June 2006 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


NEED SOFTWARE FOR BACKTESTING

Editor,

I know you review software and trading systems. Can you refer me to an issue (past or in the near future) that evaluates them?

Essentially, I am interested in backtesting my own strategies using RSI, chart patterns, and trendlines. Since these are somewhat interpretive values, I want to quantify/backtest them as best as possible.

I am looking at TradeStation and MetaStock; am I on the right track?
Michael Salzbank

Yes, you are on the right track. There are also other products available. Most of our Traders' Tips section contributors will have what you are looking for. You can also search our archives for product reviews.--Editor


TECHNICAL ANALYSIS ON DETRENDED PRICES

Editor,

Just wondering whether you have done or seen anything on technical analysis of/on detrended price series. If so, do technical indicators/patterns on detrended price series have more or less significance than indicators/patterns seen in unadjusted prices?

Would greatly appreciate a copy of any literature you might have on the subject.
Domenick Carbone

We have published articles on this topic, which you can purchase through the Online Store at our website, www.Traders.com. Use the search engine at our website to help locate them. Some authors to look for who have incorporated detrended data in their techniques or who have included some discussion of detrending in their articles include John Ehlers, Clifford Sherry, S&C cofounder Anthony Warren, and past S&C editor John Sweeney. In addition, authors who incorporate Fourier analysis in their technique use detrended data.
 

Here are a few articles to point out:

Ehlers, John F. [1992]. "Optimum Detrending," Technical Analysis of STOCKS & COMMODITIES, Volume 10: May.
_____ [1991]. "Computing Cyclic Entries," Technical Analysis of STOCKS & COMMODITIES, Volume 9: July.
_____ [1995]. "Optimum Predictive Filters, " Technical Analysis of STOCKS & COMMODITIES, Volume 13: June.
_____ [2000]. "On Lag, Signal Processing, And the Hilbert Transform: Hilbert Indicators Tell You When To Trade," Technical Analysis of STOCKS & COMMODITIES, Volume 18: March.
Hartle, Thom [1994]. "Preprocessing Data And Fast Fourier Transform," Technical Analysis of STOCKS & COMMODITIES, Volume 12: April.
Morris, Gregory L. [1987]. "Trend Of The Trend," Technical Analysis of STOCKS & COMMODITIES, Volume 5: February.
Sherry, Clifford J. [1986]. "Detecting A Dependent Process," Technical Analysis of STOCKS & COMMODITIES, Volume 4, No. 3: April.
Sweeney, John [1991]. "The Skimming Discussion Continues," Settlement column, Technical Analysis of STOCKS & COMMODITIES, Volume 9: May.
Warren, Anthony, and staff [1983]. "Optimum Moving Averages: Data Filtering Methods for Technical Analysis," Technical Analysis of STOCKS & COMMODITIES, Volume 1: May/June.



SEASONAL PATTERNS

Editor,

In the February 2006 article by Robert Steelman, "Seasonal Patterns In The Markets," all the "profit" data is skewed because it reflects the points entered in at the close of the previous day, not the opening of the current day.

For example, on page 72, on Jan expiration Monday, 1-12-04, you have a point profit of 5.37 in Figure 3, which is caused by being in at the close on 1-9-04. If you enter at the open and exit at the close on 1-12-04, per the article, the profit is 4.7, not 5.37.

All the other tables show similar discrepancies.

Great article, but the data doesn't line up with the strategy.
Jeffrey Cilley
Marina Del Rey, CA

Robert Steelman replies:

Thank you for your astute observations. Please read the strategy as entering at the prior day's close instead of the open. Using S&P opening data will produce a strategy that looks good on paper but that is not achievable in practice, since the S&P opening number is calculated by a large extent using the prior day's closing prices.

Further, presume that the trader uses emini futures to trade this strategy. The S&P emini (ES) market opens at 4:30 pm ET. Since this is 30 minutes after the prior close (4 pm ET) and 17 hours before the next morning's open of the index, it is statistically far more reliable to use prior close numbers.

Finally, trading is not a precise science. Something that occurred in the past is not likely to occur again in the exact same fashion, although a past event can suggest a general direction and provide some measure of magnitude. Consequently, if the data used were randomly, slightly skewed, it would be immaterial to the statistical significance of the conclusions.


TRADERS' TIPS AND CODE

Editor,

I really enjoy all the articles in your magazine and the ways to build new systems. However, the more I read S&C, the more I find it impossible to reproduce the results posted.

For example, the November 2005 issue presented a nice article by Gomu Vetrivel ("Improve Your TradingSystem With Speed"), but trying to reproduce those results in MetaStock has been a fruitless endeavor. While you had someone from MetaStock write a formula for us to "use," I suggest that you try typing in that formula, then wonder about a dozen other variables that MetaStock needs. To this day, I still can't reproduce those results posted in the article.

If you are going to publish an article, make sure it's complete. I'm finding this happening over and over and I'm starting to not even be interested in trying the formulas, because it's rare that I can get all the info I need from the articles to actually reproduce the data and maybe actually use the system to some degree.

I'm sure all your readers would appreciate a little more due diligence with how these results are achieved for each system you are providing code for.
Jeffrey Cilley
Marina Del Rey, CA

Thank you for sharing the frustrations and problems you are experiencing. We endeavor to publish articles that present techniques that readers can implement and replicate as much as possible, within the limits of the different software tools and datafeeds that readers and authors may use.

Occasionally, articles build on other articles or may require a reference book to fill in some details that we can't reproduce entirely in the article. Other times, a reader may feel an article falls short of explaining a technical topic as completely as possible.

However, typing in code that you see in our magazine is neither necessary nor expected. As we state at the top of the Traders' Tips column every month, the Traders' Tips column, with code, is posted at our website, www.Traders.com, for copying and pasting into your software. In addition, the code given in each Traders' Tip contribution can also usually be found at that software developer's website as either a downloadable or importable file, as text, or perhaps both. Most of the contributors provide a URL in their writeup for where the user can get the code.

Moreover, code published within articles is posted at the Subscriber Area of our website for copying and pasting into your software. You can reach this area by clicking on "Article Code" from our homepage, www.Traders.com. Login to the Subscriber Area requires your subscription number from your magazine mailing label.

If you are having difficulty with a particular program's set of code found in our Traders' Tips column (the individual contributions are submitted by the software developers), we encourage you to contact technical support for that software. If you are having difficulty implementing an article's strategy or if you feel something has mistakenly been left out, please email the author of that article or let us know at editor @Traders.com.

Results may not always be able to be replicated exactly as they appeared in an article due to variations in data or different historical periods used. Sometimes, inability to replicate results can indeed point out a possible weakness in a technique. As a how-to magazine for technical analysis, we try to publish articles that describe not only the strategy but also how to implement it or how the author tested it.

Thank you for writing.--Editor


SYNTHETIC LEVERAGE

Editor,

I very much enjoyed the article "Using Calls To Create Synthetic Leverage" by Matthew J. Stander (March 2006 S&C). It was an easy, straightforward read, but I can't figure out how he obtained two of the calculations in Figure 5. The first is the "years to expiration," the second, and more important, the "annualized interest rate." Any way of getting in touch with him to ask?
Corey R. DeLaplain
Boca Raton, FL

Matthew Stander replies:
I'm glad you enjoyed my article on synthetic leverage.

The annualized interest rate in Figure 5 is calculated using this formula:

Annualized rate = (1+period rate) ^ (1/years to expiration)-1
Basically, what I'm doing with this formula is compounding the period rate by the number of times that period fits into one year.

Thus, in the first line of the table, the period rate is 0.82% and the length of the period is 0.21 years. This means that if you could continue borrowing at the same rate for one year, you would borrow 1/0.21 = 4.762 times. To compound 4.762 times, take 1+.82% and raise it to 4.762 and then subtract the 1 to get 4%.

Note that the formula will also work for periods longer than one year. You'll just end up raising one plus the period rate to a number less than one.

Let me know if you have any other questions.


WHAT SOFTWARE TO BUY

Editor,

I have been paper trading for the past four months (trading shares and indexes) and prior to that I studied spread betting for three months. Now, to aid me with my actual trades, I am considering what software to purchase. One I am considering is StockSignal Pro. But since I am new to the technological side of financial trading, I want to know if you are familiar with it so I can make sure it is a reputable company.

I am an avid reader of your publication. Please keep up your good work.
Yagnesh Patel

Sorry, we haven't reviewed this product and so are not familiar with it.--Editor


MOVING MEDIANS

Editor,

I was wondering if you could publish a comprehensive, optimized backtest on the moving median crossover (as opposed to a moving average crossover) of closing prices on SPY (that is, the ETF that tracks the S&P 500). I am a MetaStock user and I suspect that this would a powerful trading technique, but I cannot verify this conclusively since MetaStock does not have the capability to calculate moving medians.
LJ

Thank you for your article suggestion. In the meantime, we suggest you check with MetaStock technical support for how you might implement this technique.--Editor


TECHNICAL ANALYSIS OF INDIAN STOCK MARKET

Editor,

I have been using the site www. crnindia.com for technical analysis of the Indian stock market for the last five years and find it very nice.

I am writing this to you becaue you wrote in your magazine that if we are aware of a business that should be listed here, we can email you.
Rajesh

Thank you for giving us the URL. We'll take a look at it.--Editor


NEW TO TRADING

Editor,

We saw your publication mentioned on one of the financial websites and thought we could get some guidance from you. We are first-time investors and would like to start trading online. Would you recommend one to trade online? Can you recommend the best strategies to help us with investing, for example, buying stocks versus option trading, and so on?
Mike

Technical Writer David Penn replies:

You asked for it! While we do not make recommendations for brokerages or specific trading strategies, what we do is try to educate readers about their various options so they can make decisions that are compatible with their own trading needs.

With that said, both this magazine and our online publication, Working-Money.com, are loaded with articles and product reviews for those looking to get involved in investing and trading for the first time.

A good series of recent articles to help you understand the process that a trader goes through when selecting stocks is the two-part series by Sharon Yamanaka, "Bowl Pattern Breakouts" and "Going Forward Using Stock Screeners," both from Working-Money.com. John Devcic's "The User's Guide to Buy and Sell Orders" is a short but useful primer on things that every online trader needs to know. My article, "Trading with Trendlines," is also available from Working-Money.com, and is a worthwhile primer on effectively drawing and analyzing trendlines. And while I'm on the Yamanaka bandwagon, also check out her earlier two-parter: "Get The Can In Canslim" and "Canslim II: The Gold At The End Of The Rainbow."

Check out the October 2005 issue of STOCKS & COMMODITIES for an article by Thomas Bulkowski, author of Encyclopedia Of Chart Patterns, called "The Beginning Trader," which addresses many of the ideas and concerns of those just beginning to trade the markets.

Just about every one of our monthly interviews will have some pearls of wisdom that beginning traders can learn from. You can also send your specific questions about options trading to our options columnist and chief options strategist from Optionetics, Tom Gentile. See his column in this issue. Also in this issue is a review of the Technitrader Home Study Training Course, which is geared toward those just starting out with technical trading.

Best of luck.


LOOKING FOR CHARTING SOFTWARE

Editor,

I am about to choose a charting system for daytrading. Please inform me if I could get the following charts in real time on your system:

1. $ Tick
2. $ Trin
3. /ESh6
4. /NQh6
5. Intraday charts, for all available stocks, on frequency of two days/five minutes
6. Historical charts for all available stocks
7. Chart types: candlesticks.

As I mentioned, the system should be in real-time quotes. Please inform me if you can provide these services and prices per package.
Amitay Boochriss
Israel

We do not develop or sell systems or charting software. Please check the Advertising Index toward the back of this issue for software products to follow up on, or peruse our Traders' Resource database at our website for the software listing at https:// technical.traders. com/Products/categoryhome.asp?cat=120. This is a listing of many industry products, with the information entered by the product vendors themselves. This listing is offered as a resource for readers; however, we do not sell any of these products.
 Good luck with your search.--Editor


HISTORICAL DATA

Editor,

I am looking for historical intraday data to five minutes of any stocks from June 2002 for the MetaStock format. Do you have these dates? Do you have data for any international futures or indexes? If so, how much does it cost for a year of historical data?
Minghetti Fabio
Italy

Sorry, we are not a data provider and do not sell market data. Please check the Advertising Index toward the back of this issue for data providers, or peruse our Traders' Resource database at our website for the data services listing at https://technical.traders.com/Products/categoryhome.asp?cat=60. Good luck with your search.--Editor


PTI AND WAVE 4 CHANNEL

Editor,

Where I can get more information about the profit-taking index and the wave 4 channel, including the formulas for MetaStock?
W.R. Bendig

Sorry, we have not published any articles on these indicators, although some technical analysis software offers the PTI as an indicator. As for MetaStock code, please check with MetaStock technical support at www.metastock.com.--Editor


EXCEL SPREADSHEET FOR BREAKOUT PATTERNS?

Editor,

I was reading Markos Katsanos' May 2006 article ("Bear Flags") containing Excel spreadsheet coding for bear flags. Could a similar program be developed for trading ascending triangles, descending triangles, symmetrical triangles, and so on? Can all these different breakout strategies be assimilated into an Excel spreadsheet with price targets, as was done in the April 2005 S&C article "Measuring Flags & Pennants" by Markos Katsanos?
Rohit Shinde
Cumballa Hill, Mumbai

I believe they can. However, unless we publish an article specifically on these topics we will not be able to fully answer your questions.--Editor


Back to June 2006 Contents

Originally published in the June 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine.
All rights reserved. © Copyright 2006, Technical Analysis, Inc.