Letters To S&C  |  JUN 2005

Letters To S&C by Technical Analysis, Inc.

Stocks & Commodities V. 23:6 (10-15): Letters To S&C by Technical Analysis, Inc. The editors of S&C invite readers to submit their opinions and information on subjects relating to technical analysis and this magazine. This column is our means of communication with our readers. Is there something you would like to know more (or less) about? Tell us about it. Without a source of new ideas and subjects coming from our readers, this magazine would not exist. Address your correspondence to: Editor, STOCKS & COMMODITIES, 4757 California Ave. SW, Seattle, WA 98116-4499, or email to Editor@Traders.com. All letters become the property of Technical Analysis, Inc. Letter-writers must include their full name and address for verification. Letters may be edited for length or clarity. The opinions expressed in this column do not necessarily represent those of the magazine.—Editor FLAGS IN A BEAR MARKET? Editor, I just finished Markos Katsanos’ recent S&C article, “Measuring Flags And Pennants” (April 2005), and was thoroughly impressed. The accuracy of his revised price predictions are truly amazing for the small sample size presented. I am wondering how this formula will perform for larger sample sizes and in bear versus bull markets. I am relatively new to the whole concept of backtesting, having just signed up for a TradeStation trial, and my higher math skills are very rusty. But I am eager to explore these tests at some point in the future. I also eagerly await Katsanos’ next article on applying this newfound result. Thanks for the insightful analysis. BRENT BREWER, CFA via email Markos Katsanos replies: Thank you for your interest in my article. The coefficient r2 suggests the simplified formula would explain only about half of the cases. This was verified by my statistical research on 100 flags and pennants during the period of 11/13/2002–11/15/2004, which included a bullish and a sideways market but not a bear market. This process revealed that 57% of the cases were within +/-10% of the predicted price objective. Nevertheless, using the formula removes emotions from trading and prevents you from blaming yourself for selling too soon or too late.

by Technical Analysis, Inc.