, extremely happy with the system.

Admittedly, I did alter Kaeppel's original suggestion slightly based on my testing and optimization, but I feel that I must still publicly thank Kaeppel and S&C for coming to my rescue with a solution to a problem that I was struggling to solve.

On another matter, I have found a number of programs I use were not Y2K compliant, and the suppliers are charging for a Y2K update. Other companies, on the other hand, sent updates by post at no charge. It would be a good lesson to know which programs were Y2K compliant, because then we would know which programs would be Windows 2000-friendly.

Jack Singer, via E-mail

Vancouver, BC

CODING CANDLESTICKS

Editor,

The article "Coding Candlesticks" in the November 1999 S&C contains an interesting approach to quantifying candlesticks. But after a second reading, my initial enthusiasm cooled off because it seems to me that author Viktor Likhovidov has made a fundamental error insofar as he confuses coding with valuing or weighting a candlestick.

The proposed code in the article is just that: a seven-bit number in which the main characteristics of any single candlestick can be recorded -- that is, encoded. Although Likhovidov devotes a lengthy explanation to the coding scheme, it can only be the starting point for the part that matters: the valuation.

I think we need a (different) algorithm for weighting candlesticks, one that makes the underlying assumptions transparent -- that is, disprovable. And what about the various reversal candlesticks? This brings up the next problem, because every candlestick expert, seeing this kind of valuation, will object that you have to see them in context.

As a final remark, I'd like to suggest that, insofar as this is a single-period oscillator, using the true range would be preferable.

Jan Willem E. Roberts

Munich, Germany

Viktor Likhovidov replies:

Thank you for your letter. It is the first such detailed exposition of reaction to my idea of quantitative description of candle charts, so I have read it with great interest.

As I think some of the questions in the letter arise not from the lack of any transparency in my article's formulations but rather show a lack of understanding of some basic technical analysis principles, both clearly are worthy of explanation. I hope my reply will be useful to the readers of STOCKS & COMMODITIES.

Editor's note: As Likhovidov's full reply was too long to reprint here (as was Roberts' letter in full), look for a follow-up article on coding candlesticks by Viktor Likhovidov in an upcoming issue of S&C.

ERRATA: MORE RESPONSIVE MOVING AVERAGES

Editor,

I thought you might like to know about an error in a formula in the article "More Responsive Moving Averages" in the January 2000 S&C, page 60, in the upper right of the page. The formula appeared in the magazine as follows:

S = ((N-1)/2)*y + ((N-3)/2)*y[1] + ((N-5)/2)*y[2] +
... +(((N-(2*N-1))/2)*y[N-1]

The section in bold print has an error. The first parentheses, highlighted in red, should be omitted. The expression should have read:

S = ((N-1)/2)*y + ((N-3)/2)*y[1] + ((N-5)/2)*y[2] +
... +((N-(2*N-1))/2)*y[N-1]

Thank you so much for publishing this article. I've been banging my head against the problem this method solves for months. I seriously doubt I would have come to this specific solution without the help of this article.

The increase in profit (and probably accuracy) to my system that this method provides is enormous. It solves the last deficiency in my system: It's the edge I've been searching for!

Tim Soos, via E-mail


Joe Sharp replies:

Thanks for the correction -- obviously the parentheses must balance.

Your delight with this approach was just like mine when I first realized how important it was. I am very happy this article helped you. I only hope the vendors of the various analysis packages will incorporate this approach into their indicator libraries.

If this article is valuable to enough people, I will write a sequel that similarly corrects lags in exponential moving averages.

MORE RESPONSIVE MOVING AVERAGES

Editor,

I am a regular reader of your excellent magazine and look forward to perusing each new issue. Regarding the article "More Responsive Moving Averages" by Joe Sharp in the January 2000 STOCKS & COMMODITIES, I would like to bring to your attention that the modified moving average presented therein is identical to the endpoint moving average (EPMA) presented in your magazine on a number of occasions, for example:

  • "The End Point Moving Average" by Pat Lafferty, S&C, October 1995
  • "How Smooth Is Your Data Smoother?" by Pat Lafferty, S&C, June 1999
  • "Smoothing Techniques For More Accurate Signals" by Tim Tillson, S&C, January 1998.

    • The formula defining the modified moving average on page 60 of the January 2000 issue in Sharp's article can be easily shown, after some manipulation, to be mathematically the same as the EPMA formula given on page 18 of Lafferty's 1999 article.

    The EPMA is obtained by plotting the endpoint of the linear regression (or least-squares) fit over the most recent n datapoints at each point in the data series. This gives it a lag of zero with respect to linear input. It typically fits the data more closely than a simple or exponential moving average; however, some smoothness is sacrificed.

    Tim O'Sullivan, via E-mail

    You're correct, but I particularly liked the simplicity of Sharp's expression. -- Editor

    PATTERN FORECASTER PLUS ERRATA

    Editor,

    The review of my product, Pattern Forecaster Plus software, in the May 2000 issue of your magazine was excellent. I would like to thank your staff for their accuracy in reporting the facts and features of my applications, except for one rather large error. The error occurred in stating that the price of my Pattern Forecaster Plus 1.0 program as $149 a month. The actual cost of my Pattern Forecaster Plus 1.0 application is only $149 to purchase the product -- which has been discounted from a suggested retail price of $295.

    I am confident your staff will make a sufficient effort to resolve this error and to correct the opinions of your valued readers as to the actual price of my software applications. Again, I would like to thank you for your professionalism and attention to detail. I trust errors like these can be avoided in the future.

    Brad Matheny

    Owner, Matheny Enterprises

    Thank you for notifying us of a price error on page 80 of our May product review. We did indeed misstate the price of Pattern Forecaster Plus 1.0. We regret the error. However, the price of Pattern Forecaster Plus 2.0 was listed correctly in the article as $695, subscription $25 a month. -- Editor

    VOLUME-WEIGHTED AVERAGE PRICE

    Editor,

    I have always been interested in why indicators do not widely use a volume-weighted average price formula (VWAP). Most index funds as well as almost all large mutual funds use this as a benchmark to determine the quality of their daily stock executions. Have you ever published anything in your magazine on how to create this calculation? If so, please advise me so I may purchase that issue. If not, this may make for an interesting article in the future.

    Robert T. Mikkelsen Jr., via E-mail


    In former Editor Thom Hartle's interview with Kevin Haggerty in the August 1999 S&C, Haggerty mentions that he looks at the volume-weighted average price, but we haven't published any articles on the topic. Maybe someone reading this would be interested in submitting an article on it. -- Editor

    COMMODITY TRADING SUCCESS RATES

    Editor,

    I'm curious about the long-term performance of traders. Do you know of any academic or professional reports on the five-, 10-, or 15-year return rates of CTAs? I have read some futures and commodity reports that say over the long term, 90% of traders lose money, and of the 10% who make money, only a few get most of it. Is this true?

    I am only interested in long-term performance, because I too have had some great six- or 12-month runs, but what about over 10 to 15 years? Do you have any reliable bottom-line evidence that shows traders can equal or better the long-term performance of the major indices on a risk and cost basis? Granted, buying and holding an index fund is not nearly as exciting as trading futures, but is there any long-term performance data to financially justify my trading?

    Steven Aldana, via E-mail

    In "Managed Futures And Commodity Trading Advisors" in the September 1997 issue of S&C, author Martin Hiemstra describes the CTA Consistency Index and presents of table ranking CTA performances. The CTA Consistency Index is published by CTA Research Corp., 515 472-7373, 800 543-2525. In the same article, Hiemstra refers to Managed Account Reports, a New York-based industry publication that follows the performance of 500 CTAs and 500 managed futures funds (www.marhedge.com).

    This S&C article can be ordered from our Online Store at Traders.com.-- Editor

    POINT & FIGURE CHARTING AN EXCEL

    Editor,

    Would you help me locate some information and examples of point & figure charting using Excel? I searched your Website but found nothing.

    Rijn Ducardus, via E-mail

    The version of Excel I use, Microsoft Excel 98 for the Macintosh, doesn't offer point & figure charting. Some technical analysis charting packages do; please check our product reviews. -- Editor

    EUROPEAN STOCK EXCHANGE DATA

    Editor,

    Many data services supply end-of-day data over the Internet for the US exchanges. In your 2000 Bonus Issue, you list some of these companies. Nevertheless, when I try to find a company supplying this kind of data for the European stocks, I'm always unsuccessful. I'm interested in receiving end-of-day stock data over the Internet for the markets in Spain, England, Germany, France, and Switzerland. Can you or any reader provide help on this?

    Marino Campos, via E-mail

    Visit the Data Services category of our Traders' Resource at www.Traders.com for a listing of data services, some of their features, and contact information.

    Perhaps someone reading this can offer a suggestion as well. -- Editor

    OPTIMAL TIME SCALES

    Editor,

    Do you know of any analyses that define the optimal time scale over which to analyze financial time series? For example, when should I employ a moving average with a lookback of 30 days, 60 days, 90 days, and so on? Or perhaps one trading day, half-day, week, and so on?

    Such a time scale would also have to be time-dependent, meaning that if a one-week average is optimal for today, it may not necessarily be optimal for tomorrow, or one week from now.

    George Trevino, via E-mail


    San Antonio, TX

    Generally, you want to use half the dominant cycle in your prices. Determine the cycle length with a package such as MESA, or eyeball it. -- Editor

    TRIANGLE AND TURTLE SOUP METASTOCK SYNTAX

    Editor,

    I am currently looking for MetaStock syntax for triangle price patterns (symmetrical, ascending, descending) and Turtle soup signals (by Raschke/O'Connor) to explore my database of stocks. Can I find MetaStock formulas regarding these topics within your magazines?

    Michael Zuelke, via E-mail

    Sorry, although we've published articles on triangles, we haven't published MetaStock code for triangles or Turtle soup signals. Try checking with MetaStock vendor Equis International at www.equis.com. -- Editor

    FUTURES LIQUIDITY

    Editor,

    I always enjoy studying your Futures Liquidity section every month. There is one thing that bothers me, though. How do you rank the Russell 2000, Municipal Bond Index, and the Nikkei when these markets have no volume at all? You must have volume in order for the contract to be liquid. The British pound, orange juice, and even pork bellies have more volume than these. How come they don't have any form of rank in your process? I know that there is no perfect way to rank futures, but wouldn't you be better off to at least rank the markets with the most volume over the last 30 days?

    Brian Dierschke

    San Angelo, TX

    First, while the Russell 2000, Municipal Bond Index, and the Nikkei of themselves have no markets, the futures contracts that are traded on these indices have tremendous volume. In fact, on a recent day, the volume of Municipal Bond Index futures traded was considerably more than the number of orange juice and pork belly contracts that were traded. Our Futures Liquidity page refers to the futures contracts that are based on the indices, not on the indices themselves. -- Bruce R. Faber, Staff Writer

    FURTHERING EDUCATION

    Editor,

    I am currently working as a trader in a Greek brokerage firm but would like to further expand my academic horizons. I would appreciate if you could provide names of academic institutions and organizations (in the UK or US) that provide courses for fund management (institutional investor) and/or technical analysis.

    Spiroglou Alexandros, via E-mail

    See also the next couple of letters. -- Editor

    COLLEGE-LEVEL CLASSES ON TECHNICAL ANALYSIS

    Editor,

    I am a subscriber of your magazine. Professionally, I am a member of NCTM (National Council of Teachers of Mathematics) and am self-employed. I would like my son to take college-level credit classes on technical analysis of the markets.

    Your magazine publishes Quick-Scans and detailed product reviews of technical analysis tools, with some learning courses among them. Would it be possible for your magazine to publish reviews of courses offered at accredited colleges and universities (undergraduate, graduate, financial mathematics, daytrading tools, and so on)? Maybe there are other parents out there who also would be interested in reading reviews of college/university classes.

    I researched courses using the Internet, and the path to formal study of technical analysis is not an easy one. I found a few university courses.

    Here's another thought: Your magazine publishes extensive resources. Would you consider getting into the online college/university business? You would need to get accreditation and I may be able to work with you on that as well.

    Any advice on the path to higher education on options, stocks, and commodities would be of great help to me and other parents.

    A. Medonis, via E-mail

    Although technical analysis of the markets has been in use since the 1800s, it has rarely been taught at the college level. Technical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, has been published since 1982. STOCKS & COMMODITIES is the professional investor's magazine for market technicians about using charts and computers to trade the markets.

    At this magazine, we have four onsite computers serving trading information. Check our Website for our courses and seminars listing at https://Search.Traders.com, or visit our Traders' Resource area at https://www.Traders.com. I'd also suggest you log on to our Message-Boards and post your request for information. Someone reading your message may be able to offer suggestions or first-hand accounts with technical analysis or trading courses.

    In the meantime, check the FAQs at our Website, www.Traders.com, under the heading, "How can I become certified in technical analysis? How can I further my education in trading?" That will point you to the Market Technicians Association (www.mta-usa.org); The New York Institute of Finance (https://www.nyif.com) and other universities in New York City; and the Technical Analysis Institute at Golden Gate University in San Francisco (https://tele-port.com/~ifta/TSAA/tsaahome.html). See also in the September 1998 S&C our interview with Henry Pruden, a professor of technical analysis at Golden Gate University, for more on the educational path toward technical analysis.

    In the future, we plan to use some of our magazine articles as the basis for a series of trading coursebooks. The task of writing and organizing all this into logical subject groups has already been started by our editorial department. -- Publisher

    Editor's note: In addition, we just received a technical analysis course announcement for the University of California (Berkeley) Extension. See the Trade News & Products section in this issue for the listing, or visit https://www.bigfoot.com/~johnmageeta for information.

    See also the next letter.

    FUTURES AND OPTIONS COURSES IN CHICAGO

    Editor,

    In the April 2000 STOCKS & COMMODITIES, one of your readers inquired about enrolling in a certification program on the futures and options markets. Your response included several programs located in New York and one in California. Since you solicited responses about additional programs, I thought I'd oblige by providing a couple located in Chicago.

    The Chicago Mercantile Exchange, in conjunction with DePaul University, offers a certificate following the successful completion of its futures and options program. Candidates take eight courses (five core courses plus three electives) and must pass a comprehensive examination to earn the certificate. The core courses include: "Currency Trading: Markets and Techniques," "Interest Rate Hedging," "Money Markets and Futures Pricing," "Options Trading," and "Stock Index Markets." The electives run the entire gamut. Examples of elective offerings include Elliott wave theory, Market Profile, fundamental analysis, screen-based daytrading techniques, Japanese candle trading strategies, and advanced options. Further, the courses are reasonably priced; many are around $150 each. More information is available by contacting the CME Education Department at 312 930-6937 or by sending E-mail to edu@cme.com (or visit the CME Website at www.cme.com/educational/center/).

    IIT's Stuart Graduate School of Business in Chicago offers a program that leads to an M.S. in finance. Representative course offerings include: "Financial Modeling Risk Management," "Econometrics and Futures," "Options and Otc Derivatives," and "Quantitative Analysis." For more information, the school's address is 565 W. Adams St., Chicago, IL 60661, 312 906-6500, www.stuart.iit.edu/fin/.

    James F. Mazzulla
    Barrington Hills, IL

    CTA VS. CMT

    Editor,

    As a licensed Series 3 broker, I've been enjoying your magazine since I've been in the business (about one year). It has become obvious very quickly that to remain competitive, a broker must constantly be looking toward other things that will enhance his marketability. I'd appreciate an explanation of the differences between the CTA (Certified Technical Analyst) and CMT (Chartered Market Technician) licensing programs from an objective and practical standpoint in terms of what each designation will allow me to do.

    Thank you for your time.

    Aaron White, via E-mail

    Contrary to popular belief, there's no such designation as Certified Technical Analyst in relation to the financial markets.

    A CTA is a Commodity Trading Advisor registered with the Commodity Futures Trading Commission, although in practice, the CFTC has delegated to the National Futures Association (NFA), a self-regulatory organization, the power to receive and review applications and grant registrations. A CTA is "any person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling commodity futures or option contracts."

    A Chartered Market Technician (CMT) is one who has passed two annual exams given by, and submitted an original research paper to, the Market Technicians Association (MTA) (https://www.mta.org), which is a professional association.

    To sell your services as a commodity advisor, you need the CTA designation. The CMT designation helps you market that service. For details, try the book Trade Up by Holliston Hill. -- Editor

    ERRATA: DESIGNING A MONEY MANAGEMENT STRATEGY

    Editor,

    My article in the May issue looks great! Thank you for all your effort.

    It has been brought to my attention that there is a typo in the Excel code on page 42. The line should have read:

    {Cell B13} = MIN((B34/(2*B3)*100),100)

    I apologize for the mistake. I will post the correction to my Website at www.wealthbystrategy.com/moneyarticle.htm. The file "final.xls," which is the actual spreadsheet file, is correct.

    I have been told the code is available on the S&C Website.

    Ray Overholser

    Each month we post code and formulas from our articles at our Website in a special subscriber area at https://technical.traders.com/sub/sublogin.asp. We'll ensure the code posted there is corrected. -- Editor

    Back to June 2000 Contents