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Volume 10 Article List

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Slippage for Large Technical Traders

If traders rely on technical trading systems, they need to know the size of slippage, or the difference between estimated and actual transaction costs with the difference composed of price differences plus commission costs. These authors used the trading record of a technically oriented money manager to determine slippage for the fund's transactions using 11 commodities, stop orders and market-if-touched orders. By Thomas V, Greer, B. Wade Brorsen and Shi-Miin Liu

Chi Squared

Could a statistic just be due to chance? This famous technician teaches the basics of testing data for significance using the chi-squared method. By Arthur A. Merrill, C.M.T.

Exponentially Smoothing the Daily Number of Declines

This indicator is a one-day rule of change of a triple exponential smoothing of the daily number of declines, an oscillator similar to Trix. It is one method by which the 1987 market correction could have been forewarned. In the period that Raff tried the method out it would have made only about 50% of a buy-and-hold strategy (although it would have shielded the user from violent declines in the period). He concludes that the method can be improved. By Gilbert Raff

The Gann Quarterly Chart

This longtime newsletter publisher introduces a long-term indicator called the Gann quarterly chart, which will signal a turn up from bear market lows. Bear markets occur when the previous quarter's intraday low is breached. This technique requires careful monitoring of the intraday highs and lows of the previous quarter. W.D. Gann, who invented this technique, said that the upturns or downturns in this chart often signaled the onset of new bull or bear markets. By Jerry Favors

The Internal Dynamics of Trin

Trin, also known as the Arms index, is simple yet sophisticated and sometimes contradictory. This author analyzes some of the problems with the widely used index. By Jack Rusin

Combining Sentiment Indicators for Timing Mutual Funds

Market sentiment can be useful in market timing, for mutual funds in particular. Here's a method in which a careful perusal of Investor's Intelligence, Market Vane and Barron's can help you predict the best times to buy. By Joe Duarte

Equivolume Using a Spreadsheet Program

Equivolume charting, which permits plotting price movements vs. volume instead of time, can be plotted by hand or with one of several charting programs, but a plain spreadsheet program on your personal computer can do the job and lets you add your own indicators. Leahy shows you how. By James Leahy

Using Futures and Options to Reshape Portfolio Risk

Portfolio management involves finding the highest possible return while limiting risk. Because economic conditions constantly change, keeping to this goal requires moving assets in and out of the portfolio a time-consuming and (worse) costly procedure. Using stock index futures and options can help. Fraisse uses S&P 500 index futures contracts as a tool with which to quietly increase a portfolio's exposure to market fluctuations if a money manager is bullish or decrease a portfolio's risk if a money manager is bearish. By Jean-Olivier Fraisse

Futures According to Trend Tendency

Not all markets have the same tendency to trend. Poulos uses his February 1991 Stocks & Commodities article on the random walk index as the basis of this study producing a table of 28 commodities futures and debunking some common assumptions about futures trends. By E. Michael Poulos

Reviews & Quick-Scans

Chaos and Order in the Capital Markets

CSS Statistica (Statsoft)

Omega TradeStation, v. 2 (Omega Research Inc.)

Using Bollinger Bands

Trading bands, lines plotted in and around the price structure to form an envelope, may not be new, but they remain one of the most powerful concepts available to the technical investor. Here, the creator of Bollinger Bands himself explains how to use them to determine if prices are high or low on a relative basis. By John Bollinger

Profiting from Convergence

Here are three ways to capitalize on the property of convergence the fact that futures prices and spot prices will necessarily come together at the futures expiration. The same concept can be applied to many markets, including various other financial futures contracts, as well as assorted hard commodities. Learn how to profit from the expiration of futures. By Ira G. Kawaller

Interview

Martin Pring

Technician-writer-money manager-broker: Martin Pring was described as the "technician's technician" by Barron's, and his diverse background reaffirms that claim. In this interview, Pring tells us about his KST indicator and the market cycle model. By Thom Hartle

A Wyckoff Approach to Futures

The Wyckoff approach, a standard for decades, is as valid for futures trading as it is for stocks, but even students of the technique appear to be unaware of this use. According to Schroeder, Wyckoff is not simply about price and volume; it is about supply and demand, cause and effect, and effort and result. And of course these three laws apply to all interactions. By Craig F. Schroeder

The Commodity Channel Index

The Commodity Channel Index is a long-time, widely used technical analytical standard that's often misunderstood, this author astutely explains. Star points out that the index serves to determine when a cycle trend is in force, not to calculate cycle lengths. Included is some enlightening commentary from CCI inventor Donald Lambert himself. By Barbara Star

The Lindsay A-D Indicator

The advance-decline line is helpful for picking market tops, but lead time is a recurring problem. Favors suggests this variation as an alternative to overcome the problems. By Jerry Favors

Closing Tick

Buyers' market or sellers' market? Counting the upticks and downticks can give you a clue, Merrill says. By Arthur A. Merrill, C.M.T.

A Low-Risk, High-Potential Return Option Strategy

Can call options be used as a substitute for purchasing stocks? This S&C author suggests some likely strategies. By Jean-Olivier Fraisse

Intermarket Analysis and the Deutschemark

This author explains how analyzing elements across more than one market and across countries to predict the outcome of seemingly disparate elements can be used to trade the Deutschemark or other currencies. He goes on to write that a dual moving average crossover works well for predicting when currencies change trends because that indicator is most accurate in long-lasting trends instead of brief fluctuations. By Richard Forest

Reviews & Quick-Scans:

3d (John Ehlers)

Minitab (Mac) (Minitab Inc.)

Coda Smartline (Committee on Data Analysis Inc.)

Selecting Stocks for a Portfolio

As redundant as it may sound, following the stock market is in reality following a market of stocks. And surveying a market of stocks can present a challenge. The brothers Stewart, using time series analysis, here present a ranking method to design portfolios. It was this method that they used to select five stocks to build one portfolio for each year since 1967. We show here their results. By Donald and Kenneth Stewart

Adapting Moving Averages To Market Volatility

If a market is active, it will have volatility. And because the market is continuously changing, an indicator that attempts to predict market activity must itself adapt and change. How? Tushar Chande presents a new class of dynamicnot staticindicators: a variable-length moving average, which adapts to volatility by exponentially smoothing data based on standard deviation. By Tushar S. Chande, Ph.D.

Trading Currency Mutual Funds: The 10 Minus 4 Formula

Using subjects covered in his previous Stocks & Commodities articles in November 1991 and January 1992, Joe Duarte explains that by combining a simple moving average with an oscillator, trading foreign currencies and foreign currency mutual funds can help you protect your mutual fund portfolio profits. By Joe Duarte

The Trin-5

Whether you know it as the trading index (Trin) or the Arms index, this particular indicator has inspired variations ranging from an issue/volume-weighted long-term index to this, a short-term trading indicator based on a five-day sum of Trin. Newsletter publisher Jerry Favors explains. By Jerry Favors

Modeling The Stock Market

The price/earnings ratio works perfectly well for stocks. But, Paul Holliday points out, it doesn't work for stock indices such as the Djia or the Standard & Poor's 500, where the effective interest rate works much better. To prove it, he's come up with a market model based on the theory that price is in proportion to earnings divided by interest rate. By Paul T. Holliday

Interview

Gail Dudack

S.G. Warburg senior vice president, head of market strategy and technical analyst Gail Dudack is no Joanie-come-lately to technical analysis or the world of Wall Street. Dudack writes both weekly and monthly strategy letters, has served on the Market Technicians Association board of governors and two terms as the MTA's president, and until recently was also on the board of directors of the New York Society of Securities Analysts. She can also be seen as a regular panelist on the popular "Wall $treet Week" television show. In this interview, Dudack and Stocks & Commodities Editor Thom Hartle discuss the global markets and her use of flow of funds indicator. By Thom Hartle

The 4% Model: Using The Value Line Composite

Looking for an indicator that doesn't predict huge booms or busts, but tells you what the safest course of action is? Here it is. For this model, all you need is the Value Line Index. It's simple, but it works. By Bob Kargenian

Market Prediction Through Fractal Geometry

Few have heard of fractal geometry and fewer still know how to use it. But it is a powerful tool with which to analyze nonlinear systems and is the main alternative for analyzing systems that defy development of predictive nonlinear equations. It can even be used to analyze, as Krynicki points out, the basic building blocks of music! By Victor E. Krynicki, Ph.D.

The Presidential Election Cycle

It's an election year again. What does history say about them? This famous technician tells you that what you've heard about Presidential election years may very well be true. By Arthur A. Merrill, C.M.T.

Candlesticks and The Method Of 3

The number three, a number of importance in Japanese culture as well as Western culture, can be seen prominently throughout candlestick technique and particularly in the form of "Sakata's five methods." The five methods, though more than 200 years old, can be used in current-day trading with little modification, as Wagner and Matheny show. By Gary S. Wagner and Bradley L. Matheny

Reviews & Quick-Scans:

DollarLink v. S4.2D (DollarLink Software)

The Japanese Chart of Charts (Shimizu)

Global Portfolios (Aliber/Bruce)

Interview

Tony Tabell: Technical Torch

Tony Tabell has carried the family tradition of technical analysis through the years, given him from his father, technician Edward Tabell, and his great uncle, Richard D. Wyckoff, long before most professional investors even recognized it as a legitimate technique. Stocks & Commodities spoke with Tabell about his impression of the historical stock market, the changes in market patterns, and his definitions of the technician's role. By Thom Hartle

Closing Arms

Is the daily closing Arms index helpful in pointing market direction? By Arthur A. Merrill, C.M.T.

Money Management Using Simulation and Chaos

Here's how to determine your trading system's minimum capital requirements and how market exposure should be modified to maximize profits without increasing risk. By Bob C. Pelletier

Blending Time Frames

Too small a time frame and too large a time frame can both hurt you. Here's what to do. By Linda Satterfield

1991 Cycles

Some contracts tend to have definite cyclic personalities, and last year was no exception. By John F. Ehlers

Developing Neural Network Forecasters for Trading

Neural nets need not be confined to theory; ambitious traders can build them for their own trading systems. Katz explains how to avoid pitfalls. By Jeffrey Owen Katz

Sidebar: Explaining r

Trading Planetary Eclipses

Market lore has long been filled with claims that planetary motion affects stock and commodity prices. Skeptical? You may be surprised. By Hans Hannula

Measuring an Indicator's Forecasting Ability

How can we tell whether one indicator is superior to another? Arrington explains how to measure a technical indicator's ability to forecast prices. By George R. Arrington

On Composite Sentiment

Despite all the powerful technical tools available, even the savviest technician is susceptible to emotion. Psychological influences can sometimes prevent traders from taking appropriate action, where they lose out on opportunity. Martin continues his quest for more quantifiable measures for sentiment. By James P. Martin

Sidebar: Using option ratios

Quick-Scans, Reviews

The 100 Best Stocks to Own in America (Waldon)

Viking 5.12 (Delphi Economics)

Ranking the Currency Markets

You can rank the profitable currency markets averaging the percentage rate of change over various periods. By Tim Hayes

Interview

The Technical Song of Bernadette Murphy

You may already know of M. Kimelman's Bernadette Murphy from "Wall $treet Week," where she's been a regular panelist for the past 12 years. She also appears weekly on Cnbc/Fnn, is a regular guest on Cable News Network, and was the fifth president of the Market Technicians Association in the 1970s. Stocks & Commodities spoke with Murphy of about what she witnessed during the volatile markets of the 1960s and 1970s. By Thom Hartle

Optimum Detrending

Removing trends can help you identify short-term turning points. Frequent Stocks & Commodities contributor John Ehlers presents different techniques for detrending prices and his optimized detrending method as well. By John F. Ehlers

Sidebar: Detrending spreadsheet example

The Link Between Bonds and Commodities

Intermarket analysis is based on the theory that one instrument affected will in turn affect another. Technical pioneer John Murphy explains the interrelationship between bonds and commodities. By John J. Murphy

Sidebar: Understanding math symbols

Elapsed Time Calculator

Arthur Merrill explains how to derive the number of days between two dates using a simple table. By Arthur A. Merrill, C.M.T.

Trading With the True Strength Index

The true strength index may be considered a cross between a relative strength indicator and a moving average convergence/divergence with many of the desirable properties from each. Creator William Blau, who introduced the indicator to S&C readers last year, explains here how to trade with the index. By William Blau

Sidebar: Calculating TrSI

Forecasting Tomorrow's Trading Day

Linear regression can provide an objective forecast for the next day's high, low and close. This author introduces a regression forecast oscillator, %F, that gives early warning of impending trend changes. By Tushar S., Ph.D.

Sidebar: Setting up an Excel spreadsheet

Using Profitability Stops in Trading

Does controlling losses by using predetermined stop-loss points help? To find out, Balsara randomly selected moving average crossover systems and ascertained the best stop-loss points to use. Then he tested the system over different data. We present his results. By Nauzer Balsara, Ph.D.

Computer Data Conversion

Data incompatible with your system? Convert the data to your needs. By Hans Hannula, Ph.D.

Calculating Relative Strength of Stocks

Heavy on consumer stocks? You may want to rethink your strategy and make some adjustments to your portfolio. Robert Hand addresses the shift of leadership early this year from consumer stocks to technology stocks, and how relative strength can identify emerging trends. By Robert L. Hand Jr.

Reviews & Quick-Scans

Eurodollar Futures and Options (Burghardt)

Market Base, v. 3.24 (MP Software Inc.)

Price: The Ultimate Indicator?

What does it take to make consistent profits trading commodities? Roger Altman theorizes that like support and resistance levels in stock charts, historical floor and ceiling prices in commodities can be used to gauge relative cheapness and richness of prices, and whether a price decline or increase is likely. By Roger Altman

The Basics of Moving Averages

Moving averages are one of the most common technical tools that technicians, both veteran and novice, may take advantage of. But for those novices, the concept may be somewhat confusing. What is a moving average, anyway? And what about all those variations linear, stepweighted, exponential, even triangular? George Arrington gives us a refresher course. By George R. Arrington, Ph.D.

The Gann Method

W.D. Gann's trading methodologies are not always easy to define or to analyze. But when interpreted correctly, they can be applied to everyday trading principles across many different markets . John Blasic simplifies Gann's techniques in this article into terms more easily understood, sketching out how they can be applied within your overall trading strategy. By John J. Blasic

The Financial Volume Index Expanded for the 1990s

The financial volume index, first introduced by Patrick Cifaldi in Stocks & Commodities in 1989, combines futures contracts, the Dow Jones Utility Index and the Dow 20 Bond Index. Here, Cifaldi examines its use for the current decade. By Patrick Cifaldi, C.M.T.

The Mass Index

Range oscillation, not often covered by students of technical analysis, delves into repetitive market patterns during which the daily trading range narrows and widens. Examining this pattern allows the technician to forecast market reversals that other indicators may miss. Dorsey proposes the use of range of oscillators in his mass index. By Donald Dorsey

Trading Bond Funds

Bond funds have become popular investment vehicles for income-oriented investors. However, the bond market is often more responsive to news events than the stock market is, so volatility can be extreme. Technical intermarket analysis can be a useful tool in trading the bond market. By Joe Duarte

Interview

Mitzi Wilson Carletti

Senior research analyst Mitzi Wilson Carletti of Frank Russell Company researches, monitors and evaluates international money managers as well as assists client executives and other research staff to develop client strategy recommendations. She is responsible for non-U.S. derivative and global tactical asset allocation research. By Thom Hartle

Chaos Theory and Neural Network Analysis

Do markets have memory? In this new theory by Edgar Peters, an offshoot of chaos theory, John Kean explains, markets can be regarded as nonlinear dynamic systems, and neural networks can be used to analyze and gauge behavioral patterns in price change data useful in prediction. By John Kean

Stock Selection

How does a veteran technician like Arthur Merrill select stocks for investment? He explains that it's not the simplest of methods and it does require research and work, but the results, he notes, are worth it his growth stock index and the Djia started at 874 back in 1965; when the Djia reached 3169 recently, Merrill's index hit 15,149! By Arthur A. Merrill, C.M.T.

The Link Between Bonds and Stocks

Intermarket analysis is based on the premise that all markets are linked. Last month, technical trailblazer John J. Murphy explored the inverse interrelationship between commodity and bond prices; this month, he examines the relationship between bonds and stocks and how bond prices can be used as a leading indicator for stocks. By John J. Murphy

The Basics Of Managing Money

A trader can score that one big win, but it's all for naught if he can't hold onto his profits. Money management is the step both before and after trading, the study of risk and reward and how best to utilize investment capital and keep it. Here's an excerpt from The Elements of Successful Trading. By Robert Rotella

Identifying Trading Opportunities

One of the most important aspects of any trade is timing the entry. Surprisingly, daily and weekly analysis can be instrumental in planning an entry for long-term trades. S&C Editor Thom Hartle outlines a complete approach to trading, incorporating basic charting and trendline plotting, the stochastics oscillator and momentum studies. By Thom Hartle

Reviews & Quick-Scans

Staying with DOS (Gookin)

The New Financial Instruments (Walmslet)

Wall Street Words (Maturi)

The New Stock Market (Harrington)

Relevance III (Relevance III Inc.)

Interview

Elizabeth Marbach

Elizabeth Marbach, first vice president and broker/analyst in the financial futures group for Rodman & Renshaw, started out in the early 1980s down in the Treasury bill trading pit on the Chicago Mercantile Exchange floor. Stocks & Commodities interviewed Marbach on topics ranging from the Eurodollar market to the dangers of pyramiding. By Thom Hartle

Technically Trading the Yen With Money Management

Using data and techniques originally presented in April 1990, the authors took the most profitable indicator and combined it with money management methods to statistically test for profitability. By Timothy L. Krehbiel, Thomas P. Drinka, Gisele F. Hamm

Sidebar: Testing indicators for profitability

Sidebar: T-test returns

The Damping Index

This new indicator identifies those places on the price graph where highs and lows are getting closer and closer together, and when used in conjunction with buy rules and sell rules, it can be used to create a computerized trading system. By Curtis McKallip Jr.

The CRB Index/Bond Ratio

Veteran technician John J. Murphy, whose trailblazing work on technical analysis and intermarket analysis are classics of the field, has delved into how bonds and commodities are interrelated and then how bonds and stocks influence each other. Now, he introduces the Crb index/bond ratio as another example of how these three market sectors interact, allowing us to determine the relative strength between bonds and commodities. By John J. Murphy

System Optimization Techniques

What is system optimization, and is it good or bad? It's a little of both, systems designers will tell you. By David S. Nicol

Back to Basics With Quantitative Analysis

Presenting a technique of combining momentum and trend data to rate the condition of the market. By Anthony J. Macek

Stocks According to Trend Tendency

If certain futures contracts show decided trend tendencies, can the same be said about certain stocks or indices. By Stuart Meibuhr

The Theory of Runs

Are you the kind of trader who assumes that everything will go your way, only to be hit with a string of disastrous losses? Or are you the kind of trader who assumes that the worst scenario is the most likely one, only to find that you could have done a lot better with a much less fatalistic attitude? What are the chances of a series of bad trades occurring, anyway? In an excerpt from his Elements of Successful Trading, this author explains the theory of runs. By Robert P. Rotella

Stock Splits: Boon or Bust?

Even the most sophisticated market participants are tempted to buy a stock that has been announced to split two for one. They, of all investors, should know better, because not all stock splits turn out to be positive events. How often are they positive for three to six months after? Michael Sheimo, best known for books such as Dow Theory Redux and Stock Market Rules, explores the question.

Settlement

Returning to the Basics

Our Technical Editor discusses trading ranges. By John Sweeney

Reviews, Quick-Scans

OptionVue IV (OptionVue Systems International)

MetaStock Professional 3.0 (Equis International)

All-Season Investor (John Wiley & Sons)

Market Thrust

An abundance of articles and letters concerning the popular Arms index, or trading index (Trin), this year have addressed both the uses and limitations of the index. The two major problems with the Arms index arose in constructing a long-term Arms index and with using the index in mixed markets. Stocks & Commodities contributor Tushar Chande proposes a way to measure market thrust and overcome the limitations of the Arms index. By Tushar S. Chande

Moving Average Crossovers

Are moving average crossovers effective when applied to the Dow Jones Industrial Average? Frequent S&C contributor Arthur Merrill researched this question using weekly data for the last 24 years, checking out crossovers with a four-week exponential moving average and with 13-, 26- and 52-week exponential averages. Here are his results. By Arthur A. Merrill, C.M.T.

Detecting Seasonality

Mokrasch, continuing research published originally in his April 1991 article, presents a generalized method for detecting seasonal patterns. He notes that the trader should take a good long look at the data involved for significant patterns before risking capital on so-called seasonal trades. By Lewis Carl Mokrasch, Ph.D.

Utilities and Bonds

Of all the interrelationships between markets, one that has been taken for granted for decades is the relationship between the Dow Jones Industrial Average and the Dow Jones Transportation Average. John Murphy, veteran technician and leading proponent of intermarket analysis, points out that the third Dow Jones average, the Dow Jones Utility Average, can be used for forecasting purposes for stocks as well as bonds. Murphy explains. By John J. Murphy

Rate of Change

Respected technician and author Martin Pring debuts as a Stocks & Commodities author, writing about the rate of change oscillator, a simple method of figuring advances or declines in a given period. By Martin J. Pring

The Gann Quarterly Revisited

The Gann quarterly chart, a trend-following indicator like other range breakout techniques, was previously described by Jerry Favors in the January Stocks & Commodities. Most trend-following indicators give less than satisfactory results in the absence of a strong trend, and Reif, whose research on the indicator goes back a number of years, concludes that the Gann quarterly chart is no exception. By David C. Reif

Understanding Exponential Moving Averages

Do you ever find yourself thinking that maybe you ought to try using the exponential moving average but find yourself intimidated into paralysis? Don't be. Let Raymond Rothschild be your guide into a not-so-alarming technique. By Raymond Rothschild

Interview

Ed Seykota Of Technical Tools

Ed Seykota, whose thoughts and insights were chronicled in Jack Schwager's book Market Wizards, has been involved with trading commodities since the late 1960s. According to Market Wizards, Seykota's "model account" an actual customer account started with $5,000 in 1972 and to date has earned more than a 250,000% gain. Recently, he purchased data and software vendor Technical Tools. Stocks & Commodities interviewed Seykota to find out his secrets to trading successfully. By Thom Hartle

Filtering Trades With A Moving Average Slope

Moving averages are attractive because they simply and reliably execute the "cut your losses and let your profits run" strategy. Moving averages also have drawbacks because they discard much of the information that the market offers. A simple moving average represents simple quantified information either prices are above it or below it. Can additional information, in this case the slope of the moving average, be put to use to improve trading performance? Adam White of the "Technical Traders Bulletin" shows you how. By Adam White

Avoiding Bull and Bear Traps

Bull and bear traps are gap openings that are reversed the same day and that can cost a trader dearly. S&C contributor Nauzer Balsara presents his method of analyzing market history to calculate the proper placement of stops to avoid being caught in such traps. By Nauzer J. Balsara, Ph.D.

Settlement

Trading Back Into a Range

This month, our Technical Editor evaluates a simple trading range model. By John Sweeney

Reviews, Quick-Scans

Book: Agricultural Marketing (Aleris Consulting Inc.)

Trader's Money Manager version 2.0 (CSI)

ProSearch version 2.0 (Telescan Inc.)

Book: Money Management Strategies for Futures Traders (John Wiley & Sons)

Book: Relative Dividend Yield (John Wiley & Sons)

The Volatility Handbook (Robert Krause)

Stock Market Logic (Dearborn Financial Publishing)

The Summed Rate of Change (KST)

In the August Stocks & Commodities, noted technician Martin Pring presented smoothed rate of change indicators as a method to identify both the trend and reversals of trend in the markets. He pointed out that different rate of change measurements could lag important market turns due to the presence of different time cycles. Here, Pring presents his method of combining various rate of change indicators for enhanced trend and reversal of trend identification. By Martin Pring

Interview

Real Life: Shearson's Jeffrey Weiss

Some people get a start on their careers early, but Jeffrey Weiss, a Chartered Market Technician and a first vice president with Shearson Lehman, began earlier than most, at age 13. The technical analysis risk management approach (Tarma) he pioneered was developed from his own trading experiences, including the disastrous 1973-74 bear market. His opinions have been widely solicited outside Shearson and he has been a guest on such well-known financial and investment shows as "Wall $treet Week," Cnbc's "Inside Opinion" and "Business View" and Cnn's "Business Morning" and "Moneyline." He is frequently quoted in the print media as well. Stocks & Commodities interviews Weiss on topics ranging from trading perspectives to the philosophy behind Tarma. By Thom Hartle

Four Common Errors in Testing Trading Systems

The author of The Technical Analysis Course debuts as a Stocks & Commodities writer with this article. Here, Thomas Meyers explains that mistakes made in systems testing can make the difference between the accurate assessment of a system's profitability and a distorted picture that failed to take into account certain inevitable factors. Meyers shows you how to fine tune your testing techniques so that these problems can't cost you all your trading capital when you go to trade in real time. By Thomas A. Meyers

Utilities and Stocks

Last month, this technical trailblazer examined how utilities and bonds were interconnected. This month, John J. Murphy analyzes how utilities in turn affect stocks. By John J. Murphy

Is Dow Theory Sending Us a Warning?

Michael Sheimo, best known for books such as Dow Theory Redux and Stock Market Rules, tackles the age-old question of whether the Dow theory is still valid and if it is, is it really sending us a warning? By Michael D. Sheimo

Are There Persistent Cycles?

Most technical indicators use a fixed lookback length based on the idea that cycles are present in the price data. Should the same fixed lookback length be used for all markets? Are there persistent cycles present to justify the use of the same lookback length for evaluating the market? Mike Poulos searches through a number of markets for persistent cycles and offers his solutions. By E. Michael Poulos

Random walk index spreadsheet

Gann Weekly Swing Chart

Newsletter publisher Jerry Favors presents another Gann method, this time the weekly swing chart, as a timing tool with which to track individual stocks. By Jerry Favors

Forecasting Market Turns Using Static and Dynamic Cycles

Who hasn't heard of Fibonacci ratios by now, but to actually use them in predicting market turns? Here, two software developers give novice and veteran technicians alike a few things to ponder over. By Brad Swancoat and Ed Kasanjian

Reviews, Quick-Scans

The Equalizer 2.3 (Charles Schwab & Co.)

Option Simulator (Bay Options)

QuoteMaster Pro 1.63 (Strategic Planning Systems)

A Guide To Pyramiding

Pyramiding, the process of adding to the number of contracts during the life of a trade, needs to be distinguished from the strategy of increasing or decreasing the trading size contingent on the outcome of a closed-out trade. Typically, pyramiding is undertaken with a view toward concentrating resources on a winning trade, but pyramids could also be used to average or dilute the entry price on a losing trade. Adding to a losing position is essentially a case of good money chasing after bad and so, in this article, Nauzer Balsara examines the concept of adding to profitable positions. By Nauzer J. Balsara

Stocks Yield To Bonds

A stock's price may be considered a mechanism to adjust its dividend yield. In the short run, the dollar amount of the dividend is fixed, and so stock prices change to accommodate changes in bond yields. Lags occur because it takes time to convince most participants that bond yields have changed meaningfully. Here's an example of quantitative intermarket analysis, analyzing the relationship of bond yields to stock dividends. By Tushar S. Chande

A Gann Study Of A Bull Move In Wheat

Gann's methods have been studied for years and applied by many to trading stocks and commodities. Here, Richard Diaz of Refco, Inc., provides us with his Gann analysis of a bull market in wheat. By Richard Diaz

Timing The Stock Market With A Discount/T-Bill Spread

Building on a February 1990 article by Jay Kaeppel, "Formula Research" report editor Nelson Freeburg and engineer/investor Charles Skelley introduce a stock market timing model using the Fed discount rate and the 13-week Treasury bill rate spread. By Nelson Freeburg and Charles Skelley

Seasonal Variations In A Semiconductor Stock

Do seasonal variations exist in the heavily traded and researched stock market? Recently, a securities analyst was quoted as saying that semiconductor stocks declined an average of 40% from their seasonal highs to their seasonal lows. Jack Karczewski presents this primer on the analytical procedure of investigating seasonal fluctuations in the stock market using a semiconductor stock as an example. By Sigmund Karczewski

Trading The Equity Curve

Technical analysis is typically applied to prices to determine the trend and changes in the trend. Now consider applying the same concept to analyzing your equity curve to determine those times when your equity may not be trending in the preferred direction. By Joe Luisi

Interview

Arthur Merrill: First Citizen Of Technical Analysis

Arthur A. Merrill, currently of Merrill Analysis and Analysis Press and previously of Technical Trends, drew his first bar chart in 1930. His first, earliest calculations were made on slide rule, long before the pocket calculator or indeed the personal computer became a matter of course. Who else has had a chance to watch the markets evolve quite the way that Art Merrill has? Who else has experience quite like his to learn from? Stocks & Commodities interviewed Art Merrill on July 27, 1992, inquiring about today's markets compared with yesterday's and whether statistical analysis has ever steered him wrong. By Thom Hartle

Sidebars:

Logarithmic point & figure

Advance-decline divergence oscillator (ADDO)

Odd-lot shorts

Public shorts

Large block transitions

Testing indicators

Price/dividends ratio

Interest Rates and The U.S. Dollar

Veteran technician and leading proponent of intermarket analysis John Murphy continues to delve into the interrelationships between markets, this time between interest rates and the U.S. dollar. By John J. Murphy

Identifying Trends With The KST Indicator

The direction of price is influenced by different time cycles. Important market turns occur when a number of these cycles are changing direction. The KST indicator is an oscillator designed to identify market turns based on the existence of these time cycles. Here, noted author Martin Pring presents the application of different-length KSTs to identify important market moves. By Martin J. Pring

Selecting the Best Futures Price Series For Computer Testing

One problem that traders studying commodity markets face is the fact that individual futures contracts have price characteristics that are not continuous with other contracts within the same market. Jack Schwager, author and director of futures research at Prudential Securities, has some suggestions on dealing with this problem. By Jack Schwager

Phase Transitions

Here's a concept to visually compare an indicator's historical profitability over a range of parameters simultaneously with the indicator's current standing, allowing the trader to identify those trading signals that have been historically profitable. By Christopher K. Smith

Reviews & Quick-Scans

DTN Wall Street datafeed (Data Transmission Network Corp.)

Director system testing (Nirvana Systems)

Signal 3.0 with SignalReports (Data Broadcasting Corp.)