Contents For FEB1991

  • Average Behavior by John Sweeney

    ARTICLE SYNOPSIS ...Average Behavior by John Sweeney Let me speculate a little here. I know from experience that the half-cycle moving average generally runs along the tops of declining trends and along the bottoms of rising trends at least in the financials I follow. This behavior makes it possible to identify rich sells in declines and cheap buys in advances. But why does the average behave this way? Well, a moving average as we usually plot these things is actually plotted ahead of its ""centered"" position. Instead of plotting it in the center of the data periods that it averages, we plot it at the la...

  • Calculating Interest With the Rule of 72 by Raymond Rothschild

    ARTICLE SYNOPSIS ...Calculating Interest With the Rule of 72 by Raymond Rothschild Despite the convenience these days of computers, business calculators and the like, it is often desirable to perform some calculations either mentally or using pencil and paper. After all, one doesn't always have the trusty laptop readily available -- if you have one at all. Toward this end, I would like to recommend the Rule of 72 when doing certain interest evaluations. Curiously, I was first introduced to this rule when attending a seminar on estate planning. The presenting lawyer explained that if an amount of money was placed...

  • Converting Data Files by Franz Hrazdira

    ARTICLE SYNOPSIS ...Converting Data Files by Franz Hrazdira Most charting programs work with historical data stored in files of a specific data structure best suited to that program to access, process and present. Only one source I know of, Telescan in Houston, TX, supplies the user with a program that can receive, store and reproduce the actual graphs as screen images rather than working with sets of numbers. In most cases, we choose a charting and analysis program for a special reason, which may be a particular function, study or feature not found in another program. As long as each of our programs can conver...

  • Fuzzy Expert Systems by J.F. Derry

    ARTICLE SYNOPSIS ...Fuzzy Expert Systems by J.F. Derry Expert systems give the technical analyst a potent set of tools to dissect trading and investment problems in short order. For traders and investors alike, the real problem with both technical and fundamental methods is that of laying out current after-tax dollars in the expectation of future before-tax profits based solely upon the guidance of 20/20 hindsight generated through past experience. However investment and trading opportunities are analyzed, investment decisions should depend upon as large a body of expertise as possible. Such expertise can be ca...

  • Keeping A Trading Journal by Thom Hartle

    ARTICLE SYNOPSIS ...Keeping A Trading Journal by Thom Hartle Success in trading the markets does not come overnight. It is probable that the novice who profits early and easily in his trading career will view the gains as the easiest money he or she ever made. It is also very likely, however, that the trading newcomer stumbled into a powerful bull market, in his innocence buying the market, either placing stops very far away or not using stops at all and watching mistimed entries become profitable only because of the continued strength of a bull market. Emboldened by his success, the new trader will increase his...

  • LETTERS TO S&C

    ARTICLE SYNOPSIS ...LETTERS TO S&C GETTING A FIX ON LOOKBACKS Editor, I would like to comment on the excellent article by E. Michael Poulos entitled ""Of trends and random walks"" (STOCKS & COMMODITIES, February 1991). Mr. Poulos presents an extremely useful alternative to indicators calculated over fixed periods of time. I found this alternative very helpful in analyzing market indicators that I have begun to study and was able to apply his variable-length lookback concept to these indicators. The variable lookback techniques by itself provides a new perspective on developing accurate predictive models. Howe...

  • Neural Nets In Technical Analysis by Yin Lung Shih

    ARTICLE SYNOPSIS ...Neural Nets In Technical Analysis by Yin Lung Shih The technical analysis of price data requires a mix of mathematical technique, experience and intuition. Anyone with a background in high school math can understand, or at least calculate, the mathematical functions that have been developed to transform raw price series into more meaningful charts. Experience, on the other hand, takes time to develop, and intuition is even more difficult to obtain (and indeed may never come at all). Yet it may be intuition, more than anything, that filters out the mass of information available to settle on th...

  • Of Trends And Random Walks by E. Michael Poulos

    ARTICLE SYNOPSIS ...Of Trends And Random Walks by E. Michael Poulos M y distrust of the current crop of technical indicators that use fixed-length lookback intervals, with no attempt to use a price-time model, motivated me to do some research into the subject. For example, one sees chart services publishing a nine-day stochastic and/or relative strength indicator. A variety of other indicators using moving averages or the difference between moving averages also use fixed lengths. But there simply is no justification for using nine (or any other fixed number of days) as some sort of sacred number. The first six ...

  • Predicting The Shape Of A Cycle Bottom by Michael R. Burk

    ARTICLE SYNOPSIS ...Predicting The Shape Of A Cycle Bottom by Michael R. Burk I define a cycle as what happens between peaks in my New Low Indicator. Since the beginning of 1978 there have been 24 complete cycles averaging a little over 120 trading days, or 24 weeks. Cycle bottoms play out in two distinctive patterns, which I call V and W. Each bottom traces out the pattern of its letter description. A V bottom is one where the price index declines to a bottom and then heads up again (Figure 1). In the W bottom the price index reaches a low, retraces a portion of the decline and then falls back to retest the pr...

  • Pseudo-Stock Specialist by Mark Harris

    ARTICLE SYNOPSIS ...Pseudo-Stock Specialist by Mark Harris In ""Pseudo Stocks,"" STOCKS & COMMODITIES, December 1990, I showed some stock charts from a random number generator resembling real life to an astonishing degree and some simple rules for price transitions. Now, I would like to model a ""specialist."" This will add volume to the charts and, additionally, we can see which situations are good or bad for our hypothetical market maker. As a disclaimer, let me state right at the outset that I haven't a clue how a real-life specialist goes about making a market for the stocks in which he specializes, how he ...

  • Ralph Bloch: 34-Year Trading Veteran by Thom Hartle

    ARTICLE SYNOPSIS ...Ralph Bloch: 34-Year Trading Veteran by Thom Hartle Ralph Bloch, senior vice president and chief market analyst for Raymond James, has been active as a technical analyst on Wall Street since 1956 and has been writing weekly technical commentary for Mansfield Chart Service for the past six years. STOCK & COMMODITIES Editor Thom Hartle interviewed him via telephone on November 20,1990, to get his views on the markets, technical analysis and Wall Street of the past 35 years. I have a very limited and narrow view and somehow I've survived (trading) 34 years. --Ralph Bloch I'd like to start off w...

  • SIDEBAR: CONVERTING ASCII TO APEX NDX FILE FORMATS

    ARTICLE SYNOPSIS ...CONVERTING ASCII TO APEX NDX FILE FORMATS Steps to convert ASCII to APEX NDX file formats, pages 56-57....

  • SIDEBAR: DERIVATION OF THE RULE OF 72

    ARTICLE SYNOPSIS ...DERIVATION OF THE RULE OF 72 The mathematics behind the rule of 72, stating that if an amount is invested at a compound interest rate until it doubles in value, then the product of the number of years (or periods) and the interest rate is approximately equal to 72; page 81....

  • SIDEBAR: Defensive Moneymaker

    ARTICLE SYNOPSIS ...DEFENSIVE MONEYMAKER Quote from William J. O'Neil, author of How to Make Money in Stocks...

  • SIDEBAR: LETTERS TO AUTHOR MERRILL

    ARTICLE SYNOPSIS ...Letters in response to Arthur Merrill's article, ""The 28% Rule"", page 54....

  • SIDEBAR: MUGEN: COMPUTATION OF MEMBERSHIP FUNCTION

    ARTICLE SYNOPSIS ...MUGEN: COMPUTATION OF MEMBERSHIP FUNCTION Membership functions can probably be computed with any plausible mathematical function suitable to the occasion. In practice, however, many situations are well served by simple first- or second-order functions....

  • SIDEBAR: OBSERVATIONS AND FORMULAS

    ARTICLE SYNOPSIS ...OBSERVATIONS AND FORMULAS To devise a technical indicator out of all this, consider first Article Figure 3. Today's low (Day 1 low) is 250 points below the high of Day 4 and 300 points below the high of Day 9. To which high is today's low most overextended, relatively speaking?...

  • SIDEBAR: Patters Perfection, part I

    ARTICLE SYNOPSIS ...PATTERS PERFECTION, part I Quote by H.M.Gartley, author of Profits in the Stock Market...

  • SIDEBAR: THE WYCKOFF WAVE

    ARTICLE SYNOPSIS ...THE WYCKOFF WAVE The Wyckoff wave used as a common stock price index, page 71....

  • SIDEBAR: USING OPTION RATIOS

    ARTICLE SYNOPSIS ...USING OPTION RATIOS AnCall/put TRIN as a market sentiment indicator, page 64. To many traders and investors, the limited-risk aspect of the purchase of both call and put options is appealing. Many market followers believe that when the major activity is concentrated in either calls (bullish expectations) or puts (bearish expectations), extremes in crowd psychology will appear....

  • The 28% Rule by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...The 28% Rule by Arthur A. Merrill, C.M.T. A bear market is interrupted by rallies, which cheer the spirits but are then followed by a resumption of the bear market. Finally, one of the rallies turns out to be the first upswing of a new bull market, and prices begin to zigzag upward. Is there any characteristic of the first bull swing that differentiates it from the preceding bear market rallies? We'll know that the tide has turned after prices really start to make higher highs and higher lows, but can we get the news earlier? Yes. I've discovered that the simple magnitude of the first bull ...

  • Trendlines by Melanie F. Bowman and Thom Hartle

    ARTICLE SYNOPSIS ...Trendlines by Melanie F. Bowman and Thom Hartle Trendlines are those lines drawn on charts to assist the technician in analyzing a market. A trendline drawn below rising prices is known as a demand, or oversold, line, while a trendline drawn above declining prices is known as a supply, or overbought, line. The direction of the trend is indicated by the ascending trendline or the declining trendline. A penetration of the trendline by price is clear evidence of a change in the trend. In addition, trendlines also give an analyst the added benefits of gauging whether a trend is accelerating or on...

  • Updating Option Ratios With Market Sentiment by James P. Martin

    ARTICLE SYNOPSIS ...Updating Option Ratios With Market Sentiment by James P. Martin Is it true that market sentiment indicators no longer work? That's the word from many traders and market timing advisors in the past several months. They say that so many ""pseudo contrarians"" now follow call/put ratios, advisory sentiment surveys, public short selling activity, and so on, that traders are no longer sure whether to bet against the consensus of the public or the consensus of pseudo contrarians. They may think they are going against the herd, when in fact they are part of it! Many traders are indeed feeling frust...

  • Wyckoff: Relative Strength And Weakness by Craig Schroeder

    ARTICLE SYNOPSIS ...Wyckoff: Relative Strength And Weakness by Craig Schroeder In his course in stock market science and technique, Richard D. Wyckoff stated the basics of his method in five steps: Step 1: Determine the present position and probable future trend of the market. Then decide how you are going to play the game: long, short or neutral. Step 2: In a bull market, select from those stocks in harmony with the market the ones that are stronger than the market. In a bear market, select those that are weaker than the market. Step 3: Using point and figure charts, select those stocks that have built up a ...