February 2008 Letters To The Editor

or return to February 2008 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 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

SHORT-PERIOD RSI

Editor,

Regarding the November 2007 S&C article "Does The RSI Give You An Edge?" by Larry Connors and Ashton Dorkins, I am wondering if the short period RSI was tested against the S&P 500 index or any other index or commodity.

Greg Costeens
Carson City, NV

The article mentions they looked at more than eight million trades the authors made from January 1, 1995, to December 31, 2006. It doesn't specifically mention they conducted the test on the S&P 500 or any commodity. It's likely the results will be similar. If you have access to the data, it wouldn't be too difficult to apply their strategy to any tradable.--Editor


HISTORICAL YEARLY RETURNS

Editor,

I really enjoyed John Twardy's article in the October 2004 issue of S&C, "Trading Sector Funds Using Statistics."

Unfortunately, he has taken down his website that listed historical yearly returns using his trading strategy through 2006. Is there any way to obtain these historical performance numbers?
P.S. I really enjoy my subscript ion to STOCKS & COMMODITIES.

William A. Renie

John Twardy replies:

Once Fidelity instituted their restriction on sector fund trading, the program could no longer be followed without incurring penalties/loss of trading privileges, so I posted a notice on my website to that effect, and a few months later closed the website.


SVAPO AND HEIKIN-ASHI TECHNIQUE

Editor,

I read "Short-Term Volume And Price Oscillator" by Sylvain Vervoort in the November 2007 S&C and have a question. Maybe other readers have the same question.

The formula for "haCl" in the November 2007 article doesn't make sense to me. It appears that "haCl" is the average of the heikin-ashi modified Ohlc values. For the "modified high," the formula that appears in the article is as follows: 

Modified high = Max ( (O+H+L+C)/4,Max(H, haO))
However, every independent reference to the heikin-ashi technique that I checked shows the following formula, which uses a single Max function: 
Modified high = Max ( (O+H+L+C)/4, H, haO)
But it is not the difference in the formulas that disturbs me; I think they produce the same result. Since the (O+H+L+C)/4 component is always less than or equal to the H component, then it is redundant within the Max function and the modified high computation can be reduced to the following: 
Modified high = Max ( H, haO)
(similarly for the modified low computation)

I think I'm right on this, but this is very puzzling to me. How could the formula be promulgated in this form all these years without someone correcting it? If I'm wrong, can you please explain my logic error?

Steve Hegji

Sylvain Vervoort replies:

The basic heikin-ashi technique uses a modified formula. This is the one I use:

Average price of the current bar 

Close = (Open+High+Low+Close)/4
Midpoint of the previous bar 
Open = [xOpen (Previous Bar) + Close(Previous Bar)]/2
Highest value in the set 
High = Max(High, Open, Close)
Lowest value in the set 
Low = Min(Low, Open, Close)
The reason you see two consecutive Max functions in the MetaStock formula is simply because MetaStock only allows two parameters in the Max function. Thus, we take first the highest number of two of them and then compare it to the third one. The end result is exactly the same as if you would have a Max function with three parameters. The same is true for the Min function.

Concerning the modified high and the modified low, you are right! I noticed it also a long time ago, but unfortunately never adapted the formula. So, as you stated, we can write the result for haC more simply as follows (the end result will be the same, but the calculation will be a bit faster): 

haOpen:=(Ref((O+H+L+C)/4,-1) +PREV)2;
haC:=((O+H+L+C)4+haOpen+Max(H,haOpen)+Min(L,haOpen))/4;


I remember I tried putting the formula in one line, replacing haOpen. However, I noticed that MetaStock gives a slightly different result when you do that, which probably has to do with the Prev function. That is why it is kept on two lines.


Back to February 2008 Contents

Originally published in the February 2008 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2008, Technical Analysis, Inc.