STOCKS & COMMODITIES magazine. The Traders' Magazine

Article Archive For OCT1991

  • An Issue/Volume Weighted Long-Term Arms Index by Jack Rusin

    ARTICLE SYNOPSIS ...An Issue/Volume Weighted Long-Term Arms Index by Jack Rusin Consider, if you will, two vastly simplified trading days on the New York Stock Exchange (NYSE). On the first day, 10 issues advance and 10 decline with 100 shares of up volume and 200 shares of down volume. On the second day, the same 10 issues advance and the same 10 decline, but this time there are 200 shares of up volume and only 100 shares of down volume. Using the Arms index, or TRIN (for trading index), for the first day would result in [10/10]/[100/200] or 2. The TRIN for the second day would be [10/10]/[200/100], or 0.50. ...

  • Compressing Candlestick Patterns by Jean-Olivier Fraisse and Kevin D. Armstrong

    ARTICLE SYNOPSIS ...Compressing Candlestick Patterns by Jean-Olivier Fraisse and Kevin D. Armstrong Market action is similar to territorial claims between competing species in that bulls seek to expand their territory by increasing prices and, conversely, bears seek to expand their territory by decreasing prices. Candlestick charting depicts the ongoing struggle and provides valuable insights about the never-ending battle (see sidebar, ""Drawing candlesticks""). In particular: -A candle body measures the territory held by the bulls(white candle body) or the bears (black candle body) from the beginning to the en...

  • Logarithmic Point & Figure by Arthur A. Merrill, C.M.T.

    ARTICLE SYNOPSIS ...Logarithmic Point & Figure by Arthur A. Merrill, C.M.T. In the June 1991 STOCKS & COMMODITIES, I described how a turning point could be measured by filtering out minor market moves. The same filtering technique can be used to correct the failings of the traditional point and figure (P&F) chart and upgrade it to logarithmic status. The P&F chart, built on a filtering technique, is an old favorite. In a one point chart, moves of less than one point are ignored or filtered out; in a three-point chart, all moves of less than three points are filtered out. The idea here is great, but the chart m...

  • P/E Ratio Reliability by High Stokely and Ken Stewart

    ARTICLE SYNOPSIS ...P/E Ratio Reliability by Hugh Stokely and Ken Stewart Alert traders can do well in financial instruments, but short-term trading usually averages out close to a zero-sum game -- that is, a dollar won tends to come directly out of the pocket of a less alert trader or investor. Finding positive-sum games--those in which everyone wins -- can improve the odds. Historically, growth stocks have provided a ""positive sum"" -- a growing investment pie that rewards the winner of a trade extremely well but also allows the loser to build investment value over time. Even in quick-response trading, a case e...

  • Paul Merriman On Mutual Fund Timing by Thom Hartle

    ARTICLE SYNOPSIS ...Paul Merriman On Mutual Fund Timing by Thom Hartle Paul Merriman, founder and president of The Merriman Investment Management Company, manages the portfolio of the Merriman Mutual Funds. He also publishes a newsletter and hotline service called ""Fund Exchange,"" specializing in market timing no-load mutual funds. He wrote Market Timing with No-Load Mutual Funds, which was published 1987, and has a new book due out in January 1992, Investing for a Lifetime. Merriman's philosophy is that the main purpose of timing is not to maximize profits in a bull market but to limit losses in a bear marke...

  • Price Changes During Non-Trading Hours by George R. Arrington and Howard E. Arrington

    ARTICLE SYNOPSIS ...Price Changes During Non-Trading Hours by George R. Arrington and Howard E. Arrington One frustrating aspect of trading commodities is the price changes that occur during non-trading hours. It is difficult enough to make a profit when markets are open and buy and sell orders can be executed within a relatively short time. When markets are closed, however, the trader is faced with even more obstacles. Positions cannot be changed until the markets reopen, and in the interim traders are exposed to the risks of changes in circumstances and prices. Most commodities futures markets are open seven ...

  • SIDEBAR: CALCULATING PERR

    ARTICLE SYNOPSIS ...CALCULATING PERR Price/earnings ratio reliability (PERR) is simply 100 the R-square that measures the correlation between the logarithms of price and earnings. PERR is most easily visualized through scatter charts: Article Figure 2 shows Merck's high PERR of 85.5, with scatter points keeping close to the 45-degree line that bisects the price and earnings axes, while Article Figure 4 shows uncorrelated scatter with Alcoa's low PERR of 15.9. Normally, R-square is encountered as a byproduct of a regression analysis, which often reports R-bar-square, adjusted for degrees of freedom. PERR uses ...

  • SIDEBAR: DRAWING CANDLESTICKS

    ARTICLE SYNOPSIS ...DRAWING CANDLESTICKS If drawn by hand, Japanese candlestick charting is time consuming but simple. First, collect the high, low, open and close price for the period under consideration (five minutes, hourly, daily, weekly or whatever you may choose). Second, mark the open and the close on a price chart and join them by a small rectangle to form the body of the candle (the small end on the time scale and the long on the price scale, representing the difference between the open and close prices). Third, paint the rectangle black when the open is higher than the close and leave it white when the...

  • SIDEBAR: EXPONENTIAL MOVING AVERAGES

    ARTICLE SYNOPSIS ...EXPONENTIAL MOVING AVERAGES Defining exponentially smoothed moving averages -- which, for most traders, would be a series of closing prices -- is simply another form of a moving average. An exponentially smoothed moving average utilizes a smoothing constant (a) that approximates the number of days for a simple moving average. This constant is multiplied times the difference between today's closing price and yesterday's moving average value. This new value is then added to yesterday's moving average value (Figure 1):...

  • SIDEBAR: MERRIMAN'S TIMERS

    ARTICLE SYNOPSIS ...MERRIMAN'S TIMERS According to Paul Merriman, the most productive of the four systems that Merriman & Associates uses has been Stan Lipstadt of PSM Investors, Inc. Carlisle, MA-based Lipstadt has been timing on a real-time basis since 1974. The most important factor in Lipstadt's model is the tracking of daily points up, points down, volume up and volume down. These numbers are collected from the Lowry Report Service, West Palm Beach, FL, and are placed in a long-term moving average perspective, with the buy/sell rules based on changes in the momentum of the number. Annually, Lipstadt's syste...

  • SIDEBAR: TEN RECOMMENDED FUNDS

    ARTICLE SYNOPSIS ...TEN RECOMMENDED FUNDS According to the relative strength analysis of Paul Merriman & Associates since July 1, these are the funds that Merriman would choose at present:...

  • The MACD Indicator Revisited by John F. Ehlers

    ARTICLE SYNOPSIS ...The MACD Indicator Revisited by John F. Ehlers The moving average convergence-divergence (or MACD, as it is familiarly known), one of the more popular technical indicators, was invented by technician Gerald Appel to trade the 26-week and 13-week cycles of the stock market. Commodity traders often use daily data with MACD but still use 26-period and 13-period exponential moving averages (EMA) in the analysis. The implication is that there are 26- and 13-day cycles in commodity markets. Beliefs such as this (for example, that only a 14-day relative strength index is correct) incite my curiosity...

  • The Trader's Reason vs. Emotion by Terry S. Brown

    ARTICLE SYNOPSIS ...The Trader's Reason vs. Emotion by Terry S. Brown In the late 1970s and early 1980s, Victor Sperandeo had a brilliant track record day trading stocks, commodities and especially the Standard & Poor's 500 and NYFE futures. He had an idea. ""I was trading well and by a strict set of rules,"" says Victor, ""making a lot of money when I was right and losing only a little when I was wrong. I figured that if I could do it, then I could train others to do it. I wanted to franchise my methods and had visions of becoming the McDonald's of the financial markets."" It didn't work. Of the 39 traders he ...

  • Trading The Regression Channel by Gilbert Raff

    ARTICLE SYNOPSIS ...Trading The Regression Channel by Gilbert Raff Every trader has had the experience of selling a stock or commodity too soon during a rapid price reversal, only to realize in retrospect that this was a consolidation within a trend. Or just the opposite: perhaps the trader watched profits evaporate when the ""consolidation"" became a downhill avalanche. A vast array of methods exists to describe price movement, ranging from trendlines to Fourier analysis. The ideal description of a trend would provide clear recognition of its start, trading range and termination. The ideal tool would permit th...







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