February 2002 Letters To The Editor
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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
INDICATOR FOR AGRICOMMODITIES
Editor,
Can you help me determine the right indicator to use on the CBOT corn, beans, meal, and wheat markets?
Mohamed Elshamy, via e-mail
There really is no "right" indicator to use on the grain markets. However, grains are seasonal, and we have published articles discussing strategies for trading seasonals. Try using the search engine at our website, Traders.com, to search for articles on seasonals. You could also try visiting the Chicago Board of Trade's website at CBOT.com for ideas on this topic.--Editor
THRESHOLD TRADING
Editor,
I enjoyed reading "Threshold Trading Revisited" by Rudy Teseo in the December 2001 S&C, especially with the situation in Figure 3. It reminds us that strictly relying on mechanical trading can be hazardous. But I have a question regarding the long trade on CPQ. On page 110, Teseo states that the trade was profitable, but "the overall results were not great for the period shown. This was because the RSI remained in a fairly flat range above the 30 level." Also, the Figure 2 caption reads, "The results were barely positive." What does he mean here? There was a 62% profit over three months.
Robert Krowas, via e-mail
Rudy Teseo replies:
That's a very good question, Robert, and I have to apologize for the ambiguity between the text and the art. I was referring to the period shown at the top of Figure 2, which was 9/22/97-10/12/99. That's a period of more than two years, and I didn't think $17 was so great. But you're right -- 62% for the last several months was a great return.
THRESHOLD TRADING REVISITED
Editor,
I have some comments to make regarding the article "Threshold Trading Revisited" by Rudy Teseo in the December 2001 S&C.
1) Although a one-dollar trigger would seem safe, I suggest using x ticks, where x should be related to the stock's volatility. The one-dollar rule could have worked fine back in 1998-99, but in the current market, one should wait longer to get this trigger. (The table in Figure 6 on page 111 of the December 2001 S&C showing the trade-by-trade results confirms my suggestion. While the one-dollar trigger almost did not work on low stock values, it proved to be fine for high stock prices.)
2) The backtesting done on AOL was performed on old data (2/8/96-10/15/99). This was the start and continuation of the technology bull market when stock values were in double and triple digits. Given more current market conditions and the fact that the article was likely written in 2001, backtesting on a period between 1998 and the end of 2000 would have been far more beneficial. Under current market conditions, would AOL give the same positive results for long trades? I doubt it.
3) The author describes setup and execution for both long and short trades. Backtesting should also contain simulation for both cases, but it did not in this article. In this case, I consider the results incomplete.
4) While the author mentions the nice 593% return for the four-year period, I consider that, due to the arbitrary choice of backtesting period and the rigid one-dollar trigger during the entire period, the results do not reflect a successful strategy. Please note that during the same period of time (2/8/96-10/15/99), with split-adjusted AOL prices, buy-and-hold would have given a gain of 1,605%, which is far, far better than the results shown by the author.
5) Again referring to Figure 6, the author shows prices that are not split-adjusted. For the accuracy of the article, this remark should have been there.
6) This article is related to a similar article by the same author and published in the December 1999 S&C. The only variation was that he used candle formations. While the idea introduced then was original, I do not see a solid value in the December 2001 article for the trading community, but rather an academic exercise.
As always, I look forward to the next issue of your excellent magazine.
Dan Valco, Paris, France
Thank you for your observations and comments.--Editor
OPENING PRICE
Editor,
Are there any strategies, indicators, or calculations that assist in forecasting the opening price of a listed stock? Are you aware of a book or past issue that focuses on this concept? I am interested in overnight gap plays.
Matt Berlusconi, via e-mailI don't know of any specific strategies, indicators, or calculations to forecast the opening price of a listed stock, but the fair value calculation is used to anticipate the opening value of the S&P 500 index.--Editor
TECHNICAL ANALYSIS DEGREE
Editor,
I would like to follow up on the request by Afonso Castro in the December 2001 Letters To S&C for information on technical analysis degrees.
Speaking from a more regional perspective, I'd like to tell you about the diploma in technical analysis offered by the Australian Technical Analysts Association (www.ataa.com.au). The course is administered from Australia either by distance education or lecture modes by the Securities Institute of Australia, a training institute for finance professionals in Australia. Course details are available on www.securities.edu.au.
Award of the diploma requires that the student be a member of the Australian Technical Analysts association and that he or she successfully and sequentially complete the courses "E114 Technical Analysis" and "E171 Specialized Techniques In Technical Analysis." This can be done within a year if desired.
I hope this offers your readers additional avenues toward the study of technical analysis. Best regards and keep up the good work.
Peter Pontikis
President and research director,
Australian Technical Analysts Assn.
president@ataa.com.au,
fax 61-2-9789 4655
READERS' CHOICE
Editor,
Do you have a readers' choice award regarding charting software as well as real-time data providers?
Dave Dubinsky, via e-mail
Yes, we do! We publish the Readers' Choice Awards in our annual Bonus Issue, which was just mailed to all S&C subscribers at year-end and continues to get mailed to new subscribers throughout the year. The Readers' Choice Awards are the result of an annual reader survey on investment-related products and services in 20 categories, including analysis software and data services.
Contact our circulation department at 800 832-4642, 206 938-0570, or circ@traders.com for more information.--Editor
TIME-SEGMENTED VALUE
Editor,
On page 19 of the December 2001 S&C in the Letters To S&C column, a reader asked for an explanation of time-segmented value. However, TSV is a proprietary indicator owned by Worden Brothers, Inc., so I do not see how its calculation could be explained. (I write this note because there was no immediate explanation following the letter.)
Dan Valco, via e-mail
Thank you for pointing this out.--Editor
CAREER AS A TRADER
Editor,
I am just finishing college and have real-time trading experience. I have been trying to apply for trader trainee jobs everywhere with no luck. Does anyone have any advice on what steps I need to take to begin down the right path to a career as a trader (preferrably in Chicago)? I'd even be willing to be a runner if I could just get my foot in the door somewhere.
Hank Walker, via e-mail
See "Step Up To Trade At The Nymex" by Victoria Woolley starting on page 38 in this issue. This article describes some of the different floor trading positions, what each does, and what sort of training can be involved.--Editor
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