August 2003 Letters To The Editoror return to August 2003 Contents 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 emailto: 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
MARKET PROFILE
Editor,
A letter from Matt Thomson in the May 2003 S&C asks, "How do you determine what the value area for the next day is?" You responded that the answer could be found in earlier articles on Market Profile.The correct answer is that Market Profile does not predict the next day's value area. A quote from my September 1987 article in STOCKS & COMMODITIES (S&C V.5:8, "Estimating The Market Profile Value Area For Intraday Trading") is explicit: "We really do not know where the market is going."
The value area at the end of the current day is a one-day snapshot of market valuation. The trader goes into the next day knowing the previous day's support and resistance points. If value changes, which it often does, the trader can pinpoint the breakout.
Market Profile is widely used by daytraders. Information is readily available from S&C articles, CBOT publications, two books (MindOver Markets and Value Based Power Trading), and the Cisco website.
- Don Jones, dljones@cisco-futures.comDonald Jones has contributed many articles to Stocks & Commodities over the years on Market Profile, most recently "The Auction Market Theory" in the June 2002 S&C.-Editor
TRADERS.COM
I have been a subscriber of S&C magazine for several years already, but I have never used your website. As a subscriber, can I access the Traders.com website?
- Chiling Liu, via emailYes! Traders.com is the perfect complement to S&C. You can use the site to look up information on technical analysis, including terms in our Traders' Glossary, free articles for novice technical analysts, and our Traders' Resource database, where you can search for different features in products and services. A look at the current issue of S&C is also displayed.
Both subscribers and nonsubscribers can visit our website and find useful information. As a subscriber, you can access our special Subscribers' Area, where each month we post the code, formulas, and spreadsheets that go with our articles. Log on using your subscriber number (found on your magazine mailing label's upper left-hand corner).
In addition, Traders.com is the portal to our two online publications, Working Money and Traders.com Advantage. These online publications combine with S&C to give you everything from basic technical analysis to the newest strategies and techniques to timely analysis of current markets. Don't forget to sign up for a free trial!
Other features of our website include our Online Store to purchase articles from back issues of S&C, and our Message Boards to discuss trading topics with other readers. So all in all, you'll find lots there to round out your experience of reading S&C.-Editor
FAST FOURIER TRANSFORM
Editor,
Anyone there know how to preprocess data prior to using an FFT routine?
- Prashanth, via emailTo derive any meaningful information with a fast Fourier transform (FFT), the input data must be preprocessed. An FF requires stationary input data; that is, without a trend, and starting and ending on the zero (price) line.
Technical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, has published several examples of computer code designed to preprocess and transform time series data from the time domain to frequency domain. The first example was published in Basic language in STOCKS & COMMODITIES in 1983 by me and Anthony Warren, Ph.D. An Excel spreadsheet translation was published in April 1993 by Thom Hartle. Many other authors have tried to clarify the computation technique and output interpretation. -Jack Hutson, Publisher
SOCIAL MOOD AND THE MARKETS
Editor,
Really enjoyed David Penn's June 2003 S&C article, "Social Mood And The Markets." His interesting observation is that types of movies represent market sentiment: "...at true bottoms in negative social mood ‘the people' themselves often feel called upon to take justice into their own hands." Well, how about a guy who's taking on the world (a computer sim) in the Matrix movies, or a kid fighting the powers of evil in the Harry Potter series? Seems like the bottom is coming in, folks. And, I think I'll deduct the cost of going to the theater as investment research, too.
- Loretta Baskys, baskys1@attbi.com
TRADERS' TIPS
Editor,
I have been a subscriber to S&C for several years now. Every so often a meaningful article from a current issue will be the topic of the Traders' Tips section of S&C with the related code. I use AIQ software. What might be the best way to have AIQ coding examples regularly included in the monthly Traders' Tips column along with TradeStation, WealthLab, NeuroShell Trader, and the others?
- Vince Lenarcic, via email - Charlotte, NCTechnical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, has been publishing technical analysis computer code since 1982. For the past several years, to help our readers implement techniques discussed in the magazine, we have also been putting the code up on our website. For the most part, this has been made possible because the software vendors supply us with the code, a great service to us all.
We publish Traders' Tips every month in S&C covering one or more techniques from the magazine. We consistently send preliminary copies of one or two articles each month to various software vendors in the industry. Not every topic is well suited to every software program, and not every software vendor can dedicate the time every month to writing the tips. However, I'm sure that your software vendor would appreciate knowing that their users like the service that the Traders' Tips provide. We also receive Traders' Tips submissions from readers who want to share.
One of the easiest ways to locate Traders' Tips written for a particular vendor's software is to search our website, Traders.com. Scroll down the left-hand column of our homepage until you see the Search box. Select to search the area "Traders' Tips" using the pulldown menu. When I did, I found 14 Traders' Tips for AIQ.
Another interesting place to search is https://message-boards.traders.com, our message board.-Jack Hutson, Publisher
AVERAGE DIRECTIONAL INDEX
Editor,
I'm a subscriber to your fine magazine. Have the following problem.
In your Bonus Issue 2003, you had an article on the ADX indicator ("How The Pros Use Average Directional Index"). On page 22 you give the formula for MetaStock. I copied the formula, which I think I've typed okay, but the formula doesn't work. The software gave me a message that the formula cannot work.
Can you help?
- Victor Rendon, via emailWe have not received any other complaints about the formulas. And since Equis International - developer of MetaStock - prepared those formulas, we presume they're correct.
Generally speaking, instead of trying to type in code or formulas from the printed page, where it is easy to make a mistake, you can go to the Subscribers' Area at our website, https://technical.traders.com/sub/sublogin.asp, to copy and paste the code into your software instead of typing. This is offered as a benefit to subscribers.-Editor
VICTOR NIEDERHOFFER
Editor,
I have been reading Victor Niederhoffer's books and articles for some time now. He has some excellent insight into trading. (See "The Speculator" on MSNBC's Money.) However, he is convinced that trend-following systems are money losers in the long haul. I have considered all his arguments and I am convinced that the gentleman protests too much.
That's when I thought of your magazine. I have read your magazine on and off for years and have even made a few dimes from the articles I have read. So I was thinking, why not challenge you and your readers to come up with a simple, profitable, and back-testable system that would convince the speculators that trend following is a viable technique? What do you say?
Adam Kretschmann, via emailWe interviewed Victor B. Niederhoffer a couple of years ago in the April 2001 issue of S&C:
Music Of The Markets: Victor B. Niederhoffer
The name may be familiar, but there's more to the man than just investments. He has served as advisor to the biggest names in finance, he is a five-time US squash champion, he is a well-respected writer. Who is he, really? By John SweeneyThe "trend-following" question has been worked on for more than a hundred years and in our pages for more than 20 years. We are always looking to publish practical techniques to trade the markets. Trend-following methods make up a big part of the material that we publish. We would be happy to see more on the subject, new or old methods - whatever works! -Jack Hutson, Publisher
TRADING SYSTEMS
Editor,
I'm a novice trader who would like to set up an automated trading system so emotion doesn't play such a big role in my decisions. I think trading is a very good way to make money; however, I do not want to commit all day every day to analyzing chart patterns, etc.
I know there are investment advisors who, for a fee, will send trading recommendations directly to a broker. I would like to commit some funds in an IRA to start trading. However, with all of the mixed marketing messages out there, I'm weary of committing money to a program that I can't review or sample. Some system vendors say that sending out a demo copy would reveal their secrets. I was wondering if STOCKS & COMMODITIES has done any performance reviews of any investment advisors. I would like to pick a good investment advisor and have my broker automatically execute those trades. However, I was wondering about performance recommendations, drawdowns, stop losses, win ratios, % return on capital, and so on.
I would appreciate your help in this matter.
- Peter Lawecki, via emailTechnical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, is about understanding how to make your own decisions using charts and/or computers. Brokers and advisors mean well, but it is not their money. Until you are able to place $100,000 with a professional advisor, you are better off watching your own money.
If you can afford to diversify your advisors, you could place money with several that say they are using different methods. An advisor should be able to beat the market averages just by selecting mutual funds. You could think of a mutual fund as an advisor with very low brokerage fees. You can make the same selections with less money, spending a couple hours of study a week, if you put time into learning how. The time you spend learning how to do it yourself will pay you great dividends and help you select advisors.
Sign up for a couple of advisor newsletters, so you can see how they do over time. We do not rank advisors or mechanical (automatic) trading systems, which tend to do well for a while and then not so well. They are most useful in cutting down on the number of choices of what to trade.-Jack Hutson, Publisher
From the Editor: As for purchasing a commercial trading system, if you choose to pursue that route, we generally recommend that first, you check the National Futures Association's Background Affiliation Status Information Center (Basic) website at www.nfa.futures.org, or the SEC's website at https://www.sec.gov/investor/brokers.htm to check out a product or service and for advice on purchasing. Second, check third-party evaluations of a system before purchasing. While we don't track trading systems here, Futures Truth (at www.FuturesTruth.com) is one publication that does. Finally, we always suggest paying by credit card instead of by check.
Back to August 2003 Contents