May 2003 Letters To The Editor
or return to May 2003 Contents
The editors of S&C invite readers to submit their opinions and
information on subjects relating to technical analysis and this magazine.
This column is our means of communication with our readers. Is there something
you would like to know more (or less) about? Tell us about it. Without
a source of new ideas and subjects coming from our readers, this magazine
would not exist.
Address your correspondence to: Editor, STOCKS & COMMODITIES,
4757 California Ave. SW, Seattle, WA 98116-4499, or E-mail to editor@traders.com.
All letters become the property of Technical Analysis, Inc. Letter-writers
must include their full name and address for verification. Letters may
be edited for length or clarity. The opinions expressed in this column
do not necessarily represent those of the magazine. -Editor
DAYTRADING QQQ
Editor,
I found the article "Daytrading QQQ" in the March 2003
STOCKS & COMMODITIES to be quite misleading.
In the latter part of the article, author Misha Sarkovich suggests
taking advantage of the low probability of the QQQ falling outside a daily
price range of +/- 2.5% from the open. For the +2.5% case, the probability
is stated to be approximately 30%, which I confirmed with my own testing.
However, the basis for the daily high technique is described in the false
statement: "If the prices increase 2.5% from the open, there is a
70% probability this is the high for the day, and there is only a 30% probability
that prices will continue to increase to higher levels." After the
price has moved up 2.5% from the open, the original probability is no longer
applicable. The new sample group is now the subset of days where the intraday
price has reached a price increase of 2.5% from the open. Of these days,
the probability of closing above the 2.5% level is approximately 50%. So
there would be no advantage to taking a long or short position at that
point. My test results are included below:
Symbol: AMEX:QQQ (QCharts data, Wealth-Lab Developer)
Test period: 2000/01/02 to 2002/07/01 (2.5 years as per article)
Total days = 625
Total (open) +2.5% = 191 (30.56%)
Total of these closing above +2.5% = 96 (50.26%)
Avg. price move from +2.5% to close = $-0.03
Steve Dunn, Vancouver, Canada
See also the next letter.-Editor
DAYTRADING QQQ
Editor,
In "Daytrading QQQ" in the March 2003 S&C, in discussing
Figure 4 on page 31, author Misha Sarkovich concludes that there is a probability
of approximately 60% that QQQ daily prices will not decline below the 2.5%
price change from the open. From looking at the figure, I would agree.
However, the conclusion that "if prices decline 2.5% from the open,
there is a 60% probability that this is the low for the day and only a
40% probability that prices will continue to decrease to lower levels"
cannot be concluded from Figure 4. Once prices have declined to 2.5% from
the open, I would suggest that this subset of the population has to be
examined separately.
An analogous situation would be to say that if mortality tables estimate
an average lifetime of 80 years, a person who reaches 75 can expect to
live only five years more. This would not be true. A person who already
has reached 75 can expect to live significantly longer than the average
lifetime of 80 years.
William Gryc Hartland, MI wgryc@tir.com
Misha Sarkovich responds:
Thank you for your interest in my work. My analysis of the intraday
high and low price levels was a static analysis from the starting point
of the market open. It was designed only to be a warning sign to daytraders
that prices seldom continue going up or down from the open to close
in a linear fashion. When QQQ prices go up 2.5% from the open, the probability
is strong that QQQs are reaching overbought levels and it will not be a
good idea to open a new long position and chase that rally. Conversely,
if QQQ prices go down 2.5% from the open, the probability is such that
QQQ are reaching oversold levels and, in my opinion, this will not be a
good time to open a new short position and chase that pullback.
I also agree that if the QQQ prices go up or down 2.5% from the open,
then we could easily establish a new subset of price population (that is,
prices that already went up or down from open more than 2.5%) and examine
that subset of data separately. It is true that if mortality tables estimate
an average lifetime of 80 years, then a person who reaches 75 is
not sentenced to live only five additional years. Obviously, this would
not be true. If we select a subset of all individuals who are now
75 years or older, then the new average lifetime for this subset will be
much higher than 80 years - for instance, 90 years. But then we can establish
another or third sub-subset of all individuals who are now 90 years or
older, and then the new sub-subset average lifetime will be, for instance,
95 years. When do we stop creating the additional subset of population
data?
AUTOMATIC TRADE EXECUTION
Editor,
I would like to have my systems autotraded, and I know a number of
brokerage firms offer this service.
However, I have a problem. I do all my systems analysis on the stock
market, but then use options as my trading vehicle (for the leverage).
The decision of which option to purchase is completely mechanical: for
going long I buy at-the-money calls, for going short I buy at-the-money
puts. When an exit signal is generated on the underlying stock, I simply
sell the option at the market. The expiry date is also mechanically determined.
My problem is that the brokerage firms I know of that offer the service
of executing your trading system for you (whether the system is commercially
available or independently developed by the trader) only deal with stocks
and futures. Therefore, I have two questions:
1) Could you provide a list of firms that offer the service of autotrading
systems for clients?
2) Do you know of any trading firms that offer the service of autotrading
my method (completely mechanical), which involves analysis of stock price
movements, but then uses the options as the trading vehicle?
Tim Suffern, via e-mail
Try checking the Traders' Resource listing at our website, Traders.com,
and search for the features you need.-Editor
DeMARK METHODS
Editor,
I've become fairly interested in Tom DeMark's technical research
and indicators, and I'm disappointed to see that very little has been done
by STOCKS & COMMODITIES in exploring his work for your readers.
DeMark's Sequential and Combo techniques aside, I was hoping that
one of your staff writers could do an article on DeMark's Moving Average
I, which is covered on pages 244-46 in his book New Market Timing Techniques.
The moving average is such a ubiquitous trading tool that I'd think
that a tremendous number of your subscribers would find value in such an
article. In addition, DeMark's effort to create a moving average that distinguishes
between ranges and trends would provide a different slant in comparison
to recent articles I've seen in your magazine, which primarily address
techniques for reducing lag in moving average-like indicators.
In addition, any MetaStock code provided for DeMark's moving average
indicator would be much appreciated.
Ondrea H. Delio, via e-mail
We interviewed DeMark in the May 1995 issue of S&C ("Exploring
the Science Of Technical Analysis With Thomas R. DeMark"). See also
DeMark's August 1997 S&C article, "The TD Range Expansion Index
(TD REI)," in which DeMark explains how to use his TD REI and the
TD Price Oscillator Qualifier indicators. Back-issue articles are available
from the Online Store at our website, Traders.com.
Unfortunately, since implementing DeMark's indicators requires making
certain assumptions, it is difficult for others to reinterpret the techniques
and write about them with any accuracy. If you like DeMark's New Market
book, we suggest you check out his others. If you are interested in
moving averages, visit our article archive for hundreds of articles on
various types and uses of moving averages, some quite ground-breaking.
For MetaStock code, please contact Equis International or visit MetaStock.com.
We don't specialize in writing code for particular software.-Editor
SIGMA BANDS
Editor,
Recently I saw a chart with sigma bands on it. Can you assist me
in finding out how these bands are calculated and how they are interpreted?
Richard Selby, via e-mail
Let's find out. Readers? -Editor
Z-SCORE AND ZIGZAG
Editor,
The code for the z-score and zigzag indicators were given for a number
of programs but mine was missing. Have these been developed for OmniTrader
or TC2000?
Richard Semock, via e-mail
The February 2003 S&C contained "Zigzag Targets" by William
Cringan and also "Z-Score Indicator" by Veronique Valcu. Both
articles were the focus of the Traders' Tips section in that issue, in
which various developers of technical analysis software contribute code
to help readers implement some of the techniques discussed in that issue.
As for TC2000 and OmniTrader, not all software developers contribute
to our Traders' Tips section, because not all software has the programmability
necessary to input code or custom indicators.-Editor
PRODUCT REVIEW VS. INFOMERCIAL
Editor,
Willy Verwoerd (Letters to S&C, March 2003) quite correctly complained
that "Trading The E-Mini" by Dennis Meyers in the January 2003
S&C was not a usable article for the average reader; no code was provided
for the common systems available to most users. Verwoerd called the article
a "product review," as the author would only sell the system.
You brushed aside this criticism, saying the article wasn't a product
review. Perhaps not; perhaps it is more correctly described as an "infomercial."
When no code is provided for an article detailing a trading technique,
it is not helpful to the reader. When the author then offers to sell the
system to the reader, the article is de facto an infomercial.
Many of the articles you publish are written by those who make a
business of writing commercially available trading systems. This is obvious
from the brief biographical note that accompanies the article. There is
nothing wrong with this. But a problem arises when the rare article appears
without code for various systems, and serves as a "teaser" for
an offer to sell. That doesn't seem right.
Dick Sternbach, via e-mail rstrn@san.rr.com
As we said in our answer to Verwoerd's letter in the March 2003 Letters
column, Meyers has contributed many articles to past issues of S&C,
some of which provided background information on the topics discussed in
his January 2003 article.
We cannot provide code for every different program for every article.
It is impossible for the author to provide this and impossible for us to
provide this. That doesn't mean an article is without worth.
Many contributors to our magazine develop systems and software either
for personal or commercial use. This is what gives them the expertise to
write articles on system development.-Editor
TRADERS' RESOURCE: TRADING SYSTEMS
Editor,
In the January 2003 S&C, in the Traders' Resource section beginning
on page 104, there seems to be an error in the "Top Ten Viewed"
list. According to that box, the no. 1 system is "The Trading System."
However, I can neither find it nor the company, TheTradingSystem.net, on
the Internet. Neither does the e-mail address or phone number work. Could
you please clarify?
Robert Amory, via e-mail
Thank you for pointing this out. Sometimes companies go out of business
and their listing is not removed right away.
Something to point out, however, is that our Top 10 Viewed list is not
a ranking. We do not rank or rate trading systems or software. As the caption
below the Top 10 box states, that listing is the 10 products most clicked
on by website visitors to our Traders' Resource. We believe this helps
tell readers what other readers are interested in and asking about, but
that's all it does. The Traders' Resource feature itself is a listing of
the various products available on the market, and provides a starting place
for traders to research products and services.
If you are researching trading systems, a good resource to check is
Futures Truth at www.FuturesTruth.com. The sole editorial mission of that
publication is to track and rank trading systems. It is beyond the scope
of our own magazine to track and rank trading systems, which requires tracking
the systems over complete market cycles and is a time-consuming endeavor.
Another resource to check is the National Futures Association's website
at http://www.nfa.futures.org, which offers background information on companies
and services related to the futures industry called the Background Affiliation
Status Information Center (Basic).-Editor
TRADERS' RESOURCE: EXCHANGES
Editor,
I was reading the February 2003 issue. The Traders' Resource section
on pages 110-13 failed to mention the Toronto Stock Exchange (TSX):
Private Client Division
BMO Nesbitt Burns Inc.
Phone: 306 343-3634
Fax: 306 653-7227
Rod M. McLellan, via e-mail
Thank you for providing this information for other readers.-Editor
TAX TIME
Editor,
I thought I read in your magazine that as a trader, I need to register
with the IRS. I've been searching your magazine and cannot find it. If
you know the correct tax form, please let me know what it is.
By the way, your S&C is a great magazine. I have recommended
it to other traders.
Cliff Budd, via e-mail
You may be remembering Ted Tesser's article in the January 2000 issue
of S&C, "It's What You Keep That Counts." The form that's
mentioned for trader status is Schedule C.-Editor
POINT & FIGURE CHARTING
Editor,
Point & figure is a very old method. Mainly, it was used before
the computer age. Nevertheless, it is still a very efficient way to smooth
curves.
I personally have developed (in the MetaStock syntax) a system converting
linear regression and prices in order to reduce whipsaws and maintain an
acceptable time response.
My wish is to find information and articles about mixing P&F
theory (using no time scale) with classic MetaStock formulas (with a time
scale). Any other articles concerning P&F would be welcome as well
in your interesting magazine.
William Godrie, via e-mail
Belgium
You can search for articles on particular subjects using the search
feature at our website, Traders.com. Try also the MetaStock website and
e-mail discussion forum.
Here are some articles we've published on point & figure charting.
However, none of them offer MetaStock code. The article listed below by
Joe Demkovich uses MetaStock to plot charts.
Point & Figure Charting (January 2002)
With all its Xs and Os, three-point reversals, and subtle-but-effective chart patterns, point & figure charting is still all about supply and demand. By David Penn
High-Probability Point And Figure (April 2001)
If you want buy and sell signals from a charting system, point & figure charting may be for you. By Joe Demkovich
Classic Point & Figure (December 2000)
It was around before computers; it was around before calculators. It's been around forever, and despite that, it still works. It's point & figure charting, and it still offers unique advantages. Here are some examples. By David Vomund
On Building Point & Figure Charts (March 1997)
Point & figure charting is one of the classic techniques of technical analysis. Here's a refresher look at the basics. By Daryl Guppy
Logarithmic Point & Figure Charting (July 1995)
Traditional point & figure charting is one of the oldest methods known in technical analysis. The technique is unique because it only records the direction and change in price while ignoring time. But it has certain disadvantages; for example, it is virtually impossible to adjust a point & figure plot for stock splits or dividends without replotting the whole chart. Making each box represent a fixed percentage change - a logarithmic scale - has several advantages. Here's what they are. By William G.S. Brown
Successfully Trading Currency Options (Jaunuary 1990)
With the proper use of point & figure charts it is possible to derive certain probabilities of success for different formations. The astute option trader can change the risk-reward characteristics of options trading by selecting an underlying instrument - in this case, a currency - with a chart pattern that has a high probability of success. By Thomas Dorsey
Logarithmic Point & Figure (October 1991)
Could filtering point & figure upgrade it to logarithmic status? By Arthur A. Merrill, C.M.T.
Point & Figure Charting (January 1993)
Point & figure charting, a technique for following stocks and commodities, may be simplistic but still offers the keys to success: trend identification, price objectives, and money management, all of which it provides. By Gary Van Powell
Point & Figure Relative Strength (February 1993)
Use point & figure and relative strength to identify strong and weak stocks. By Michael J. Moody and Harold B. Parker
CODING INDICATORS
Editor,
I have been on a trial subscription. Your articles contain a plethora
of information. They are superb. But to improve one's knowledge, it is
necessary to have some basic information first.
Is there a way I can learn to create indicators? In a Traders.com
Advantage article on MACD by Dr. Michael J. Seiler dated 02/14/01, he gives
instructions to create an MACD indicator. Currently, I am a beginner and
am not well versed in the terminology. I would like to have some guidance
on how to create this indicator.
Sheikh Muhammad Deen,
via e-mail
There are several articles in our online magazine, Working Money,
that you should find interesting and informative. In addition, you can
search for past articles on our website for articles on indicators. Typically,
you want articles under the Novice Trader or Basic Techniques theme blocks.
-Editor
VALUE AREA
Editor,
I am wondering how you determine what the value area for the next
day is. The only information I have found on it says it is determined from
where 70% of the volume from the day before was. If there is an explanation
on the website or you know of somewhere with a good explanation of how
I can determine this, I would greatly appreciate it.
Matt Thomson, via e-mail
We've published several articles about Market Profile that should contain
the information you're looking for. Thanks for your interest, and good
luck. - Editor
ERRATA: INTERMARKET REVIEW
Editor,
A chart is in error in Intermarket Review, top of page 30 of the
January 2003 S&C. The three-year chart shows a 200-period moving average
on the right-hand side that is higher than any spot price. This appears
to be an error in the software that printed the chart. A similar error
appears on the lower chart on page 32 (October 2000 and October 2002).
A similar error appears the next month in S&C, February 2003,
Intermarket Review, page 120 bottom (October 2002) and top of page 121
(October 2000 and October 2003).
Happily, the next issue of S&C is free of any similar obvious
October-related error.
John Pfuetze
Centennial, CO
Thanks for keeping an eye out for us! -Editor
Back to May 2003 Contents
