August 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


or return to August 2001 Contents

EISENSTADT INTERVIEW

Editor,

Thank you for the wonderful, clear-structured interview with Samuel Eisenstadt of Value Line in the May 2001 issue. Above all, two important keynotes stuck in my mind. These keynotes are excellent guidelines for any rational work in the field of technical or fundamental analysis of the markets.

First, Eisenstadt stressed that only exact, discernable, and known information must be rationally arranged and operated on to predict trustable guidelines of future market behavior. Second, he emphasized the importance of intersubjectivity, an important factor in all real scientific work. Two rational-minded people confronted independently with the components of the work must come to exactly the same decision about which part of the system the labeled element will belong to. This point highlights the weakest part of much of the work in technical analysis.

Continue the great work!

Heinz Kock, via e-mail, Germany

RISK/REWARD RATIO

Editor,

I am relatively new to trading and have heard a lot about the importance of figuring the risk/reward ratio. Could you please explain how this ratio is computed?

Rob Locascio, via e-mail, Austell, GA
 
Before you enter any position, you should have a good idea of what price would prove you wrong in your assumptions. You should also have a good idea of what price action would prove you correct. The first tells you the amount of loss (incorrectly termed "risk") you're willing to accept. The second tells you the amount of gain you expect. Divide the gain by the loss to get the reward-to-risk ratio. -Editor

FOURIER ANALYSIS

Editor,

I am interested in any information on using Fourier analysis to detect recent stock price trends. Do you know of anyone who is pursuing this?

David Shedivy, via e-mail


A full-text search of S&C on CD, which contains thousands of articles published during the last couple of decades in Stocks & Commodities, produced 124 articles, sidebars, or letters that contain the term "Fourier." At https://store.traders.com, you'll find 19 references to Fourier.

Fourier analysis (FFT) is most often used to detect cycles in data over a period of time. The knowledge of when cycles exist can be used to design a filter system, such as a moving average.

For possible market prediction, you may also want to look into the maximum entropy method (MEM) of cycle detection. MEM can be used with a smaller sample of historical data. Using less data gets you closer to the current market action. -Publisher

HISTORICAL DATA

Editor,

I am looking for historical data on the number or percentage of stocks over and under their moving averages. I need this information for the NYSE and the Nasdaq. Do you know where this information is available?

David Tse, via e-mail, Los Angeles, CA
 
Check out Worden Brothers' TC2000 service. It shows the percentage of stocks above and below their averages. -Editor

READERS' CHOICE AWARDS

Editor,

Where can I find the 2000 Readers' Choice Award winners for best stock software under $200, best stock data, and best data download software, plus other winners?

Tomas de Matteis, via e-mail
 
The Readers' Choice Awards are published every year in our Bonus Issue, which is automatically mailed to paid subscribers. To receive it, you must subscribe. Contact our circulation department at 800 832-4642 or circ@traders.com for subscription information.-Editor

MORE ON READERS' CHOICE AWARDS

Editor,

I am a bit curious about the criteria for judging software in your Readers' Choice Awards. How are the awards chosen?

Sid Marquis, via e-mail


As the name implies, the Readers' Choice Awards are voted on by our readers. The editors gather a list of products (with spaces for write-in votes) and mail it with the magazine to a sampling of US subscribers. Subscribers vote for the products they find most useful in their trading and investing, then return their ballots to us. Our computer data service tallies the votes and we publish the results in our annual year-end Bonus Issue.- Editor

PYRAMIDING POSITIONS

Editor,

I am looking for a well-written, tested, and proven book on the methodology of adding (pyramiding) existing positions -- whether they are in the stock or futures markets. Any suggestions?

Bill Collard, via e-mail


The reason there are no books on this subject is that pyramiding is a well-defined path to disaster. However, building a position is covered in my book Campaign Trading (John Wiley, 1993).-Editor

ERRATA: OPTIONVUE 5

In the June 2001 issue, the OptionVue 5 product review incorrectly stated that a free 30-day trial of OptionVue 5 is available. The 30-day trial is not free; it costs $49. We sincerely regret the error.

ERRATA: TRADERS' TIPS

In the June 2001 Traders' Tips, in one of the tips for Investor/RT on page 60, we inadvertently duplicated Figure 6 and omitted Figure 8. We regret any confusion the error may have caused. The correct image can be found in the July 2001 Traders' Tips at our website, Traders.com.

In addition, in the July 2001 Traders' Tips, we inadvertently left out a tip on calculating VIMA submitted by Investor/RT. Look for it plus additional tips in this issue.

Back to August 2001 Contents