Contents For
JUL1988

Fitting a trendline by least squares by Arthur A. Merrill
ARTICLE SYNOPSIS ...Fitting a trendline by least squares
by Arthur A. Merrill
Trendlines usually are drawn through tops or bottoms. They also are drawn through the center of prices
by a lagged moving average or by eye (Figure 1). A straight line through the center of a price channel, if
the scale is logarithmic, will give you the percentage growth or decline rate.
If the straight line is drawn by eye, it is subject to debate. This doubt can be resolved by a mathematically
calculated line called ""least squares"" (Figure 2). The deviations of the points from the line are A, B, C, D
and E. The line produced by th...
BY: Arthur A. Merrill, C.M.T.

Gann made easy by Hans Hannula, Ph.D.
ARTICLE SYNOPSIS ...Gann made easy
by Hans Hannula, Ph.D.
Author: Bill McLaren with
Mathew J. Foreman
Publisher: Gann Theory
Publishing Co.
10290 Rosewood
Overland Park, KS 66204
(913) 4915411.
155 pages, hardbound
60page manual of charts
$180
If you ever wanted a good buy in technical trading tools, Gann Made Easy is it. While it is advertised as
a book which it isit is really much more. It is a solid book on the basic analysis techniques used by
W. D. Gann that is actually closer to a course because the book comes with a manual of 60 charts the size
of newspaper pages which are explained in the te...
BY: Hans Hannula, Ph.D., RSA, CTA

Letters To S&C
ARTICLE SYNOPSIS ...Letters To S&C
Questions on Smoothing
Editor,
I have recently become a subscriber to your magazine and also purchased back volumes of articles. I have
analyzed all articles pertaining to smoothing, and particularly to triple exponential average smoothing. I
am quite familiar with exponential averages but not what you define as triple exponential smoothing.
The articles show certain contradictions and all lack the essential analytical formulas. Why? Is not such
an analytical formula the essential conclusion of the discussion? Some show a BASIC program which
can be no better than the formula...
BY: Technical Analysis, Inc.

Loops: static and dynamic Part 7 by Jim Summers, Ph.D.
ARTICLE SYNOPSIS ...Loops: static and dynamic
Part 7
by Jim Summers, Ph.D.
This month, we develop a loop to manage the calculation of the trading range (TR 1) used in J. Welles
Wilder's Directional Movement Index (DMI) system. The previous columns developed the formula for
linebyline processing of this indicator using {Put} and @ Index(...) commands.
Loops are an important topic; knowing how to use them with {Put} and @ Index(...) make up one of the
strongest Lotus 123 tools for managing la rge amounts of data in technical anal ysis. We'll be using the
data i n Figure 1, taken from Wilder's book , New Conce...
BY: Jim Summers, Ph.D.

Martingale money management by Robert Pelletier
ARTICLE SYNOPSIS ...Martingale money management
by Robert Pelletier
An ageold method used by professional gamblers may be useful to the active trader as a means of
money management. A martingale, according to Webster's dictionary, is a scheme for doubling your bet
size following losses. The system is named after a successful 19th century gambler who frequented the
casinos of the French Riviera. In a converted form the idea can be transformed into a mild progression
which requires a slightly increasing wager level following losing trades and an equal or decreasing unit
wager following winning trades.
To use the...
BY: Robert Pelletier

Moving averages Part 2 Ehlers Leading Indicator (ELI) by John Ehlers
ARTICLE SYNOPSIS ...Moving averages
Part 2 Ehlers Leading Indicator (ELI)
by John Ehlers
Most technical indicators use a moving average of some kind, and this usually dooms the indicator to
lag price. Some indicators use momentum, or rate of change, to generate a leading function. However,
this is similar to taking the derivative of a continuous function, and it results in a very noisy signal. The
noise is usually reduced by smoothing or averaging. This averaging delays the indicator so that, at best, it
runs even with price, without lag or lead.
I have developed a new indicator that provides leading signals wh...
BY: John F. Ehlers

Mutual fund trading strategy by Stan Jones
ARTICLE SYNOPSIS ...Mutual fund trading strategy
by Stan Jones
It has always struck me that the typical technical analysis software package doesn't answer the right
question. It plots technical indicators on the same screen with prices so the user can pick the one or the
combination that seems to call turns in the market. Then, presumably, the user goes away and begins to
trade on that indicator.
The problem is that the real trading question is not, ""How does the indicator Q look on a computer
screen?"" The question is, ""How much money will I make or lose if I use indicator Q in the real world?""
This questi...
BY: Stan Jones
Opening Position by John Sweeney, Editor
BY: John Sweeney

Peter Hackstedde: profile of a winning trader by Van K. Tharp, Ph.D.
ARTICLE SYNOPSIS ...Peter Hackstedde: profile of a winning trader
by Van K. Tharp, Ph.D.
It was two o'clock on a Friday afternoon. I found myself having lunch with Peter Hackstedde in the Turf
Club at Santa Anita race track. I had just finished two articles on compulsive trading (see Stocks &
Commodities, January and March 1988) and here I was at the race track with Peter Hackstedde, whom I
consider to be a model trader. He is as different from a compulsive trader as day is from night. Peter
loves the markets and the track, but he controls the actionthe action does not control him.
""I learned how to manage my...
BY: Van K. Tharp, Ph.D.

SIDEBAR: More on optimization
ARTICLE SYNOPSIS ...More on optimization
It may seem a daunting prospect to find the optimal combination of 10 trading parameters over an
eightyear quote file on a personal computer, but it's not as bad as it sounds.
What Strategist does is to start with an initial strategy specified by the user, go through the quote file and
compute the initial payoff.
Then it varies the first of the 10 parameters until it finds the value that gives the highest payoffthe
optimal value for that parameter. It optimizes each of the remaining nine parameters in turn, then starts
over again with the first parameter.
It may seem...
BY: Technical Analysis, Inc.

SIDEBAR: SIDEBAR 1
ARTICLE SYNOPSIS ...SIDEBAR 1
As an aside, note that volatility must be adjusted for the price action around dividends in mutual funds. I
calculate a ""price factor"" (PR) if a dividend (D) paid between quotes Qi1, and Qi:...
BY: Technical Analysis, Inc.

SIDEBAR: Testing your macros
ARTICLE SYNOPSIS ...Testing your macros
The lines between the {Down} macros separate the processing. Each macro is a separate line and you
rename each macro as '\x in order to test it separately. You can use other letters if you choose. I always
use '\x for test macros in order to avoid confusion.
Next, set up the range name for Range1, Range2, Counter1, and Counter2 using the /Range Name
Down command. Lastly, when it is time to invoke the macro, put the cursor somewhere such that you can
observe the down movement, and hit Alt x.
Enhanced uses of {Down}
If you read the documentation for 2.0, you probably know...
BY: Technical Analysis, Inc.

The Adam theory of markets by Lesley B. Orr
ARTICLE SYNOPSIS ...The Adam theory of markets
by Lesley B. Orr
Author: J. Welles Wilder Jr.
Publisher: Cavida Ltd., N.C.
The Adam Theory of Markets by J. Welles Wilder Jr. is a book about ""making profits trading...any
freely traded markets anywhere in the world."" It starts from the premise, repeated many times, that ""There
is really a lot less to trading than meets the eye."" It enumerates and expounds on a group of trading rules,
presents a simplistic graphic method of predicting future price activity, walks through the anatomies of
three trades and even tells a fairy tale and some relevant anecdotes.
Th...
BY: Lesley B. Orr

The value of optimization by Louis P. Lukac and B. Wade Brorsen
ARTICLE SYNOPSIS ...The value of optimization
by Louis P. Lukac and B. Wade Brorsen
Optimization based on historical data is used widely in the futures industry to determine the most
profitable parameter sets for a trading system. The underlying premise is that if some parameter set
worked well in the past, it should work well in the future.
Simply picking the best parameter set from historical data and stating the accompanying profit level
(called insample profits) is of no real value because you cannot see into the future to know what the best
parameter set will be. Actual or blind simulation (outofsample)...
BY: Louis P. Lukac and B. Wade Brorsen

Trading clues from options volatility by Dave Caplan
ARTICLE SYNOPSIS ...Trading clues from options volatility
by Dave Caplan
The significance of volatility is overlooked and underestimated by most traders in the options area.
This includes both the effect of volatility on the premium cost of an option when purchased, and the
effect of future changes in volatility on a position.
Volatility is simply a mathematical computation (I use a ""modified"" BlackScholes model.) of the
magnitude of movement in an option. This is based of course, on the activity in the underlying futures
market. If the market is making a rapid move up or down, volatility will rise. In a qui...
BY: Dave Caplan