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• A New Slant On Head And Shoulders by Charles E. Miller

  ARTICLE SYNOPSIS ...A New Slant On Head And Shoulders by Charles E. Miller Here's a detrending technique that will help you visualize slanted head and shoulder top patterns more clearly. When the good old reliable head and shoulders (H&S) pattern emerges simultaneously in the Dow Jones Industrial Average (DJIA), the Nasdaq Composite (COMPX), and the S&P 500, it is not a good sign. The H&S indicates that a top has been reached, and that the market is due to head down. The display of the DJIA chart in Figure 1 is a near-perfect example of a classic head and shoulder pattern. H&S bottom formations are just as sign...

AUTHOR: Charles E. MillerDATE: DEC2001SUBJECT: Charting

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• Continuation Patterns by Amy Wu

  ARTICLE SYNOPSIS ...Continuation Patterns by Amy Wu The rising three and falling three candlestick patterns can help you confirm trends, add to positions,and grant you a cease-fire from the battle between the bulls and the bears. Candlestick charting extends well beyond confirming support and resistance levels and predicting market tops and bottoms. Active markets always attract traders, but sometimes recognizing market inaction is as necessary as finding activity in the market. There are times to sell, times to buy, and times to rest, and the continuation pattern recognizes those times to rest. But just becaus...

AUTHOR: Amy WuDATE: DEC2001SUBJECT: Candlestick Corner

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• Finding Key Reversals by Massimiliano Scorpio

  ARTICLE SYNOPSIS ...Finding Key Reversals by Massimiliano Scorpio Running this statistical test before creating a system can prove to be helpful. After spending several years analyzing traditional indicators and developing moving averages and oscillator-based systems, I have found that nothing works better in forecasting price movements than price itself. This discovery led me to focus my efforts into searching for and studying price configurations that could be useful in predicting the next movements in price. I started creating systems in 1996 using what was then Omega Research's EasyLanguage and tried to tes...

AUTHOR: Massimiliano ScorpioDATE: DEC2001SUBJECT: System Design

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Interview: John Clayburg by Jayanthi Gopalakrishnan

AUTHOR: Jayanthi GopalakrishnanDATE: DEC2001SUBJECT: Interview

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• Letters to S&C

  ARTICLE SYNOPSIS ...Letters to S&C TREND DETECTION INDEX Editor, I always look forward to receiving STOCKS & COMMODITIES and seeing what new indicators may be presented. The October 2001 S&C article by M.H. Pee on the trend detection index (TDI) was intriguing and very well written. The TDI seems to have a lot of promise. I would very much like to compare it head-to-head with other trend measures, such as the ADXR, vertical horizontal filter, polarized fractal efficiency, Chande momentum oscillator, and so on. That is half the fun -- to see how a new technique compares with established ones! Thus, I was most di...

AUTHOR: Technical Analysis, Inc.DATE: DEC2001SUBJECT: Letters To S&C

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Opening Position by Jayanthi Gopalakrishnan

AUTHOR: Jayanthi GopalakrishnanDATE: DEC2001SUBJECT: Opening Position

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• Q&A by Don Bright

  ARTICLE SYNOPSIS ...Q&A by Don Bright ON TECHNICAL ANALYSIS I happened upon the last part of your radio show while I was in Las Vegas recently, and heard you mention STOCKS & COMMODITIES. I picked up a copy and was pleasantly surprised to find that their focus has shifted somewhat from technical analysis. Although I find it interesting, technical analysis seems too complicated at times. Do you trade primarily with technical analysis? -- Ray B. Westwood, CA Since I pass many of my e-mails along to S&C, I want to thank you for reading what is probably the best book in the industry! Now to your question. I persona...

AUTHOR: Don BrightDATE: DEC2001SUBJECT: Q&A

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• Repair Strategies With Options by Kevin Lund and Tom Gentile

  ARTICLE SYNOPSIS ...Repair Strategies With Options by Kevin Lund and Tom Gentile Here's a strategy for fixing a good trade gone bad. As we've seen many times in the last year, a gap down with bad news on a stock you're holding can not only be devastating to your trading account, but may also test the depths of your skills as a trader. Even if you are the most gifted, insightful trader around and you are certain the stock will move in your favor, the financial markets are sure to humble you -- as they did everyone the week following the tragedies of September 11. Though it may seem hopeless when major failures oc...

AUTHOR: Kevin Lund and Tom GentileDATE: DEC2001SUBJECT: Options

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• Stochastics Of Earnings Yields by Mark Vakkur, M.D.

  ARTICLE SYNOPSIS ...Stochastics Of Earnings Yields by Mark Vakkur, M.D. By combining technicals and fundamentals, you can make a realistic analysis of the market. Pure stock market technicians ignore fundamentals. To them, the chart tells the whole story, while the fundamentals are distracting and misleading. Pure fundamental analysts, on the other hand, ignore price action. Here's a method that synthesizes the best of both: converting a fundamental variable -- the interest rate?adjusted earnings yield on the Standard & Poor's 500 index -- into a technical indicator to maximize risk-adjusted returns. VALUATION ...

AUTHOR: Mark Vakkur, M.D.DATE: DEC2001SUBJECT: Indicators

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• The Continuous Lead Contract by Frank Suler

  ARTICLE SYNOPSIS ...The Continuous Lead Contract by Frank Suler A trading champion shares one of the tools he uses to analyze the markets. Since the introduction of the spreadsheet, I've used its abilities in the continuing search for a profit-making trading system. In the process, I've developed several automated procedures, or macros. Some simply help by yielding additional ease in copying formulas or selecting graph ranges. Others are more extensive, such as subroutines awaiting inputs so that Fibonacci ratios and Elliott wave theories can provide price predictions. I want to present two such macros, the co...

AUTHOR: Frank SulerDATE: DEC2001SUBJECT: Trading Systems

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• Threshold Trading Revisited by Rudy Teseo

  ARTICLE SYNOPSIS ...Threshold Trading Revisited by Rudy Teseo An introduction for newcomers or a refresher for old-timers: Here are a couple of tools we sometimes forget to use. In trading jargon, the "threshold" refers to the presignal area of overbought/oversold indicators -- the area above or below the limits set in threshold-crossing indicators. The relative strength index (RSI) and stochastics are probably the best known threshold-crossing indicators and are great for creating entry and exit trading signals. The presignal areas -- the "thresholds" -- are useful for knowing when to act, whether you're buying o...

AUTHOR: Rudy TeseoDATE: DEC2001SUBJECT: Basic Techniques

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• Traders' Tips

  ARTICLE SYNOPSIS ...Traders' Tips TRADESTATION: FINDING KEY REVERSALS Massimiliano Scorpio's article "Finding Key Reversals" in this issue includes the EasyLanguage code for a key reversal?based strategy (a trading system) that also performs some basic statistical analysis to determine how often such price patterns occur and how often they lead to profitable moves. The strategy calls a custom function for identifying key reversals, and the EasyLanguage code for that is also included in the article. While the ideas presented are sound, there are some issues with the code that may make it difficult to use as-is,...

AUTHOR: Technical Analysis, Inc.DATE: DEC2001SUBJECT: Traders' Tips

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• Traders' Resource: Mutual Funds

  ARTICLE SYNOPSIS ...Traders' Resource: Mutual Funds When investing with mutual funds, the issue is cost of all kinds. Sales charges, turnover costs (trading costs), tax costs, management fees, marketing costs, and cash-holding costs all eat into your returns; then the compounding effect magnifies your losses. It's critical to consider all of these costs when approaching mutual fund investing and do the appropriate research to make sure you are making the most of your investment. A family of low-cost, no-load funds that allows costless switching between funds can be very beneficial in the long run. After you've ...

AUTHOR: Technical Analysis, Inc.DATE: DEC2001SUBJECT: Traders' Resource

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• Working Money: $10 Price Tags On $5 Shirts by Bruce Faber

  ARTICLE SYNOPSIS ...Working Money: $10 Price Tags On $5 Shirts by Bruce Faber Beware of the rampant ripoffs in retail! "Put the $10 price tags on the $5 shirts and we'll mark them down to $7 for the sale." That was the caption on a cartoon I saw in a magazine about 50 years ago. It made a lasting impression on me. These days, friends who want to to buy something ask me where they can get the best value for their money, which in turn makes me even more aware of the ripoffs rampant in the retail world. Scams are nothing new. They have probably been happening since the hunter in the next cave promised a fat T-Rex...

AUTHOR: Bruce R. FaberDATE: DEC2001SUBJECT: Investing

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• Working Money: A Taste Of The Big MACD by Amy Wu

  ARTICLE SYNOPSIS ...Working Money: A Taste Of The Big MACD by Amy Wu Indicators like the moving average convergence/divergence help you confirm signals and decrease risk when buying and selling securities. Invented by Gerald Appel in the 1970s, the MACD has become a staple in the world of technical analysis. Here's how you can make use of it. One of the most popular indicators used in technical analysis is the MACD (moving average convergence/divergence). In its most common form, the MACD is calculated by taking the difference between a 26-day and a 12-day exponential moving average. This difference, sometimes ...

AUTHOR: Amy WuDATE: DEC2001SUBJECT: Working Money

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• Working Money: Confirming Bear Markets by David Penn

  ARTICLE SYNOPSIS ...Working Money: Confirming Bear Markets by David Penn In a down market,the only question as important as "How low will we go?" is "Will we know when we're there?" While many technical analysts have relegated Dow theory to that same attic in which the old tickertape machines are stashed, the underlying premise of this approach toward the stock markets, now more than 75 years old, remains both valid and potent. In fact, Dow theory can be an effective intellectual haven from the "24/7, 365" barrage of information, financial and market news reports, and analysis. Although it is true that intraday...

AUTHOR: David PennDATE: DEC2001SUBJECT: Dow Theory