STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For DEC1997

  • High Volatililty And Market Turns by William Brower, CTA

    ARTICLE SYNOPSIS ...Does an increase in volatility indicate a market top? This historical look offers some insights. Back in 1994, it was exciting for traders watching the Standard & Poor's 500 index to get a true range day of four full points or better. These days, that small a daily range is rare; instead, we are becoming accustomed to true range days that are 10 and 15 full points. Is today's volatility unusually high by historical standards? And more important, can high volatility be used to predict major market turns? I wanted to look at data going back to the crash of 1929. I chose the Dow Jones Industrial...

  • Identifying Trends with Volume Analysis by Stephen J. Klinger, CMT

    ARTICLE SYNOPSIS ...Here's a new twist on volume analysis, with a volume-based indicator for identifying meaningful trends. Technicians recognize the importance of volume analysis and its application to price movement as requisite to any serious examination of stocks and market averages. While price is the most important dimension of market analysis, how prices move is a function of the intensity of volume that produced it. The true measure of durability behind price movement is most readily available through volume data. Since volume is a proxy for money flow, volume analysis can expose the internal dynamics -- ...

  • New Dimensions In Market Charts by Salvatore J. Chiappone, DDS

    ARTICLE SYNOPSIS ...Like the markets, technical analysis evolves. This article details the construction and use of bar-chart types beginning with a short review of older forms -- bar charts, candlesticks and Equivolume -- and a presentation of two new forms, flagbars and timebars. The market is a profit-and-loss drama; rewards await for those who read it right, and penalties for those who read it wrong. Mastering various techniques is key, and the first step is to be familiar with charting forms -- learn what they do and use them to fit a need. Charts and their specific forms graphically represent the activity taki...

  • New Tricks With the Dogs of the Dow by Mark Vakkur, M.D.

    ARTICLE SYNOPSIS ..."The Dogs of the Dow," a popular strategy based on purchasing the highest-yielding stocks each year, is reviewed here using a longer lookback period than originally used, as well as detailed analyses of the risks and rewards. On Beating the Dow, Michael O'Higgins and John Downes outlined two high-yield strategies that achieve substantially greater returns than the Dow Jones Industrial Average (DJIA) with less risk. Here's a statistical analysis of these strategies, extending the study period back to 1957. The two main strategies to analyze the DJIA are simple. Each year, buy equal dollar amou...

  • On the Fundamentals of Technical Analysis Andrew Lo by Thom Hartle

    ARTICLE SYNOPSIS ...Andrew Lo, Harris & Harris Group Professor of Finance at the Massachusetts Institute of Technology's (MIT) Sloan School of Management, director of MIT's Laboratory for Financial Engineering and founder of Sloan's Track in Financial Engineering, is a radical of sorts because of his frank and open interest in technical analysis. Further, he's an academic who's perfectly willing to admit that technicians are often more open-minded about the markets than the academics who are his peers. But he'll also tell you that technicians are getting too far away from the fundamentals of technical analysis, a...

  • Reverse Divergences and Momentum by Martin J. Pring

    ARTICLE SYNOPSIS ...An oscillator's failure to confirm the higher high or the lower low of the market is a red flag to most technical traders. Is there a message when the price diverges from the indicator? This veteran technician thinks there is. Technical analysts are constantly comparing prices and indicators to see whether they are moving in gear or if there are discrepancies. It's when discrepancies appear that an alert to a probable change in trend is given. Most traders are familiar with the concept of momentum indicators experiencing positiveandnegativedivergences with price. For instance, as you can see ...

  • The Investor Preference Index by Cyril V. Smith Jr.

    ARTICLE SYNOPSIS ...This indicator, a long-term stock market investment tool, compares the performance of the S&P 500 to the New York Stock Exchange index to measure sentiment. The theory is that investors have a preference for certain types of invest-ments, blue chips versus mid-cap, during phases of a bull market. See what this indicator says lies ahead. No financial topic has evoked more interest in recent years than predicting when the current bull market in stocks will end. On one side of the argument are the buy-and-hold adherents, whose methodology has scored remarkable success since the early 1980s. To t...

  • The Stochastic Oscillator by Joe Luisi

    ARTICLE SYNOPSIS ...The stochastic oscillator is one of the more popular indica-tors available on today's software. This technical tool tells you where the current closing price is relative to the recent range of the market. Here are some techniques for using this classic indicator. First introduced by George Lane in the 1970s, the stochastic indicator has become one of the more popular technical indicators around. Pages upon pages have been devoted to explaining the indicator and how it works. Further, just about every technical analysis software product available today offers this indicator. The stochastic osc...

  • Time and Options Probabilities by John A. Sarkett

    ARTICLE SYNOPSIS ...For traders who want to use options to hedge their long positions, here are the formulas for calculating the prob-abilities. What's the probability that Intel [INTC] will be above 110 at a certain point? Three months from now, six months, a year? If you were to ask random-walk partisans, they would be likely to tell you, "There's no way to know." You would get the same answer from those who disparage market timers. But change the time frame to a more manageable short-term window -- say, the week or two before the very next options expiration -- and a little-known formula would be able to give y...

  • Traders' Tips

    ARTICLE SYNOPSIS ...METASTOCK In "High volatility and market turns" in this issue, William Brower uses a historical market lookback to show how volatility readings can help predict turns in the market. The indicator he presents, volatility%, is used to analyze the true range of the Dow Jones Industrial Average (DJIA), and thus compare the historical market with today's market. In MetaStock for Windows, you can easily recreate the volatility% indicator from Brower's article. First, choose Indicator Builder from the Tools menu in MetaStock....

  • Trading Without Limits by Adrienne Laris Toghraie

    ARTICLE SYNOPSIS ...Self-discipline is the key to success in any field. Traders especially need to maintain discipline to manage themselves during good times and bad. Here are some of the key issues on how to keep yourself in line. The list of personal qualities required to build a successful trading career (or a successful career in any area of the financial and investing world, for that matter) sometimes appears to be endless. However, one quality is always first on the list: self-discipline. Self-discipline is, in turn, composed of many parts, the cornerstone of which is the ability to set limits. Setting lim...

  • V.15:12: Letters V15:12: Letters to S&C

    ARTICLE SYNOPSIS ...LETTER FROM JOHN BOLLINGER Editor, The conventional interpretation of Bollinger bands is not overbought at the upper band and oversold at the lower band, as the Tezels assert in "On using volatility bands" (STOCKS & COMMODITIES, October 1997). Bollinger bands provide a relative definition of high and low that can be used in the interpretation of indicators to arrive at trading decisions. If a tag of the upper band is accompanied by confirmation from an appropriately specified indicator, higher -- not lower -- prices are called for. If that same tag were unconfirmed then lower prices would be ...








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