Article Archive For
FEB1991
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Average Behavior by John Sweeney
ARTICLE SYNOPSIS ...Average Behavior
by John Sweeney
Let me speculate a little here. I know from experience that the half-cycle moving average generally
runs along the tops of declining trends and along the bottoms of rising trends Ñ at least in the financials I
follow. This behavior makes it possible to identify rich sells in declines and cheap buys in advances. But
why does the average behave this way?
Well, a moving average Ñ as we usually plot these things Ñ is actually plotted ahead of its ""centered""
position. Instead of plotting it in the center of the data periods that it averages, we plot it at the la...
AUTHOR: John SweeneyDATE: FEB1991
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Calculating Interest With the Rule of 72 by Raymond Rothschild
ARTICLE SYNOPSIS ...Calculating Interest With the Rule of 72
by Raymond Rothschild
Despite the convenience these days of computers, business calculators and the like, it is often desirable
to perform some calculations either mentally or using pencil and paper. After all, one doesn't always have
the trusty laptop readily available -- if you have one at all. Toward this end, I would like to recommend
the Rule of 72 when doing certain interest evaluations.
Curiously, I was first introduced to this rule when attending a seminar on estate planning. The presenting
lawyer explained that if an amount of money was placed...
AUTHOR: Raymond RothschildDATE: FEB1991
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Converting Data Files by Franz Hrazdira
ARTICLE SYNOPSIS ...Converting Data Files
by Franz Hrazdira
Most charting programs work with historical data stored in files of a specific data structure best suited
to that program to access, process and present. Only one source I know of, Telescan in Houston, TX,
supplies the user with a program that can receive, store and reproduce the actual graphs as screen images
rather than working with sets of numbers.
In most cases, we choose a charting and analysis program for a special reason, which may be a particular
function, study or feature not found in another program. As long as each of our programs can conver...
AUTHOR: Franz HrazdiraDATE: FEB1991
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Fuzzy Expert Systems by J.F. Derry
ARTICLE SYNOPSIS ...Fuzzy Expert Systems
by J.F. Derry
Expert systems give the technical analyst a potent set of tools to dissect trading and investment
problems in short order.
For traders and investors alike, the real problem with both technical and fundamental methods is that of
laying out current after-tax dollars in the expectation of future before-tax profits based solely upon the
guidance of 20/20 hindsight generated through past experience. However investment and trading
opportunities are analyzed, investment decisions should depend upon as large a body of expertise as
possible. Such expertise can be ca...
AUTHOR: J.F. DerryDATE: FEB1991
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Keeping A Trading Journal by Thom Hartle
ARTICLE SYNOPSIS ...Keeping A Trading Journal
by Thom Hartle
Success in trading the markets does not come overnight. It is probable that the novice who profits early
and easily in his trading career will view the gains as the easiest money he or she ever made. It is also
very likely, however, that the trading newcomer stumbled into a powerful bull market, in his innocence
buying the market, either placing stops very far away or not using stops at all and watching mistimed
entries become profitable only because of the continued strength of a bull market. Emboldened by his
success, the new trader will increase his...
AUTHOR: Thom HartleDATE: FEB1991
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LETTERS TO S&C
ARTICLE SYNOPSIS ...LETTERS TO S&C
GETTING A FIX ON LOOKBACKS
Editor,
I would like to comment on the excellent article by E. Michael Poulos entitled ""Of trends and random
walks"" (STOCKS & COMMODITIES, February 1991). Mr. Poulos presents an extremely useful alternative to
indicators calculated over fixed periods of time. I found this alternative very helpful in analyzing market
indicators that I have begun to study and was able to apply his variable-length lookback concept to these
indicators. The variable lookback techniques by itself provides a new perspective on developing accurate
predictive models.
Howe...
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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Neural Nets In Technical Analysis by Yin Lung Shih
ARTICLE SYNOPSIS ...Neural Nets In Technical Analysis
by Yin Lung Shih
The technical analysis of price data requires a mix of mathematical technique, experience and intuition.
Anyone with a background in high school math can understand, or at least calculate, the mathematical
functions that have been developed to transform raw price series into more meaningful charts.
Experience, on the other hand, takes time to develop, and intuition is even more difficult to obtain (and
indeed may never come at all). Yet it may be intuition, more than anything, that filters out the mass of
information available to settle on th...
AUTHOR: Yin Lung ShihDATE: FEB1991
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Of Trends And Random Walks by E. Michael Poulos
ARTICLE SYNOPSIS ...Of Trends And Random Walks
by E. Michael Poulos
M y distrust of the current crop of technical indicators that use fixed-length lookback intervals, with
no attempt to use a price-time model, motivated me to do some research into the subject. For example,
one sees chart services publishing a nine-day stochastic and/or relative strength indicator. A variety of
other indicators using moving averages or the difference between moving averages also use fixed lengths.
But there simply is no justification for using nine (or any other fixed number of days) as some sort of
sacred number.
The first six ...
AUTHOR: E. Michael PoulosDATE: FEB1991
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Predicting The Shape Of A Cycle Bottom by Michael R. Burk
ARTICLE SYNOPSIS ...Predicting The Shape Of A Cycle Bottom
by Michael R. Burk
I define a cycle as what happens between peaks in my New Low Indicator. Since the beginning of 1978
there have been 24 complete cycles averaging a little over 120 trading days, or 24 weeks.
Cycle bottoms play out in two distinctive patterns, which I call V and W. Each bottom traces out the
pattern of its letter description. A V bottom is one where the price index declines to a bottom and then
heads up again (Figure 1). In the W bottom the price index reaches a low, retraces a portion of the decline
and then falls back to retest the pr...
AUTHOR: Michael R. BurkDATE: FEB1991
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Pseudo-Stock Specialist by Mark Harris
ARTICLE SYNOPSIS ...Pseudo-Stock Specialist
by Mark Harris
In ""Pseudo Stocks,"" STOCKS & COMMODITIES, December 1990, I showed some stock charts from a
random number generator resembling real life to an astonishing degree and some simple rules for price
transitions. Now, I would like to model a ""specialist."" This will add volume to the charts and,
additionally, we can see which situations are good or bad for our hypothetical market maker.
As a disclaimer, let me state right at the outset that I haven't a clue how a real-life specialist goes about
making a market for the stocks in which he specializes, how he ...
AUTHOR: Mark HarrisDATE: FEB1991
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Ralph Bloch: 34-Year Trading Veteran by Thom Hartle
ARTICLE SYNOPSIS ...Ralph Bloch: 34-Year Trading Veteran by Thom Hartle
Ralph Bloch, senior vice president and chief market analyst for Raymond James, has been active as a
technical analyst on Wall Street since 1956 and has been writing weekly technical commentary for
Mansfield Chart Service for the past six years. STOCK & COMMODITIES Editor Thom Hartle interviewed
him via telephone on November 20,1990, to get his views on the markets, technical analysis and Wall
Street of the past 35 years.
I have a very limited and narrow view and somehow I've survived (trading) 34 years. --Ralph Bloch
I'd like to start off w...
AUTHOR: Thom HartleDATE: FEB1991SUBJECT: Interview
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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SIDEBAR: DERIVATION OF THE RULE OF 72
ARTICLE SYNOPSIS ...DERIVATION OF THE RULE OF 72
The mathematics behind the rule of 72, stating that if an amount is invested at a compound interest rate until it doubles in value, then the product of the number of years (or periods) and the interest rate is approximately equal to 72; page 81....
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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SIDEBAR: MUGEN: COMPUTATION OF MEMBERSHIP FUNCTION
ARTICLE SYNOPSIS ...MUGEN: COMPUTATION OF MEMBERSHIP
FUNCTION
Membership functions can probably be computed with any plausible mathematical function suitable to
the occasion. In practice, however, many situations are well served by simple first- or second-order
functions....
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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SIDEBAR: OBSERVATIONS AND FORMULAS
ARTICLE SYNOPSIS ...OBSERVATIONS AND FORMULAS
To devise a technical indicator out of all this, consider first Article Figure 3. Today's low (Day 1 low) is
250 points below the high of Day 4 and 300 points below the high of Day 9. To which high is today's low
most overextended, relatively speaking?...
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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SIDEBAR: USING OPTION RATIOS
ARTICLE SYNOPSIS ...USING OPTION RATIOS
AnCall/put TRIN as a market sentiment indicator, page 64.
To many traders and investors, the limited-risk aspect of the purchase of both call and put options is
appealing. Many market followers believe that when the major activity is concentrated in either calls
(bullish expectations) or puts (bearish expectations), extremes in crowd psychology will appear....
AUTHOR: Technical Analysis, Inc.DATE: FEB1991
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The 28% Rule by Arthur A. Merrill, C.M.T.
ARTICLE SYNOPSIS ...The 28% Rule
by Arthur A. Merrill, C.M.T.
A bear market is interrupted by rallies, which cheer the spirits but are then followed by a resumption of
the bear market. Finally, one of the rallies turns out to be the first upswing of a new bull market, and
prices begin to zigzag upward.
Is there any characteristic of the first bull swing that differentiates it from the preceding bear market
rallies? We'll know that the tide has turned after prices really start to make higher highs and higher lows,
but can we get the news earlier?
Yes. I've discovered that the simple magnitude of the first bull ...
AUTHOR: Arthur A. Merrill, C.M.T.DATE: FEB1991
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Trendlines by Melanie F. Bowman and Thom Hartle
ARTICLE SYNOPSIS ...Trendlines
by Melanie F. Bowman and Thom Hartle
Trendlines are those lines drawn on charts to assist the technician in analyzing a market. A trendline
drawn below rising prices is known as a demand, or oversold, line, while a trendline drawn above
declining prices is known as a supply, or overbought, line. The direction of the trend is indicated by the
ascending trendline or the declining trendline. A penetration of the trendline by price is clear evidence of
a change in the trend. In addition, trendlines also give an analyst the added benefits of gauging whether a
trend is accelerating or on...
AUTHOR: Melanie F. Bowman and Thom HartleDATE: FEB1991
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Updating Option Ratios With Market Sentiment by James P. Martin
ARTICLE SYNOPSIS ...Updating Option Ratios With Market Sentiment
by James P. Martin
Is it true that market sentiment indicators no longer work? That's the word from many traders and
market timing advisors in the past several months. They say that so many ""pseudo contrarians"" now
follow call/put ratios, advisory sentiment surveys, public short selling activity, and so on, that traders are
no longer sure whether to bet against the consensus of the public or the consensus of pseudo contrarians.
They may think they are going against the herd, when in fact they are part of it!
Many traders are indeed feeling frust...
AUTHOR: James P. MartinDATE: FEB1991
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Wyckoff: Relative Strength And Weakness by Craig Schroeder
ARTICLE SYNOPSIS ...Wyckoff: Relative Strength And Weakness
by Craig Schroeder
In his course in stock market science and technique, Richard D. Wyckoff stated the basics of his method
in five steps:
Step 1: Determine the present position and probable future trend of the market. Then decide how you
are going to play the game: long, short or neutral.
Step 2: In a bull market, select from those stocks in harmony with the market the ones that are
stronger than the market. In a bear market, select those that are weaker than the market.
Step 3: Using point and figure charts, select those stocks that have built up a ...
AUTHOR: Craig F. SchroederDATE: FEB1991