Contents For
NOV1989
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Chaos theory and market behavior by Bernd Anders
ARTICLE SYNOPSIS ...Chaos theory and market behavior
by Bernd Anders
Chaos, in the original Greek, describes the primal condition--a w translation that means ""confuwsion""
as well as ""reality."" With this one word, the ancients captured what they intuitively knew about the world;
that disorder, unpredictability and randomness are part of the natural order. Yet, since the 1970s, chaos
has become the codeword for a revolutionary scientific movement that has revamped ancient notions
about complex, irregular phenomena--from commodity prices to the weather--and discovered that, even
in chaos, there is order.
Unlike s...
BY: Bernd Anders
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Fundamentals behind technical analysis by Curtis McKallip Jr.
ARTICLE SYNOPSIS ...Fundamentals behind technical analysis
by Curtis McKallip Jr.
Would you believe you are doing fundamental analysis without knowing it when you use technical
indicators? No, not GNP, PPP, GPD, J-curves or deflators. That stuff is for government policy makers.
Fundamental supply and demand analysis is often ignored. Not because it is wrong but because the
information isn't there.
You can get hourly price quotes off your satellite dish, but can you find out how many soybean plants
were planted at 2 p.m.? (And how much would the exchanges charge for it?) If you could get this
information it migh...
BY: Curtis McKallip, Jr.
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Inside day patterns in the S&P by Toby Crabel
ARTICLE SYNOPSIS ...Inside day patterns in the S&P
by Toby Crabel
Computer studies suggest that inside days-- where the high is lower than the previous ! day's high and
the low is higher than the previous day's low-- provide very reliable t entries in the S&P 500 futures
market. The basic trading pattern (Figure 1) is an inside day (ID) followed by a sale if the next day's
market opens lower or a buy if next day's market opens higher. Entry is on the open and exit is on the
same day's close without a stop.
In computerized tests, this basic procedure produced 68% winning trades in the S&P between 1982 and
1987. To...
BY: Toby Crabel
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Market letter sentiment by Arthur Merrill
ARTICLE SYNOPSIS ...Market letter sentiment
by Arthur Merrill
Analyst Abraham Cohen, many years ago, began to tabulate the opinions of stock market analysts. He
watched scores of market letters (including my own!) and each week put them in three piles: bullish,
bearish and correction. He reported the percentage in each category in his weekly publication, Investors'
Intelligence. I have found it useful to divide the ""correction"" pile and assign one half of the stack to the
bullish and one half to the bearish categories.
Market letter writers are presumed to be experts and to have access to more data than the o...
BY: Arthur A. Merrill, C.M.T.
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Neural networks: A trading perspective by Carol H. Halquist & George F. Schmoll, II
ARTICLE SYNOPSIS ...Neural networks: A trading perspective
by Carol H. Halquist & George F. Schmoll, III
Neural networks and neural network simulators are used in signal processing, expert systems,
modeling and forecasting. They may be used to solve complex, well-defined problems which may be
impossible to solve algorithmically. They are primarily beneficial when the relation between input data
and output data is not clearly understood, but a large number of sample sets of data are available.
Neural networks are an alternative method used in signal processing, particularly in such fields as speech,
vision and p...
BY: Carol H. Halquist & George F. Schmoll, II
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Optimal parameter selection by Kent Calhoun
ARTICLE SYNOPSIS ...Optimal parameter selection
by Kent Calhoun
The success or failure of any trading system hinges on the choice of its parameters. General wisdom
holds that optimal parameters are variables that produce the highest cumulative profits on completed
trades. My approach is based on a basic defensive trading philosophy--controlling losses is essential to
making profits. So, rather than selecting optimal parameters to produce the largest closed cumulative
profits, my goal is to locate profitable trading parameters that minimize equity drawdown as the market
changes.
Optimal commodity parameters vary ...
BY: Kent Calhoun
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Parabolic stop/reversal by Peter Aan
ARTICLE SYNOPSIS ...Parabolic stop/reversal
by Peter Aan
There are two primary variables for the system: the acceleration factor (AF) increment and the
maximum acceleration value. In a long trade, for instance, the daily computation involves subtracting the
current reversal stop from the most favorable point reached in the trade and multiplying this difference by
the AF. This result is then added to today's stop to arrive at the reversal point for tomorrow. The general
equation is:
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Every time the market moves into new highs, the AF is increased. As the AF increases, the stop, which
will start out rather ""...
BY: Peter Aan
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Revamping mediocre buy-write strategies by Jerry Kopf
ARTICLE SYNOPSIS ...Revamping mediocre buy-write strategies
by Jerry Kopf
Stockbrokers usually introduce the average retail investor to option trading with a simplistic buy-write I
strategy. Buy the stock and sell (write) a call option against it. The mechanics are straightforward. The
seller or writer of the call option is establishing a contract with the purchaser of the call, promising to
deliver shares of a stock at a certain price (the strike price) on a certain date (expiration date). The buyer
pays the seller of the contract a fee (called the premium) to assume this risk. At expiration, if the stock is
be...
BY: Jerry Kopf
BY: Technical Analysis, Inc.
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Setting stops: A new approach by John Ehlers
ARTICLE SYNOPSIS ...Setting stops -- a new approach
by John Ehlers
The cliche in golf is ""drive for show, but putt for dough."" The analogy in technical trading is that the
ability to pick entry points is highly focused, but scant attention is paid to how to exit a trade. This is
unfortunate, because skillfully selected exit points can often make a large difference between overall
profit and loss.
There are, of course, several exit strategies in common usage. One is to exit with a predefined profit or
loss. Another is J. Welles Wilder's parabolic stop-and-reverse or SAR (see related article in this issue). I
us...
BY: John F. Ehlers
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Shelly Natenberg: trader and teacher by John Sweeney
ARTICLE SYNOPSIS ...Shelly Natenberg: trader and teacher
by John Sweeney
Shelly Natenberg, a floor trader at the Chicago Board of Trade, is the author of Options Volatility &
Pricing Strategies, Probus Publishing, Chicago, 118 North Clinton St, Chicago, IL 60606, (800)
426-1520 or (312) 346-7985. He has been teaching options for six years to professional and floor traders
at the Chicago Mercantile Exchange and is currently active in giving seminars for many different
exchanges.
Shelly, Probus sent us your book for review. I've scanned through this thing, but I wanted to get some
more background on you before di...
BY: John Sweeney
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Trading windows for technical indicators by Frank Tarkany
ARTICLE SYNOPSIS ...Trading windows for technical indicators
by Frank Tarkany
In a number of articles over the past three years, Stocks & Commodities' authors have developed
evidence that changes in securities prices are generated by a process that is random, stationary and
dependent. In English: today's prices depend to some extent on past prices.
Frank Tarkany presented evidence in previous issues that prices are non-random and dependent. The
next questions are, ""If prices are non-random and dependent, what is their nature and over what period
of time do past prices affect today's prices and future prices?""...
BY: Frank Tarkany