HILBERT INDICATORS
Editor,Although I'm not a mathematician, my appetite for indicators was stimulated by John Ehlers's March 2000 S&C article, "Hilbert Indicators Tell You When To Trade." Thanks to the lucid explanation of lag elimination in exponential moving averages, I have been able to apply the technique to the Lotus 1-2-3 spreadsheets that I use for stock charting.
However, a similar application of the Hilbert transform to identifying cycles within a historical stock-data string eludes me. I confess to not possessing a program that uses EasyLanguage and ask if you can refer me to a suitable article detailing the use of the transform with a spreadsheet. I may say I am averse to taking a black-box approach when it comes to generating indicators.
Thank you for writing. Sorry, we haven't published an article on the Hilbert transform with a spreadsheet approach. See also the next letter.-- EditorTrevor Bestow, via E-mail
Roleystone, Australia
SHOWING THE MATH
Editor,I believe you would be doing a great service to your subscribers if you would insist that your authors provide mathematical information in simple English and/or algebraic expressions. A case in point: In the excellent article "Hilbert Indicators Tell You When To Trade" by John Ehlers in the March S&C, wherein the math behind the concept is given in EasyLanguage code. That's not very helpful to all your non-EasyLanguage users. And the MetaStock code in the Traders' Tips section in that issue is no help either, unless you're a MetaStock user.
With the right information, all your subscribers can convert to whatever format suits their needs.
Gordon Fogal, via E-mail
Port Orange, FL
I personally prefer code for precision and readability (especially EasyLanguage code) and more especially where the logic of the code is essential to achieving a specific result. But if we can provide the algebra, we will! -- Editor
CODE AT WEBSITE
Editor,What a marvelous service it is: To be able to simply copy formulas from your Website and paste them into my EasyLanguage Power Editor is a great feature. Thank you!
Rick Woods, via E-mail
Subscribers will find formulas and code published in our magazine in a special subscriber area at our Website at https://technical.traders.com/sub/sublogin.asp. Enter your subscriber number and last name to access the information. In addition, all our Traders' Tips published in the magazine are reprinted at our Website in a free area. Follow the links to the magazine issues for each month's Traders' Tips, or use our site's search engine to locate them.-- Editor
Editor,
ADAPTIVE INDICATORSI know there's such a thing as adaptive moving averages. I was wondering if anyone has come up with other adaptive indicators, such as an adaptive RSI or adaptive stochastics. Is there a way to turn indicators such as these into adaptive ones, or is it possible to use an adaptive moving average on them? If so, could you give me an example of how to do so?
Tushar Chande replies:Richard Knapik, via E-mailI was the first to propose adaptive indicators, and my article "Stochastic RSI And Dynamic Momentum Index" (STOCKS & COMMODITIES, December 1992) explains how to do it. My book The New Technical Trader (John Wiley & Sons) also contains a good explanation of it. The strategy is to change the lookback length of the indicator by connecting it to market volatility. We would like the indicator to have a long lookback period when prices are in a trading range (volatility is low). Conversely, we want a short lookback length when prices are moving rapidly. I feel that changing the lookback length for calculating indicators is more responsive than smoothing them with adaptive moving averages. The actual definition of long and short lookback lengths depends on your trading horizon.
Here is some simple TradeStation code to create an adaptive stochastic oscillator that uses the 20-day standard deviation of closing prices to vary the length between seven and 28 days. First, determine if the 20-day standard deviation is at its highest level. To do so, compute a stochastic oscillator using the 20-day standard deviation (variables v1 through v4). If the 20-day standard deviation is at its highest level (v1=v2), then v4=1 and the oscillator length is set at its shortest value, that is, set to the variable lenmin (=7 days). If the 20-day standard deviation is at its lowest value (v1=v3), then v4=0 and the current length is set to the maximum length, that is, the variable lenmax (= 28 days). All that remains is to calculate the stochastic oscillator, Stoch, for the close and smooth it using a three-day exponential moving average. The same approach can be used to develop other adaptive indicators or averages.
TRADESTATION CODE FOR ADAPTIVE STOCHASTIC OSCILLATOR
Editor,
{-- © 2K Tushar Chande; Adaptive Stochastic Oscillator --} vars: v1(0), v2(0), v3(0), v4(0) ; vars: lenmax(28), lenmin(7), currlen(0) ; vars: hh(0), ll(0), stoch(0), stochma(0) ; {-- Calculate 20-day std. Dev. And its 20-day range --} v1 = stddev(c,20) ; v2 = highest(v1, 20) ; v3 = lowest(v1, 20) ; {-- Create v4: stochastic oscillator for 20-day std. dev. --} {-- if v1=v2 (highest level) => v4 = 1; if v1=v3 (lowest level) => v4=0 --} if (v2-v3) > 0 then v4 = ((v1 - v3)/(v2-v3)) Else v4 = 0 ; {-- Calculate current effective length; if v4 = 1, then length = mininum --} currlen = IntPortion(lenmin + (lenmax-lenmin)*(1-v4)) ; {-- Calculate stochastic oscillator and its 3-day exponential average --} hh = highest(h, currlen) ; ll = lowest(l, currlen) ; if (hh-ll) > 0 then stoch = ((close - ll)/(hh - ll)) * 100 ; if currentbar = 1 then stochma = 0 else stochma = 0.5*stoch + 0.5*stochma[1] ; {-- Plot data --} plot1(stoch, "adapt_stoch") ; plot2(stochma, "stochma") ; plot3(80, "hi_ref") ; plot4(20, "lo_ref") ; { -- End of code --}Tushar Chande, Ph.D., of Tuscarora Capital Management, is a Contributing Editor to STOCKS & COMMODITIES. -- EditorEditor,
TICK, TIKI, TRIN FOR DAYTRADINGI am an aspiring daytrader and am currently studying with a trading facility prior to any attempt at trading. I was looking for a trader's magazine and stumbled across the April 2000 STOCKS & COMMODITIES. I have read most of the articles in that issue, including "How To Use Tick, Tiki, TRIN For Daytrading" by Terry O'Brian.
I have a rather simple question dealing with the tiki indicator working in conjunction with the tick to indicate when program trading is taking place. On page 36, you mention that when the tick is in the +1000 tick range and the absolute value of the tiki is beyond 22 (that is, |tiki| > or = 22), it is "likely that program trading is in charge of the market at the moment." Later, on pages 38 and 39, when you list the behavior of the three indicators in an uptrend and downtrend, you specifically mention that the tiki indicator should show buying programs during an uptrend and selling programs in a downtrend (my emphasis).
My question is this: I understand from the article that when |tiki| > or = 22, then program trading is in effect when the tick is in the +1000 range, but I was wondering if it's possible from either the tiki or the other indicators to determine when the trading programs are, specifically, buying programs and when they are selling programs. I did not see that indicated in the article.
Terry O'Brian replies:Scott Bagoon, via E-mailAn interesting question. The short version of the answer would simply be that given an intraday trending market, the programs are identified as being coincident with the reading of the indicator. If we observe a -1,000 tick reading and/or a tiki in the -22 to -30 range, a sell program is probably being run. The reverse is probably true in reverse. At a +1,000 tick and a high tiki number (+22 to +30), a buy program is in charge of the short-term market. A program indication counter to the prevailing trend often offers the trader information that the trend is nearing the end and shall in fact begin to consolidate in anticipation of changing direction. In a downward trending market, you will see sell programs. In an uptrend, you will see buy programs most of the time.
I hope this helps.
ART & GRAPHICS
Editor,As a fairly new subscriber, I really enjoy your magazine. The exchange of ideas and methods concerning all forms of trading provide a terrific forum, and of a quality not found in other publications.
I do, however, have a bone to pick, and it concerns the artwork found in every issue. The size of the art burns up a lot of real estate, compared with the size of many informative charts in the magazine. In a recent issue, you dedicate three-quarters of a page to a drawing of a bear, while a chart conveying the gist of the article uses less than 20% of the page. Using a magnifying glass to study a chart in a technical analysis publication shouldn't be required, unless you planned to change your title to Technical Analysis & Comics of STOCKS & COMMODITIES.
Recently, you may have noticed the enhancements to the way we're presenting the charts and graphical explanations of the concepts described in our articles. We've been picturing the charts larger than we ever have before, and we've been presenting enlarged illustrative diagrams to help explain technical concepts. We hope that this will increase the amount of information our readers can take away from each article.Jim Setzke, via E-mailRegarding the art, some readers like it, others don't. We include it to help draw readers into the articles and to help make each issue more memorable and unique. We appreciate your feedback, though.-- Editor
HOW WIDESPREAD IS TECHNICAL ANALYSIS?
Editor,I'm a regular reader of S&C and I think my subscription was one of my best investments ever.
Besides trading, I study finance at the University of Economics, Prague. I'm irritated by the faculty's statements that technical analysis is a marginal method and the majority of analysts are fundamentalists. They even say that less than 15% of traders today use technical analysis. I'm sure that at least 50% of traders use mostly technical analysis, but I can't find any evidence for that.
Is there any recent study showing how many analysts use technical analysis or fundamental/other methods?
Stepan Pirko
Prague
Sorry, we don't have statistics on that. Naturally, our universe is heavily skewed toward those who use technical analysis. Sounds like a good study for you to undertake.See our interview in this issue with Richard McCabe on why he feels technical analysis is growing among analysts.-- Editor
SIFTING THROUGH THE SEMINAR OFFERINGS
Editor,I've seen several promotions for seminars about the stock market and techniques to trade. I'm looking for good advice on which seminars are good and which ones I should avoid. How do I know I can trust these people with my precious money? Are they good?
Can you help me or at least point me in the right direction?
We occasionally review courses and seminars in STOCKS & COMMODITIES (look for our review of Bandit University, a daytrading school, in this issue), but we do not give specific buying advice. We publish a listing of courses and seminars at our Website, Traders.com, in the Traders' Resource area, with a list of the 10 entries for which more information was most often requested that day.Milton Maldonado, via E-mailThe SEC's Website at www.sec.gov contains helpful advice for purchasing products and services related to investing. If your interest is in futures, you can check the Background Affiliation Status Information Center (BASIC) at the National Futures Association's Website (www.nfa.futures.org). BASIC is a repository of disciplinary and other data on 50,000 futures firms and salespersons from 16 contributors: the NFA, which is the industry-wide self-regulatory organization for the futures marketplace; the US Commodity Futures Trading Commission (CFTC); and 14 US futures exchanges. Investors can also use BASIC to make a complaint or initiate an arbitration proceeding.
As for some general advice, when considering the purchase of a substantial product or service, you can check with the Better Business Bureau, the Attorney General's office, and Department of Consumer Protection in the state where the company operates for past complaints lodged against a company. In addition, ask the company offering the seminar or course for customer referrals. Finally, we suggest paying by credit card over check whenever possible, so that you can at least dispute a charge if a product is not delivered as promised.--Editor
EDSON GOULD'S WORK
Editor,It was a great pleasure to read your interview with Walter Deemer ("The Grand Old Man: Technician Walter Deemer," S&C, April 2000). I appreciate the insights. While trying to follow up on the related reading listed at the end of the article, I stumbled into the problem of the unavailability of Edson Gould's books. My local library, despite its connection to a nationwide network, couldn't locate any of Gould's works. I tried Barnes & Noble's out-of-print section, still with no luck. Appreciate any help in obtaining Gould's works.
Walter Deemer replies:Marina Stukalov, via E-mailGould's work was done mostly via his service, Findings & Forecasts, and an occasional magazine article. As far as I know, it was never reprinted in book form. I think your best bet is to get a copy of Why Most Investors Are Mostly Wrong Most Of The Time by William X. Scheinman. Scheinman uses a great deal of Gould's work in his analysis and describes the work and methodology in great detail in his book. The book was first written in 1970 but is readily available as a trade paperback reprinted in 1997.
Hope this helps!