ARTICLE SYNOPSIS ...Analyzing indicators with the cells method by David R. Aronson Does a given technical indicator have predictive value or not? This fundamental question must be answered before using it to forecast market trends or as input to trading decisions. An intuitively appealing way to answer this question is what I call the signal event method. The signal event method evaluates the net profit or loss that would have resulted over some period of past data had a trader acted on the buy and sell signals generated by the indicator. Applying the signal event method, the analyst defines rules (i.e., one or ...
BY: David R. Aronson
ARTICLE SYNOPSIS ...Member Trading by Arthur A. Merrill Once a week, but two weeks late, the New York and American stock exchanges report some interesting figures. You will find them in Barron's or The Wall Street Journal : Total volume and total short sales; Specialist purchases, sales and short sales; Floor traders purchases, sales and short sales, Odd lot purchases, sales and short sales. You can calculate the total exchange member figures by adding the specialist, floor traders and other member numbers. Deduct member data from the total and you have a figure for the non-members or public....
BY: Arthur A. Merrill, C.M.T.
ARTICLE SYNOPSIS ...Moving averages and smoothing filters by John Ehlers Moving averages are perhaps the single most widely used technical trading tool. While averages are important tools, let's face it--we don't need computers to calculate them. Traders were using moving averages long before simple calculators were commonly available. Traders simply computed the averages by hand. Since we have the awesome power of sophisticated computers now at our fingertips, it's logical to imagine that we can harness this power to create a better smoothing filter than the averages we now use. I'll show that may not be so. Th...
BY: John F. Ehlers
ARTICLE SYNOPSIS ...Point and figure charts: an overview by Charles Idol The popularity of the personal computer has given rise to a bewildering number of charting techniques. In addition to a profusion of moving averages of one kind or another, we have linear regressions, stochastic methods, Fibonacci arcs, Gann angles and any number of applications of mathematical techniques to stock data. This is progress, I suppose. The drawback comes when this abundance shoves from the scene one of the most established and venerable charting methods, one which embodies a unique philosophy as well as a very clever technique...
BY: Charles Idol
ARTICLE SYNOPSIS ...Stochastic oscillator by Mike Takano The stochastic oscillator is used to indicate overbought or oversold conditions on a scale of zero to 100%. The stochastic process is based on the observation that as price decreases, the daily closes tend to accumulate nearer the extreme lows of the daily range....
BY: Mike Takano
ARTICLE SYNOPSIS ...Tactical stock trading by Peter Eliason We have all heard that there is no solution to predicting the market because price movement is a random walk. The statement is partially right and partially wrong. Price movement may be random, but there is an exact solution to a random walk that can be used to mathematically beat the markets. The solution revolves around the use of a tempered martingale numerical series. This algorithm is not probabilistic, but it is mathematically exact. (See Stocks & Commodities, July 1988, page 40.) It has two components: a point spread that determines exactly when...
BY: Peter Eliason
ARTICLE SYNOPSIS ...Testing breakout systems by Steve Notis Breakout or volatility systems comprise a large portion of the current glut of publicly offered trading systems. Many of these systems sell for $3,000 or more. For that price you usually get a nice software package which will run optimizations on several variable parameters and give you a printout of the most profitable runs. Whether you can make money using those parameters is an open question. Aside from the software, you are buying the system designer's logic, whether fully disclosed or proprietary, which is embedded in the software. You can adjust ...
BY: Steve Notis
ARTICLE SYNOPSIS ...Variable sensitivity stochastics by William Mason In this article, I am presenting elementary Statistical Analysis of Stocks and Indices (SASI) in an index, three new indicators (SASITOP, SASIBOT and sigma limits) plus variable-sensitivity stochastics based on statistical analysis. SASITOP is very similar to stochastics but uses plus and minus variance (sigma) limits in place of the high and low over the time window. The data is modified for sharper sensitivity. Because SASITOP and SASIBOT are the reciprocal of each other, I will concentrate only on SASITOP in this article and apply it to the...
BY: William Mason
ARTICLE SYNOPSIS ...Velocity of the S&P 500 by Robert A. Wood Structural changes in security markets resulting from the introduction of derivative instruments, namely options and futures, have been the focus of extensive study in recent years. More recently, the introduction of portfolio insurance and arbitrage trading strategies involving market indices implemented with program trading have been the subject of widespread concern, especially after the events of October 19, 1987. Do derivative instruments, portfolio insurance trading strategies and/or the ability to instantly trigger a large number of trades by ...
BY: Robert A. Wood
ARTICLE SYNOPSIS ...Volume-weighted RSI: money flow by Gene Quong and Avrum Soudack The Relative Strength Index (RSI) by J. Welles Wilder Jr. is one of the most popular technical indicators. RSI is included in most of the technical analysis software available today. Anyone conversant with the algorithm used to calculate RSI knows that only the closing price is used. We believe RSI can be improved by using volume to weight the index. Classic market tops are characterized by an increase in volume. Technical indicators which rely only on price changes do not reflect the whole picture. Volume can vary by an order o...
BY: Gene Quong and Avrum Soudack