Article Archive For
DEC1997
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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...
AUTHOR: William Brower, CTADATE: DEC1997SUBJECT: Basic Techniques
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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
-- ...
AUTHOR: Stephen J. Klinger, CMTDATE: DEC1997SUBJECT: Indicators
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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...
AUTHOR: Salvatore J. Chiappone, DDSDATE: DEC1997SUBJECT: New Techniques
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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...
AUTHOR: Mark Vakkur, M.D.DATE: DEC1997SUBJECT: Trading Techniques
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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...
AUTHOR: Thom HartleDATE: DEC1997SUBJECT: Interview
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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 ...
AUTHOR: Martin J. PringDATE: DEC1997SUBJECT: Indicators
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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...
AUTHOR: Cyril V. Smith Jr.DATE: DEC1997SUBJECT: Indicators
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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...
AUTHOR: Joe LuisiDATE: DEC1997SUBJECT: Novice Traders' Notebook
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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...
AUTHOR: John A. SarkettDATE: DEC1997
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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....
AUTHOR: Technical Analysis, Inc.DATE: DEC1997
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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...
AUTHOR: Adrienne Laris ToghraieDATE: DEC1997SUBJECT: Trading Psychology
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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 ...
AUTHOR: Technical Analysis, Inc.DATE: DEC1997