January 2001 Letters To The Editor
or return to January 2001 Contents
TRADERS' RESOURCE: BOOKS
Editor,
I am interested in trading actively (daytrading) as my career. Toward
this goal, I have read several books -- Beating The Dow by Michael
B. O'Higgins; Your Guide To Trading On The Web by David L. Brown
and Kassandra Bentley; Fire Your Broker And Trade Online by Jonathan
R. Aspatore; How To Get Started In Electronic Day Trading by David
S. Nassar -- and so much has impressed me and met my interest. I recently
discovered your magazine; I think it will be very helpful in studying daytrading.
I have two questions I hope you will help me with:
1. Books to read to further my education in daytrading;
2. A good electronic direct-access trading broker that I can use in
Canada.
Tony Shin
Ottawa, Canada
Sounds like you're off to a good start with your daytrading education.
For more books, look to the listing found in this issue in our Traders'
Resource. This month's featured category is books. You can also explore
what other books these publishers and distributors dealing in books on
investing have to offer.
As for a brokerage, we don't know what the rules are for trading from
Canada. We suggest checking with individual direct-access brokers for this
type of service. You'll find some listed in the Advertising Index toward
the back of each issue of S&C, and we reviewed several in STOCKS
& COMMODITIES in the past year: PreferredTrade
(June 2000), CyBerCorp.com (September 2000), TradeCast (October 2000).
Look also in our 2001 Bonus Issue, due out at year-end, for our Readers'
Choice Awards, which includes a category for online brokerages, including
direct-access brokers. Follow up by using the provided contact information.--
Editor
GARY SMITH INTERVIEW
Editor,
Excellent interview with Gary B. Smith in the October 2000 S&C!
Very helpful information for those of us who are open-minded about new
techniques. Would you be kind enough to ask Smith the following question?
I have tried to have my broker set stops (losses) on NASD stocks, but they
inform me they can't (won't?) do that unless they are market makers in
the stock. How does he set his 2% loss criteria with his broker and then
check at the end of the day to assess the status of his trades? Does he
only trade NYSE stocks, which the brokers will accept stops on? Thanks
for your assistance.
Ronald L. Ponsini, via E-mail
Gary suggests you try a different broker. -- Editor
TC2000 SCAN
Editor,
I am an avid follower of both your magazine and Gary B. Smith, so
you can imagine my delight over the October issue of S&C. However,
I couldn't get the TC2000 scan (page 87) to work. I have been using TC2000
for three years now, but the scan wouldn't work, even though I copied it
exactly. I want to make sure that it's exactly right as given in your article.
I am anxious to get this scan working.
John Wagner, via E-mail
Gary replies:
Hope this helps!
Longs
C > 20...the close must be greater than $20.
AVGV50 > 500...the average volume for the past 50 days must be greater
than 50K (TC2000 expresses numbers in hundreds).
C > Maxc5.1...close is the highest close in the past five days (NOT
including the current day).
C > C1 + 1...close is at least $1 greater than yesterday's close.
V > 1.5 * AVGv50...volume is 150% of the average volume for the past
50 days.
Shorts
Same as the longs, except:
C < minc5.1...close is the lowest close in the past five days (NOT
including the current day).
C < c1 -1...close is at least $1 lower than yesterday's close.
OPTIMIZING WITH HILBERT INDICATORS
Editor,
I really got a lot out of Roger Darley's article, "Optimizing
With Hilbert Indicators," in the November 2000 S&C and would like
to thank you for a great magazine. Since a way to contact Darley directly
was not provided, maybe you could forward this inquiry on to him:
It seems these techniques were written only for long entries and
long exits. Since I trade only futures and trade heavily on the short side,
I was wondering whether futures, in Darley's opinion, were not suitable
markets? If, however, they are suitable, would it be possible to acquire
all the additional TradeStation code necessary for short trading? Thanks
for your help.
Orren J. Winjum, via E-mail
Roger Darley replies:
To modify the strategy from taking only long positions so that it will
reverse and take both long and short positions, you could change the following
EasyLanguage code:
If MarketPosition = 0 and High > EntryChannel then Buy;
If MarketPosition = 1 and Low < ExitChannel then ExitLong;
to this:
If MarketPosition <> 1 and High > EntryChannel then Buy;
If MarketPosition <> -1 and Low < ExitChannel then Sell;
GE has been generally trending up for the past 13 years. It has been
much more profitable trading only from the long side on the simple channel
breakout strategy described in my article. However, when I applied this
modification and compared results of long and short trading using the traditional
form of optimization, and then optimization using the Hilbert cycle period
function to determine lookback periods, the advantage of using the adaptive
indicator was still clear. Although total net profits were significantly
lower than when trading only long signals, optimization for combined long
and short signals using the Hilbert cycle period function produced about
half-again higher total net profit than with traditional optimization.
I have not backtested this particular system on commodities, but the
technique -- using an adaptive indicator to adjust a moving average to
account for current commodity market conditions -- should work fine. You
just need to incorporate the adaptive indicator into whatever moving average
system you will use, optimize, and backtest to find your best markets.
There are also well-respected proprietary systems for trading commodities
that employ cycle-measuring or adaptive indicators. An example is John
Ehlers's R-Mesa commercial trading system for S&P futures.
HILBERT CYCLE PERIOD FUNCTION
Editor,
I would very much like to try using the various studies John Ehlers
has published this year in STOCKS & COMMODITIES, but I am unable to
do so because only the EasyLanguage code has been made available, not the
compiled studies. The compiled studies were supposed to be available on
Omega Research's Website, but none of Ehlers's studies seem to be there.
In particular, I am looking for the Hilbert cycle period function.
Mike Kopera, via E-mail
SuperCharts users do need compiled studies since they cannot create
EasyLanguage code. On request, Omega Research customer support can compile
these. Please E-mail them with this request. -- Editor
SMOOTHING CONSTANTS FOR MCCLELLAN OSCILLATOR
Editor,
In the "Nasdaq Advances-Declines" article in the November
S&C, the smoothing constants for the two EMAs used to calculate the
McClellan oscillator are given as 5% and 10%. How are those two particular
percentages determined?
I have been reading S&C for a few years and currently have a
five-year subscription ... may upgrade to a lifetime membership! Thanks
for a great source on technical analysis!
Joe Pehlke, via E-mail
Chicago, IL
The smoothing constants are based on the time periods found by McClellan
to work best, at least at that time.
To convert percentages to time periods, use the formula:
Time period =
(2/percentage) - 1
For 5%, this would be (2/0.05)-1= 39. For 10%, it would be 20 -1 = 19.
Thus, we are looking at the difference in two averages, one going back
19 days and the other 39.-- Dennis Peterson, Staff Writer
CANDLESTICK CHARTS FOR DAYTRADING
Editor,
The article "Candlestick Charts For Daytrading" by Jayanthi
Gopalakrishnan in the November 2000 S&C contains two questionable descriptions.
On page 28, candle 11 (a "tohbo") is explained as a "stable
market candle." This type of candlestick is called gravestone doji
and is the most bearish candle. Look at a weekly chart of the Dow Jones
Industrial Average (DJIA). Here, you will see a gravestone doji at the
DJIA's all-time high.
The second one is on page 32 in the chart of Dell. The end of Dell's
downmove is explained with a hanging man. Downmoves can end with an hammer.
Upmoves can end with a hanging man (upmove = hanging man; downmove = hammer).
In addition, this article contains very useful combinations of volume
and candles.
Dejan Milenkovic
Senden, Germany
Thanks for writing. Actually, we described tohbo as "reversal or
stable." Curious, we looked at the Dow Jones Industrial Average (Figure
1) and we don't see a tohbo at the peak but rather a tonbo -- a
clear reversal signal.
FIGURE 1: DOW JONES INDUSTRIAL AVERAGE, CANDLESTICK CHART. Formation
at the peak: tohbo or tonbo?
Regarding the hanging man, we have to call it as it seems even though,
given the upper shadow, it's not a classic formation. We agree it would
normally be expected at a top, but there it is, at a bottom.
Candlesticks are fascinating, but they are expressions of probabilities,
not certainties. Such a hanging man is a good example.-- Editor
HISTORICAL OPTIONS DATA
Editor,
I am interested in obtaining, preferably via an .xls-compatible Internet
download, high-quality historical options data (OHLCV bid-asked OI, all
strike prices, all expirations) on all listed options traded on all US
exchanges. (Selective offerings will of course be considered.) Any suggestions
or recommendations will be most appreciated.
D.J. Oatwork, via E-mail
I don't believe this is available even on commercial services. Readers?--
Editor
REAL-TIME MARKET ANALYSIS ONLINE
Editor,
I am not looking for a product recommendation but only for specific
information. Do you have a list of only the real-time Internet products
you know of? (This probably means Java-based by definition but I'm not
sure.) That type of product seems to be the best value.
Peter Martin, via E-mail
Check our 2001 Bonus Issue, sent to subscribers at year-end, for our
Readers' Choice Awards. Award categories include one for real-time data
and a category for Internet-based charting and analysis software. -- Editor
FIRST-HOUR TRADING
Editor,
I have been a reader of S&C for the past year. I have noticed
that many articles are very informative and help me in my decision-making
while trading the stock market. I am an intraday and position trader of
the Indian stock market, and I would say that after reading many articles
at Traders.com and in S&C, my approach to trading has changed.
I came across an interesting article, "First-Hour Breakout System,"
written by Malcolm McNutt in the July 1994 issue of S&C [V. 12:7 (282-285)
on S&C on CD], wherein the author has suggested a method of
placing an order, either buy or sell, depending on the market conditions,
after waiting for half an hour. Although there is no standard rule for
a waiting period to enter the market in the morning, normally you would
want the market to be settled down before you make an entry to achieve
positive results.
I have noticed in the Indian stock market that people do wait for
half an hour before trading, and it's a well-known fact, so therefore oftentimes
the major activity cycle gets completed within that period. Similarly,
I have also noticed that many people even wait an hour before entering
the market to build their positions (long or short), and they are hardly
able to trade unless the market is very volatile.
I have developed a very simple method for daily traders based on
McNutt's article. I prefer to enter the market every day after 45 minutes
-- that is, at 10:40 a.m. (the Indian stock market opens at 9:55 a.m.).
If you feel this observation is worthy of an article, I could develop
it.
Jayant Sathe, via E-mail
Look for Jayant Sathe's article in an upcoming issue. -- Editor
SPOT/CASH MARKET SCHEME
Editor,
I was introduced to a commodity investment scheme called spot/cash
market. It mainly trades Arabica coffee beans, as well as silver, copper,
pork bellies, and other commodities. The brokers promoting it claim that
it's traded at the New York Coffee, Sugar & Cocoa Exchange (CSCE).
Investors in Malaysia are able to trade in the market by investing with
the principal company, which is based in the UK. They have a regional office
in Kuala Lumpur. The regional office appoints local agents in order to
attract the locals to invest with them.
As this is trading on margin, the proposed margin ranges from one
investor to another. However, the minimum investment on per-lot basis is
US$1,400. The agent's office is directly linked to a dealer in Hong Kong
or Taiwan. Via the online trading tool used in this scheme, two types of
charts are displayed, the candlestick and line chart for a per-tick basis.
The prices displayed on the line chart are futures prices and an extra
10 cents have to be added to be valid as a spot/cash price.
I'm sorry to drag you into all these explanations, but I really need
help in the form of a third-party opinion on this investment scheme. My
questions are:
1. Does this spot/cash market really exist, or are they using the
real-time data from futures markets and adding extra 10 cents to term it
as a spot/cash market?
2. Should this spot/cash market exist, what are the main characteristics
of the market that differentiate it from futures?
3. How can I check whether the brokerage firm is registered with CSCE?
4. For an investor, how much is the minimum margin needed to have good
sustaining power?
I hope you can enlighten me on this matter or direct me to someone
who can.
Julian Jaeger, via E-mail
What you describe is a situation to avoid. No reputable brokerage uses
"agents" to scare up investment money. Our advice is to never
invest in a program with so many questions attached to it. Find a reputable
local broker for your speculations. -- Editor
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2001 Contents
