NOTE OF THANKS
Editor,
Hi. I'd like to take you up on your offer for a free S&C on CD Index with a paid subscription. Thanks, and it's an excellent magazine you have!
Simon Browne, via E-mail
Morgan Hill, CA
COMMITMENTS OF TRADERS
Editor,
Readers may be interested in some free Commitments of Traders charts I have placed on my Website, https://www.SoftwareNorth.com/trading/. Charts covering the current year as well as 1998, 1997, and 1996 are available for 34 of the more popular commodity contracts. We update the current charts every two weeks after the CFTC posts the numbers. You may view an individual chart or download all the charts for a year.
Donald N. Anderson via E-mail
GREAT ARTICLE
Editor,
Let me compliment you on the excellent article on the ADX by Barbara Star in the October 1999 STOCKS & COMMODITIES. While I found some of the most recent articles in S&C to be, quite honestly, wishy-washy and generally nonsubstantive, Star's piece was just the opposite -- concrete information that can be assimilated, evaluated, and incorporated to the degree that it produces results. Bravo! Let's have more like it.
I noticed that Star is a MetaStock leader and located in southern California, as am I. I would like to contact her regarding the MetaStock users group. Could you help me get in contact with her?
P.S. For my money, you could take every piece of abstract art in each issue and replace it with high-quality articles (like Star's), or even not-so-high-quality articles, or even advertising. Anything would be more useful and to the point. Don't get me wrong: the artists are clearly talented and I wouldn't mind hanging some of this art on my walls. But I bet if you polled your readers, you'd find that most would prefer to see the art replaced with something less abstract (the market is plenty abstract already) and more informational with regard to the purpose of the magazine. Just a suggestion.
Michael Spencer, via E-mail
Thank you for writing. We will forward your letter to Barbara Star. We, too, enjoy being able to publish contributions by Star, because her articles are always practical and well-researched. We hope to bring you more. Her phone number is 818 224-4070 and E-mail address Star4070@aol.com, for those of you who want to contact her.
As for the art, we find that for every person who doesn't like it, there is someone who does. Like most art, it depends on the individual's tastes. In general, our goal with the art and technical illustrations is to make our pages more appealing to read; text-only pages can be very tedious to digest. -- Editor
EXCEL CODE FOR TREND-FOLLOWING METHOD
Editor,
Do you have an article that gives Excel spreadsheet code for developing a basic trend-following indicator?
AJM222, via E-mail
Editor: We've published several along these lines. Try one or more of the following:
Warren, Anthony W., Ph.D. [1993]. "Data Filtering For Trend Channel Analysis" with sidebar "Trend channel spreadsheet," Technical Analysis of STOCKS & COMMODITIES, Volume 11: March.
Kaufman, Perry J. [1994]. "On Profit-Taking," Technical Analysis of STOCKS & COMMODITIES, Volume 12: April.
Luisi, Joe [1997]. "Playing TRIX: The Triple Exponential Smoothing Oscillator," Technical Analysis of STOCKS & COMMODITIES, Volume 15: June.
White, Adam [1993]. "A New Exit Strategy," Technical Analysis of STOCKS & COMMODITIES, Volume 11: November.
Lafferty, Patrick E. [1995]. "The End Point Moving Average," Technical Analysis of STOCKS & COMMODITIES, Volume 13: October.
Vakkur, Mark, M.D. [1998]. "On System Development, part 1," Technical Analysis of STOCKS & COMMODITIES, Volume 16: June.
_____ [1997]. "The 10% Swing Filter," Technical Analysis of STOCKS & COMMODITIES, Volume 15: February.
Meyers, Dennis, Ph.D. [1998]. "Surfing The Linear Regression Curve," Technical Analysis of STOCKS & COMMODITIES, Volume 16: May.
FUTURES CONTRACT LIQUIDITY
Editor,
I have a commodities account that I let my broker manage. Recently, I had a trade move against me. In fact, the market went limit down. The market went down past my margin, and now my broker is telling me I have a debt balance that I need to pay. Do I have to pay this debt? The market already took all my money in the account. Why should I be accountable for balances less than zero?
Houston Jayne, via E-mail
We have no idea what your agreement is with your brokerage, but you may be stuck for a margin call greater than your account balance. Thin markets and limit moves against you can be brutal. This is one reason we publish a monthly Futures Liquidity page in STOCKS & COMMODITIES. Futures Liquidity tries to rank futures contracts in order of liquidity to help reduce the trader's chance of overexposure. You may need to speak with your attorney or with someone at the Commodity Futures Trading Commission (CFTC) (https://www.cftc.gov) for advice. Good luck. -- Editor
END-OF-DAY DATA
Editor,
I'm trying (in vain at the moment) to find an end-of-day data vendor that will supply daily downloads and historical data in a clean and reliable format for the foreign exchange (spot and cross rates) markets that can then be used in TradeStation. There seems to be a severe shortage of anyone supplying this information as far as I can tell, but maybe you can tell me where to find it.
Andy, via E-mail
There may be other products, but the one we know of specifically can be found at CSI. Call them at 561 392-8663 and ask about their Unfair Advantage product, reviewed in our November 1999 issue.-- Editor
TRADING SYSTEM FOR CURRENCIES
Editor,
I'm trying to develop a medium-term trading system for the currency market. I am using a moving average difference indicator (MACD with SMA) and the ADX (average directional movement index) to determine trending markets. The system works well for trending markets, but not nearly as well for consolidating and trendless markets. Unfortunately, the nature of the currency market is that of range-bound and low-volatility trading activity. What types of systems would you recommend using in this type of environment?
Greg Moldovanyi, via E-mail
In ranges, any oscillator and MACD would fill the bill. -- Editor
COSINE-WEIGHTED MOVING AVERAGE
Editor,
I want to let you know that I found Pat Lafferty's article on moving averages in the June 1999 STOCKS & COMMODITIES very interesting ("How Smooth Is Your Data Smoother?" with sidebar "The sine-weighted moving average"), because it gave me a much better understanding of moving averages, introduced me to the SWMA (sine-weighted moving average) and the EPMA (endpoint moving average), and gave me the tools to experiment with my own weightings.
Using Lafferty's method, I discovered another weighting with some benefit: the cosine from zero to 90 degrees, with the heaviest weighting on the most recent values. This is the same as the sine weighting, except that I am only taking half of the curve starting in the middle. I dubbed it the CWMA (cosine-weighted moving average). The result has a shorter lag than the sine weighting, and for a lag of three periods, the performance is better than that of both the EPMA and the SWMA. For a lag of two, it is almost as good as the EPMA, and for a lag of one, it is still the second-place winner, ahead of all but EPMA.
I duplicated some of the tables in Lafferty's article (using the Dow Jones Industrial Average because I don't have the S&P 500 data), and added the CWMA to the table so you can see how it compares.
Hope you find this interesting and thank you for the excellent article!
Vincent Youngs, via E-mail
VAP INDICATOR
Editor,
On page 75 of the October 1999 STOCKS & COMMODITIES, David Vomund refers to a VAP indicator. He may have defined this term in the interview, but I cannot find where. Neither is the term in your glossary. I assume it's a measure of volatility, but which, and of its formulation, I remain ignorant. Would you enlighten me?
Incidentally, along with your glossary, which itself is a valuable resource, you might consider posting a universal formulary, such as would avoid your having to deal with such trivial correspondence as this. A formulary would prove at least as valuable to your subscribers as the glossary. It seems you sporadically intend the glossary itself to subsume a formulary role, noting, for example, its explication of true strength index. But even explicit depiction of such indices' derivation falls short of what's really needed -- that is, for each index, variable, constant, etc., a brief discourse on the implications of indices' calculated values. By this I mean an explanation of the inference to be drawn from such data's values and values' changes. I could go on, but will spare you.
Fred Allen, via E-mailMercer Island, WA
"VAP" stands for volume accumulation percent indicator (see page 66 of that interview), and it is used, according to Vomund, on money flow.
Thank you for your suggestions. We need to hear what we are doing right as well as what we're doing wrong! Many of the formularies can be found on our S&C on CD.-- Editor
METASTOCK CODE?
Editor,
In your March 1999 issue, you present an indicator called the ulcer index. My question is whether it's possible to transform it into MetaStock language. If you can't give me an answer, could you let me know whom I could contact?
Olivi Fabrizio, via E-mail
Thanks for writing. We will keep your request in mind for a possible future entry in our Traders' Tips column. In the meantime, please contact the vendor of MetaStock, Equis International (www.equis.com), regarding code for their product. Alternatively, you could check our Classifieds for third-party programmers offering code for sale, or contact a MetaStock users group, if you need something that MetaStock doesn't already include.-- Editor
EASYLANGUAGE CODE?
Editor,
Do you know where I might find the EasyLanguage code for the demand index?
Chase Osborne, via E-mail
Thanks for writing. We will keep your request in mind for a possible future entry in our Traders' Tips column. In the meantime, please contact the vendor of TradeStation, Omega Research (www.OmegaResearch.com), regarding code for their products. Alternatively, look for an Omega Solution Provider who offers additional programming and add-ins for Omega Research products. In the November 1999 issue of STOCKS & COMMODITIES, we included a special advertising section solely for Omega Solution Providers.
Many readers write us in hopes of obtaining custom code for systems and indicators to add in to various software. While we always try to include code relevant to some of our articles for various technical analysis software in our monthly Traders' Tips column, we don't specialize in developing libraries of custom code for all software products. However, all our current and some of our past Traders' Tips are posted at our Website, www.traders.com, as well as at the respective software vendors' Websites.-- Editor
BUY AND HOLD
Editor,
I just got done reading Stuart Evens' article, "Stochastics," in the September 1999 issue. It was a great article, but the ending bothered me. Once again, it seems we are trying to prove that buy-and-hold is a superior strategy to trading. This may be true for someone like an institution who is forced to trade in 50,000-share lots, but for the little guy like me, I don't believe that it is.
Using the criteria Evens uses in the article, buy-and-hold is superior; but if you take a different approach, it's not. As he points out, in a bull market, most stocks rise in price. But without actually checking the data on the stocks he uses in the example, which include BankAmerica, Baxter International, Exxon, Fluor, Ford, and Intel, I would be willing to bet that even during the bull market, there were instances during the period he uses -- January 1993 to July 1999 -- when each of these stocks suffered declines or went sideways in price. It would be a rare one that did not.
So where is the guarantee that a stock (even Exxon) that is suffering a decline in price is going to recover? For a stock that has gained in price since you bought it, where is the guarantee that six months from now, the price will be higher than it is today? Purveyors of newsletters really give me a laugh: "If you had bought 100 shares of Intel in 1947, you would be worth $100 billion today. ..." Sure, 20/20 hindsight is great, but I haven't yet found a brokerage that will let me do retroactive trades. The truth is, whether you are a trader or investor, you are trying to predict the future, and no one has really figured out a way to do it. So in my opinion, the least risky approach is the most attractive, especially in a small account such as mine.
To me, buy-and-hold is the most risky approach. Say you sit on a stock that has gone up $5 a share since you bought it a month ago, but lately it has been up 3/4 or down 1/2, so you think you must keep it and be patient. Besides, it pays a dividend (1.9%). So you patiently hold onto it, but it goes down $2, leaving you with only $3 profit, but you are, after all, patient. So you wait three more months and you're back up 75 cents, so now your profit is $3.75 per share. Patience really pays off, doesn't it? A couple more months go by and some kind of scandal or political upheaval somewhere in the world causes your darling to drop two points in one day. Patience, you remind yourself. So what if your profit is now only $1.75 a share? No one ever went broke making a profit, you tell yourself.
Well, every day that your holding goes sideways or down, there were dozens of other stocks that were going up. Even in a bear market some stocks go up. Sitting on a stock going sideways or down in the hope that it will someday go up is too risky for my blood.
So the idea that buy-and-hold is superior to getting in and out of the market is valid only if you make the commonly accepted assumption that Evens makes in his example -- that you are going to buy and sell the same stock every time. Under those conditions, buy-and-hold looks pretty good, but why stick with a dog that has already bitten you? If a stock I own is not going up, and it violates my criteria for keeping, I sell it. My capital is then free for the next candidate, and if I don't like the looks of the overall market, I can sit on cash while drawing 4.5% interest, risk-free. I have avoided the last couple of market downturns this way.
I hope no one interprets this letter as a criticism of Evens' fine article; I merely wish to question the generally accepted notion that buy-and-hold is better than timing the market, which some experts say you cannot do. They are wrong. William J. O'Neil stresses buying a good stock at the right time. If that isn't timing the market, I don't know what is.
O. Dale Embree
Dona Ana, NM
Thanks for your letter regarding my September 1999 stochastics article. I was only presenting buy-and-hold as a benchmark to the stochastics method and was not trying to prove that either method -- stochastics or buy-and-hold -- was better than the other. The last sentence in the article acknowledges that only the reader can decide for her- or himself. Thanks for writing.-- Stuart Evens, Staff Writer
Editor: Since the technical analysis approach lends itself best to shorter-term trading horizons, most of our articles involve using indicators and systems to help time entry and exit in the markets. For more on the topic of buy-and-hold versus market timing, see our interview with Jerry Wagner (STOCKS & COMMODITIES, Volume 13: January 1995), who is a member of SAAFTI, a trade association of advisory firms that manage client assets using market timing; see Mark Vakkur's article "Seasonality And The S&P 500" (STOCKS & COMMODITIES, Volume 14: June 1996) for a historical look at the best and worst months in which to invest along with buy-and-hold comparisons; and see Jack Schwager's June 1999 article "Buy-And-Hold Comparisons To Evaluate Stock Trading Systems," for insight on how to use buy-and-hold as a benchmark for assessing system results. P.S. See the following errata on that Schwager article.
ERRATA: BUY & HOLD COMPARISON
Editor,
With regard to "Buy-and-Hold Comparisons To Evaluate Stock Trading Systems" by Jack Schwager in the June 1999 STOCKS & COMMODITIES, Schwager writes in the last paragraph before the conclusion that "...during October 1975, the system and the buy-and-hold were long 159 shares. During January 1976, the constant share size system exited the long position and went short 125 shares. Therefore, the buy-and-hold system's position was reduced to only 125 shares. Now we can compare apples to apples."
Well ... maybe. But if the "constant share size system" exited a long position of 159 shares to go short a position of 125 shares, it's not really a constant share size system, is it? It seems to me that in method 2, Schwager has confused constant share size with constant dollar size. Now I'm confused! The gist of Schwager's article brings up a crucial issue for trading system designers, though, and the dilemma he highlights is something that's bothered me for a long time.
Howard Brazzil, via E-mail
Houston, TX
Jack Schwager replies:
I'm not surprised you were confused. So was I when I reread the sentence in question. You are absolutely right. The confusing sentence was added to my original text during the editing process to further explain my chart illustration, and in proofreading the revised copy, I read right past it. To make sense of everything, the phrase "the constant share size system" should be changed to "the system trading a constant dollar amount ($1,000)."
Editor: We humbly apologize for the error.
ERRATA: BOOKS FOR TRADERS
In our October 1999 Books For Traders column, we incorrectly listed Trading For Tigers as a paperback, when it is in fact hardcover. In addition, the book can be ordered directly from walt@3oaks.com as well through Traders' Press.