Contents For
MAR1992

Adapting Moving Averages To Market Volatility by Tushar S. Chande, Ph.D.
ARTICLE SYNOPSIS ...Adapting Moving Averages To Market Volatility
by Tushar S. Chande, Ph.D.
If a market is active, it has volatility: that cannot be avoided. And because the market is continuously
changing, an indicator that attempts to predict market activity must itself adapt and change. How?
Tushar Chande presents a dynamicnot staticindicators: a variablelength moving average, which
adapts to the volatility in question by exponentially smoothing data based on standard deviation.
Technicians can be trend followers or contrarians. Trend followers use pricebased indicators, such as
moving averages, while c...
BY: Tushar S. Chande, Ph.D.

Candlesticks And The Method Of 3 by Gary S. Wagner and Bradley L. Matheny
ARTICLE SYNOPSIS ...Candlesticks And The Method Of 3
by Gary S. Wagner and Bradley L. Matheny
Various uses of the number three, a number of importance in Japanese culture as well as Western
culture, can be seen prominently throughout candlestick technique and particularly in the form of
""Sakata's five methods."" The five methods, though more than 200 years old, can be used in currentday
trading with little modification, as Wagner and Matheny show.
In previous articles, we wrote about using artificial intelligence and pattern recognition to analyze
candlestick charts and the importance of properly identifying ...
BY: Gary S. Wagner and Bradley L. Matheny

Gail Dudack Of S.G. Warburg by Thom Hartle
ARTICLE SYNOPSIS ...Gail Dudack Of S.G. Warburg by Thom Hartle
S.G. Warburg senior vice president, head of market strategy and technical analyst Gail Dudack, C.M.T.,
is no newcomer to technical analysis or the world of Wall Street; she began her career at Pershing & Co.
(now a division of Donaldson, Lufkin & Jenrette) in the early 1970s, eventually writing a weekly market
strategy letter for Pershing before she joined international brokerage firm Warburg in 1987, where she
writes both weekly and monthly strategy letters. In the meantime, she has served, among other capacities,
on the Market Technicians Associati...
BY: Thom HartleSUBJECT: Interview

Market Prediction Through Fractal Geometry by Victor E. Krynicki, Ph.D.
ARTICLE SYNOPSIS ...Market Prediction Through Fractal Geometry
by Victor E. Krynicki, Ph.D.
Few have heard of fractal geometry and fewer still know how to use it. But it is a powerful tool with
which to analyze nonlinear systems and is the main alternative for analyzing systems that defy
development of predictive nonlinear equations. Krynicki presents a method by which to search for fractal
patterns.
Since its inception, technical analysis has been dominated by linear and/or statistical smoothing,
averaging and estimation techniques. These techniques come in a vast a array of forms: linear regression,
quadratic...
BY: Victor E. Krynicki, Ph.D.

Modeling The Stock Market by Paul T. Holliday
ARTICLE SYNOPSIS ...Modeling The Stock Market
by Paul T. Holliday
The price/earnings ratio works perfectly well for stocks. But, Paul Holliday points out, it doesn't work
for stock indices such as the DJIA or the Standard & Poor's 500, where the effective interest rate works
much better. To prove it, he's come up with a market model based on the theory that price is in
proportion to earnings divided by interest rate and proceeds to demonstrate its use.
The price/earnings ratio has been highly regarded as an indicator of whether the market is over or
underpriced. But closer analysis reveals that for stock indi...
BY: Paul T. Holliday
BY: Technical Analysis, Inc.

SIDEBAR: MATH MODEL FORMULAS
ARTICLE SYNOPSIS ...MATH MODEL FORMULAS
My mathematical model of the stock market is based on fundamental economic parameters and has been
modified slightly from the model described in the article ""Determining stock value from price and
earnings."" The Standard & Poor's 500 is used to represent the market as a whole. The premise is that
stock index prices are proportional to earnings divided by interest rate:
...
The earnings in the model are the average earnings one year, or four quarters, ahead of the price of the
S&P 500 and is expressed using the leastsquares method by the following equation:
......
BY: Technical Analysis, Inc.

Selecting Stocks For A Portfolio by Donald Stewart and Kenneth Stewart
ARTICLE SYNOPSIS ...Selecting Stocks For A Portfolio
by Donald Stewart and Kenneth Stewart
As redundant as it may sound, following the stock market is in reality following a market of stocks. And
surveying a market of stocks can present a challenge. The brothers Stewart, using time series analysis,
here present a ranking method to design portfolios. It was this method that they used to select five stocks
to build one portfolio for each year since 1967. We show here their results.
The first law of the jungle is the survival of the fittest, no matter how the jungle is defined. In the
economic jungle, companies ta...
BY: Donald Stewart and Kenneth Stewart

Shifting To Another Dimension by John Sweeney
ARTICLE SYNOPSIS ...Shifting To Another Dimension
by John Sweeney
I have spent the last several months tweaking a simple trading system to provide good profits with
minimal drawdowns. The underlying idea (""Settlement,"" November 1991 through February 1992) isn't
too complicated, and it is summarized in Figure 1. Last month, 1 tried to exploit the underlying system by
adding on trades to the underlying positions with a separate, simple rule: Add positions when the trending
price retraces to the simple average following it (Figure 2).
This logic failed, though it was spectacularly successful in some test periods...
BY: John Sweeney

The 4% Model: Using The Value Line Composite by Bob Kargenian, C.M.T.
ARTICLE SYNOPSIS ...The 4% Model: Using The
Value Line Composite
by Bob Kargenian, C.M.T.
Looking for an indicator that doesn't predict huge booms or busts, but tells you what the safest course of
action is? Here it is. For this model, all you need is the Value Line Index. It's simple, but it works. Here's
how.
Originally, the 4% model was developed by Ned Davis of Ned Davis Research fame as a method with
which to follow the trend of the stock market. Simply, a buy signal is given when the weekly close of the
Value Line Index rises 4% or more from any weekly close; a sell signal is given when the weekly close
d...
BY: Bob Kargenian, C.M.T.

The Presidential Election Cycle by Arthur A. Merrill, C.M.T.
ARTICLE SYNOPSIS ...The Presidential Election Cycle
by Arthur A. Merrill, C.M.T.
It's an election year again. What does history say about them ? This famous technician tells you that
what you've heard about Presidential election years may very well be true.
An election year is in progress. What are the prospects for the markets? We've been told that
traditionally, politicians try to do everything they can to make the years with Presidential elections
scheduled good ones in the market to put voters in a positive frame of mind. Does history confirm this
truism?
To check this out, I asked my computer to calculate...
BY: Arthur A. Merrill, C.M.T.

The Trin5 by Jerry Favors
ARTICLE SYNOPSIS ...The TRIN5
by Jerry Favors
Whether you know it as the trading index (TRIN) or the Arms index, this particular indicator has inspired
variations ranging from an issue/volumeweighted longterm index to this, a shortterm trading indicator
based on a fiveday sum of TRIN. Newsletter publisher Jerry Favors explains.
Most traders are familiar with the trading index (TRIN), which was originally devised by Richard
Arms. (For obvious reasons, it is also referred to as the Arms index.) Its premise is simple enough: in
order to compute the trading index each day, divide the ratio of advancing issues ...
BY: Jerry Favors

Trading Currency Mutual Funds by Joe Duarte
ARTICLE SYNOPSIS ...Trading Currency Mutual Funds
by Joe Duarte
Want to broaden your investment horizon? Using subjects covered in his previous S TOCKS &
COMMODITIES articles in November 1991 and January 1992, Joe Duarte explains how by combining a
simple index/moving average with an oscillator, trading foreign currencies and foreign currency mutual
funds can help you protect your mutual fund portfolio profits with a simple oscillator called the 10 minus
4 formula.
I introduced the concept of mutual funds as stock index proxies in the November 1991 and January
1992 issues of STOCKS & COMMODITIES. By tracking se...
BY: Joe Duarte, M.D.