ARTICLE SYNOPSIS ...A new indicator for the S&P stock index futures by Daniel E. Downing Little is new in the field of technical analysis. Even with a staff of seven analysts, my firm can take credit for developing only three entirely new technical tools for the markets. We spend most of our time rearranging existing technical indicators into new combinations. It is a ""new"" combination of ""old"" indicators that has proved to be a reliable indicator during the last six months for determining the intermediate-term trend for the Standard & Poor's stock index futures. For my purposes here, the intermediate-term t...
BY: Daniel E. Downing
ARTICLE SYNOPSIS ...Correlations of common stock indicators by Frank Tarkany Not surprisingly, it turns out that certain stock indicators are highly correlated with each other and with the Dow Jones Industrial Average (DJIA). There appear to be short but usable lags between the indicators and the underlying average. I investigated the cross and auto-correlations on more than 25 years of weekly data from 1964 to 1988 for the DJIA and these NYSE technical indicators: Cumulative index of advancing minus declining issues (CADI) Cumulative index of advancing minus declining volume (CADV) Cumulative price Quotron i...
BY: Frank Tarkany
ARTICLE SYNOPSIS ...Fault-prone options traders by Jerry Kopf ""The propensity to gamble is always increased by a large prize vs. a small entry fee, no matter how poor the true odds."" --Warren Buffett, CEO of Berkshire Hathaway Dreams are stronger than reality. This adage is proven daily by lottery ticket buyers who buck odds of 12 million-to-1, hoping to win life's great jackpot. Traders in stock options also make bets, but the nature of their betting is far different from plunking down $5 for a Quik Pik. Where the lottery is a game of pure chance, options are a game of skill and experience. Options players ca...
BY: Jerry Kopf
ARTICLE SYNOPSIS ...Letters to S&C Letters from readers this month ask our editors for charting programs, data retrieval, point and figure and option analysis information....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Optimizing moving averages by Charles J. McGuinness One of the first techniques you'll come across in almost any book on technical analysis is moving averages. Moving averages are amazingly handy in predicting the movement of securities. By themselves, they offer a simple means of generating reliable buy/sell signals--many people monitor a 200-day moving average to catch long-term trends. Moving averages can be used in conjunction with other indicators, helping to filter out the rapid buy-sell signals that minor fluctuations in price often generate. Perhaps the most alluring thing about moving...
BY: Charles J. McGuinness
ARTICLE SYNOPSIS ...Playing copper by Eric L. Sharp Perhaps the best way to succeed in futures trading is to pick up early on major trends and stay with them for all they're worth. Copper went into a major bull market in early 1987, almost tripling in value from the start to the high. Here are two techniques that helped in interpreting and staying with the copper trend. None of these methods is practical without a computer and adequate software, because too much data and number crunching are involved to do it by hand. Statistical analysis is one method by which trends can be interpreted and predicted. Markets o...
BY: Eric L. Sharp
ARTICLE SYNOPSIS ...Plurality by Arthur A. Merrill, C.M.T. Plurality: Now there's an indicator that has been around for at least half a century. Analyst James Alphier claims it was invented by technical analyst pioneer Paul Dysart, who published a piece on the subject at least as early as 1937. Analyst Ralph Rotnem used it early in its history, while in recent years analyst Alan Shaw has found it to be useful and gave it its name. The plurality index is based on the difference between advances and declines, regardless of sign. If advancing stocks on the New York Stock Exchange number 4,000 and declines number 3...
BY: Arthur A. Merrill, C.M.T.
ARTICLE SYNOPSIS ...Predicting market order with the Delta phenomenon by J. Welles Wilder Does each market have an underlying order that makes it predictable? The answer is yes. That order makes a riskless trading strategy possible. The Delta phenomenon shows the underlying order of the market, and zero-coupon government bonds are the vehicles to buy and sell to take advantage of the predictable sequences. You can't lose because even if you bought the bonds at their exact 30-year high, you can hold them to maturity and collect about 10% interest on your money. What is the Delta phenomenon? Every freely traded...
BY: J. Welles Wilder
ARTICLE SYNOPSIS ...Profit mapping by John Ehlers Optimization has been attacked by many technicians -- and rightfully so -- because peaking profit is virtually the same as curve fitting to back data. Used in this fashion, optimization can produce startling track records and still be useless for future trading. Market characteristics do change, however, and technical traders need a tool to help them adjust their preferred techniques to the changing market to improve profitability. Calculating the profit at any combination of parameters and making a three-dimensional map of the result is such a tool. Common techni...
BY: John F. Ehlers
ARTICLE SYNOPSIS ...SIDEBAR: Correlating made easy To find the correlation between two technical indicators, first calculate the positive or negative change of the indicator. If you were testing with no ""lagging,"" you'd then compare the first indicator's first change with the other indicator's first change. Utilizing the pencil and paper compartment technique outlined by Clifford Sherry in Stocks & Commodities, this comparison would be tallied in the appropriate ++, -+, +- or -- compartment. (The notations ""++,"" ""-+"" and so on refer to the four possible combinations of changes the two indicators show. If b...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...SIDEBAR: Details of the Study. The trade timing, transaction costs and statistical tests used in the study....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...SIDEBAR: How moving averages are computed Moving average are usually specified by two parameters. The first is the length of the moving average and is generally expressed in the same periodicity as the data. For example, if we have the daily price of the data, we might speak of a 10-day moving average. The second parameter is which data point's moving average we want to compute. For example, you might request the 30-day moving average for July 6. Three moving average algorithms are in wide use: simple, linear and exponential. Each performs roughly the same goal of averaging several days (wee...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...SIDEBAR: Integer data types Integer math gives the program a tremendous speed advantage over floating-point math on most computer systems, but it is not as easy to work with. Problems can arise with overflow, where a calculation yields a value too large to be represented in an integer. Overflow problems with moving averages are most likely to show up in long-period linear moving averages, where the total weighting can reach into the tens of thousands. Similarly, problems can occur when calculations produce results that are too small (for example, 0.5) to be held in an integer....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...SIDEBAR: Pertinent formulas This sidebar provides the three formulas used in the article, ""Correlation of common stock indicators.""...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Technically trading the ¥en by Thomas P. Drinka, Timothy L. Krehbiel, Stephen Ptasienski Speculators and commercial hedgers who trade currency futures often use technical analysis to determine trading signals. We statistically tested 34 of these indicators to see which were profitable and free from such bias as auto-correlation when used to trade the International Money Market (IMM) yen contract. Of the 34 indicators in Figure 1,16 survived our testing. The indicators are used to exploit price trends or price volatility. The former, referred to as ""BS/SW,"" usually involve buying strong mark...
BY: Thomas P. Drinka, Timothy L. Krehbiel, Stephen Pta
ARTICLE SYNOPSIS ...Trading with Gann lines by David Lamarr Gann lines, although only a small part of W. D. Gann's methods, provide an effective, straightforward way of determining support and resistance areas and times when to expect a change in trend. They can be thought of as ""price/time"" trendlines vs. the standard price-only trendlines many technical analysts use. Gann strongly believed time was the major factor in determining when a change of trend could be expected. These Gann lines project the market's natural rhythm on a price chart and have a distinct advantage over price trendlines by providing ass...
BY: David Lamarr
ARTICLE SYNOPSIS ...Volatility analysis in tactical stock trading by Peter Eliason Every stock, average and index has its own characteristic volatility range that holds the signals of impending price change. The challenge in technical analysis is to recognize and decipher these signals to determine which stocks, at what times, promise the most profitable trades. Generally, stocks with less than 10% weekly volatility hold little risk. When weekly volatilities exceed 10%, a price change may be imminent. Trading volatility requires a familiarity with the volatility characteristics of individual stocks, averages an...
BY: Peter Eliason