There’s a close relationship between the performance of the electric
utilities stock index and the bond market. Technicians use this relationship
to forecast the direction of interest rates. This S&C Contributing Editor
takes it one step further and designs a trading system for bonds based on
the S&P 500 electric utility index.
By Dennis Meyers, PhD.
Markets may have certain persistent characteristics. Here, a market analyst
takes a close look at the Treasury bond futures markets to see if there are
tradable patterns.
By Scott Barrie.
Divergence, a popular technical term used to denote a market movement in
one direction when a technical indicator fails to follow it, can forewarn
of a reversal in market direction. However, divergence has been difficult
to quantify. Here’s one software engineer’s approach to tracking
divergence.
By Matt Storz.
The advance-decline line is an ongoing sum of the difference between the
number of stocks closing higher minus the number of stocks closing lower
each day. Here’s a primer on how to use a variation on this indicator.
By Robert Kinsman.
Keeping a level head is key to enhancing your success as a trader. In this
article, this consultant, who teaches psychological breakthrough strategies,
discusses how to relinquish the emotional impact of trading failures and
successes and staying focused on the upcoming trades.
By Ari Kiev, M.D.
It’s inevitable: Anyone who enters into the realm of technical analysis
runs into a reference to the Elliott wave theory sooner or later. Whether
you’re an adherent or a skeptic, the Elliott wave is certainly one
of the best-known methods By which to analyze the markets. Robert Prechter,
who is considered to be the world’s leading authority on Elliott wave,
is president of market forecasting and publishing firm Elliott Wave International
and is also the author of a number of books on the subject and editor of
two monthly forecasting publications, The Elliott Wave Theorist and Global
Market Perspective. Prechter began his career in the financial markets
as a technical market specialist with the Merrill Lynch market analysis department
before he struck out on his own to concentrate on Ralph Nelson Elliott’s
work. Here, Prechter shares his views on the outlook for the stock market,
commodities, the economy and more.
By Thom Hartle.
Stop orders are used to manage risk and to enter and exit positions. But
what are some of the methods you can use to do so? For a look at the basics
plus some of the finer points, read on.
By Joe Luisi.
Aim StatNet, version 3.0, build 1.15 (Abtech Corp.)
Top Step Bonds, version 2.1 (MicroStar Research & Trading, Inc.)
S-Plus, version 3.2 (Statistical Sciences, Inc.)
Pattern Recognition Workbench, version 2.1 (Unica Technologies Inc.)
The price distribution function, which analyzes the distribution of prices
over a lookback period, is useful for predicting price mobility. Here’s
a new method called the mobility oscillator that will allow you to do so.
By Mel Widner PhD.
Estimating a company’s value can be the initial filter for identifying
trading opportunities. Here’s a method to determine a company’s
value based on earnings growth rates and interest rates.
By William N. Hosley.
Do you spend all your time trying to develop the perfect system instead
of taking the plunge with a simple system? Is avoiding risk no matter what
the cost at the heart of your problem? Take the leap. Here’s how.
By Adrienne Laris Toghraie.
Try combining popular technical stock market indicators the advance-decline
line, the number of stocks making new highs and the number of stocks making
new lows to develop a trading system for the stock market.
By Dennis Meyers, PhD.
Traders often look for retracements of a market trend to establish new positions
with that trend. But how often and how far does a market retrace the prior
move before continuing? For the answer, this market analyst examines the
Treasury bond futures market to determine typical retracement behavior.
By Alex Saitta.
Options are a part of general financial strategy that at once draws and
repels market participants. It’s also a strategy that ironically you’ve
basically got to lose money at in order to understand. So how do you learn
more about it? It helps if you’re familiar with Lawrence McMillan’s Options
as a Strategic Investment, a classic tome in the investment field. STOCKS & COMMODITIES
spoke to McMillan about the ins and outs of options, including implied volatility;
how far McMillan goes out to buy options; why it’s important to do
research on your portfolio; some strategies he uses and how expirations of
index options move the market.
By Thom Hartle.
When you’re taking a look at records of trading systems and money
managers for consistent performance, here are some things to look for.
By K.D. Angle.
Pps Trading System (Curtis Arnold)
OmniTrader, version 2.1 (Nirvana Systems, Inc.)
WaveWi$e Market Spreadsheet, version 6.36 (Jerome Technology, Inc.)
Zacks Analyst Watch on Internet (Zacks Investment Research).
The number of new highs and new lows is a classic stock market indicator,
and here are ways that this market statistic can be modified to build a number
of market indicators.
By Tim Hayes.
Traders often use moving averages of just price to signal trends. Here’s
a moving average system that uses price and volume for trading signals.
By Alex Saitta.
Here’s a primer on writing options to boost return on investment.
By Steven P. Schinke, PhD.
The Knight-Ridder-Commodity Research Bureau Index the CRB to you and me
has been updated to reflect today’s commodity markets. Here’s
an explanation of the changes to this industry barometer.
By Raymond T. Murphy.
Want to improve the evaluation of your trading systems? Here’s a new
performance measure that uses some statistics to measure profitability through
time.
By Lars N. Kestner.
On the road to using technical analysis for trading, developing a trading
system is a logical step to take along the way. Here are some guidelines
to develop a basic system.
By Greg Morris.
Some wander onto Wall Street by mistake, while others seem destined to find
their way there. Sam Stovall is a member of Standard & Poor’s Investment
Policy Committee, editor of S&P’s Industry Reports and
author of Standard & Poor’s Guide to Sector Investing.
Stovall spoke with STOCKS & COMMODITIES about market cycles, sector investing
and relative strength, among other topics.
By Thom Hartle.
This occupational psychologist explains that trading combines market knowledge
and emotional discipline and that through meditation techniques, a trader
can develop better emotional control.
By Richard D. McCall.
Applying trendlines to charts is a classic form of analysis. Here are some
of the basics of using this tool.
By Joe Luisi.
Live the Dream by Profitably Day Trading Stock Futures (Reality Based
Trading Company)
WealthBuilder for Macintosh, version 4.0 (Reality Online)
Septor Financial Information Service (Notable Technologies, Inc.)
Telescan Investor’s Platform (Telescan, Inc.)
This S&C Contributing Editor details a trading system for predicting
Treasury bond yields that uses Barron’s Gold Mining Index
(GMI) to signal changes. He compares the performance of the trading system
with his previous use of the S&P electric utility bond market system.
In addition, he tests the GMI T-bond system for trading the Fidelity Government
Securities Fund.
By Dennis Meyers, PhD.
Use this oscillator to calculate buy points for a stock in an upward trend.
By Richard Goedde.
Here’s the scoop on the Arms index, a stock market indicator that
incorporates the number of advancing and declining stocks with the advancing
and declining volume. The index is widely used as an indication of overbought
and oversold conditions in the marketplace.
By Bruce R. Faber.
Options traders use various measurements to calculate an option’s
risk, the calculations of which are denoted by Greek letters. One example
is theta, which is the measure of how much an option’s price decreases
for each day that passes.
By Lawrence D. Cavanagh.
Here’s a trade that combines fundamentals, trend channels, pattern
recognition and volume.
By Thomas Bulkowski.
The question of how to increase returns while decreasing risk has fascinated
investors for decades; after all, the goal of trading or investing is to
maximize return per unit of risk accepted. Here’s an introduction to
the benefits of diversification.
By Lars N. Kestner.
The stresses built into the profession of trading isolates traders from
their natural emotional supports. Here are some ways to ensure those pressures
don’t reach a boiling point.
By Adrienne Laris Toghraie.
Here’s a statistical method that compares the movement of the Standard & Poor’s
500 index with the changes of interest rates. In addition, the author explains
statistical tests that help validate the reliability of the relationships
as well as a technique to identify anomalies, which may be used to anticipate
changes in the S&P 500.
By Gregory N. Hight.
Hedge fund manager Mark Boucher would be the first person to tell you that
you have to have control of your own investments and of course, once you
do, how much more you have to learn about them. STOCKS & COMMODITIES
interviewed Boucher, who publishes Portfolio Strategy Letter, about
his experiences in the market, how he analyzes those markets and what traders
and investors should look at and study in order to understand those markets.
By Thom Hartle.
QuoTrek, version 7.0 (Data Broadcasting Corporation)
Monocle (Manhattan Analytics, Inc.)
$ecure (Chande Research & Trading, Inc.)
Once a position has been put on, some traders will hold it at a constant
size throughout the life of the trade, while other traders will vary the
size. Which is better?
By Tom O’Malley.
Option models calculate premiums or the prices of options on the assumption
that volatility is a constant. Here’s how stock and index price changes
are distributed in the real world and how the market prices options.
By Lawrence D. Cavanagh.
Is there a relationship between the Presidential party in power and the
subsequent performance of the stock market? Before you take a guess, here
are the facts.
By Dave Dorgan.
In spite of its importance, much less is written about volume than about
price. Here’s an introduction on the subject for the novices and a
refresher for the veterans.
By Bruce R. Faber.
In this day and age of computers and high technology, trader Gary Smith
is certainly an anomaly, as he uses no computer, disapproves of mechanical
systems and simply uses the data off Cnbc with which to trade. How does he
do it? How has he done it? His recently published book, Live the Dream
By Profitably Day Trading Stock Futures, explains, and so does this
interview.
By Thom Hartle.
Technicians apply technical analysis to charts for trading decisions. This
technician applies similar techniques to his trading system results.
By Joe Luisi.
Building on his previous Gmi system article, this Contributing Editor develops
a system using the Philadelphia Stock Exchange daily gold and silver stock
index to trade a long-term government bond fund.
By Dennis Meyers, PhD.
The financial markets frequently react with large price movements after
the government and private agencies release their economic reports. Are there
any reliable patterns to the way a market reacts to the news? One money manager
decided to find out, and here, he shows how monitoring the reaction to those
reports can be a profitable endeavor.
By Ben Warwick.
Market Skill-Builder (Richard H. King, FCA)
Cqg For Windows, version 1.487 (CQG)
Elliott Wave Analyser (Center for Elliott Wave Analysis)
Here’s a strategic variation of the tried-and-true simple moving average
that uses a moving average for entry signals and the trend analysis index
for exit signals.
By Adam White.
During a strong trend, a stock will still spend some time in a consolidation
period before the next run. Here’s a chart pattern that can be found
during a consolidation of a strong stock.
By Greg Kuhn.
Looking at the seasonality of the stock market from different viewpoints
can give you new insight into an old concept. Here’s a look at the
best and worst months in which to invest as well as some suggested investing
guidelines.
By Mark Vakkur, M.D.
For those of us who have had “chaotic” days when everything was
topsy-turvy and nothing went the way it should have maybe the problem isn’t
in those days; maybe it’s in what we expect.
By Hans Hannula, PhD, CTA.
How good a barometer is the monthly US employment report for the bond market?
One analyst decided to find out.
By Alex Saitta.
This psychiatrist, who teaches strategies for successful trading, explores
various strategies for overcoming obstacles to continued success.
By Ari Kiev, M.D.
Here’s a new technique that can be used to identify when on-balance
volume or negative volume is indicating something notable about the direction
of the New York Stock Exchange Composite Index. If your objective is to keep
the bear away from the door, this may help.
By Phillip C. Holt.
There is no shortage of market analysts in this world, but as Jim Bianco,
the director of research for Arbor Trading, can tell you, if you want to
make a difference you have to look at things with a different vantage point.
Bianco’s career in the markets began in equity research, but eventually,
he changed his focus to the fixed-income arena. STOCKS & COMMODITIES
talked with Bianco on why his interest shifted from stocks to bonds, why
bonds are out of fashion at the moment, and how he tracks the players that
he thinks make the real difference on where interest rates are headed.
By Thom Hartle.
Momentum historical stock market reference data (Momentum)
Trendseeker business database & software (Clairvoyant Data Systems Inc.)
Street Smarts (M. Gordon Publishing Group)
Insider TA, version 2.10 (Stock Blocks Inc.)
Market Edge trading recommendation software (Computrade Systems)
Schwager on Futures: Technical Analysis (John Wiley & Sons)
Markets ebb and flow, rise and fall, come and go in short, they appear to
be cyclical. To learn more about using cycles, there is probably no better
source than Richard Mogey, the executive director of the Foundation for the
Study of Cycles. STOCKS & COMMODITIES spoke with Mogey about the Foundation’s
research into the influence of cycles on the stock market, commodities and
bond markets.
By Thom Hartle.
Here are some simple guidelines for avoiding volatile emotional swings due
to the stresses of trading.
By Adrienne Laris Toghraie.
Alpha measures the performance of a stock compared with the stock market.
Here, the alpha between a cyclical stock group and the Treasury bond market
is used as an indicator for trading T-bonds to signal trends.
By Frank Ritchie.
Here, classic stock market indicators have been combined into a trading
system for the market.
By Dennis Meyers, PhD.
There are a number of different stock index futures, such as the Value Line
index and the S&P 500, with similar characteristics but can be traded
as spreads. Here are some basic methods.
By Richard Halford.
This floor trader updates his previous article on the pivot point technique
with additional insight on how he uses the method for day trading S&P
futures.
By William Greenspan.
Want to do some research on the Internet but don’t know where to start?
Well, you’re in luck. Here are some techniques currently available
for finding investment information online, using search engines to navigate
the Internet.
By Ron Berlin.
Divergence, which is a term that technicians use when two or more averages
or indices fail to show confirming trends, is one of the mainstays of technical
analysis. Here’s a new way to use oscillators and divergence as well
as methods to locate entry levels during a trend.
By Barbara Star, PhD.
Turtle Trading Concepts (Russell J. Sands)
Astro-Trend (Norman Winski & Assoc.)
Quotes Plus (Quotes Plus Inc.)
The Edge, version 1.1 (BulletProof Corp.)
Indicators & Trading Systems, volumes 1-11 (G. Morris Corp.)
Wall$treet Money Deluxe (MarketArts Inc.)
Is there a particular day of the week within a month that offers the most
opportunity? Here’s a trading system based on the best days of the
week for trading Standard & Poor’s 500 futures.
By William Brower, CTA.
A market tends to move swiftly from periods of price consolidation to new
levels. Here’s how to recognize the setup before a market moves out
of a short-term consolidation, from the authors of Street Smarts: High
Probability Short-Term Trading Strategies.
By Laurence A. Connors and Linda Bradford Raschke.
Volume, one of the key elements in technical analysis, is used to analyze
the power behind a trend. Heavy volume days may indicate a strong trend,
while light volume days could indicate the lack of a trend. Here’s
a method to connect volume and price movement to quantify price activity.
By Thom Hartle.
Phenomenology and existentialism and trading? Oh, my! Nothing in Robert
Koppel’s background as a philosophy academic could have given the slightest
clue that he would end up as a floor trader for 17 years before giving that
up for yet another career using the insights of his previous two. STOCKS & COMMODITIES
interviewed Koppel, who is now a proprietary trader with Innergame Partners,
on topics such as how traders see their own versions of reality and the importance
of developing a trading plan that is consistent with your personality.
By Thom Hartle.
This professional options investor examines the performance of the Pacific
Stock Exchange Technology Index compared with other market indices as a speculative
and hedging tool.
By Jerome M. Lederman, Eng.ScD.
Interest rates have long been tied to movement in the stock market. Here’s
how to test trading rules for the stock market based on a six-month moving
average of the 30-year Treasury bond yield, showing us when it may and may
not be profitable to invest in stocks.
By Mark Vakkur, M.D.
Excalibur, version 2.01 (Futures Truth)
Windows on WallStreet Pro, version 4.0.3 (MarketArts Inc.)
P/E CD-Rom (Deci$ionware Inc.)
Wall Street Quest, version 1.1 (Street Logic Software)
Confidence intervals are a statistical tool that describes the accuracy
of a prediction, while neural networks provide predictions. This article
combines the two to define the risk in a trade.
By Thomas B. Rubino Jr. and Donald P. Nimey II.
Some people may think that technical analysis doesn’t work anymore,
but here’s one author’s solutions to today’s challenging
modern markets.
By Joe Luisi.
With nearly 30 years’ experience as a trader and broker in the commodities
pits, money manager and author Howard Abell has the bead on what it takes
to trade. Abell, co-author with Bob Kopell of The Innergame of Trading and The
Outer Game of Trading, and whose own Day Trader’s Advantage has
just been published, uses technical analysis with the weather eye of experience.
He also writes the Impr Market Letter, published for professional
and institutional traders. STOCKS & COMMODITIES interviewed Abell on
topics such as how Abell picks his spots to enter the market, why he may
abandon a bad trade and the mental challenges to trading.
By Thom Hartle.
Here’s an overview of using options as a technique to take advantage
of unique situations in the futures markets.
By David L. Caplan.
Here’s a study on using the Commitments of Traders index as an indicator
for trading the corn market.
By Scott Barrie.
Here’s a new technique for placing trading bands around the price
action of your favorite market. This technique shows how to recognize low-volatility
situations and aid in forecasting trend direction.
By Jon Andersen.
Are you willing to explore the ramifications of your trading? Trading in
terms of your objectives is a key to enhancing your success as a trader.
Here’s how to use your goals to develop powerful trading strategies.
By Ari Kiev, M.D.
The Intuitive Trader (John Wiley & Sons)
StockTips information paging service (Claflin Communications)
InterQuote Internet quote service (Paragon Software)
The Winning Edge (On Target Press)
Wall Street Analyst, version 2.1 (Omega Research)
Today’s software for trading systems can take you down some dangerous
paths. Here’s how to avoid one mistake.
By Dennis Meyers, PhD.
Can you combine politics with seasonality? With the Presidential election
coming up, here’s a review of some trading strategies for the stock
market built around this event.
By Mark Vakkur, M.D.
Here’s a charting method to determine market trend and identify reversal
points to set up trading opportunities.
By Ron Jaenisch.
You might have seen triangle formations and wondered what they were all
about. You might have been caught on the losing side of a descending triangle
and wondered what happened. For those of you who’ve wondered what was
going on, here’s the first part of a two-part refresher course on the
three basic types of triangle formations and how to use them in your investment
decisions.
By Thomas Bulkowski.
Nelson Freeburg, editor and publisher of market research newsletter Formula
Research, has focused his energies on the development of systematic
approaches to participating in the stock, bond and futures markets. What
are the key issues and steps that anyone should take to designing trading
models? STOCKS & COMMODITIES spoke with Freeburg about such subjects
as parameter sensitivity, environmental conditions and some of Freeburg’s
favorite models.
By Thom Hartle.
When presented with sentiment data, you’ll need to know when to follow
the crowd or be a contrarian. In our continuing look at using the COT index
to predict market direction for commodities, here’s a study on the
COT report as an indicator for trading pork bellies.
By Scott W. Barrie.
The stock market has been trending higher for a record period, and a correction
is long overdue. What can you do to stay in the game, besides reduce your
risk? Consider diversifying your assets beyond just a basket of stocks. Here’s
the rationale.
By Victor Sperandeo.
Traders may move from periods of success to periods of loss, but the losses
may be created by the trader and not the markets. Here are some guidelines
to identifying this problem and how to overcome it.
By Adrienne Laris Toghraie.
TradeStation version 4, Build 15 (Omega Research)
Option Pro On-Line, version 2.1 (Essex Trading Co. Ltd.)
This private trader, who was profiled in The New Market Wizards,
discusses one of his techniques to trade the market based on an early signal
for trend direction.
By Robert Krausz, MH, Bche.
This neural network developer details steps in developing a trading system
using advanced technology.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
Money manager and author James O’Shaughnessy, founder and president
of O’Shaughnessy Capital Management, has been called a “statistical
guru” (by
Barron’s, no less), while his first book,
Invest Like the Best, was pronounced “awesome” by
Forbes. O’Shaughnessy’s latest work, What Works
on Wall Street, is a serious inquiry into the investment strategies
that stand up under long-term scrutiny and is refreshing research for every
investor. So what does work on Wall Street, and more important, why? To find
out, STOCKS & COMMODITIES spoke to O’Shaughnessy about investing
for the long term, why human nature is brilliant as well as destructive and
what class of companies offers the best opportunities.
By Thom Hartle.
Is an increase in the activity of a stock a meaningful indication of the
direction of price? To answer this question, you can use statistical methods
and most any spreadsheet to analyze the relationship between price and volume.
By William M. Goodman, PhD.
This cycles software specialist discusses an indicator based on cyclical
analysis.
By John F. Ehlers.
Last issue, symmetrical triangles and the ways to trade with this particular
chart formation were the topic at hand. This month, we present two more variations
of the triangle, the ascending and descending triangles, their attributes
and how to use them in your investment decisions.
By Thomas Bulkowski.
Traders can talk themselves into disastrous losing scenarios. Here are the
steps to avoid the problem.
By Adrienne Laris Toghraie.
Quote Monkey, Version 2.11 (Primate Software)
ModelQuest, Version 4.0 (AbTech Corp.)
Here’s a close look at the turnover of a stock’s float, based
on an idea from the works of W.D. Gann, that reveals some dramatic patterns
and expands the definition of a base or consolidation zone.
By Steve Woods and Jan Arps.
Last month, Katz presented his experience developing a trading system using
a neural network-based approach. This month, he delves into a rule-based
approach to trading.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
Classic chart analysis and Elliott wave theory both consider the expanding
or broadening triangle chart pattern to be a reversal of a long-term trend,
and further, that such an event may be occurring in the Dow Jones Industrial
Average. Here are the details.
By Kit Webster.
Moving average systems seek to capture meaningful trends. Here’s a
modified exponential moving average system that uses pattern recognition
as a filter for entry rules.
By David S. Landry.
Most trading systems fall into two categories. One, the most popular, is
the trend-following method, where the signals are oriented toward putting
the trader on board long-term trends. The profits acquired during the long-term
trends will, hopefully, recover the monies lost during trendless activity.
The other category takes advantage of trading ranges, and the trader makes
the most money when the market’s primary direction is sideways. Here’s
a trading system that incorporates both approaches to time entry and exit
positions.
By Jeremy G. Konstenius.
John Murphy, a veteran of nearly 30 years in the equities and futures markets,
is the technical analyst for Cnbc television, publisher of the “Futures
Trends and Intermarket Analysis” newsletter and author of such classics
in the field as Technical Analysis of the Futures Market and Intermarket
Technical Analysis, and his newest work, The Visual Investor, promises
to be comparably memorable. Most recently, he’s also cofounder of MurphyMorris
Inc., a joint venture to develop multimedia software for investors interested
in technical analysis. With all that he’s seen and done, what are some
of the technical approaches he’s most impressed with? STOCKS & COMMODITIES
asked him about the steps he takes to profiling which markets are offering
opportunities and which are not, his favorite technical indicators, and more.
By Thom Hartle.
There are many different styles used by individual traders, some proactive,
some reactive. Either can work and either can fail. Here’s why.
By Adrienne Laris Toghraie.
Options for the Stock Investor.
Mesa96, version 1.9 (Mesa Software)
Cats (Chart Analysis Trending System)
Behold!, version 2.5.3 (Investors’ Technical Services [NTech])
Simulated Trading Competition (TradeComp)