April 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

TREND DETECTION INDEX

Editor,
In my view there is something wrong in the article "Trend Detection Index" (S&C October 2001). On page 56, in the formula for cell J61, 

= IF (I60>0;IF(E60>0,1,-1),J60)


there is no place for the zero that appeared in column J on page 58. In addition, in the formula in cell L61, 

=IF(A61="";IF(A60="","",IF(J61=J60,"
Remain with CurrentPosition",IF(J61=1,"
Go long at open tomorrow","Go short at open tomorrow"))),"")


instead of A61 and A60, it should say K61 and K60, because column A is the "date" column.

But despite this error, there must still be something wrong, because if I do exactly what the formula says, there is only one way for the answer, "Remain with the current position," even if I use K instead of A. The cells Jn and Jn-1 must to be the same because of the formulas in the columns J,K, and L.

Ignacio Huerta Sánchez,
via e-mail


M.H. Pee replies:

Zero is added initially because there is no way to tell whether you are long or short before the first calculation of TDI, which requires at least 60 days of data. From that point onward, there is no place for zero in column J, since the TDI is tested as a reversal system.

Column L shows the trading signals for the next day. It only provides the trading signal for the next day in the last row of the data input with all the other cells blank. The addition of column A to the formula is only meant to indicate the last row of the data entry. This is to avoid confusion if the trading signals were to be listed for all the other rows. Note that instead of column A, reference can also be made to column B without affecting the signals.

Intially, column L will display only "Remain with the current position," since the market position column (column J) always remains at zero. However, after the 60th day, the position column will alternate between 1 and -1. When such changes occur, column L will indicate "Go long at open tomorrow" when the change is from -1 to 1 and "Go short at open tomorrow" if the change is from 1 to -1.

DETECTING TREND STRENGTH

Editor,

I read with interest Barbara Star's article highlighting the use of moving average convergence/divergence (MACD) and average directional index (ADX) ("Detecting Trend Direction And Strength," STOCKS & COMMODITIES, January 2002).

For many years I have been using this combination with admirable results. What I add is a 50- and 200-day exponential moving average (EMA). When the underlying equity crosses above the 50-day EMA, the MACD is positive, and the ADX is rising and/or above 30, then I label this a speculative reversal (for short-term traders only). In times of oversold markets, this system coupled with an RSI above 50 seems to pick out interesting situations. If the same conditions are met but with a rise above 200-day EMA, then I label this a reversal situation, which requires a stronger market/sector.

Bill Rook, via e-mail

TIME-SEGMENTED VOLUME
 

Editor,
As a follow-up to the letters in the December 2001 and February 2002 S&C issues on time-segmented volume indicator, the TSV by D. Worden (Worden Brothers, www.worden.com or TC2000.com) can be closely approximated by plotting a rate-of-change measure of the on-balance volume momentum indicator by J. Granville. With a little work, this may provide your readers some interpretative insight into TSV.

Mark Moscrip, via e-mail

TRADERS' TIPS

Editor,

Thanks for putting out a great product that brings us up to date on a lot of trading issues. The articles are well written and helpful.

I would like to see you include TC2000 in your Traders' Tips column so TC2000 users can more easily implement some of the strategies presented.

Uday Mehta, via e-mail


We've checked with Worden Brothers, developer of TC2000. Custom programming is not one of the program's major features.-Editor

ADX AND HISTORICAL VOLATILITY

Editor,

Do you know of a website that gives ADX and historical volatility readings?

Naghman Moghal, via e-mail

For one, www.prophetfinance.com offers ADX (average directional movement index) as well as a large number of studies that should allow an analysis of volatility.-Editor

INDEX OF S&C ARTICLES

Editor,

I am looking for an alphabetical index of your year-2000 articles. I normally buy the hardcover edition of Technical Analysis of STOCKS & COMMODITIES, but I understand that you will no longer publish those. I am a long-time subscriber and have every volume since 1985. It would be great to have Volume 18 on my bookshelf, but lacking that, may I have a copy of the index that normally is at the back of the published volume?

R.M. Tamiso, via e-mail


Sorry, we discontinued publishing the printed alphabetical index when we stopped printing the hardcover book editions. The newer, more flexible online search engines have replaced the printed index. Our S&C on CD product contains a search engine, or you can use the free search feature at our website, Traders.com, to locate topics. Thank you for your interest.-Editor

COMMODITIES INFORMATION

Editor,

I've written you before to inquire about the money flow index (MFI). This time, I'm writing to ask about commodities. Which news agency is the best source of information on what's happening in the field of commodities and the futures markets? Is there a mathematical formula that I could customize and optimize?

Maria Carolina Antar Campos
Brazil


There are many good sources of news on the futures industry. They of course vary by price and offerings, and not everyone looks for the same features in a product or service. Check our Trade News & Products column each month, check the data services category of the Traders' Resource feature at our website, Traders.com, and check the Ad Index toward the back of this issue for data services to contact for more information. In addition, there are several sources available through the Internet such as Futuresource.com, Ino.com, TradeSignals.com, and others.-Editor

HOW TO BECOME A COMMODITIES BROKER

Editor,

I am a high-school teacher looking for information to give to a student about becoming a commodities broker. Can you give me any information on what a high-school senior should pursue in higher education to go into this career?

Darbie Mazour, via e-mail


For a rundown of some of the university-level coursework currently available for those seeking to further their education in finance and the futures markets, see the letter "Technical Analysis Degree" in the November 2001 Letters to S&C, which mentions The New York Institute of Finance (NYIF), the Chicago Mercantile Exchange, the Chicago Board of Trade, IIT's Stuart Graduate School of Business in Chicago, Golden Gate University in San Francisco, and others, although many, many universities have business schools and offer finance degrees.

But while a degree in finance is not required to become a commodities broker, passing the Series 3 exam and registering with the CFTC is. Companies and individuals who handle customer funds or give trading advice must apply for registration through the National Futures Association (NFA), a self-regulatory organization approved by the Commodity Futures Trading Commission (CFTC). Registration information is available from https://www.cftc.gov/cftc/cftcregister.htm and includes registration forms, registration categories, and proficiency requirements. Proficiency requirements include passing the National Commodity Futures Examination (NCFE or Series 3). The testing application form (U-10) can be obtained from the NFA. For more information, you can reach NFA's Information Center at 800 621-3570 or 800 676-4NFA.-Editor

TRADING SOFTWARE

Editor,

I am looking for a financial software product that will actually buy and sell stocks in my portfolio while I'm at work. If you know of such a product, does your magazine cover it? Any help you could give would be greatly appreciated.

There are several brokerages that offer this service. As for software that offers this, TradeStation plans on including this feature - see our product review of TradeStation in the December 2001 S&C. See also the Trading Systems category of our Traders' Resource at our website, Traders.com, for trading system software to check out.-Editor

TRADING SYSTEMS

Editor,

If you had all the money you needed to buy any trading system, which one would it be? Is a trading system a good thing to get?

Daniel Henderson, via e-mail


Technical analysts often make use of trading systems in their trading because trading systems help take the emotion and subjective interpretation out of trading, and trading systems usually rely on technical analysis indicators to produce buy and sell signals. A system can be a simple set of rules on paper or can take the form of an expensive and sophisticated software package.

However, not all systems are right for every trader or every market, and often they must be adjusted with changing market conditions. This is why trading system development is an ongoing topic in STOCKS & COMMODITIES. As a how-to magazine, we encourage readers to look at the rules behind the system and understand why the indicators are giving the signals they do.

As for selecting a system, you'll want to evaluate returns as reported by an objective third party. We don't track systems here, but Futures Truth does (FuturesTruth.com).-Editor

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