STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For APR1988

  • Consensus indicators by Arthur A. Merrill

    ARTICLE SYNOPSIS ...Consensus indicators by Arthur A. Merrill There are scores of indicators and, at the same moment, some present an optimistic picture of the future while others are predicting trouble. Which indicator should be watched most carefully? When two indicators disagree, which one is the most likely to be right? How can you gauge the past performance of indicators? Can it be put into numerical form to simplify comparison? Can indicators be combined into a consensus or model? Market analysts usually consult the same battery of indicators but their conclusions are often quite different. I exchange my...

  • Correlations: serial and auto by Clifford J. Sherry, Ph.D.

    ARTICLE SYNOPSIS ...Correlations: serial and auto by Clifford J. Sherry, Ph.D. Suppose you are testing a pricing pattern to see what relationship it has to future price movement. Or, you are testing an indicator's correlations with price movement. In each case, you need a definitive test to tell you if there exists a statistically significant relationship. Again, much of the early work testing the various forms of the efficient market hypothesis utilized either serial or auto correlation techniques. (See for example, P. Cottner's Random Character of Stock Market Prices, M.I.T. Press, Cambridge, 1964). Unfortuna...

  • Finding reliable trading strategies by Steve Kille

    ARTICLE SYNOPSIS ...Finding reliable trading strategies by Steve Kille Developing a trading strategy over historical data has become common practice among traders in recent years. The proliferation of micro-computers in our industry has spurred the trend to the point where nearly every system sold or used has been developed with a computer using past data. The focus of most research projects has been to develop trading strategies which produce the highest level of profit over historical data. This is understandable since accumulated wealth is the ultimate goal of every trader. Unfortunately, most technicians ar...

  • Kaufman on commodity trading

    ARTICLE SYNOPSIS ...Kaufman on commodity trading Perry Kaufman's first book, Commodity Trading Systems and Methods, was probably the second book I read on trading. I later discovered it to be a classic and it's been an indispensable reference ever since, particularly around the offices of Stocks & Commodities, where ""new"" trading ideas make recurrent appearances. When the revised version came out late in 1987 it stimulated S&C to track down Perry and get a ""state of the trader's art"" report directly from him. After more than the usual thrashing around we finally tracked him down in the sunny climes of Bermu...

  • OVR - a new indicator by Fred Purifoy

    ARTICLE SYNOPSIS ...OVR - a new indicator by Fred Purifoy On-balance volume (OBV) has two generally recognized goals: to serve as a filter for trending and non-trending markets, and to anticipate reversals by divergence from the price trend. (OBV, recall, is the cumulative sum of volume where volume is added on up days and subtracted on down days.) However, coupling price and volume may not be the only path. If we accept that vertical (or bar) chart action is a function of volume and open interest (i.e., the activity of the market's participants), there should be an indicator that would reflect that relationshi...

  • On-balance volume by Tom Aspray

    ARTICLE SYNOPSIS ...On-balance volume by Tom Aspray On-balance volume or OBV is one of the early technical tools developed by the well-known market analyst, Joe Granville. With the advent of new, and supposedly more sophisticated technical tools, it is used less often. Many analysts feel it is not useful, but I would disagree. I find it a very useful and simple technical tool. While it is much faster and easier to calculate this indicator by computer, it is very easily calculated by hand for individual stocks, market indices or commodities. Here is how you calculate it by hand: 1) Pick an arbitrary starting vol...

Opening position by John Sweeney, Editor

  • Peaking of a grand supercycle by Robert J. Prechter Jr.

    ARTICLE SYNOPSIS ...Peaking of a grand supercycle by Robert J. Prechter Jr. For 13 years, A. J. Frost and I have made the case that a great ""fifth wave"" bull market--the termination phase of a longer term uptrend--was in force and that it would be followed by a bigger crash and bear market than those of 1929-1932. From this perspective, October 19,1987 was not an anomaly in the stock market. Certainly, it has entered the history books as the largest down day in Wall Street history, and one of the broadest. But it was typical market behavior, the normal resolution of a pattern wave analysts have observed hundred...

  • Price reactions within a trend by Bill McLaren

    ARTICLE SYNOPSIS ...Price reactions within a trend by Bill McLaren I have, in the past decade, taught trading techniques to many students. Recently, most of my students have entered the markets after purchasing a personal computer and a technical analysis software package. These tools can be quite helpful but they are not the Holy Grail. A majority of my students' losses are related to one major weakness: little understanding of basic price movement. Understanding price movement is the foundation of profitable trading and all else must be built on that foundation. Very simplistically, both stock and commodity m...

  • Programming the true range in Wilder's DMI system Part 4 by Jim Summers, Ph.D.

    ARTICLE SYNOPSIS ...Programming the true range in Wilder's DMI system Part 4 by Jim Summers, Ph.D. The March column described the fundamentals of macros. The February column detailed some major points about Wilder's DMI and the system based on it. This time the action gets underway in earnest. While the material is still relatively elementary now, veteran Lotus programmers should at least skim this material. Some of the techniques appear in none of the five books I own on using Lotus. One of them is critical to successful processing of large amounts of data such as technical analysis requires. True Range Funda...

  • Quick-Scans

    ARTICLE SYNOPSIS ...LETTERS TO S&C Data Transfer? Editor, I am a subscriber to your Trader's Magazine, which I consider very good and most interesting. I wonder whether you could advise me regarding (1) the cost of the complete Wyckoff Method series, and (2) the availability of a good software program to transfer stock data from one program to another, e.g., CompuTrac to Market Maker and Technical Investor. W.J. HOENEVELD Epse, Netherlands In answer to your first question, the Wyckoff series is not now available as a single publication. All these articles are contained in S&C volumes 4 and 5 (1986-1987), av...

  • SIDEBAR: Coefficient of Correlation

    ARTICLE SYNOPSIS ...Coefficient of Correlation Correlation is a measure of the degree of relationship between two series. When odd lot shorts are rising, is the Dow usually rising? When odd lot shorts are declining, is the Dow usually declining? Or is the reverse usually the case? Instead, is the relationship weak or nonexistent? The correlation coefficient (r) varies between +1 and -1. If it is close to +1, the two series are in close agreement. If it is close to -1 when one series is rising, the other is declining. If the coefficient is close to zero, there is no evident relationship. Here is a suggested inte...

  • SIDEBAR: What is Chi Square?

    ARTICLE SYNOPSIS ...What is Chi Square? If, in the past, records show that the market exhibited more rises than declines at a certain time, could it have been by chance? Yes. If a medication produced cures more often than average, could it have been luck? Yes. If so, how meaningful is the record? To be helpful, statisticians set up ""confidence levels."" If the result could have occurred by chance once in 20 repetitions of the record, you have 99% confidence that the result isn't just luck. This level has been called ""probably significant."" If the expectation is once in 1,000 repetitions, you can have 99.9% ...

  • The compulsive trader Part 2 by Van K. Tharp, Ph.D.

    ARTICLE SYNOPSIS ...The compulsive trader Part 2 by Van K. Tharp, Ph.D. ""When water passes over your head, it makes no difference if it does so by an inch or afoot. You're drowning. You don't want to admit that it is easier to get out of a $100,000 debt than a million dollar debt. You just go for it. When you get to that point, it really starts accelerating. Nothing matters anymore. Nothing matters."" --A compulsive trader, Stocks & Commodities, January 1988. Compulsiveness, as illustrated by this quote, is deadly to investment success. Yet many traders have to deal with it. In this second article on compulsiv...








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