June 2001 Letters To The Editor
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Mark D. Cook: Simple wisdom
Editor,
Your interview with Mark D. Cook in the March 2001 issue of STOCKS & COMMODITIES was excellent. It's refreshing to hear the views of a totally independent trader. Many so-called experts in the investment arena have some kind of hidden agenda.By far, Cook's greatest wisdom lies in his simplicity of approach: "Buy when everyone is selling and sell when everyone is buying." This solid investing principle would have warned you of a possible top at 5,000 in the Nasdaq (now about 2,000) and of a possible bottom on the Commodity Research Bureau Index (CRB) at 185 (now about 225).
Often the simplest market insights provide the most profitable trading strategy. Witness Cook's great Nasdaq call at the top! Everyone was buying and his exceptional indicators got him out. Of course, casino-mentality investors mocked his insights.
Please have more interviews from excellent traders like Mark D. Cook.
- Andre E. Zupans, Woodland Park, CO
SPEAKING FROM EXPERIENCE
Editor,
I just finished reading your Opening Position in the April 2001 issue, which encouraged traders to step back up to the plate after taking losses. I opened my first commodity trading account with Archer Commodities in the spring of 1979. I turned a $4,500 account into $200,000 from August 1982 until mid-October 1982. By January 1983 I owed my broker $30,000 (they had made $265,000 in commissions). And yes, I still trade all the time!
Thanks for the brilliant, concise, punch-in-the-face editorial. You described trading in a nutshell. I'll be sending out more than a few copies of this to traders I know who at this very moment are on their balconies poised to jump. Next time they call me with their heads in their hands, I'll say, "For God's sake, read the editorial again!"
- Robert Alan Wilson, via e-mail
SPREADSHEETS WANTED
Editor,
As a followup to Paul D. Baba's March 2001 letter to S&C requesting more Excel spreadsheets, I suggest that the authors provide S&C with a copy of the spreadsheet in .Csv format. This would allow everyone to view the file regardless of the version of Excel they have. S&C could then post the spreadsheet at Traders.com, and a URL link to the spreadsheet could be given at the bottom of the relevant article in the magazine.
- Brian Barrett, via e-mail
Thanks for writing. However, the .Csv format (a comma-delimited datafile) cannot support equations.
S&C subscribers can log onto a subscriber-only area of our website, Traders.com, where we post code and spreadsheet files from articles. To log on, subscribers need to go to https://technical.traders.com/sub/sublogin.asp and enter their subscription account number and last name.
-Editor
MORE ON THE ENDPOINT MOVING AVERAGE
Editor,
One of the things I notice as I age is that whatever goes around comes around. John F. Bellantoni, in his April 2001 letter adding to the discussion on endpoint moving average (EPMA), commented, "What has not been said is that the slope and endpoint of the regression line ... are each just the weighted sum of those prices." Actually, Pat Lafferty did describe the endpoint as a weighted sum of the prices. And in a letter to S&C in February 1996, I described a slightly simpler method of describing the endpoint, also as a weighted sum of the prices.
The coefficients I described were: 2*(3j-m-1)/(m(m+1)) for j=1,m where the oldest price was p(1) and the latest price was p(m). The coefficients Bellantoni described were (4n-6i+2)/(n+1)(n+2)) for i=0,n where the oldest price was p(n) and the latest price was p(0). Substituting n=m-1 and i=m-j into Bellantoni's equation, with some algebraic manipulation, results in my equation.
What Bellantoni did add, however, was the formulation in like terms of the slope of the line. But I must say that EPMA has been outdated by John Ehlers's work. Kudos to Ehlers on his unique, creative, and outstanding work related to technical analysis of market data in both the time and frequency domains.
- Don Kraska, via e-mail
Thank you for writing. Here are some of John Ehlers's recent articles in STOCKS & COMMODITIES:
On Lag, Signal Processing, And the Hilbert Transform: Hilbert Indicators Tell You When To Trade (March 2000)
Here's one way to control moving average lag, using a little-known algorithm called the Hilbert transform to come up with indicators telling you when to trade. By John Ehlers
Sidebar: The Hilbert transform
Sidebar: The SNR indicator
Sidebar: Measuring cycle periodAdaptive Trends And Oscillators (May 2000)
Can the market be modeled as a combination of a trend mode and a cycle mode? By John F. EhlersOptimal Detrending (June 2000)
A detrended signal, combined with an optimum smoothing filter, can produce a responsive oscillator-type indicator that catches every cyclic turn as it happens. Take a look. By John F. EhlersSquelch Those Whipsaws
(September 2000)
What's real price movement and what's just noise? Figuring out the difference is vital, and here's an objective measure to help you out. By John F. EhlersPhasor Displays (December 2000)
A high-tech display pinpoints anomalies and trading opportunities in price behavior. By John F. EhlersNonlinear Ehlers Filters (April 2001)
Linear filters like moving averages are great for slow, "stationary" data. Unfortunately, prices aren't slow or stationary. By John F. Ehlers
PRODUCT REVIEWS
Editor,
I am a longtime subscriber to S&C, but I am considering terminating my subscription because I have never seen a negative review of any product in your magazine. All the books and software you have reviewed cannot possibly merit such high praise. The only explanation is that S&C is afraid of losing advertising revenue. If this is the case, I cannot trust anything else in the magazine. I thought I would give you an opportunity to explain your generosity.
- Jeff Ward, Geneva, IL
Our editorial policy is that we generally only publish reviews of products that we feel are praiseworthy, with the idea that we don't want to take up space in the magazine discussing products that aren't ready for primetime. If we receive a product in for review that we feel doesn't run properly, doesn't offer much value to traders, or uses poor programming, we generally return it as "not ready for review."
As for books, we no longer publish book reviews. Instead, we announce their release in our Books For Traders section and opt to spend our time on articles instead. -Editor
ACADEMIC RESEARCH
Editor,
Regarding your interesting comments in your May 2001 Opening Position, could you recommend a website that has information on recent academic research that would be of interest to traders who have the required statistical and financial background?
- Tom O'Malley, Rocky River, OH
Our interview with Carol Osler in this issue describes in detail her research into the concepts of technical analysis. In addition, try searching for the websites of each of the individuals I mentioned in my Opening Position for their work. For example, if you search for Andrew Lo, you'll find his website, where all his articles and many others are listed. I don't believe there's one individual website that would provide everything you're looking for. -Editor
KST TREND INVESTOR
Editor,
S&C is a terrific magazine, and I look forward to every issue. While reviewing my back issues, I came across Martin Pring's 1992 series of articles on the KST trend indicator. I am trying to program this in EasyLanguage, but I have two questions regarding the suggested KST formulas:
1. In the sidebar "Calculating the KST" that appears with several of Pring's articles in this series, an intermediate-term formula for KST is listed twice, with similar inputs, except that one uses an exponential moving average (EMA) and one uses a simple moving average (MA). Can you please clarify why two intermediate-term formulas are listed?
2. For the weekly and monthly formulas, is it acceptable to use daily data multiplied by five for the weekly data and daily data multiplied by 22 for the monthly data?
Thanks for your help.- John M. Snyder, Weddington, NC
Martin Pring replies:
There is no strong reason why there are two formulas. The logic is that some people prefer the EMA approach because it offers quicker signals, others because the simple MA approach results in fewer whipsaws. For the record, I almost always use the EMA approach for this particular indicator.
By all means, multiply the data by five for weekly charts and multiply by 22 for monthly charts. I use 20, but 21 would be more accurate because it would allow for holidays (52 weeks x 5 = 260 weekdays per year, less approximately 10 holidays = 250 trading days divided by 12 = 20.8 trading days per month).
MANAGED ACCOUNT SERVICES
Editor,
Do you have a list of brokers that offer a broker-assist program or managed account service that could trade the S&P futures for those individuals who can't monitor the markets during the day? Thanks for your help.
- Loren Binko, via e-mail
Many brokers will trade your system for you. Probably the most prominent firm in this area is Robbins Trading. Others offering the service include Zap Futures, Price Futures Group, Infinity Brokerage, USAFutures, Altavest, Day-Trades.com, and Fox Investments. A quick web search will generate more firms than you'll have time to check out!
You'll also find of list of brokerages at our website, Traders.com, in the Traders' Resource area. That listing doesn't include information about trading services offered, but it provides contact information for some of the different brokerages. -Editor
ARTICLE ART
Editor,
I am an avid reader of S&C and appreciate your enlightening articles. However, there is one recurring problem that I find annoying and quite often distracting. In articles where charts supplement the technical text, the figures are often placed far from the related article text, often on a different page. I realize this is sometimes necessary in order to work around the advertising, but many times the culprit is simply an oversized display of "artwork" that appears to add little value to the content of the article. Don't get me wrong, I'm not against artwork (my wife happens to be an artist), but sometimes the artwork seems to be oversized and takes away valuable space that could be used for closer association of text to chart examples.
I urge you to review your art policy in this context and try to keep the figures closer to the related text. The technical nature of most S&C articles is demanding anyway, and to have to keep moving from one page to another to associate text to an example, especially when this distance between a figure and the text is brought about by some unrelated artwork, is really unjustified and annoying.
- R. Eckert, via e-mail
We try to balance the magazine with artwork to keep the pages interesting, and we try to align figures and charts with the edge of the page for neatness and readability. Unfortunately, sometimes it's a tradeoff that ends up making the article more difficult to follow. Your point is well-taken and we will make every effort to match the text and charts so they are in closer proximity. -Editor
PROFESSIONAL TRADING FIRMS
Editor,
Thank you for publishing Don Bright's article on professional trading firms in the March 2001 S&C. Until now, I had always thought that only big institutions in New York and Chicago ran such operations. For the past three years, I have craved the independence and potential for wealth that short-term trading can bring. Although I can afford the training and education needed to become a successful trader, I lack the necessary capital. Reading this article was an answer to my prayers.
I have already begun studying for the Series 7 exam necessary for electronic direct access trading (EDAT) with these type of firms. However, I'm having trouble locating firms that do this type of operation. So far I've contacted the Bright Trading office in our area and a firm named Protrader. I would like to ask for your assistance in locating other EDAT and proprietary firms.
- Jesse Carwin, via e-mail
Don Bright's article in this issue, "Becoming A Professional Trader," includes a list of several professional trading firms that might suit your needs. -Editor
NEW S&C ON CD VERSION
Editor,
When are you coming out with the latest edition of S&C on CD? Will it be possible to view it on my office computer and my home computer?
- Sanjiv Bansal, via e-mail
The latest version of S&C on CD will be available by the time you read this. You can install it on your office computer as well as your home computer. You will need to install it on each computer separately, following the procedures required to authorize both computers for using S&C on CD, version 4.18. -Editor
CREDIT TO THOSE WHO HAVE COME BEFORE US
Editor,
I look forward to each issue of S&C, as your contributing authors have done much to advance technical analysis. Most do so without self-promotion and provide references at the end of their articles to point readers to other authors who have important contributions on the same or similar subject material.
During the last 10 issues, we have been treated to a series of articles from Martin Pring. These articles are mostly material straight off his CD-ROM series on introductory-level technical analysis. I notice that in all of these articles he doesn't credit anyone else's contributions toward the subjects he writes about, but rather he only references his own website, his books, and his CD-ROM.
As I look at other articles in S&C, I find that they direct readers to other contributors who have published in that subject area via references. I do not feel that articles should be published without acknowledging other authors' contributions to the subject area.
- Rob Cooper, via e-mail
Blame it partly on the editors: Sometimes it's we who add references and "further reading" lists at the end of articles for the benefit of our readers. Sometimes we don't add a reference section to an article if we don't feel the article requires background or if we haven't published other articles on the given topic, or if we plain run out of space!
However, we completely agree with you on the principle that it's important, it's enlightening, and it's fair to credit others who have contributed to an area on which one is writing, whenever possible. It provides better insight into why technical analysis methods and indicators have come to be what they are and thus increases our understanding of them. Moreover, it's more efficient to research an area if we first learn what testing others have already done so we can build on it. We encourage all article submissions to include references. -Editor
ERRATA: NONLINEAR EHLERS FILTERS
Editor,
In the sidebar "Two types of filters" in John Ehlers's April 2001 article, "Nonlinear Ehlers Filters," Ehlers states the alpha for a three-day exponential moving average (EMA) is 0.25, which would be 1/(n+1). However, it is really 0.5, which is 2/(n+1), where n is the period of the average. Therefore, an alpha of 0.5 best equates to a three-day simple moving average. This leads to the following results:
Value EMA SMA
1
2
3 2 2
4 3 3
5 4 4
6 5 5
7 6 6
These results might have been more interesting for a longer moving average. In fact, for most very short averages, there isn't much, if any, difference between the two methods.- Bob Peirce, Venetia, PA
Thanks for pointing this out.-Editor
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