Volume 11 Article List

January 1993

Stochastic Momentum

A new twist on the venerable stochastic formula was presented in a January 1991 article, “Double-smoothed stochastics,” by William Blau. Here, he expounds on stochastic double smoothing in a somewhat different form that emphasizes momentum characteristics.
By William Blau.

Sidebar: Stochastic momentum index

Sidebar: True strength index

Gold and The DJIA

Gold has its own cycles. How best to comprehend them? Gold cycles can be best understood when analyzed and compared to the Dow Jones Industrial Average (DJIA). Here’s why.
By Richard C. Forest.

Commercial Floor Traders Identify Value

Presenting the use of Liquidity Data Bank (otherwise known as Market Profile) to analyze the futures market by studying commercial activity.
By Donald L. Jones.

Interview: Philip Roth of Dean Witter

STOCKS & COMMODITIES interviewed Wall Street veteran Phil Roth and spoke to him about the differences between institutional and retail emphases and his method of selecting stocks.
By Thom Hartle.

The Stock/Bond Yield Gap

Here’s an indicator using the yield for high-grade corporate bonds and the yield for the DJIA to predict the stock market.
By Jay Kaeppel.

Momentum and The S&P 500

As applied to market action, momentum is generally confined to some limited role such as measuring the relationship between moving averages. But momentum can be much more.
By Michael Oliver and Gary Esayian.

Sidebar: Calculating momentum Point & Figure Charting

Point and figure charting, a technique for following stocks and commodities, may be simplistic but still offers the keys to success: trend identification, price objectives and money management, all of which it provides.
By Gary Van Powell.

The Volume Oscillator

Price and volume is important for technical analysis of markets. Here’s how noted author and technician Martin Pring present two of his favorite ways of looking at volume.
By Martin Pring.

Spectral Forecasting and The Financial Markets

Ever considered spectral wave analysis to determine cycles in the stock market?
By Denis Ridley, PhD.

Risk Assessment For Security Analysis

Assessing the risk in a security is an essential part of the investment process. Here, then, are the advantages and disadvantages of two common risk measures: variance and beta. Further, Lloyd Silver introduces a relatively unknown, yet effective, risk measure called lower partial moment and finishes with a method of comparing securities.
By Lloyd Silver.

Sidebar: Sources of risk in a security

Quick-Scans, Reviews

QuoteExpress 3.2
Professional Breakout System, version 3.11
Trading the Four-Year Presidential Election Year Cycles
Nasdaq Handbook.

February 1993

Relative Momentum Index: Modifying RSI

Overbought/oversold indicators are popular among traders for identifying market turns. The relative strength index (RSI) is one such popular indicator. Here, Roger Altman presents his work on modifying the index to smooth the indicator’s sensitivity to momentum and the benefits that result.
By Roger Altman.

Sidebar: The RSI and the RMI

Interview: The Critical Eye of Laszlo Birinyi

Laszlo Birinyi of Birinyi Associates is a most unusual technician, one who is critical of most technical methods. Birinyi, a former director of Salomon Brothers and currently one of Wall $treet Week’s 10 technical elves, spoke with STOCKS & COMMODITIES about his work on researching indicators, the importance of historical analysis and his work on money flow analysis.
By Thom Hartle.

Sidebar: Money flow indicator

Congestion Phase Analysis With Candlesticks

You can trade markets by combining congestion phase analysis with candlestick charting patterns. This technique, a form of pattern recognition, can be used to profit from stocks, commodities and futures.
By Holliston Hill Hurd.

Sidebar: The candlestick method

Point & Figure Relative Strength

Use point & figure and relative strength to identify strong and weak stocks.
By Michael J. Moody and Harold B. Parker.

Asset Allocation: Stocks, Bonds, Futures

Investment survival depends on an investor’s ability to adapt to the market. Is it possible to develop a strategy that performs under all conditions, whether inflation or deflation, recession or prosperity? K.D. Angle, publisher of “The Timing Device” newsletter, says yes.
By K.D. Angle.

Cycle Analysis and Intraday Trading

Hitherto a rarity, cycles analysis can now be used in intraday trading. Veteran STOCKS & COMMODITIES contributor John Ehlers explains how.
By John F. Ehlers.

Guidelines for Risk Management

Risk control is an essential part of trading successfully. Effective risk management requires not only the careful monitoring of risk exposure, but a strategy to minimize losses as well. Understanding how to control risk exposure allows the trader, beginner or veteran, to continue trading even when the inevitable losses occur. This author offers guidelines for risk control.
By George R. Arrington.

Time and Indicator Design

Can indicators be improved upon by looking at them using different time frames to smooth and combine?
By Gilbert Raff.

Sidebar: Regression channel analysis

The SOQ and the S&P 500 Settlement

R.J. O’Brien research director and market letter writer Thomas Cronin marks his first appearance in STOCKS & COMMODITIES with some trade possibilities in options based on the difference between the closing price of the last trading day for the S&P futures and the opening price the next day of the S&P index.
By Thomas Cronin.

Quick-Scans, Reviews

Money Management Strategies for Futures Traders
CandlePower 3.1 (N-Squared Systems).

March 1993

Data Filtering For Trend Channel Analysis

Trend-following methods typically utilize moving averages of closing price data for buy and sell signals. Often the signals turn out to be false due to short-term market fluctuations. Here, longtime STOCKS & COMMODITIES contributor Anthony W. Warren, correcting one of the major drawbacks of moving averages, introduces a trend-following method that smoothes the data for trend identification and measures short-term price fluctuations to establish statistical boundaries. The following article will teach you how to use a zero-lag filter of the closing price data to create trading bands. The trading bands are used with a long term price filter for trading the intermediate trend of the stock market.
By Anthony W. Warren, PhD.

Sidebar: Mathematica

Sidebar: MetaStock

Sidebar: Trend channel spreadsheet

Interview: Steven C. Leuthold: Fundamentally Technical

Institutional investment strategist and researcher Steve Leuthold brings almost 30 years of investment experience to his positions as chairman of the Leuthold Group, an investment research organization, and chairman of Leuthold & Anderson, an investment management firm. The Leuthold Group, which has more than 300 professional clients, publishes several monthly newsletters and produces Quantitative Themes, a value and growth stock screening product. Leuthold, who is the author of The Myths of Inflation and Investing, is also general partner in Leuthold Weeden and Associates, which is the developer of AdvantHedge, a quantitative short selling program. STOCKS & COMMODITIES spoke with Leuthold on December 18, 1992.
By Thom Hartle.

Put Volume Indicator

Although it has been mined for many years, one of the richest veins in technical analysis remains the sentiment area. Here, money manager and market analyst John Bollinger discusses one such indicator.
By John Bollinger.

Sidebar: Formulas

Determining Optimal Risk

Seasoned traders know the importance of risk management. If you risk too little, you never win much. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle. Here, Ed Seykota of Technical Tools and Dave Druz of Tactical Investment Management, using subject matter and materials that they have used in lectures and workshops around the US, present a method to measure risk and return.
By Ed Seykota and Dave Druz.

Sidebar: Coin flipping math Sidebar: System test The Coppock Guide

One of the best megaphones of market action is the Coppock guide, a long-term price momentum indicator that effectively filters out short-term and intermediate-term market swings to issue a clear message on the market’s underlying long-term trend. Tim Hayes of Ned Davis Research reports on the success of this indicator.
By Tim Hayes.

Oex and The Thrust Oscillator

Is it feasible to use advance-decline data for trading the Oex contract?
By Stuart Meibuhr.

Sidebar: Calculating the thrust oscillator Trading Spreads

The price relationship between delivery months of a futures contract or between different futures contracts often change. And of course, where there is change opportunity arises for traders. Here, commodity trading advisor Thomas Cronin explains how to trade spreads.
By Thomas Cronin.

Trading Bond and Currency Funds

Today’s broad selection of different types of mutual funds allows traders to allocate assets based on your own expectations of changes in the stock market, interest rates and currencies. Newsletter publisher Joe Duarte presents his methods to increase gains in a portfolio by including currency-based mutual funds as a choice for instruments.
By Joe Duarte.

Stochastics Indicators and Trading

Here, we’re reminded that the stochastics indicator is just a guide to understanding the trend for trading.
By David Lundgren.

Quick-Scans, Reviews

The Elements of Successful Trading (Simon & Schuster)
Mathematics of Technical Analysis (John Wiley & Sons)
Design, Testing, and Optimization of Trading Systems (Probus Publishing).

April 1993

Filtering Breakouts

Which is more effective as a signal filter, the average directional movement index (Adx), the indicator developed by J. Welles Wilder to measure market trend intensity, or the unsmoothed version, the directional index (Dx)? Adam White, the editor of the “Technical Traders Bulletin,” measures the performance of a breakout trading system using the Adx or the Dx as signal filters.
By Adam White.

Sidebar: The ADX

Interview: Leo Fasciocco: Investor’s Business, Daily

Investor’s Business Daily columnist Leo Fasciocco came by his expertise in the market the way STOCKS & COMMODITIES has always emphasized research, research, research. As a financial journalist first for the Philadelphia Evening Bulletin and then U.K. wire service Reuters (with a detour working for the Chicago Board of Trade), Fasciocco joined Investor’s Daily (as it was called then) at the very beginning, where he has been writing the regular market column since. STOCKS & COMMODITIES spoke with Leo Fasciocco on topics such as relative strength, earnings per share rank, technical points on stocks, industries and the market itself.
By Thom Hartle.

Combining Volume and Market Change

Price and volume is a never-ending fount of ideas for judging the market’s current technical condition. Here, newsletter publisher Anthony Macek combines the magnitude and direction of price change with volume to produce a technical indicator.
By Anthony J. Macek.

Sidebar: Calculating MVI Monitoring Equity For Market Analysis

STOCKS & COMMODITIES contributor Joe Luisi presents a strategy for using a graph of your profits and losses to pick either trend-following or a trading range trading system.
By Joe Luisi.

Sidebar: Least-squares cycle and time series moving average

Candlesticks and Intraday Market Analysis

Can the much-ballyhooed candlestick method be helpful in intraday trading? To find out, Gary Wagner and Brad Matheny went through one day’s trading via candlesticks for one contract and came up with some intriguing results.
By Gary S. Wagner and Bradley L. Matheny.

Sidebar: The candlestick method Oscillator Variations

Here, Barbara Star takes a 1985 STOCKS & COMMODITIES article by John Navarte called “Reading between the lines” and uses it as the basis for a tutorial on oscillators for trading.
By Barbara Star .

Sidebar: Spreadsheet calculations

Sidebar: MetaStock custom formulas

Placing Stop-Loss Orders

Unsuccessful small speculators tend to waste time and money trying to reinvent the wheel of investment rather than trying the tried and true trading techniques. What works is simple: Trade with the trend, cut losses short and let profits run. Here, STOCKS & COMMODITIES contributor Curtis Arnold assumes that you accept those investment tenets and aspire to adhere to them. If you do, you will greatly benefit from this lesson on the correct placement of stop-loss orders.
By Curtis Arnold.

Treasury Bond Yields: A Neural Net Analysis Approach

In this article, STOCKS & COMMODITIES contributor John Kean uses a neural network to look for predictable patterns between Treasury bond yields and two of the driving forces behind the bond market, inflation and government deficits.
By John Kean.

Quick-Scans, Reviews

First Alert, version 2.0 (Roberts-Slade Inc.)
Mathematica, version 2.0 (Wolfram Research Inc.)

May 1993

Interview: A Statistical Scholar: Paul Rabbitt of OpCo

Oppenheimer & Co. senior vice president and chief quantitative portfolio strategist Paul Rabbitt has a number of credits after his name, among which are contributing forecaster for Standard & Poor’s Consensus Forecasts and regular contributing analyst for Cnbc. But Rabbitt is unusual in that he chose to put a successful and profitable career on hold to return to graduate school, writing his thesis on technical analysis and doing along the way detailed statistical research on more than a hundred indicators. STOCKS & COMMODITIES spoke with Rabbitt on topics ranging from his thesis to his thoughts on the perfect system to the quantitative stock ranking system.
By Thom Hartle.

Stochastic RSI and Dynamic Momentum Index

Here, a relative strength index (RSI) tutorial clarifies the basics of the time-honored indicator. The tutorial also introduces new variants that STOCKS & COMMODITIES contributors Tushar Chande and Stanley Kroll call net momentum oscillator and the stochastic RSI, which are better at flagging overbought and oversold conditions than RSI itself. Also introduced and examined is a variable-length RSI called the dynamic momentum index (Dmi), which we will index to market volatility. The new variants, Chande explains, extend the scope and power of momentum indices, as we will see.
By Tushar Chande and Stanley Kroll.

Sidebar: The RSI and the RMI

Neural Networks With Learning Disabilities

During the training phase of a neural network, the system spends extensive time trying to decide what input information is important to contributing to the output forecast or prediction. It is natural to want to feed as much input into the neural network as is required to solve the problem, but the information you need to solve a problem may not be the format or information your neural network needs or wants. Here, Connie Brown of Cmb Global Investments describes a few learning problems of neural networks with a discussion of common causes and solutions to help put your neural network back on track.
By Connie Brown.

Sidebar: The ADX

Combining Negatively Correlated Forecasts

Will combining two negatively correlated forecasts of price data produce a more accurate forecast? Denis Ridley says yes. It’s called “antithetic forecasting,” as he explains here.
By Denis Ridley, PhD.

Beliefs and Trading

You are what you believe and that includes your trading beliefs. Your unconscious mind is the final arbiter of whether you will succeed as a trader. Ruth Roosevelt, director of the Wall Street Hypnosis Center, explains how to understand your unspoken beliefs and use them to achieve trading success.
By Ruth Roosevelt.

Volume Variations

This month, Barbara Star uses a 1986 STOCKS & COMMODITIES article by Howard Waxenberg titled “Technical analysis of volume” as a basis for a tutorial on volume-based indicators.
By Barbara Star, PhD .

Product review: Three Neural Net Evaluations

As interest in using neural nets for trading the markets has grown, so has interest in the products being offered. Kean discusses @Brain, Brainmaker Standard and Brainmaker Professional and looks at how well they do the job.
By John Kean.

Quick-Scans, Reviews

Neural Networks in Finance and Investing
Pattern Probability Strategy version 2.0
Nava Patterns 2.0
Option Pro version 1.0
@Brain BrainMaker Standard, BrainMaker Professional.

June 1993

Cyclical Channel Analysis and the Commodity Channel Index

Trading bands and the commodity channel index, two popular indicators, are used together here by D.W. Davies, who publishes the “Chameleon” financial newsletter. Davies analyzes price direction using trading bands built around moving averages with different time periods as a form of cyclical analysis and uses the commodity channel index as a timing tool with the cyclical analysis to assist in generating trading opportunities.
By D.W. Davies.

Sidebar: Calculating an 11-period CCI

Interview: Through the Years: Jim Yates of DYR Associates

As an options market analyst with a quarter century in the securities business, Jim Yates takes us back to when the listed options markets first began. Yates is president of Dyr Associates, an investment research firm that publishes daily and weekly reports analyzing the option market and its stock market implications. The reports are read by more than 10,000 brokers at more than 30 firms. Not only that, Dyr’s market and sector analysis is presented on Cnbc every week. Yates, author of The Option Strategy Spectrum, helped develop and is a consultant to the CBOE Options Institute, where over the years he taught more than 4,000 investment professionals.
By Thom Hartle.

Sidebar: DYR Implied risk formula

A Spreadsheet for Projection Analysis

Traders who follow Gann and Elliott wave analysis use ratios of past price movement as guidelines for possible turning points in the future. Here, Robert Miner of Gann/Elliott Educators gives you the spreadsheet custom formulas for you to calculate price objectives based on ratios of previous price moves.
By Robert Miner.

The Relative Volatility Index

This author modifies the basic relative strength index to measure volatility instead of daily net price change to generate trading signals.
By Donald Dorsey.

Sidebar: Relative volatility index Trade With Moving Averages

Behold the moving average. Everyone takes it for granted without really thinking about it. But Colin Alexander, publisher of the Wellspring newsletter and hotline, thinks we should take a closer look.
By Colin Alexander.

A Neural Network System for Reliable Trading Signals

For those of you who have complained that you have to be a rocket scientist to understand what we run in STOCKS & COMMODITIES, here’s a rocket scientist to explain it to you.
By Marlowe D. Cassetti.

Changing Your Negative Trading Beliefs

Negative thinking gives you negative results and that holds true for your trading beliefs. Ruth Roosevelt, director of the Wall Street Hypnosis Center, explains how to take your negative and limiting trading beliefs and convert them to positive and profitable ones.
By Ruth Roosevelt.

Quick-Scans, Reviews

All About Futures
Introduction to Neural Networks
DynaMind Developer 3.0 (NeuroDynamX).

July 1993

The Real Advance-Decline Line

Each day, stock market analysts calculate the number of stocks closing up versus the number of stocks closing down, resulting in the advance-decline line. This simple arithmetic exercise can help confirm the underlying trend or point to deteriorating market conditions. However, changes in the market have altered the perceptions of one analyst in particular on how to calculate the A-D line. Here’s how former Financial News Network market analyst Frank Barbera now looks at the daily A-D line.
By Frank Barbera Jr., CMT.

Interview: John Bollinger of Bollinger Capital Management

John Bollinger, C.F.A., CMT, former market analyst for Cnbc/Fnn, president and founder of Bollinger Capital Management, author of the “Capital Growth Letter” a market letter for the average investor employing a technically driven asset allocation approach began as a cameraman for the movies before he switched to the quickly expanding world of computerized investing. From there, he went on to form investment techniques for which he gained renown, including the Bollinger Bands, in which moving standard deviations are used to plot trading bands around a moving average. STOCKS & COMMODITIES spoke with Bollinger on topics ranging from those trading bands to his philosophies on going long and going short.
By Thom Hartle.

The Hourly Liquidity Data Bank as a Tool for Day Traders

How hourly data from the Chicago Board of Trade’s Liquidity Data Bank can help day traders manage their positions.
By Donald L. Jones & Christopher J. Young.

Prospecting With Gold Mutual Funds

Gold. In the past, it inspired rushes and revolutions, passion and poetry, but in recent times gold mutual funds have been distinctly lackluster. The emotion that the precious metal inspired may have dwindled, but gold mutual fund investors can still make money.
By Jay Kaeppel.

Proactive Trading

What does it take to trade successfully? Here are some guidelines for using technical analysis to pick stocks, focusing on bar charts.
By Thomas K. Lloyd.

Internal Market Momentum

Breadth momentum analysis takes momentum analysis, traditionally gleaned from price and volume, a step further by examining a particular market in closer detail. Market analyst Martin Pring delves into three categories of breadth momentum indicators in this excerpt from his new book, Martin Pring on Market Momentum.
By Martin J. Pring.

Fear and Trading

Fear limits your focus, and this is particularly true in trading. In this, her third article for STOCKS & COMMODITIES on trading psychology, Ruth Roosevelt, director of the Wall Street Hypnosis Center, explores fear in trading and how to overcome it.
By Ruth Roosevelt.

RSI Variations

Sometimes we forget that indicators long considered standard contain parameters that can be adjusted to become more responsive to various trading needs. Here, Barbara Star presents four variations of the classic relative strength index: one that provides readings on only the most recent data; one that incorporates volume; one that substitutes the average price for the close; and one that combines two days of price action. This month, she uses Greg Morris’s article, “Facelift for an old favorite,” as a basis for this tutorial. For ease of use, custom formulas for MetaStock are provided.
By Barbara Star, PhD .

Quick-Scans, Reviews

Spreadsheet Link
Book: Trading for a Living
MetaStock Real Time 3.5.

August 1993

Developing a Trading System

Successful trading is built upon using a dependable trading method. What is a good trading method? It is simply a set of rules that cover the important aspects of trading, such as trend identification, entry and exit plans. Here, trader and author Curtis Arnold provides guidelines for developing your own trading method.
By Curtis Arnold.

Interview: The Market Wizard of Interviews: Jack Schwager

Jack Schwager, director of futures research for Prudential Securities, coprincipal of Wizard Trading and author of Market Wizards, The New Market Wizards and
A Complete Guide to the Futures Markets, needs little introduction to the readers of STOCKS & COMMODITIES. It was he who, with the original Market Wizards, brought to the limelight some of the most successful traders in the field and persuaded them to explain the secrets to their success. Schwager, who has been in the futures field since 1971, began as a fundamentalist, only to slowly change allegiance as he gained more knowledge. Here, STOCKS & COMMODITIES interviews the interviewer, covering along the way observations on trading methods, why taking a loss is no big deal, what the goal for a new trader should be and why patience is key above all.
By Thom Hartle.

Using Multiple Regression Analysis

Happily, today’s spreadsheets enable traders and investors to measure the relationships between any times series of data. In this article, a linear regression technique is explained for analyzing the relationship between interest rates, the yield on the S&P 500 and the S&P 500 price/earnings ratio.
By Jack Karczewski.

Pattern Recognition, Price and the RSI

Here’s how to combine price and relative strength index patterns for trading signals.
By John Knaggs.

Physiology and Trading

Developing a winning attitude for trading may be easier than you think if you start with some basic physical adjustments to the way you relate to your workstation. In this month’s article on trading psychology, Ruth Roosevelt, director of the Wall Street Hypnosis Center, examines how to correct habits that may be inhibiting your ability to achieve.
By Ruth Roosevelt.

Variable Cycle Lengths and Intraday Candlestick Analysis

Trading methods often use different length filters for generating trades, both entries and exits. The most common filters are moving averages with different lookback periods. Here, you’ll apply different filter lengths to candlestick charts by using different period lengths of candlestick charts for confirmation of bullish and bearish patterns.
By Gary S. Wagner and Bradley L. Matheny.

Quick-Scans, Reviews

Proceedings of the Second International Conference on Artificial Intelligence
Applications on Wall Street
Complete Personal Seminar Series
The Serious Investor’s Tax Survival Guide
The Do-It-Yourself Guide to Investment Information
Aiq TradingExpert
ModelWare Professional Version 2.0
SuperCharts version 1.03.

September 1993

Tactical Trading Revisited

How would the Martingale trading technique work with a trading system that does not assume that the market is a random walk but instead relies on its own system parameters to determine stop-loss points, entry and exit prices? Further, how would these strategies work with a standalone system with a win probability that is not 50/50?
By Roger Altman, PhD.

Sidebar: Trading tactics in detail

Rating Trend Strength

Here’s a simple indicator of trend strength. It goes like this: A value of +10 signals an uptrend; a value of -10 signals a downtrend. STOCKS & COMMODITIES Contributing Editor Tushar Chande uses this simple rating system to help answer the eternal traders’ question: Is the market trending?
By Tushar Chande.

Sidebar: Vertical horizontal filter

Sidebar: Trendscore

Trading Options With Bollinger Bands and The Dual CCI

Combining two classic indicators, the commodity channel index (CCI) and Bollinger bands, can be a potent timing tool for options trading. This author was inspired by John Bollinger’s article “Bollinger Bands” from the 1993 S&C Bonus Issue to develop a way of using the CCI to confirm Bollinger bands’ trading opportunities. His technique uses a new variation of the CCI, the dual CCI. Here’s how to put the technique to work.
By D.W. Davies.

Sidebar: Protective stops

Sidebar: Calculating an 11-period CCI

Sidebar: Calculating Bollinger bands

Trading International Funds

How do you participate in the price movement of the international stock markets using an overseas mutual fund?
By Joe Duarte.

Interview: The Discerning Trader: Linda Bradford Raschke

Contrary to popular opinion, dreams can come true. For every trader who’s wished that he or she could just stay home and trade, there’s one trader who succeeded in doing so. Linda Bradford Raschke began her trading career in 1980 on the floor of the Pacific Coast Stock Exchange before moving to the Philadelphia Stock Exchange. After six years of trading on the floor there, Raschke left to trade her own account from home. Eventually, her focus evolved into developing reliable technical patterns for generating trades and then following 20 different markets and waiting for the most lucrative trades to come to her. She has always been a consistently profitable trader using her research. So how does she do it?
By Thom Hartle.

The Inflation Indicator

Former Amex trader John Lohman delves into an inflation indicator that leads the Consumer Price Index (CPI) by about six months.
By John A. Lohman.

Neural Network Development For Financial Forecasting

Extensive research has been conducted about the application of neural networks to financial forecasting in today’s globalized trading environment. What makes this particular use of artificial intelligence so attractive to financial analysts and traders? Here, Lou Mendelsohn of Mendelsohn Enterprises highlights some of those issues and establishes goals for training neural networks.
By Lou Mendelsohn.

The Perfect Trader

What is a perfect trader and is such a condition desirable? Does such a creature exist? Psychologist Van K. Tharp of Investment Psychology Consulting says not and further, you’re far more likely to succeed if you don’t try to be perfect.
By Van K. Tharp, PhD, and Jennifer Benson.

Sidebar: Self-evaluation

Quick-Scans, Reviews

Book: Trade Up: How to Become a CTA
Book: Mesa and Trading Market Cycles
Book: Trading Asia-Pacific Financial Futures Markets
Book: Interest Rate Futures and Options
Book: Stock Index Options
Software: Stock Prophet
Software: Enhanced Chartist for the Mac v2.

October 1993

Designing Trading Systems for the Stock Market

System designers are aware that the traditional methods used to select parameter values are prone to overfitting. What, then, can be done about it? Here’s a method to reduce this problem by using randomized data to produce parameter values for trading systems that have the best chance of duplicating real-time results.
By Roger Altman, PhD.

The JSA Moving Average

Presenting the Jsa, a unique moving average that could provide an early warning that other technical indicators may have an impending signal. In addition, comparing the Jsa with other moving averages raises interesting questions about the information that moving averages in general provide.
By George R. Arrington, PhD.

The Importance of Stop Orders

Some traders view stop orders as an affront to their analytical skills, but they shouldn’t. Here are some simple guidelines on using stop orders and saving yourself some painful and costly lessons.
By Patrick Cifaldi, CMT.

Creating Indicators With Physics

Do we limit words or do words limit us? As STOCKS & COMMODITIES contributor John Ehlers opines, we can’t really describe market activity with terms now used in the technical trading field. He suggests a new approach to looking at the market, using as analogy the physical world and as a result, a way to develop sophisticated new indicators.
By John F. Ehlers.

Redefining Volatility and Position Risk

A method on looking at the volatility of intraday price bars using a stop system called the “dev-stop.”
By C.A. Kase, CTA.

Looking For Inefficiently Priced Stocks

The story is the same everywhere: Find the inefficiency and take advantage of it. This author presents some ideas on how to recognize market inefficiencies by analyzing stock charts and making use of what he calls the inefficient market theory.
By Thomas K. Lloyd.

Preprocessing Data For Neural Networks

Today’s global markets demand new analytical tools for survival and profit as prevailing methods of analysis lose their luster. Here, STOCKS & COMMODITIES contributor Lou Mendelsohn explains how an emerging method of analysis synergistic market analysis can be applied to neural networks for financial forecasting and discusses how to select and combine various types of market information and transform the data into a format appropriate for neural network training.
By Lou Mendelsohn.

Overcoming Trading Trauma

Bad experiences can easily become imprinted in our memories. Because we act according to past experience, we tend to repeat our reactions to situations unless we alter our memory of that experience, thus creating a new map for our future actions. Ruth Roosevelt, director of the Wall Street Hypnosis Center, explains how to overcome a difficult trading experience and ensure that the same mistakes will not be inadvertently repeated.
By Ruth Roosevelt.

Quick-Scans, Reviews

DTN Wall Street Director
Signal 3.0 with SignalReports
Getting Started in Stocks
Financial Futures and Options.

November 1993

Comparing Three Indicators

Three trend-following indicators swing charts, random walks and moving averages are compared as separate mechanical trading methods.
By J.R. Davis.

Sidebar: Building a random walk index

Sidebar: Random walk index spreadsheet

Sidebar: Building swing charts

Using Technical Performance Measures

Today’s spreadsheets offer investors the ability to develop customized economic and investment monitors. Here’s one take on the use of a spreadsheet for managing money.
By Sidney I. Gravitz.

The Parabolic Trading System

Traders are always searching for methods with which to manage risk through the use of stop-loss orders. One method that has been proposed for determining stops is by using a mechanical formula based on the parabolic indicator, also known as the stop and reverse (SAR). How does it work?
By Thom Hartle.

Interview: The Traders’ Psyche: Tom Basso

Why do traders trade? Is it for the potential profit? Is for the love of the hunt? Or is it simply for the challenge? Jack Schwager, who interviewed Tom Basso, president of Trendstat, for his book The New Market Wizards, dubbed the trader “Mr. Serenity” for his approach to trading, managing to be profitable while maintaining peace of mind. Basso, who has $65 million under management, has a trading philosophy that more individuals should embrace: simply, enjoy what you do. STOCKS & COMMODITIES interviewed Basso on topics ranging from risk management to diversification and knowing your own trading style.
By Thom Hartle.

Sidebar: Simple risk control

Equivalent Option Strategies

Stock option traders and futures option traders may think they’re already outsmarting stock and futures traders by trading options against their stock or futures positions, but Larry McMillan, author of Options As a Strategic Investment, suggests you take another look: Substituting options for a position in the underlying instrument may be the more efficient alternative. This article presents a simple way to compare alternative options strategies. See what you could be doing.
By Lawrence G. McMillan.

Training Neural Networks

The application of neural networks to financial forecasting has quickly become a hot topic in today’s globalized trading environment. With extensive technical, intermarket and fundamental data available for analysis, neural networks are well suited to pattern recognition and quantifying relationships between interrelated markets. However, neural networks are not easy to develop. Here, S&C contributor Lou Mendelsohn examines the best ways to train and test neural networks for maximum performance.
By Lou Mendelsohn.

A New Exit Indicator

Most traders search for entry signals for trading systems and use a reversal of the entry signal for exits. Sounds simple enough, right? But what about developing exit strategies separate from your entry method? Here, technical analyst Adam White discusses an exit signal called the CHL/LLF based on two types of indicators for exiting trades.
By Adam White.

Sidebar: The CHL/LLF method spreadsheet

Quick-Scans, Reviews

Advanced Get 5.0
Advanced Total Investor 3.0
N-Train 1.1
HNeT Discovery Package 1.3
Mesa 4
The Money Engine Market Timing for the Nineties
Personal Stock Technician 1.01.

December 1993

Markov Chains

A Markov chain, the concept of which was developed in 1906 by Russian mathematician A.A. Markov, is a mathematical tool that traders might use to predict future prices changes on the basis of past price changes.
By George R. Arrington, PhD.

The Cumulative Market Thrust Line

In the August 1992 issue of STOCKS & COMMODITIES, Chande introduced the concept of market thrust as a method by which to overcome the limitations of the Arms index. Since then, variations have been suggested on the theme, and here, he offers the variation of a cumulative market thrust line, in which market thrust is cumulated to calculate a volumetric advance-decline line by including the effect of up and down volume.
By Tushar S. Chande.

Active Risk Management

The options market is often thought of as a simple directional play: Buy a call option if you’re bullish or buy a put option if you’re bearish. But options can also be used to manage a position. Here’s a real-life example of a trade that started as a simple long future position, became a synthetic call option, mutated to a long derivative strangle and (finally!) ended up as a dynamic put ratio backspread.
By Richard Gard.

Leading Indices at Bull Market Peaks

So which indices do you think most reliably lead the market? To find out, Tim Hayes, who was also interviewed in the August 1991 issue of STOCKS & COMMODITIES, examined 14 indicators for their market forecasting ability, beginning early in the 20th century. The indicators that he studied ranged far in variety and included the categories of economics, market breadth and interest rates. Of the 14, two were judged to have performed the best in leading the market within these categories. What were they?
By Tim Hayes.

Weighted Moving Averages

The moving average is well known and much used in the field of technical analysis, but it also has a flaw: its lack of flexibility. But it need not be fatal. Thomas Hutchinson and Peter Zhang of Mms International present variations of moving averages to combat the lack of flexibility in simple moving averages and linearly weighted moving averages by introducing the general weighted moving average (GWMA).
By Thomas Hutchinson and Peter G. Zhang, PhD.

Interview: Trading Tips From “Trader Vic” Sperandeo

Victor Sperandeo, money manager, economist and co-author of the popular Trader Vic: Secrets of a Wall Street Master and author of a second book due out this winter, is more than just a successful trader. A trading and investing success who by his own admission never went beyond high school, Sperandeo worked and studied at the school of hard knocks (otherwise known as Wall Street) for his string of successes. How did he do it? What’s the secret? As usual, it comes out to hard work and study, lots and lots of studying. To find out the details, STOCKS & COMMODITIES interviewed Vic Sperandeo to get his view of the markets, how they work and tips on how to trade successfully.
By Thom Hartle.

Using Neural Networks For Financial Forecasting

With this offering, Mendelsohn concludes his examination of neural networks for financial forecasting in today’s globalized trading environment. Here, Mendelsohn concentrates on implementation issues and discusses how neural networks should be utilized as part of an overall trading strategy. Finally, he takes a brief look at the future of artificial intelligence technologies to implement synergistic market analysis.
By Lou Mendelsohn.

Quick-Scans, Reviews

Black or White 1.0 (Troy Staman)
Wave Wi$e Market Spreadsheet (Jerome Technology Inc.)
Freestyle Trader 1.13 (Ondossagon Software)
Guide to Business Numeracy.

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