ARTICLE SYNOPSIS ...A Hybrid System For Market Timing by Mark B. Fishman and Dean S. Barr Hybrid technologies are perhaps the most-investigated topic in artificial intelligence today and here's how to apply the subject to trading. In two recent articles in STOCKS & COMMODITIES, we have demonstrated the application of advanced artificial intelligence technologies to the problem of market forecasting. That artificial intelligence works at all in predicting market movements compels us to rethink the absolutist position that markets are always random. What the evidence more plausibly suggests is that Standard & Po...
BY: Mark B. Fishman and Dean S. Barr
ARTICLE SYNOPSIS ...Candlesticks And Stochastics by Greg Morris Is it all hype and no substance, this candlestick business? This author says not. Here's a closer look. Japanese candlesticks have added a new and exciting dimension to technical analysis. They offer nothing that is not available in standard high-low bar charts as far as actual data displayed are concerned. When it comes to visual appeal and the ability to see data relationships better, however, candlesticks are exceptional. Coupled with a few popular indicators, candlesticks become even more powerful. After a little practice and familiarization, c...
BY: Gregory L. Morris
ARTICLE SYNOPSIS ...Choosing A Time Bar Length In Intraday Trading by Cynthia Kase Most intraday technical traders use charts based on hours or fractions of an hour. Most trading days, however, don't divide evenly into hours or conventional time fractions such as 30 or 45 minutes. Here are some suggestions from an intraday trader on how to handle bar lengths. For periods longer than about 15 minutes, I suggest one of two methods: Either divide the number of minutes in a day into same-length bars, or divide the day into bar lengths such that the leftover bars cover the last five to 10 minutes of the day, thus gi...
BY: Cynthia Kase
ARTICLE SYNOPSIS ...Letters To S&C by Technical Analysis, Inc. NETTING AN EXPERT SYSTEM Editor, Congratulations to Mark Fishman and Dean S. Barr for their description of a hybrid system for market timing (STOCKS & COMMODITIES, August 1991). Their use of neural networks to generate ""IF-THEN"" rules to feed an expert system truly combines the best properties of both technologies. One shortfall of the article, however, was the lack of information provided by the authors with respect to the predictive power of the hybrid system. It's easy to create a system that generates profitable buy/sell signals with the ben...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Market Vane Transformations by Kenneth L. Kinkopf Jr. The sentiment readings of the Market Vane service is a poll taken daily from futures trading advisors indicating the percentage that are bullish at that moment. Ironically, market consensus is used as a contrarian indicator. Does it work? This author transforms the Market Vane index into a better indicator. Market consensus is a dynamic indicator with which to evaluate market activity. Ironically, however, this tool is used as a contrarian indicator. The sentiment readings of the Market Vane service is a poll taken daily from futures trad...
BY: Kenneth L. Kinkopf Jr.
ARTICLE SYNOPSIS ...Price/Dividends Ratio Revisited by Arthur A. Merrill, C.M.T. In 1988 Merrill showed that the price/dividends ratio was useful in calling the 1987 crash. What's the outlook today? In the October 1988 issue of STOCKS & COMMODITIES, I described the usefulness of the ratio of price to dividends in calling the 1987 crash. It shouted warnings. What is the situation today? To review, Figure 1 is the long-term chart of the ratio, after filtering out all swings of the Dow Jones Industrial Average (DJIA) of less than 20%. Figure 2 brings the data up to date and includes a 10-year history. It's a quart...
BY: Arthur A. Merrill, C.M.T.
ARTICLE SYNOPSIS ...A COMPOSITE INDICATOR by Technical Analysis, Inc. Interview subject Tim Hayes suggests a modified version of the composite indicator using just three indicators. You refer to your composite indicator that is made up of subgroups. Can you tell our readers about one or two indicators from each subgroup? A lot of data and a lot of indicators go into our models. They're very, very broad, and there's too much in there for an individual to try to update without a computer. So what you could do is put a model together with just these three indicators, you take the same approach toward timing the m...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...PATTERN EXPLICATIONS by Technical Analysis, Inc. In Figure 1, the first pattern shown (A), called ""meeting lines,"" is a gap opening and an unchanged close. This pattern indicates that the market direction is unclear or it is the conclusion of a trend. With the %D above 80 at the time of this pattern, a potential reversal is indicated. The second pattern is a ""hammer"" (B). Hammers have a small real body with a long lower shadow with a small or no upper shadow. This pattern indicates a bottom as the market is hammering out a base. This particular time the pattern was early, but with the %D ...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...POINT & FIGURE TECHNIQUE by Technical Analysis, Inc. Explanation of point and figure charting, which is similar to bar charting except that price reversals below a minimum size are eliminated, and time is not a factor. This is one of the simplest methods for following markets. Point and figure charting is a technical trading approach that has been credited to Charles Dow, originator of the Dow theory. This technique differs from bar charting in that price reversals below a minimum size are eliminated and time is not a factor (it may be listed as only a frame of reference). Any market or ind...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...RULE PROCESS GENERATION by Technical Analysis, Inc. To illustrate how this process of rule generation works, suppose that the exponential moving average, taken together with the computed direction of the market and today's Standard & Poor's, represents a potent combination to produce a decision to buy or to sell under trending market conditions (the decision of which will depend, of course, on the absolute numerical values of those indicators today and yesterday, and their relative values compared with each other). Two rules, then (actually used in our system), may semi-automatically be induc...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...THE OPTION DELTA by Technical Analysis, Inc. Simply stated, the delta of an option is the amount by which the option will increase or decrease in price if the underlying instrument moves by 1 point. The deltas of call options have positive values, while those of put options have negative values. The delta of a call option will be close to 1, or 100%, if the underlying instrument is trading well above the strike price of the option. If the underlying instrument is trading well below the strike price of the call, the delta will be nearly zero....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Selecting And Interpreting Leading Indicators by Roger Pilloton Adjusting for the weaknesses of leading indicators so that you are able to select, interpret, and check their reliability. Leading indicators play a major role in economic and stock market forecasts. For example, the index of leading indicators calculated by the U.S. Department of Commerce is widely published every month. It is closely studied by economic professionals. It influences, directly or indirectly, the actions of millions in many fields, including politics, business and finance. It is closely watched because the peaks...
BY: Roger Pilloton
ARTICLE SYNOPSIS ...Swing Charts by J.R. Davis A profitable trade has two dimensions: time and space (which, for our purposes, will be known as price change). A trade that occurs in a few seconds is extremely difficult to cash in unless you are directly on the floor. On the other hand, a trade that lasts for several weeks or months gives traders and investors a chance to profit. The swing charting technique unites time and space to find profits. Swing charts offer (at least) three ways to improve your balance sheet. They are unequaled in providing both entry timing and direction after a market has become conges...
BY: J.R. Davis
ARTICLE SYNOPSIS ...The Baby Bulge Begins by John Sweeney Our Technical Editor opines about the demographic effect the baby boomer generation is having on the stock market. Is 38% of the value in the market unaccountable? What could explain such a discrepancy? Goldman, Sachs & Co. limited partner Barrie Wigmore (The Wall Street Journal , June 5, 1991) picked apart the market's advances in the 1980s but found that interest rates, higher earnings and ""overly optimistic earnings estimates"" couldn't account for more than 62% of the gains in that decade. Wigmore and economic luminary Robert Shiller (of Yale Unive...
BY: Bulge Begins by John Sweeney
ARTICLE SYNOPSIS ...The Common (But Useful) RSI by Herbert S. Hall, C.M.T. The relative strength index (RSI) is one of today's most popular indicators and is available in virtually every technical analysis software package sold. While the RSI indicator has become so common that some would-be users feel it has lost its effectiveness, calculating changes in RSI values clearly would give the user an advantage over those who calculate it with corresponding price levels only after the close. To do so, take a detailed look at how the RSI is calculated, how to determine appropriate values for it and, finally, how to us...
BY: Herbert S. Hall, C.M.T.
ARTICLE SYNOPSIS ...The Will Rogers Theory Of Point & Figure Trading by J. Adam Hewison When I first started trading, moving averages were pretty much the epitome of high-tech computer analysis. Since then, we have seen the birth of computerized studies for Gann, Fibonacci, stochastics, oscillators, overbought and oversold indicators and many, many others. While all these studies have contributed to the advancement of technical analysis, the surfeit of studies to examine have served more to confuse the individual than to clarify market direction. A case in point: I recently had a conversation with a colleague wh...
BY: J. Adam Hewison
ARTICLE SYNOPSIS ...Tim Hayes: Running With The Trend by Thom Hartle Ned Davis Research strategist Tim Hayes spoke with S&C about the firm's approach and emphasis on models and trend-sensitive indicators. Ned Davis Research uses a three-part market model, among others. STOCKS & COMMODITIES Editor Thom Hartle interviewed Hayes via telephone on May 23, 1991, and spoke with him about Ned Davis Research's risk-averse approach as well as the firm's emphasis on models, trend-sensitive indicators and a monetary approach....
BY: Thom HartleSUBJECT: Interview
ARTICLE SYNOPSIS ...Using Options In Risk Management by Robert J. Hamilton Before options were available, the primary vehicle used for risk management was the stop-loss order. Stop-loss orders allow a certain degree of risk management, but they don't allow the user to absolutely define the amount of risk. Nowadays, put and call options can be utilized to define and implement risk management. Learn these basic risk-management strategies using options. In the past, when futures and securities were traded before options were available, the primary vehicle with which to manage risk was the stop-loss order. Stop-los...
BY: Robert J. Hamilton