STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For MAR1991

  • Another Chance With Breakaway Gaps by John Crane

    ARTICLE SYNOPSIS ...Another Chance With Breakaway Gaps by John Crane Suppose you've been monitoring the market for weeks, faithfully updating your daily charts and studying your favorite indicators. The criteria for your trade are met and, at long last, a buy signal is generated. You know that once resistance is broken, the ensuing move will be substantial. The next morning you place a call to your broker, only to hear that the market gapped higher on the open, soaring to levels somewhere in a neighboring galaxy. This was definitely not a part of your well-developed trading plan. You then decide to wait for the...

  • Artificial Intelligence And Market Analysis by Mark B. Fishman, Dean S. Barr and Walter J. Loick

    ARTICLE SYNOPSIS ...Artificial Intelligence And Market Analysis by Mark B. Fishman, Dean S. Barr and Walter J. Loick Markets are chaotic and their randomness is real but intermittent; we can approach the development of trading systems with that assumption. We can also assume that predictable intervals of non-randomness occur between periods of chaos, making market behavior recognizable enough to be exploited. Two forms of technology have been notably successful in the development of dynamic trading systems: expert systems and, more recently, neural networks. EXPERT SYSTEMS An expert system is simply a set of r...

  • Dow Theory: Bullish Or Bearish? by Jack Rusin

    ARTICLE SYNOPSIS ...Dow Theory: Bullish Or Bearish? by Jack Rusin Most people are familiar with the Dow Jones Industrial Average (DJIA), but relatively few are familiar with the Dow theory, Charles Dow's major contribution to the study of the stock market. Utilizing forerunners of today's DJIA and Dow Jones Transportation Average (DJTA), the newspaperman worked out his system of analysis and published his original material in a series of intermittent editorials in The Wall Street Journal around the turn of the century. The Dow theory pertains only to the movement of high-capitalization stocks and not to the mor...

  • Fourier Analyses by John Sweeney

    ARTICLE SYNOPSIS ...Fourier Analyses by John Sweeney One of the fascinating ideas that came up early in STOCKS & COMMODITIES' days was the Fourier analyses applied to stock and commodity data by Anthony Warren and Jack Hutson (see Technical Analysis of STOCKS & COMMODITIES, Volume 1). While this technique has its limitations for forecasting, it's great for seeing what cyclical content there is in your price data. Given this, you can detrend the data and select the ""correct"" length of trend-following indicators, whether they are averages, cycles or whatever (''filters'' to you engineers). Practically speaking, ...

  • Letters To S&C

    ARTICLE SYNOPSIS ...LETTERS TO S&C LOOKBACK OR LENGTH? Editor, I have a question that deals with the formula listed on page 30 of the February 1991 issue. When calculating the formula gives a lookback length of one through 20 days, is the average range based on the current lookback length or is it the length of the total data series up to the day of the calculation? For example: data of 100 days, currently at 40 start with lookback of 2. avg.rng = 2, avg (h- 1, past two days) start with lookback of 3. avg.rng = 3, avg (b - 1, past three days). or avg.rng = avg (h-1, day 1 to 40)? ROBERT ZUPP Hackensac...

  • Moving Average Convergence/Divergence (MACD) by Thom Hartle

    ARTICLE SYNOPSIS ...Moving Average Convergence/Divergence (MACD) by Thom Hartle The moving average convergence/divergence (MACD) method was developed by Gerald Appel as a technique to signal trend changes and indicate trend direction. The procedure uses the difference between two exponentially smoothed price data, called the MACD line, and an exponentially smoothed series of this difference, which is called the signal line. An exponential smoothing of price data has the advantage of responding quickly to price changes while smoothing data in a consistent manner. The calculation of a exponentially smoothed movin...

  • On-Balance Volume And The Dow Jones Utility Index by Daniel E. Downing

    ARTICLE SYNOPSIS ...On-Balance Volume And The Dow Jones Utility Index by Daniel E. Downing Between Thursday, October 19, 1990, and Monday, October 22, 1990, the Dow Jones Industrial Average (DJIA) gained more than 127 points. More important than the points gained in the DJIA, however, is the volume on which the gain occurred, as well as the small point gain (3.4 points) that occurred in the Dow Jones Utility Index. The on-balance volume (OBV) line for the New York Composite Index (an index of every stock listed on the New York Stock Exchange) and the price chart for Dow Jones Utility Index both broke out above l...

  • SIDEBAR: POINT & FIGURE TECHNIQUE

    ARTICLE SYNOPSIS ...POINT & FIGURE TECHNIQUE Point and figure charting is a technical trading approach that has been credited to Charles Dow, originator of the Dow theory. This technique differs from bar charting in that price reversals below a minimum size are eliminated and time is not a factor (it may be listed as only a frame of reference). Any market or indicator can be plotted using this technique; we use a stock for our example....

  • SIDEBAR: QUESTIONS CONCERNING THE SPECIALIST

    ARTICLE SYNOPSIS ...QUESTIONS CONCERNING THE SPECIALIST Computer parameters of the pseudo stock specialist used in the main article, page 120....

  • SIDEBAR: THE CANDLESTICK METHOD

    ARTICLE SYNOPSIS ...Quick descriptions and definitions of candlestick charting patterns and terms, page 108....

  • Spread Prices As A Leading Indicator by Curtis McKallip Jr.

    ARTICLE SYNOPSIS ...Spread Prices As A Leading Indicator by Curtis McKallip Jr. Commodities that are deliverable today trade at a different price than the very same commodity to be delivered in the future. This price differential is called a spread. Spreads exist because of two factors: charges (usually interest and storage charges) and relative demand for a product. Assuming these two factors stay relatively constant, the spread is controlled by the demand anticipated in the short run versus that for longer periods. A recent extreme example of a commodity spread is crude oil during the 1990 Iraqi/Kuwait crisis...

  • Steve Nison On Candlestick Charting by Thom Hartle

    ARTICLE SYNOPSIS ...Steve Nison On Candlestick Charting by Thom Hartle Thanks to Steve Nison of Merrill Lynch, the Japanese candlestick formation method has become international. Nison's first article on the candlestick formation in December 1989 triggered a flood of interest about the ancient method. Since then, he has spoken on candlestick charting widely and has appeared on FNN and CNBC on the subject as well. Nison, a New Yorker and a Merrill Lynch vice president specializing in futures technical analysis/options strategies, provides investment and timing strategies and trade recommendations and market views...

  • Stochastics by Thom Hartle

    ARTICLE SYNOPSIS ...Stochastics by Thom Hartle During the late 1950s, George C. Lane was actively involved with researching different types of oscillators to use as trading indicators. The name of each indicator was simply a letter from the alphabet, such as %A. The research took him through the alphabet twice before he decided to use two in particular, called the %K and %D. The stochastics oscillator was the result of this research. The term ""stochastics"" is actually a misnomer, as stochastics is a synonym for ""random.""...

  • The Average Directional Movement Index (ADX) by Thom Hartle

    ARTICLE SYNOPSIS ...The Average Directional Movement Index (ADX) by Thom Hartle Directional movement, according to technician J. Welles Wilder, is one of the most interesting aspects of market analysis. Markets clearly move from trending periods to trading ranges, but determining when this change occurs presented a challenge. To meet this challenge Wilder developed the Average Directional Movement Index (ADX). The Average Directional Movement Index is an indicator that is designed to rate the directional movement of stocks or commodities. The index uses a scale of zero to one hundred to rate the trend intensity...

  • The Pseudo Trader by Mark Harris

    ARTICLE SYNOPSIS ...The Pseudo Trader by Mark Harris How can you model stocks without stocks? By using random numbers to drive the simulation. In previous articles (STOCKS & COMMODITIES, December 1990 and January 1991), first I demonstrated the modeling of stock charts using this technique and then the modeling of a stock specialist. The problem I encountered was that the model lacked feedback -- while volume influenced price (via the actions of the pseudo specialist), the reverse did not hold. What happens when the loop is closed by adding an object that responds to price? I call this new Smalltalk object a ""t...

  • Time As A Trading Tool by Robert Miner

    ARTICLE SYNOPSIS ...Time As A Trading Tool by Robert Miner As a rule, most trading methodologies, or ""systems,"" simply approach market activity from a price perspective. But such an approach is incomplete; such an analysis of market activity is one-dimensional without the other two dimensions that make the study whole. For this reason, while price is a very important dimension of market activity, time and pattern can never be ignored. The key to this kind of analysis and trading plan is to recognize the coincidence of time, price and pattern to indicate change when the market is in a period with a high probabi...

  • Time Of Daily High And Low by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...Time Of Daily High And Low by Arthur A. Merill, C.M.T. Does the time of the high for the day and the time of the low give a clue to the performance of the market on the next day? For example, suppose that the Dow Jones Industrial Average (DJIA) high point was at the opening and the low at noon, followed by a rally in the afternoon. What are the prospects for the next day? The answer can be found by consulting the record of market highs and lows. For classification, the hours of the day could be represented by a digit. (See Figure 1.) Using a two-digit classification, the first digit could ...

  • Wyckoff: Identifying Opportunities by Craig F. Schroeder

    ARTICLE SYNOPSIS ...Wyckoff: Identifying Opportunities by Craig F. Schroeder Completing the first two steps of the Wyckoff method provides the investor or speculator with information that is essential for success. At this point, he or she knows whether to consider establishing long positions for an anticipated advance or short positions for a projected decline. In addition, he has a group of candidates from which to select the issues in which positions will be established. The next two steps of the Wyckoff method provide the basis for identifying the best opportunities from among the group of potential candidate...







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