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VOLUME 15 ARTICLE LIST

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SYSTEM DESIGN

A Daily A-D New High-New Low Market System

Here's a new system using daily statistics to issue buy and sell signals for the stock market. By Dennis Meyers, Ph.D.

MONEY MANAGEMENT

Beta-Adjusted Trailing Stops

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

REAL WORLD

Developing Systems With A Rule-Based Approach

This month, Katz discusses a trading system he developed using a rule-based approach. By Jeffrey Owen Katz, Ph.D., with Donna L. McCormick

Sidebar: System implementation

INTERVIEW

Developing Winning Attitudes With Mark Douglas And The Disciplined Trader

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

OPTIONS

Straddles, Strangles And Spreads

Here's a primer for the new trader who wants to move beyond simple buy-and-hold strategies. By Richard M. Koff

Quick-Scans, Reviews

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.)

TRADING TECHNIQUES

The 10% Swing Filter

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.

DERIVATIVES

Trading Soybean Spreads

Here are the basics of trading a soybean commodity spread using a seasonal strategy. By Scott W. Barrie

Sidebars: Rules for decision logic-based seasonal trading

Performance breakdown of the decision logic seasonal trades

REAL WORLD

The Stock Market And Seasonality

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

TRADING TECHNIQUES

Genetic Algorithms And Rule-Based Systems

This trader and consultant uses a genetic algorithm to discover the best rules and parameters for a trading system. By Jeffrey Owen Katz, Ph.D., with Donna L. McCormick

Sidebar: System implementation in C++

INTERVIEW

Technical Tour De Force:

Ralph Acampora Of Prudential Securities

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

NOVICE TRADER

The Fundamentals Of Sector Rotation

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

Quick-Scans, Reviews

Option Simulator, version 2.0 (Bay Options)

CycleTrader, version 2.0 (Bressert Group)

Financial Toolbox (The Mathworks, Inc.)

INDICATORS

A New Utility Average Stock Market System

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, Ph.D.

CLASSIC TECHNIQUES

On Building Point & Figure Charts

Point & figure charting is one of the classic techniques of technical analysis. Here's a refresher look at the basics. By Daryl Guppy

NOVICE TRADER

Timing A Stock Using The Regression Oscillator

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

INTERVIEW

Tried And Tested:

Alex Saitta Of Salomon Brothers

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

TRADING TECHNIQUES

Market Timing And Candlesticks

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

BASIC TECHNIQUES

Protecting Yourself In Tough Markets

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, Ph.D.

TRADING PSYCHOLOGY

Scenario Trading

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

Quick-Scans, Reviews

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)

INDICATORS

The Moving Average Convergence/Divergence Histogram

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.

REAL WORLD

The New Dow Strategy In 1996-97

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

INDICATORS

Bonds, Price Momentum And Trends

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

TRADING TECHNIQUES

Seasonality And Trading

This month, this trader and consultant looks at seasonality as the basis of a trading system. By Jeffrey Owen Katz, Ph.D., with Donna L. McCormick

INTERVIEW

On Rational Group Structure:

John Bollinger And Group Analysis

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

Sidebar: Chaikin indicators

ANATOMY OF A TRADE

The Failed Trade

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

BASIC TECHNIQUES

The Essence Of Market Profits

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

TRADING PSYCHOLOGY

Trading In The Moment

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

Quick-Scans, Reviews

Inside Advantage (Ruggiero Associates)

Insider TA Pro, version 3.02 (Stock Blocks, Inc.)

Learning the KST (International Institute for Economic Research, Inc.)

SYSTEM DESIGN

Walk Forward With The Xau Bond Fund System

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, Ph.D.

BASIC TECHNIQUES

Tape Reading And Daytrading Stock Index Futures

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

TRADING TECHNIQUES

Cycles And Trading Systems

This time, this Contributing Writer looks at using cycles as the basis of a trading system. By Jeffrey Owen Katz, Ph.D., with Donna L. McCormick

INTERVIEW

Searching For Clues With Jay Kaeppel

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

Sidebars: Investing strategies

Technical indicators

A simple futures trading system

Relative volatility trading strategy reference

NOVICE TRADER

On Rising Wedges

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

Sidebar: Characteristics of rising wedges

INDICATORS

The Pring Money Flow Indicator

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

TRADING PSYCHOLOGY

Dealing With Change

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

Quick-Scans, Reviews

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.)

NEW TECHNIQUES

The Bump-And-Run Reversal

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

NEW TECHNIQUES

Bond Market Timing Revisited

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

TRADING TECHNIQUES

Lunar Cycles And Trading

This month, this Contributing Writer looks at using lunar cycles as the basis of a trading system. By Jeffrey Owen Katz, Ph.D., with Donna L. McCormick

INTERVIEW

On The Aerodynamic Trader: Constance Brown

"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

STATISTICS

Checking For Stationarity

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

Sidebar: A spreadsheet for chi-square

NOVICE TRADER

Playing TRIX:

The Triple Exponential Smoothing Oscillator

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

Sidebar: Indicator TRIX

Quick-Scans, Reviews

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)

NEW TECHNIQUES

Rainbow Charts

Here's a way that traders can use color for a visual cue about changes in trends. By Mel Widner, Ph.D.

Sidebar: Creating a rainbow chart

OPTIONS

Selling Vertical Credit Spreads

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

NEW TECHNIQUES

Dynamic Zones

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, Ph.D., and David Stendahl

TRADING TECHNIQUES

Evaluating Trading Systems With Statistics

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, Ph.D., and Donna L. McCormick

INTERVIEW

A Buy Signal Isn't Just A Buy Signal:

Contextual Trader Larry Williams

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

Sidebar: Kelly formula

NOVICE TRADER

Computers And Market Analysis

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

NOVICE TRADER

Parabolics

Here's a look at the parabolic trading system, with details on the way it works and how it's calculated. By John Sweeney

TRADING PSYCHOLOGY

Is Wrong Ever Right?

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

Quick-Scans, Reviews

Time To Trade 2 (North Systems Inc.)

Campaign Trading (author, John Sweeney)

SuperCharts Real Time, version 4 (Omega Research)

SYSTEM DESIGN

The Turbo A/D, NH, NL Market System

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, Ph.D.

TRADING TECHNIQUES

Using Statistics With Trading Systems

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, Ph.D., and Donna L. McCormick

NEW TECHNIQUES

The TD Range Expansion Index (TD REI)

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

Sidebar: The TD REI (TD Range Expansion Index)

TRADING TECHNIQUES

Trading The Wheat/Corn Spread

Here's a seasonally and statistically based intermarket spread trade. By Scott W. Barrie

NOVICE TRADER

The Head-And-Shoulders Formation

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

INTERVIEW

The Systematic Trader: Richard Saidenberg

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

Quick-Scans, Reviews

NeuroGenetic Optimizer, version 2.5 (BioComp Systems, Inc.)

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.)

CLASSIC TECHNIQUES

Identifying Significant Chart Formations

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

MONEY MANAGEMENT

The Basics Of Managing Money

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.

NEW TECHNIQUES

Break Faster Than Rally?

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

TRADING TECHNIQUES

Sunspots And Market Activity

Is increased sunspot activity a precursor to market volatility? By Jeffrey Owen Katz, Ph.D., and Donna L. McCormick

INTERVIEW

Monitoring The Market Timers:

Steve Shellans Of MoniResearch Newsletter

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

NOVICE TRADER

Do Cycles Exist In The Market?

This longtime S&C contributor explains the basis of the existence of cycles in market data. By John F. Ehlers

FUTURES

Managed Futures And Commodity Trading Advisors

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

INDICATORS

The Relative Strength Index (RSI)

Here, one of the most popular indicators found in most analytical software packages is explained. By John Sweeney

Sidebar: Calculating RSI

Quick-Scans, Reviews

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.)

TRADING TECHNIQUES

On Using Volatility Bands

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, Ph.D., and Suzan Koknar-Tezel, M.S.

Sidebar: Measuring variability

TRADING TECHNIQUES

Trend-Following The Corn/Wheat Spread

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

NEW TECHNIQUES

Three-Line Break Reversal Signals

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

NEW TECHNIQUES

Correction Or Reversal?

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

INTERVIEW

Analysis In Action: Tushar Chande

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

MONEY MANAGEMENT

Evaluating System Efficiency

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, Ph.D., and David C. Stendahl

CLASSIC TECHNIQUES

Measuring The Move

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

INDICATORS

On-Balance Volume

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

Quick-Scans, Reviews

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)

TRADING TECHNIQUES

Using Fibonacci Ratios And Momentum

"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

REAL WORLD

Stock Market Déjà Vu?

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

SYSTEM DESIGN

The T-Bond Futures And Stock Market Breadth System

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, Ph.D.

ARTIFICIAL INTELLIGENCE

Adding The Human Element To Neural Nets

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, Ph.D., with Donna L. McCormick

THEORY

Cycle Measurements

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

INTERVIEW

Timing's The Thing: Bernie Schaeffer

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.

NOVICE TRADER

The Weekly Reversal

What's a weekly reversal and how does it work? Here's a refresher on this intriguing formation. By Thomas Bulkowski

NOVICE TRADER

On Moving Averages

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

Quick-Scans, Reviews

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)

TRADING TECHNIQUES

New Tricks With The Dogs Of The Dow

"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.

INDICATORS

The Investor Preference Index

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.

Sidebar: Calculating the investor preference index

OPTIONS

Time And Options Probabilities

For traders who want to use options to hedge their long positions, here are the formulas for calculating the probabilities. By John A. Sarkett

INTERVIEW

On The Fundamentals Of Technical Analysis: Andrew Lo

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

INDICATORS

Identifying Trends With Volume Analysis

Here's a new twist on volume analysis, with a volume-based indicator for identifying meaningful trends. By Stephen J. Klinger, CMT

Sidebar: Calculating the KVO

NOVICE TRADER

The Stochastic Oscillator

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

Sidebar: Calculating the stochastic indicator

BASIC TECHNIQUES

High Volatility And Market Turns

Does an increase in volatility indicate a market top? This historical look offers some insights. By William Brower, CTA

Sidebar: Volatility%

INDICATORS

Reverse Divergences And Momentum

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

NEW TECHNIQUES

New Dimensions In Market Charts

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

TRADING PSYCHOLOGY

Trading Without Limits

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

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