STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For MAR1992

  • Adapting Moving Averages To Market Volatility by Tushar S. Chande, Ph.D.

    ARTICLE SYNOPSIS ...Adapting Moving Averages To Market Volatility by Tushar S. Chande, Ph.D. If a market is active, it has volatility: that cannot be avoided. And because the market is continuously changing, an indicator that attempts to predict market activity must itself adapt and change. How? Tushar Chande presents a dynamic--not static--indicators: a variable-length moving average, which adapts to the volatility in question by exponentially smoothing data based on standard deviation. Technicians can be trend followers or contrarians. Trend followers use price-based indicators, such as moving averages, while c...

  • Candlesticks And The Method Of 3 by Gary S. Wagner and Bradley L. Matheny

    ARTICLE SYNOPSIS ...Candlesticks And The Method Of 3 by Gary S. Wagner and Bradley L. Matheny Various uses of the number three, a number of importance in Japanese culture as well as Western culture, can be seen prominently throughout candlestick technique and particularly in the form of ""Sakata's five methods."" The five methods, though more than 200 years old, can be used in current-day trading with little modification, as Wagner and Matheny show. In previous articles, we wrote about using artificial intelligence and pattern recognition to analyze candlestick charts and the importance of properly identifying ...

  • Gail Dudack Of S.G. Warburg by Thom Hartle

    ARTICLE SYNOPSIS ...Gail Dudack Of S.G. Warburg by Thom Hartle S.G. Warburg senior vice president, head of market strategy and technical analyst Gail Dudack, C.M.T., is no newcomer to technical analysis or the world of Wall Street; she began her career at Pershing & Co. (now a division of Donaldson, Lufkin & Jenrette) in the early 1970s, eventually writing a weekly market strategy letter for Pershing before she joined international brokerage firm Warburg in 1987, where she writes both weekly and monthly strategy letters. In the meantime, she has served, among other capacities, on the Market Technicians Associati...

  • Market Prediction Through Fractal Geometry by Victor E. Krynicki, Ph.D.

    ARTICLE SYNOPSIS ...Market Prediction Through Fractal Geometry by Victor E. Krynicki, Ph.D. Few have heard of fractal geometry and fewer still know how to use it. But it is a powerful tool with which to analyze nonlinear systems and is the main alternative for analyzing systems that defy development of predictive nonlinear equations. Krynicki presents a method by which to search for fractal patterns. Since its inception, technical analysis has been dominated by linear and/or statistical smoothing, averaging and estimation techniques. These techniques come in a vast a array of forms: linear regression, quadratic...

  • Modeling The Stock Market by Paul T. Holliday

    ARTICLE SYNOPSIS ...Modeling The Stock Market by Paul T. Holliday The price/earnings ratio works perfectly well-- for stocks. But, Paul Holliday points out, it doesn't work for stock indices such as the DJIA or the Standard & Poor's 500, where the effective interest rate works much better. To prove it, he's come up with a market model based on the theory that price is in proportion to earnings divided by interest rate and proceeds to demonstrate its use. The price/earnings ratio has been highly regarded as an indicator of whether the market is over- or underpriced. But closer analysis reveals that for stock indi...

  • SIDEBAR: DETERMINING GROWTH RATE

    ARTICLE SYNOPSIS ...DETERMINING GROWTH RATE One method for determining a growth rate is to fit a regression line using the least-squares method to the data. Figure 1 is a graph of the annual dividends for Merck & Company with a regression line drawn. This straight line is calculated to fit the data with the least amount of error. The formula for this line is: Y = a + bX The letter Y is the dividends and the letter X represents time. The letter a is the Y intercept when X equals zero and the letter b is the slope of the line. The slope of the line is the rate of change of the line. The formula that statisticians...

  • SIDEBAR: MATH MODEL FORMULAS

    ARTICLE SYNOPSIS ...MATH MODEL FORMULAS My mathematical model of the stock market is based on fundamental economic parameters and has been modified slightly from the model described in the article ""Determining stock value from price and earnings."" The Standard & Poor's 500 is used to represent the market as a whole. The premise is that stock index prices are proportional to earnings divided by interest rate: ... The earnings in the model are the average earnings one year, or four quarters, ahead of the price of the S&P 500 and is expressed using the least-squares method by the following equation: ......

  • Selecting Stocks For A Portfolio by Donald Stewart and Kenneth Stewart

    ARTICLE SYNOPSIS ...Selecting Stocks For A Portfolio by Donald Stewart and Kenneth Stewart As redundant as it may sound, following the stock market is in reality following a market of stocks. And surveying a market of stocks can present a challenge. The brothers Stewart, using time series analysis, here present a ranking method to design portfolios. It was this method that they used to select five stocks to build one portfolio for each year since 1967. We show here their results. The first law of the jungle is the survival of the fittest, no matter how the jungle is defined. In the economic jungle, companies ta...

  • Shifting To Another Dimension by John Sweeney

    ARTICLE SYNOPSIS ...Shifting To Another Dimension by John Sweeney I have spent the last several months tweaking a simple trading system to provide good profits with minimal drawdowns. The underlying idea (""Settlement,"" November 1991 through February 1992) isn't too complicated, and it is summarized in Figure 1. Last month, 1 tried to exploit the underlying system by adding on trades to the underlying positions with a separate, simple rule: Add positions when the trending price retraces to the simple average following it (Figure 2). This logic failed, though it was spectacularly successful in some test periods...

  • The 4% Model: Using The Value Line Composite by Bob Kargenian, C.M.T.

    ARTICLE SYNOPSIS ...The 4% Model: Using The Value Line Composite by Bob Kargenian, C.M.T. Looking for an indicator that doesn't predict huge booms or busts, but tells you what the safest course of action is? Here it is. For this model, all you need is the Value Line Index. It's simple, but it works. Here's how. Originally, the 4% model was developed by Ned Davis of Ned Davis Research fame as a method with which to follow the trend of the stock market. Simply, a buy signal is given when the weekly close of the Value Line Index rises 4% or more from any weekly close; a sell signal is given when the weekly close d...

  • The Presidential Election Cycle by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...The Presidential Election Cycle by Arthur A. Merrill, C.M.T. It's an election year again. What does history say about them ? This famous technician tells you that what you've heard about Presidential election years may very well be true. An election year is in progress. What are the prospects for the markets? We've been told that traditionally, politicians try to do everything they can to make the years with Presidential elections scheduled good ones in the market to put voters in a positive frame of mind. Does history confirm this truism? To check this out, I asked my computer to calculate...

  • The Trin-5 by Jerry Favors

    ARTICLE SYNOPSIS ...The TRIN-5 by Jerry Favors Whether you know it as the trading index (TRIN) or the Arms index, this particular indicator has inspired variations ranging from an issue/volume-weighted long-term index to this, a short-term trading indicator based on a five-day sum of TRIN. Newsletter publisher Jerry Favors explains. Most traders are familiar with the trading index (TRIN), which was originally devised by Richard Arms. (For obvious reasons, it is also referred to as the Arms index.) Its premise is simple enough: in order to compute the trading index each day, divide the ratio of advancing issues ...

  • Trading Currency Mutual Funds by Joe Duarte

    ARTICLE SYNOPSIS ...Trading Currency Mutual Funds by Joe Duarte Want to broaden your investment horizon? Using subjects covered in his previous S TOCKS & COMMODITIES articles in November 1991 and January 1992, Joe Duarte explains how by combining a simple index/moving average with an oscillator, trading foreign currencies and foreign currency mutual funds can help you protect your mutual fund portfolio profits with a simple oscillator called the 10 minus 4 formula. I introduced the concept of mutual funds as stock index proxies in the November 1991 and January 1992 issues of STOCKS & COMMODITIES. By tracking se...








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