September 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
EFFECTS OF DEFLATION
Editor,
David Penn's excellent article on "Intermarket Relationships" (July 2003 issue) included a review of my earlier writings on the subject and a description of changing relationships in the current environment.
My 1991 book Intermarket Technical Analysis described the world up to 1990. My revision of that book (which should be available later this year, 2003) describes changes that have taken place since then. As Penn correctly points out, the main change is the "decoupling" of bonds and stocks. That change, in my opinion, started in 1997 with deflationary trends resulting from the Asian currency crisis.
My 1999 revision of Technical Analysis Of The Financial Markets includes a section called the "Deflation Scenario" that ends with the words: "Ébonds and stocks can decouple in a deflationary world." They've certainly done that. Unfortunately, it took until May 6, 2003, for the Fed to recognize what the markets have known for more than five years: that deflation does change a lot of things.
- John J. Murphy, chief technical analyst StockCharts.com
REGULARIZATION
Editor,
The idea of regularization ("Regularization," S&C, July 2003) sounds like a very interesting idea to me, but I'm not sure that I can follow Chris Satchwell's development of the regularized EMA.
Equation 1 in the article makes sense. Even given the explanation in the article, I don't see how one can get to equation 2. I understand the part that says the right-hand side of equation 1 is squared, but from here it gets very fuzzy. Somehow, something is differentiated, and I can't tell what. When one differentiates, it is usually with respect to some variable. In this case, what is this variable?
Would it be possible to get a more detailed explanation of the derivation of the regularized EMA?
- Dexter Brunet, via email, Duncan, OK
Chris Satchwell replies:
If you subtract the right-hand side of equation (1) from both sides and then square both sides, you'll get equation (1b):(Fn+1 - Fn - a(Gn+1 - Fn))2 = 0
With D denoting differentiation, equation (1) will result in equation (2).
Your readers might also like to know that John Ehlers picked up on a point that I was aware of, but did not include in the article, which is that when values of l become too large, results become unstable. My experience to date has involved choosing values of l to suit the trading logic required, which usually meant starting with small values (0 ~ 1) and finishing well before instabilities appeared. Well spotted, John!
BYGONE SOFTWARE?
Editor,
In 1988, I purchased CompuTrac software and used it extensively. In 2000, I "cleaned out" some of my old software and computers since I had purchased a notebook computer. One of the things that I disposed of was my CompuTrac security card. I am now unable to reload CompuTrac and use the excellent study facilities that CompuTrac had. Do you have any suggestions as to where I may be able to get another security card (and manual)?
- Rhys Jones, via email
Publisher Jack Hutson replies:
First, some background: CompuTrac was an excellent trading platform for almost two decades. CompuTrac started around July 1977 as the first commercial software for retail traders. The first CompuTrac system platform I purchased was for an Apple II computer. In 1987 or so, CompuTrac released a Microsoft Dos-based text and graphics system. In 1989, CompuTrac Snap gave the user a mouse-driven interface even before Microsoft Windows was in use. The company merged with (sold to) Telerate, which was later sold to Dow Jones & Company.
CompuTrac continued to hold industry trading seminars until the late 1990s.
As a matter of fact, I presented the first issue of Technical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, at a CompuTrac conference in Toronto, Canada, in October 1982. We were sorry to see CompuTrac disappear from the pages of STOCKS & COMMODITIES.The company that now owns the rights to the CompuTrac programs and code is:
Stratagem Software International
504 885-7353
Stratagem1@aol.com
https://www.stratagem1.comStratagem Software still supports CompuTrac and Snap, and they report that they have even modified the CompuTrac program to operate without the key, allowing for multiple installations for those who want to run it on a laptop as well as on their desktop computer. Contact Stratagem for more information, or visit their CompuTrac/Snap policy page at https://www.stratagem1.com/Our_Products/Other_Products_Services/CompuTrac_PC/computrac_pc.htm
Editor: As a side note, CompuTrac users can implement the specsheet code and strategies given in our Traders' Tips section for Stratagem Software's SmarTrader program, which is CompuTrac's successor. While Stratagem Software didn't contribute a tip to this issue, previous SmarTrader tips can be found at our website, Traders.com. Use the search feature at our site to locate tips, or visit our archives area for past Traders' Tips at https://www.traders.com/Documentation/FEEDbk_docs/backissues.html.
TRADING COURSES AND SEMINARS
Editor,
I was wondering if you offer investment courses or give seminars? Since 95% of traders lose money, a course that actually teaches people to make money would be special.
- Alexander Grace, via email
Publisher Jack Hutson replies:
Technical Analysis of STOCKS & COMMODITIES, The Traders' Magazine, does not offer standalone investment courses, nor do we hold seminars. We have considered offering a trading seminar, but we have not had enough reader input to gauge its potential success. Most of what we publish comes under the heading of "how-to," so we consider most of what we publish instructional.
The closest product we have that gives some current buy-sell suggestions is Traders.com Advantage, one of our online publications. Traders.com Advantage is written by staff writers as well as freelance contributors. Our full product line is listed on our website, Traders.com.
One place at our website to locate information on courses and seminars is our Traders' Resource. This database contains listings contributed by vendors in the industry across many different categories, one of which is Courses & Seminars. Visit https://technical.traders.com/Products/home.asp to browse or search the listing.
JUNE 2003 S&C
Editor,
I have just read your June 2003 issue and I have some questions and comments about several of the articles.
In the article "How Fit Are You For Trading?", author Ned Gandevani says that the flexible person in a conscientiousness domain might have a hard time committing to a trading system or methodology. I feel it's not that being flexible is wrong, but rather not knowing when to be flexible and when to be rigid that is wrong. A trader - while following his system - should be rigid, and when he is trying to research and improve his system, he should be flexible so as to accept any knowledge that can improve his system.
In "Do Or Die Trading," author Bo Yoder presents a good way to keep us away from the emotional ups and downs of the market. It is good that we can achieve this through technological advancement. But those who don't have the benefit of technological advancement can do so by separating execution from analysis. Ultimately, it is the discipline that matters, because unless the trader is disciplined, he can always tamper with whatever system he follows. He can modify an order if he is not disciplined enough to leave it once the order is placed.
In "Using Implied Volatility And Volume," author Scott Castleman states that both long and short trades contribute evenly to the overall profitability of the system. Is the contribution of long and short trades independent of market action? If the market is bearish, will short trades not tilt the performance of the system in their favor? The design of the system should not have any bias toward one type of market action. But ultimately, the contribution from them depends on which type of market action dominates.
In your interview with Price Headley, it was heart-warming to see that he brings out the efficacy of technical analysis by saying that it is better for buy and holders to learn about trading and technical analysis to take advantage of intermediate term swings. He clearly brings out that we can make money, even if the market goes nowhere, by using different vehicles such as options, and by taking advantage of volatility.
- Sarath Chandra Reddy, Kodambakkam, Chennai, India
Thank you for all your comments. Regarding "Using Implied Volatility And Volume," the author doesn't imply the system is biased. He is merely stating that in his example, both long and short trades contributed evenly to the overall profitability.-Editor
PATTERN RECOGNITION SOFTWARE
Editor,
In your June 2003 Letters To S&C column, there was a letter from Leon Ho about pattern recognition software. I use the same strategy, NR7. I would like to be able to discuss this with other traders. Could you forward my email address to Mr. Ho?
- Rositza Russenova, via email
Your letter has been forwarded. In addition, readers wishing to discuss strategies with other traders can use our Message-Boards at our website, Traders.com, to post messages and exchange ideas with other traders.-Editor
BEGINNING TECHNICAL ANALYSIS BOOKS
Editor,
I am an economist but am totally new to technical analysis. Since I don't know where to begin, can you suggest some books to learn the basics, such as chart reading, what is MACD, what is RSI, and so on?- Stavros Georgiadis, via email
See the Traders' Resource section in this issue starting on page 112. This month's category is Books. See also the editor's recommended reading list at the end of the section, which lists classic technical analysis books and essential reading.-Editor
VECTORVEST PRODUCT REVIEW
Editor,
In the product review of VectorVest in your June 2003 issue, author Les Masonson presents an honest description of the product, yet he misses the interest that this type of product has for many traders. That point is so important that it is worth investigating much further than just a product review. I suggest an article exploring the ability of new software like this to help the user apply technical analysis to all kinds of data.
Before VectorVest and other market screening programs came along, we had three types of data:
Price (open, high, low, close) Volume (including open interest) Time (to measure velocity and cycles)VectorVest adds new types of data to which we can apply our pet indicators:
Sales (actual and growth) Earnings (actual and growth) Inflation and interest rate levels Sectors and industry groups Debt and companies' independenceÉ
This data can be combined with previously available data (price, volume, time) in any way within the framework of technical analysis. For example, I keep track of earnings momentum following Martin Pring's technique.VectorVest's versatility allows the user to apply technical analysis on fundamental data, such as tracking the crossover of moving averages on sales and/or profits, or tracking gaps or new highs on earnings, and so on. As an individual trader, I cannot explore all of these avenues, but it seems to me that a magazine like yours can.
- Etienne Lorenceau, via email
Publisher Jack Hutson replies:
There are many great products designed to help us trade today's markets. At STOCKS & COMMODITIES, we review products and publish how-to-trade articles. In product reviews, we focus on what the product does, not how to apply technical techniques. Each product implements technical studies in a different manner. We try to separate reviews from the articles, which discuss what the studies do.
CODING FRACTALS
Editor,
Thank you for the article in the May 2003 S&C, "Making Sense Of Fractals."
I am interested in coding the fractal dimension index. However, you don't include the code for EasyLanguage in Traders' Tips. I use TradeStation 2000i. Is it possible to get the EasyLanguage code for the Fdi?
Thank you for a great publication.
- Dan Kaufman, via email
Please check with TradeStation at www.TradeStationWorld.com for EasyLanguage coding. TradeStation did not submit code to us that month.-Editor
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