July 2003 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

IMPLEMENTING THE DEMAND INDEX

Editor,
I have an old back issue of S&C from June 1986, in which Thomas E. Aspray wrote an article called "Fine-Tuning The Demand Index." He gives a formula for calculating buying pressure (BP) and selling pressure (SP), but I cannot duplicate these indicators when using his formulas. I use MetaStock 6.52.

Do you have any idea what is going wrong? Do you have Aspray's e-mail-address so that I can contact him?
Patrick Thelen, via e-mail
The Netherlands

We have redirected your e-mail to Tom Aspray's address.

In the meantime, I searched the S&C online store at https://store.Traders.com for "+Aspray +pressure +demand +index" and located a follow-up article, "Demand Oscillator Momentum" by Thomas Aspray (September 1989, Volume 7: 9), that you might want to check out. However, I have not found a reference to MetaStock in Aspray's formulas. MetaStock has BP and SP as built-in functions.

By the way, the same search results may be found by using the search feature on our S&C On CD for "Aspray AND pressure AND demand AND index." From 1982 through 1999, our articles are also available in large book form by volume.-Jack Hutson, Publisher

S&C TRADERS' GLOSSARY

Editor,
Your magazine advises readers to "Log onto our website at Traders.com for our comprehensive Traders' Glossary." But where on earth did you hide it? Why not put a link in an obvious place on your homepage?
Richard Krane, via e-mail

The S&C Traders' Glossary can be found at:

https://www.traders.com/Documentation/RESource_docs/Glossary/glossary.html

Or go to our homepage at Traders.com, then click on "STOCKS & COMMODITIES" in the red box on the left containing the contents listing, then click on "Glossary." This is in the red box on the left side of your screen, under the subheading "1982 to present."

CODE FOR TECHNIQUES

Editor,
I am a subscriber of STOCKS & COMMODITIES. In the March 2003 issue there is an article related to fractals. Normally, your magazine includes the code for TradeStation and other programs. This issue I cannot find it. Any suggestion on where I can get it?
Jaime Mourad, via e-mail

Thank you for writing. We encourage our authors to include in their articles the coding for the technique on which they are writing whenever possible. Sometimes that is not possible. In addition, as you point out, we publish a "Traders' Tips" column each month that is based on one or two articles in that issue. However, it's only possible to cover one or two topics in Traders' Tips each issue. In the March 2003 issue, the Traders' Tips topics were Fibonacci retracements, and second, developing a trading system with multiple indicators.

Some general suggestions for obtaining code for a particular technique, if not found in our magazine, are:

  • Check previous Traders' Tips for a topic of interest by using the search engine at our website;
  • Check the Subscriber Area at our website at https://technical.traders.com/sub/sublogin.asp for code of interest (last name and subscription number required);
  • Post a message on our message board at our website, or at other user forums on the Internet;
  • Ask the vendor of the software you use for the coding, or check the website/user forum/support area of the software you use for code.

    • -Editor

    IAN GORDON INTERVIEW

    Editor,
    I was so interested in the Ian Gordon interview on long wave theory ("Ian Gordon Of The Long Wave Analyst," S&C, May 2003) that I immediately signed up for a subscription. I was disappointed not to be able to see the entire article online at that point. Is there an S&C online subscription option that I missed? If not, why aren't you making S&C available as an e-zine as well as hardcopy? It can certainly be protected with new web security features available today.
    Karl Adey, via e-mail

    Thank you for subscribing. STOCKS & COMMODITIES is primarily a print magazine, with only a portion of the magazine posted to our website. However, a month after an issue comes out, we post the articles to our Online Store, and anyone can purchase a copy of any article. Thus, articles from back issues can easily be located using our search engine and purchased as individual downloads.

    On the other hand, we offer two other magazines, Working Money and Traders.com Advantage, that are online publications that may interest you. Visit Traders.com for more information.

    See also the next letter.-Editor

    STOCKS & COMMODITIES ONLINE

    Editor,
    Midway through April, my copy of the March 2003 issue of S&C arrived in my letterbox after a long and tiring journey from the US. A couple days later, I was looking at a website (financialsense.com) and noticed it pointed to a current review in the May 2003 issue of S&C -- something I will probably be able to read about in my subscriber copy on my summer holidays.

    As someone who lives on a small island just south of China, I am always amazed by the lack of interest and/or competence that many US companies exhibit when dealing with overseas clients. Perhaps it's the benefit of a massive domestic market, but even today, it is frustrating dealing with the US. Perhaps S&C could lead the way with more timely delivery of its good product. That would make this long-term subscriber a lot happier and, judging by the international flavor of your letters page, I would not be alone.
    Chris Roberts
    Hong Kong, China

    We checked and you are currently signed up for surface mail. Unfortunately, surface mail delivery -- which moves by ship -- can be slow, although it is economical. Please consider switching to airmail delivery, which will speed up delivery considerably. Contact our Circulation Department at Circ@Traders.com for airmail rates.

    In the meantime, you can always get a jump on the new issue by visiting the STOCKS & COMMODITIES website at Traders.com for a preview of the contents. We also post several regular features of S&C at our website by the cover date, including Websites For Traders, Letters To S&C, Traders' Tips, Books For Traders, and other sections. We also post previews of all feature articles in that issue. Thus, you can peruse the contents of each issue ahead of time. Keep in mind, though, that the techniques and methods published in S&C are not necessarily time-dated or time-sensitive and can often be implemented whenever the markets are right for it.

    Something else to let you know about is our online publications, Working Money and Traders.com Advantage, which have the advantage of not needing to be physically delivered as the printed magazine does. Working Money and Traders.com Advantage can also be found through our web portal at Traders.com. Working Money features articles on how to invest and how to use technical analysis, and Traders.com Advantage features short articles implementing technical analysis, often in view of current market conditions. These online publications also make a good supplement to our printed magazine, STOCKS & COMMODITIES. -Editor

    NOVICE TRADER

    Editor,
    Is your magazine intended to be used by people who are new to commodity speculation? If it is not, do you happen to know of any magazines that are intended for the newbie commodity spectator?
    E.W. Reams
    Martin, TN

    We offer articles on all levels, from beginning to advanced, covering stock and commodity trading, as well as other instruments. But to help get you started in commodity trading, you might wish to investigate some of these classic books on commodity trading and technical analysis:

    Kaufman, P.J. [1998]. The New Commodity Trading Systems And Methods, 3d edition, John Wiley & Sons.
    LeBeau, Charles, and David Lucas [1992]. Computer Analysis Of The Futures Markets, Business One-Irwin.
    Murphy, John J. [1991]. Intermarket Technical Analysis: Trading Strategies For The Global Stock, Bond, Commodity And Currency Markets, John Wiley & Sons.
    _____ [1986]. Technical Analysis Of The Futures Markets, New York Institute of Finance.
    Schwager, Jack D. [1984]. A Complete Guide To The Futures Markets, John Wiley & Sons.
    _____ [1996]. Schwager On Futures: Technical Analysis, John Wiley & Sons.
    _____ [1995]. Schwager On Futures: Fundamental Analysis, John Wiley & Sons.

    TRADE AGAINST THE GAP

    Editor,
    I am interested in Stéphane Reverre's article "Trade Against The Gap" that appeared in your 2003 Bonus Issue. The article has some commonality to my own article appearing in this issue, "Combining Long And Short Funds." I have a number of questions and comments. My study included here is his "one-day" case only, but I suspect the "two-day" case is quite similar.

    1) Why did Reverre explore General Electric over the period December 1995 to February 1999? This was an   extremely bullish period (see period B in my table shown in Figure 1) and therefore is a highly distorted period to switch under any scheme. Why that section of time?

    FIGURE 1: TRADING AGAINST THE GAP. This table was submitted by Norm Brown with his letter to the editor.


    2) I don't understand the practicality of profit (or loss) vs. stock price. Over the time frame of the article, the stock price varies from about $35 to $105, so how much net profit was obtained? I like the simple approach of equity investing $1 (or $1,000) and let it compound as one invests over time, as displayed in my table. This also negates the problem of GE stock dropping over 3 to 1 on 5/8/2000 due to a stock split, complicating his per-stock method but not affecting the "equity" method.
    3) I suggest that 800 days of a stock with  only 47 trades represents far too little data to assert whether or not his method has value (only invested for  47 days over 3.1 years).
    4) It seems that his method does generate nearly 0.5% per trade, which is much better than the BH 0.14% per day, but the investor is only in the market 5.9% of the time, netting a meager 20.9%, while the BH investor is pocketing 194.8%
    5) In the down market of period C, his approach generates a loss of 34.5%,  whereas the BH investor has a 24.9% loss.
    6) Looking at a full 10 years, his approach loses 21.6%, whereas the BH investor is at a 304% profit.
     

    I did the above analysis in Excel after downloading GE data from Yahoo!'s stock database.
    Norm Brown, via e-mail

    Stéphane Reverre replies:
    As a general remark, I should say that although I am convinced the trading idea is strong in terms of results, my approach was to "show the way," not give a definitive recipe. In addition, I'll respond to each of your points:

    1) Not having access to an institutional data source, I took the longest interval I could get my hands on (from Yahoo! Finance if I recall). True, this period was very bullish, but as I mentioned earlier, nobody should take the strategy to production without asking questions about a nonbullish period.
    2) You are right in principle. If I recall, I did mention that there were alternatives to trading shares. Then again, there is something to be said for trading a fixed number of shares: The exposure automatically scales with the level of the market. This is not good or bad, it is just a choice as to the risk pattern you want to trade.
    3) Again you are right in principle. My comment here is the following: The gap strategy is meant to be traded on a large number of stocks. Therefore, what appears to be an anemic number of trades on one stock will aggregate to fairly decent activity on a portfolio. However, if you factor in transaction costs (which I didn't), the balance between trading activity and costs remains to be studied more precisely.
    4) See answer above. The key is a large portfolio of stocks to get more trades.
    5) Can't comment, haven't seen BH investor results. Could you send me an electronic copy?
    6) This is a very interesting comment. I haven't looked at 10 years for my method, therefore it is very possible that it loses a lot. One thing is absolutely sure: If you trade the exact same system long enough you will lose. Hence, my introductory comment: My article intended to provide some direction, not a definite answer.

    Here is, for example, a suggestion to improve the system. Instead of taking a fixed gap, you modulate the amplitude of the gap with the close-to-open volatility: 

    close-to-open vol = stdev(ln(Ot / Ct-1))
Ot = open today
Ct-1 = close yesterday

    then you can set on a given day the gap to 10, 15 or even 30-day close-to-open volatility (or multiple thereof). You're scaling the gap with its natural level in the marketplace.

    I hope this helps.

    ERRATA: INTELYZE

    Incorrect contact information was published in the June 2003 product review of InTeLyze. The correct contact information is:

    USEC International
    5000 Culbreath Key Way, Ste. 9-102
    Tampa, FL 33611
    Phone: 866 653-8732
    Internet: www.InTeLyze.com

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