July 2001 Letters To The Editor
The editors of S&C invite readers to submit their opinions and information on subjects relating to technical analysis and this magazine. This column is our means of communication with our readers. Is there something you would like to know more (or less) about? Tell us about it. Without a source of new ideas and subjects coming from our readers, this magazine would not exist.
Address your correspondence to: Editor, Stocks & Commodities, 4757 California Ave. SW, Seattle, WA 98116-4499, or E-mail to editor@traders.com. All letters become the property of Technical Analysis, Inc. Letter-writers must include their full name and address for verification. Letters may be edited for length or clarity. The opinions expressed in this column do not necessarily represent those of the magazine. -Editor
CHART BASICS
Editor,
I would like to know if there is any way to learn to read charts without indicators or systems - just the open, close, high, low, and volume.
Ricardo Aivado, via e-mail
You betcha! You could start with Technical Analysis Of Stock
Trends by Edwards and Magee, the writings of Charles Dow, and one of
our own books,
Charting The Stock Market: The Wyckoff Method. -Editor
AUDITING BACKTESTED RETURNS
Editor,
I have subscribed to your fine magazine for about three years. I must admit that I enjoy the magazine even more since John Sweeney took over the reins. Keep up the good work!
I'm writing to find out if you know of an accounting firm that audits backtested returns. I am about to start selling some market timing information that I have created, and I believe my information would be more credible if I could get the returns audited. I don't want someone to state that the algorithm will do as well in the future as it has in the past; I simply want them to determine that I have not made up the numbers and that the results are actual, backtested results. Any help or guidance would be greatly appreciated.
John M. McClure, via e-mailAs you can imagine, this is a tender subject among top-tier accounting firms. Probably the best firm for you to work with is AudiTrack (www.auditrack.com). They are a good choice for up-and-coming traders and money managers. -Editor
CODE FOR ProTA GOLD
Editor,
It's not always easy for newcomers to understand technical analysis. Your magazine is a great learning tool and an inspiration. I enjoy Don Bright's articles, the interviews, and all the technical stuff - even the ads. But there is one disappointment every month. Traders' Tips provides formulas for a wide range of software, but nothing for ProTA Gold users (Macintosh). Is there somebody out there who understands the ProTA Gold language well enough to do the job? Thanks for the great job, and I wish you all the best for the future!
Alf Mayer, via e-mail Amsterdam
Traders' Tips are provided by the software vendors - the people
most qualified to do the job. We send out articles for response to those
who indicate an interest in writing the tips. Thus far, we have not heard
from BeeSoft regarding ProTA Gold, but we would be happy to include their
code if they wish to contribute. -Editor
NIEDERHOFFER INTERVIEW
Editor,
I just skimmed through the interview with Victor Niederhoffer in the April 2001 issue. It was excellent; however, he is a little full of it regarding checkers and Marion Tinsley. It did not take "10 years with 10 parallel massive computers" to develop a program to beat the world champ. In fact, Chinook (the computer that beat Tinsley) took only one year or so of development to place second in the national championship. Five years after its development, Chinook beat Tinsley 0-0-6, as Tinsley forfeited. It won the national championship seven years after its inception. This is all finely detailed in Jonathan Schaeffer's excellent book One Jump Ahead: Challenging Human Supremacy In Checkers. (A must-read for all system traders, by the way.)
Gary B. Smith, via e-mail
SPECIAL SUBSCRIBER AREA
Editor,
I am a subscriber, so I went to the subscriber section of your website at Traders.com. There, I found a bunch of code, all available to the likes of me. One problem: I have no idea what the code is or how to try it out. Please advise.
Harvey Cort, via e-mail
At the subscriber-only area of our website, Traders.com, we post
code and spreadsheet files from S&C articles, often provided by the
article's author. Code is included for software packages such as MetaStock
and TradeStation, and is useful if you have the software for which it was
written. -Editor
MORE ON SPOT/CASH COMMODITY SCHEMES
Editor,
I am an avid follower of S&C, and I was eager to read your answer to a question from a fellow Malaysian citizen, Julian Jaeger, in the January 2001 issue. Unfortunately, your answer was too short. The questions she asked are important; many traders in Southeast Asia are misinformed about the real situation on reputable companies affiliated with the New York Coffee, Sugar, and Cocoa Exchange (CSCE). Hundreds are trading through companies similar to the one Julian described, and most are having difficulty getting back their margin or withdrawing their money.
You suggested that Julian find a "reputable local broker." I don't think we have a reputable broker here. I hope you can furnish a list of companies registered with the CSCE, or tell us where we can find one.
Mahizan bin Shuib, via e-mail
Not to be chauvinistic, but you could start with a US-based firm,
since they are the most closely supervised. Then select a publicly traded
firm (another layer of supervision and disclosure). Then deal with its
local office or try out its Internet services. This process should get
you into a financially capable firm. -Editor
.ELA FILES
Editor,
I used to find indicators and systems at the websites of both Stocks & Commodities and TradeStation in a format called *.ELA that can be used directly by EOD SuperCharts. Recently, only the code has been available and not the downloadable files. However, I don't have PowerEditor to use the code, and I can't create useful ELAs. How can I obtain the *.ELA files directly? They were available at one time from S&C.
Ross A. McFarlane, via e-mail
We'll ask TradeStation Technologies to provide *.ELAs with their
code, but be aware that currently, code is produced in the *.ELS format,
which is compatible with TradeStation 2000. Support for SuperCharts is
diminishing. -Editor
PAIRS TRADING
Editor,
In response to Stéphane Reverre's article "Pairs Trading" in the March 2001 issue, wouldn't it be simpler and more effective to insert Bollinger Bands on the chart of the ratio of the two securities?
The period and standard deviation of the Bollinger Bands could then be optimized to produce trading signals when the upper or lower bands are touched.
Des Bailes , Cape Town, South Africa
Stéphane Reverre replies:
If I understand your idea, you would use the ratio as a signal, not the deviation between actual and theoretical prices. In general, there are two ways to define a spread: ratio or difference. They are two faces of the same coin, which means you would probably get similar signals.
As far as optimization is concerned, although it is always a prudent practice, the case of RD/SC is particular. Because these are sister companies, one should not go too far along the path of in-depth statistical analysis, because this is losing track of the original - and straightforward - relationship. If you have to spend time on the pair, it is probably better to understand how their equity structure has changed over the years, and how those changes affect the fundamental ratio between their stock prices. Other pairs, for which no prior knowledge can be invoked, would be much better candidates for fine-tuning optimization.
ELLIOTT WAVE THEORY
Editor,
I am a technical analyst and I have read your magazine for more than a year. Has S&C published any articles on Elliott wave theory? In particular, I am interested in estimating the length of the developing waves using the phi ratio.
Nick Stamatis, Ph.D., via e-mail
It's probably my ignorance, but I don't know of a "phi ratio" in
Elliott wave analysis. However, we have published many articles about Elliott
wave theory in the past, all of which are available for purchase on our
website, Traders.com. -Editor
STUDYING THE NASDAQ 100
Editor,
Has anyone compared the Nasdaq 100 (QQQ) to the Vix (volatility index)? I have programmed it, and it seems to be getting amazing results; I buy the QQQs when the relative strength of the Nasdaq 100 is stronger than the VIX, and short the QQQs when the Nasdaq 100 relative strength is weaker than the VIX. I have also programmed the QQQs against the euro. A buy signal is given when the QQQs are stronger than the euro and vice versa.
I have programmed hundreds of systems, but I still stay with my long-term trend-following system (it's never failed me). However, the VIX and the euro versus the QQQs should be studied.
Moise Levi, via e-mail Brussels, Belgium
Good idea. You're welcome to submit an article on the subject. On
a related note, you may also be interested in analyzing the new CBOE Nasdaq
volatility index (VXN) against the QQQs and the euro.
DATA SERVICES
Editor,
I've enjoyed your magazine for several months now. Since I don't subscribe (I buy it from the newsstand - don't ask me why), I didn't get the special issue that ranked all the products and services. I'm looking for a real-time charting/data service that includes S&P futures, NDX, TICK, TRIN, and so on. I've already taken a look at RealTick from Townsend Analytics and TradeStation Pro (based on your recent, excellent review) [March 2001 S&C-Editor]. Could you please point me in the right direction?
Robert Babak Rowshan via e-mail
As you've no doubt discovered, there are many data services out
there. To narrow your search, visit the Traders' Resource section at Traders.com,
where you can search for data services with specific attributes. -Editor
ERRATA: EBP COMPUTATION
Editor,
I enjoy your magazine; it's a great source of ideas and sheds new light on the markets. However, I experienced some difficulty with the EBP formula in "Screening For Misvalued Stocks" in the May 2001 issue. Using the authors' data on Nokia, I found that it takes 10.5 years to earn back the price. Apparently E(2.61)* 1.38^7.5=29.22. Am I doing something wrong?
Arne van der Ent, via e-mail Luxembourg
Martii Luoma and Reijo Ruuhela reply:
Unfortunately, an error appeared in one of the formulas in the sidebar
"EBP computation." The sigma sign was omitted. The formula should have
read:
Using this corrected formula, you will get the right result. To clarify, we have calculated it year by year in the following table:
The total equals, within limits of measurement errors, the value 71.2 given in the article. We hope this answers your question. In addition, the P/E axis in Figure 2 should not have been labeled with dollar signs.
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