Here’s a new system using daily statistics to issue buy and sell signals
for the stock market.
By Dennis Meyers, PhD.
Have you ever wondered how to improve the performance of your favorite indicator
or trading system? By using your indicator to signal a buy and a beta-adjusted
trailing stop to get you out, you could improve your investing results.
By Thomas Bulkowski.
This month, Katz discusses a trading system he developed using a rule-based
approach.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
The best teacher is experience, and from his experiences as a trader and a
broker, Mark Douglas, consultant with his own firm, Trading Behavior Dynamics,
and author of The Disciplined Trader: Developing Winning Attitudes., has experienced
the gamut of trading emotions. From observing his and other people’s
emotional states, Douglas has developed strategies to help traders do what
most professionals will tell you is the hardest part of trading trade using
your head. STOCKS & COMMODITIES Editor Thom Hartle spoke with Douglas via
telephone on October 17, 1996, about fear, self-trust, the difference between
a belief system and a trading system and gaining that ever-important edge.
By Thom Hartle.
Here’s a primer for the new trader who wants to move beyond simple buy-and-hold
strategies.
By Richard M. Koff.
Trading the Rebound Gap (Professional Solutions, Inc.)
MetaStock 6.0 for Windows 95 and NT (Equis International)
ASCTrend 1.05 Futura Pro (Level-13, Inc.)
Price filters identify trends while eliminating noise below a certain percentage
change. Here’s a trading method using a 10% price filter for the S&P
500 stock index.
By Mark Vakkur, M.D.
Here are the basics of trading a soybean commodity spread using a seasonal
strategy.
By Scott W. Barrie.
Is there a message that can be gleaned from the performance of the stock market
during the 1996 election year? There may be. In 1990, this writer discussed
the seasonal movement of the stock market. Here, he updates that work with
further research, looking at market activity during the election year.
By Bob Kargenian, CMT.
This trader and consultant uses a genetic algorithm to discover the best rules
and parameters for a trading system.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
In the decades that technical analysis has been rising in prominence, few have
been as outspoken as Ralph J. Acampora, CMT, first vice president with Prudential
Securities. Acampora has his roots firmly in the discipline. He’s been
a technician for three decades, he’s a regular panelist and technician
on the popular television show Wall $treet Week with Louis Rukeyser and not only that, he’s
a cofounder of the Market Technicians Association. In 1996, he won a place
on the second team in the Institutional Investor All-America Research Team
in the category of technical analysis. STOCKS & COMMODITIES Editor Thom
Hartle spoke with Acampora on November 19, 1996, via a telephone interview,
covering a number of topics including the value of using basic research and
making use of historical comparisons in the stock market.
By Thom Hartle.
Maintaining an optimized portfolio of strong blue-chip stocks is one way to
invest. Here are the basics of how stock groups move through a typical business
cycle.
By Paul and Carole Huebotter.
Option Simulator, version 2.0 (Bay Options)
CycleTrader, version 2.0 (Bressert Group)
Financial Toolbox (The Mathworks, Inc.)
This month, Meyers uses a daily indicator based on the Dow Jones Utility Average
as a market timing system for the Standard & Poor’s 500 index.
By Dennis Meyers, PhD.
Point & figure charting is one of the classic techniques of technical analysis.
Here’s a refresher look at the basics.
By Daryl Guppy.
Numerous techniques for timing transactions are available to the technical
trader. One popular method uses the difference between the market trend and
the price. Market timing strategies can be developed based on the market oscillating
above and below the trend. Here are the basics of using an oscillator for timing
a stock.
By Richard Goedde.
Seasoned equity traders know that interest rates are a key force behind the
direction of the stock market. The term “interest rates,” of course,
is really a catch-all phrase for a group of markets that professional traders
refer to as fixed income, and the most common group of those is the Treasury
bond market. So what are some features that any technically based trader or
investor should know about the workings of the bond market? To find out, STOCKS & COMMODITIES
Editor Thom Hartle spoke with Alex Saitta, technical analyst and vice president
of Salomon Brothers, via telephone on December 20, 1996, covering such subjects
as intermarket relationships, the importance of testing trading theories and
more.
By Thom Hartle.
When to buy and what? Those are the questions that have plagued market participants
the world over. Here’s a proposal on how to use candlesticks to time
the market.
By Gary S. Wagner and Bradley L. Matheny.
Things may be going great for you now, but what happens when the tide turns
and you face hard times in the market? Here’s how to protect yourself.
By
Van K. Tharp, PhD.
Traders can get caught up in a scenario in which they believe the market will
unfold. Becoming a neutral observer may be the best strategy.
By Ruth Barrons Roosevelt.
Sight System (Robert L. Moody)
What Works on Wall Street The Software (Standard & Poor’s CompuStat)
What Works on Wall Street The Book (author, James O’Shaughnessy)
Event Trading (author, Ben Warwick)
McMillan on Options (author, Lawrence G. McMillan)
How to Start Your Own Commodities Trading Business (Strasser Futures)
OmniTrader, version 2.5 (Nirvana Systems)
By the Numbers (International Financial Press)
Value Line Fund Analyzer, version 1.1 (Value Line Publishing Inc.)
Topline Encyclopedia of Historical Charts (Topline Investment Graphics)
Here’s a novel way of using the moving average convergence/divergence
(MACD) histogram to generate buy and sell signals for stock and mutual fund
traders. Not only that, included is a simple means of analyzing risk-adjusted
trading system performance.
By Mark Vakkur, M.D.
The Dow dividend strategy or, more idiomatically, the “dogs of the Dow” has
garnered a lot of attention lately. It, or one of its variations, has been
the subject of at least five full-length books in the 1990s as well as countless
articles. An August 1996 STOCKS & COMMODITIES article covered just this
subject and included a theoretical explanation for the success of the Dow dividend
strategy and its progeny. Here’s an update.
By Paul and Carole Huebotter.
A market trends, and then consolidates, before either resuming the trend or
reversing. Is there any way that a technical trader can get a hint about which
outcome, the reversal or the continuation, is more likely? This market analyst
offers his method for finding out.
By Alex Saitta.
This month, this trader and consultant looks at seasonality as the basis of
a trading system.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
John Bollinger, who is best known for his work on trading bands, also has other
accomplishments to his credit as money manager, publisher and market analyst.
Of late he’s been looking at some new concepts: group analysis, which
isn’t a new concept at all, and fuzzy logic as applied to the markets,
which is. To find out more, STOCKS & COMMODITIES Editor Thom Hartle decided
to speak with Bollinger on January 23, 1997, via telephone, on topics ranging
from group sector analysis to using fuzzy logic in market analysis.
By Thom Hartle.
Sometimes a trade doesn’t work out the way you hoped it would, but you
can always learn from your mistakes if you take the time to review your trades.
Take a lesson from this failed trade.
By Thomas Bulkowski.
The key to making money in the markets is having the major trends at your back.
This well-known money manager points to the importance of looking at the big
picture.
By Victor Sperandeo.
You don’t have choices regarding the past, but you do have choices regarding
your future. Here are some ideas about how you can change your perception of
the future.
By Adrienne Laris Toghraie.
Inside Advantage (Ruggiero Associates)
Insider TA Pro, version 3.02 (Stock Blocks, Inc.)
Learning the KST (International Institute for Economic Research, Inc.)
The system developer has various optimization techniques to choose from. Here,
Contributing Editor Dennis Meyers updates his previous work using the walk-forward
optimization method.
By Dennis Meyers, PhD.
Here, a professional trader walks us through a recent trade he made and details
the reasoning behind his decisions. He also shows that trading skills don’t
need to be complicated, but they do have to be well practiced.
By Gary Smith.
This time, this Contributing Writer looks at using cycles as the basis of a
trading system.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
Devising and implementing a strategy is the key to successful trading, according
to Jay Kaeppel, director of market research for Essex Trading Co., Ltd. STOCKS & COMMODITIES
Editor Thom Hartle spoke with Kaeppel via phone on February 18, 1997, to inquire
about his favorite techniques for investing in the stock market, trading futures
and options.
By Thom Hartle.
As your stock rises and sector rotation becomes more pronounced, it’s
wise to be alert to a chart formation called a rising wedge. Rising wedges
can get you out at the top before your stock tumbles. Here’s a refresher
on this intriguing formation.
By Thomas Bulkowski.
Interest rates often lead the stock market. Here’s a technique to compare
the yield on three-month commercial paper to the Standard & Poor’s
500, creating an indicator for the stock market.
By Martin Pring.
Change is a part of life, and for a trader, it can be a problem or an opportunity.
Here’s how a trader can make sure it’s not a problem.
By Adrienne Laris Toghraie.
Formula Research (Nelson Freeburg)
Ultra Market Advisor, version 4.13 (Ultra Financial Systems)
AIQ TradingExpert, version 3.21 for Windows (AIQ Systems)
A-T Attitude for the Internet, version 6.39C+ (A-T Financial Information, Inc.)
Here’s a new chart pattern that suggests when to take profits before
a trend change begins. Included is a review of past performance.
By Thomas Bulkowski.
Here’s an update of this author’s article from August 1994 on trading
bond funds using Barron’s Gold Mining Index as an indicator. In addition, take
a look at a new version of that model, as well as information on other ways
to take advantage of the timing signals it generates.
By Jay Kaeppel.
This month, this Contributing Writer looks at using lunar cycles as the basis
of a trading system.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
“Aerodynamic” may seem like a peculiar description for a trader,
considering what the word brings to mind at first glance: smooth and sleek,
streamlined to minimize resistance. And yet, think about it. Successful traders
are mentally streamlined. Winning traders display minimal emotional resistance
to a high-risk environment, only trusting their skills to trade. This focused
mental state is comparable to those of top athletes who go into head-to-head
competition concentrating on their goal, free of any excess mental baggage
that could weaken their performance; they operate with a mental toughness to
bring home the gold. One trader knows both challenges: Connie Brown, who was
at one time a world-class swimmer, and who is today a professional trader as
well as the author of the work Aerodynamic Trading. STOCKS & COMMODITIES Editor Thom Hartle interviewed
Brown via telephone on March 24, 1997, about trading, the similarities to athletic
competition and other topics.
By Thom Hartle.
A price chart is really a time series, and if you’re using technical
analysis on one segment, then it’s important that the statistical characteristics
are the same throughout the data. This is called stationarity. Here’s a method for verifying that the data is
statistically consistent.
By Gregory N. Hight.
Here’s a look at a tried-and-true favorite, an oscillator that traders
can use to determine the trend of the market.
By Joe Luisi.
Option Master, 2d edition (Institute for Options Research Inc.)
Net Worth (author, Edward Renehann Jr.)
Structure, version 2.0 (NAVA Development Corp.)
The Visual Investor (author, John J. Murphy)
Beyond Technical Analysis (author, Tushar Chande)
Pro-Vest Option Trading Method (Essex Trading Co.)
A Traders Astrological Almanac (PAS, Inc.)
Trader’s Companion (PinPoint Applications)
Here’s a way that traders can use color for a visual cue about changes
in trends.
By Mel Widner, PhD.
The options trader has available many different strategies, virtually to suit
every need and intent. Here’s how to use the credit spread strategy.
By Jay Kaeppel.
Most indicators use a fixed zone for buy and sell signals. Here’s a concept
based on zones that are responsive to past levels of the indicator.
By Leo Zamansky, PhD, and David Stendahl.
Here, in part 1 of two, Katz and McCormick explain the steps necessary to evaluate
trading system behavior with the use of statistics. Here, in part 1 of two,
they explain the steps necessary to evaluate trading system behavior with the
use of statistics.
By Jeffrey Owen Katz, PhD, and Donna L. McCormick.
In the arena of technical analysis, it’s hard to imagine not ever having
heard about Larry Williams, well known as trader, author, newsletter editor
and money manager. Think of it virtually every technical-based software has
some of his technical indicators. Despite all that, surprisingly, Williams
is not as fond of technical analysis as you might expect. Why? We found out
the answer when STOCKS & COMMODITIES Editor Thom Hartle spoke to Williams
via phone on April 23, 1997, discussing Williams’s views on technical
analysis, money management and other topics.
By Thom Hartle.
Are you just starting out as a technical trader? Or are you a veteran who wouldn’t
mind a refresher course on the basics? Here’s a primer for the novice
and a reminder for the veteran covering points of interest, including computer
hardware, software and data.
By Gregory L. Morris.
Here’s a look at the parabolic trading system, with details on the way
it works and how it’s calculated.
By John Sweeney.
Following a strategy is key to success in the markets, but what if you make
deliberately wrong decisions and still make money? Here are some ways to avoid
this form of self-sabotage.
By Adrienne Laris Toghraie.
Time To Trade 2 (North Systems Inc.)
Campaign Trading (author, John Sweeney)
SuperCharts Real Time, version 4 (Omega Research)
This Contributing Editor has looked into using the internal market statistics
to generate stock market trading signals. Here, he upgrades one of his previously
published market timing systems and discusses optimization strategies.
By Dennis Meyers, PhD.
In part 1, Katz and McCormick looked at the underpinnings of how statistics
can help the trader determine the feasibility of a system. This month, in part
2, they explain the steps necessary to evaluate trading system behavior with
the use of statistics.
By Jeffrey Owen Katz, PhD, and Donna L. McCormick.
Here, the author of The New Science of Technical Analysis and the brand-new New Market Timing Techniques explains how to use the TD REI and the
TD Price Oscillator Qualifier.
By Thomas DeMark.
Here’s a seasonally and statistically based intermarket spread trade.
By Scott W. Barrie.
Have you ever lost money suffering through a head-and-shoulders reversal? Here’s
a primer on one of the better-known chart patterns that signal major bottoms
and tops.
By Thomas Bulkowski.
How many times have you heard that developing your own rules and following
them is the way to trade? By now, probably plenty. It’s not just idle
speculation, either; Richard Saidenberg, a Commodity Trading Advisor and independent
futures trader, discovered that the steps to successful trading were based
on developing a systematic approach to trading. STOCKS & COMMODITIES Editor
Thom Hartle interviewed Saidenberg via phone on May 20, 1997, and talked to
him about system design, the pitfalls to avoid while developing a system as
well as other topics.
By Thom Hartle.
Risk Of Ruin (Financial
Trading Inc.)
OptionStation, version 1.2 (Omega Research, Inc.)
PC Financial
Network’s Maximizer for Windows, version 2 (Ret-Tech Software, Inc.)
Before computers became commonplace, technical traders spent most of their
time studying their charts, looking for consolidation and reversal patterns.
Today, many traders have moved away from using classic chart patterns to methods
based on quantifiable indicators. Here, the two disciplines are combined, using
chart analysis and basic indicators to identify trading opportunities.
By Daniel L. Chesler.
Why is money management one of the first items that professional traders stress?
Why would you think? Here’s an overview of risk and several simple mechanical
approaches to money management.
By Mark Vakkur, M.D.
Do markets decline in value at a faster pace than they rally? The question
is put to the test using the Chicago Board of Trade Treasury bond futures contract.
By Alex Saitta.
Is increased sunspot activity a precursor to market volatility?
By Jeffrey Owen Katz, PhD, and Donna L. McCormick.
Computers have managed to insinuate themselves into our lives these days, but
not many of us remember the early days.
MoniResearch Newsletter publisher Steve Shellans was a pioneer of
sorts in the industry; he started to work with computers in earnest 40 years
ago, before manned space flight had even been achieved. By the early 1970s,
he was a pioneer of another sort when he moved out of New York City, the financial
center of the nation, across the country, and there eventually building the
beginnings of the market timer database that would be the underpinning of
The MoniResearch Newsletter. Shellans came into the public eye in
the mid-1980s when Money magazine and USA Today took note of his monitoring of the market timing industry. STOCKS & COMMODITIES Editor Thom Hartle spoke to Steve Shellans via telephone
interview on June 19, 1997, asking him about the differences between classic
market timers and dynamic asset allocators, why some timing models work better
than others, and why hiring a professional money manager is, in the long run,
much easier on a fragile ego.
By Thom Hartle.
This longtime S&C contributor explains the basis of the existence of cycles
in market data.
By John F. Ehlers.
Are managed futures for you? Mysterious for many investors, they nonetheless
fill a particular need and are no riskier than traditional equity investments,
and dealing with a professional commodity trading advisor (CTA) can certainly
help. Here are some details.
By Martin Hiemstra.
Here, one of the most popular indicators found in most analytical software
packages is explained.
By John Sweeney.
Trading Without Fear: Eliminating Emotional Decisions with Arms Trading
Strategies (author, Richard W. Arms Jr.)
The Pitbull Investor (IMF Corporation)
Gaming The Market: Applying Game Theory to Create Winning Trading Strategies (author,
Ronald B. Shelton)
Systems & Indicators, version 1.0 (Meyers Analytics, LLC)
The Galactic Trader (PAS Inc.)
Minitab Statistical Systems (Minitab, Inc.)
We’ve all seen a stock break out of its trading range and trend to new
levels. The initial surge will appear as a sudden increase in activity, pushing
the price higher. The higher prices often reach levels that indicate the stock
is temporarily overbought and, after a pause, may continue to trend. Technicians
use indicators to identify the temporary extremes, and one indicator is volatility
bands. This article details two trading systems designed to take advantage
of the breakouts.
By Ahmet Tezel, PhD, and Suzan Koknar-Tezel, M.S.
Grain markets offer profit opportunities due to the seasonal nature of their
planting, crop development and harvesting cycle. During certain times of the
year, the price of the grain crops are especially vulnerable due to these seasonal
tendencies. Here are some trading strategies based on seasonal spread trading,
using a trend-following method to filter seasonal signals.
By Scott W. Barrie.
This charting technique is a simple but effective technique for determining
the direction of the trend as well as changes in the trend.
By William Arnold.
Markets trend. And within those trends are corrective phases, which in turn
are followed by the trend resuming. At some point, the major market trend reverses.
So what might be a clue to whether the current price action is a correction
or a trend reversal? Here’s one method to consider.
By Alex Saitta.
Tushar S. Chande is a familiar name to regular STOCKS & COMMODITIES readers,
as he’s contributed any number of solid, well-researched and thoughtful
technical articles over the years and has been a Contributing Editor for the
past few. His background, like so many others, wasn’t financial when
he started out; he started out as an engineer before being bit by the trading
bug before eventually ending up as a Commodity Trading Advisor in Chicago.
Having evolved into a money manager, Chande has keen insight into trading system
development. To conduct this interview, S&C Editor Thom Hartle and Chande
exchanged a series of questions and answers via E-mail in late July 1997. What
follows is the result.
By Thom Hartle.
We’ve all experienced good trades, bad trades and so-so trades. Wouldn’t
it be better if you had steps you could take to improve the entries and exits
of the trades that your system generated to quantify the good from the bad?
This article provides basic steps to do so.
By Leo J. Zamansky, PhD, and David C. Stendahl.
Chartists often use techniques to set profit objectives as well as determine
their risk points in putting on a trade. Here, then, are some guidelines for
your own trading.
By Michael Kahn.
The on-balance volume indicator is a technical tool that traders use to determine
the trend of volume. Here are the basics.
By John Sweeney.
VectorVest ProGraphics, version 4.0 (MarketSoft Inc.)
Unfair Advantage, version 1.54 (Commodity Systems Inc. (CSI))
Dow Jones News/Retrieval Private Investor Edition version 5.0 (Dow Jones Interactive Publishing)
“Don’t buy it here, but wait for a pullback.” Are you familiar
with that piece of sage advice? Or what about “I would wait and sell on
a bounce”? What does this really mean? Where and when do you act? Here’s
one technique for calculating retracement levels using that tried-and-true
favorite Fibonacci ratios, as well as using momentum to define the trend.
By Thom Hartle.
The more things change, the more they remain the same. Here, this money manager
compares today’s economic situation with the 1920s and finds some interesting
parallels.
By K.D. Angle.
Market timers develop models to decide when to be in the stock market and when
to be out. These models can be based on theories that range from simple technical
analysis to complex econometric models. With that in mind, here’s a timing
model based on the market performance of a particular interest rate futures
contract combined with a set of technical indicators.
By Dennis Meyers, PhD.
Is it possible to train a neural network to “see” like you and me?
Katz and McCormick walk you through their research in selecting chart-based
trading points by hand and then training the neural network to repeat the process.
By Jeffrey Owen Katz, PhD, with Donna L. McCormick.
The author of Mesa and Trading Cycles and developer of the Mesa software series presents why you should dynamically adjust your indicators due to the change
in market cycles.
By John F. Ehlers.
Bernie Schaeffer, president of the Investment Research Institute, is best known
as the senior editor of The Option Advisor, the largest-circulation options newsletter in the US. He is also senior editor of Fund Profit Alert and Schaeffer’s Research Review newsletters. Schaeffer made the
Dick Davis Hall of Fame for being bearish ahead of the stock market correction
in 1987, and since then, he has been steadfastly and correctly bullish, in
large part to his use of sentiment-based indicators that helped him recently
to garner the Market Technicians Association’s Best of the Best award
in sentiment and psychological analysis; in addition, he has a book due out
even as you read this from John Wiley & Sons entitled The Option Advisor: Wealth-Building Techniques Using Equity and Index Options.
So how’s he view the market these days? To find out, STOCKS & COMMODITIES
Editor Thom Hartle interviewed Schaeffer via telephone on August 19, 1997.
By Thom Hartle
What’s a weekly reversal and how does it work? Here’s a refresher
on this intriguing formation.
By Thomas Bulkowski.
It’s been around forever, and it’s a tried-and-true favorite. It’s
also the source of great frustration. How can anything end up as both? Here
are the basics for using moving averages to identify the trend in the market.
By John Sweeney.
Robert Krausz’s Fibonacci Trader, version 1.98 (Fibonacci Trader Corporation)
OpCalc Professional 3.50 (Austin-Soft, Inc.)
Investor’s Reference Library,
version 5.0 (Industry Monitors)
“The Dogs of the Dow,” a popular strategy based on purchasing the
highest-yielding stocks each year, is reviewed here using a longer lookback
period than originally used, as well as detailed analyses of the risks and
rewards.
By Mark Vakkur, M.D.
This indicator, a long-term stock market investment tool, compares the performance of the S&P 500 to the New York Stock Exchange index to measure sentiment. The theory is that investors have a preference for certain types of investments, blue chips versus mid-cap, during phases of a bull market. See what this indicator says lies ahead. By Cyril V. Smith Jr.
For traders who want to use options to hedge their long positions, here are
the formulas for calculating the probabilities.
By John A. Sarkett.
Andrew Lo, Harris & Harris Group Professor of Finance at the Massachusetts
Institute of Technology’s (MIT) Sloan School of Management, director
of MIT’s Laboratory for Financial Engineering and founder of Sloan’s
Track in Financial Engineering, is a radical of sorts because of his frank
and open interest in technical analysis. Further, he’s an academic who’s
perfectly willing to admit that technicians are often more open-minded about
the markets than the academics who are his peers. But he’ll also tell
you that technicians are getting too far away from the fundamentals of technical
analysis, and getting overly enamored with the modern bells and whistles. To
find out what else Lo had to say, STOCKS & COMMODITIES Editor Thom Hartle
spoke with him via telephone on September 22, 1997, discussing technical analysis
of yore, why statistics are misapplied and how artificial intelligence may
not be the great end-all that it’s proclaimed to be.
By Thom Hartle.
Here’s a new twist on volume analysis, with a volume-based indicator
for identifying meaningful trends.
By Stephen J. Klinger, CMT.
The stochastic oscillator is one of the more popular indicators available on
today’s software. This technical tool tells you where the current closing
price is relative to the recent range of the market. Here are some techniques
for using this classic indicator.
By Joe Luisi.
Does an increase in volatility indicate a market top? This historical look
offers some insights.
By William Brower, CTA.
An oscillator’s failure to confirm the higher high or the lower low of
the market is a red flag to most technical traders. Is there a message when
the price diverges from the indicator? This veteran technician thinks there
is.
By Martin J. Pring.
Like the markets, technical analysis evolves. This article details the construction
and use of bar-chart types beginning with a short review of older forms bar
charts, candlesticks and Equivolume and a presentation of two new forms, flagbars
and timebars.
By Salvatore J. Chiappone, DDS.
Self-discipline is the key to success in any field. Traders especially need
to maintain discipline to manage themselves during good and bad times. Here
are some of the key issues on how to keep yourself in line.
By Adrienne Laris Toghraie.
Resampling Stats for PC or Macintosh (Resampling Stats, Inc.)
SirTrade 97, version 1.10c (SirTrade International)
Performance Summary Plus/Portfolio Evaluator, version 2.1, revision 86 (RINA Systems, Inc.)