OPENING POSITION
October 2002
Recently, I attended the Online Trading Expo in Anaheim, CA. It was wonderful meeting some of STOCKS & COMMODITIES' authors and readers. Thank you for introducing yourselves to me, and for providing valuable feedback. The most bizarre comment: "I used to be a witch doctor. We cut off chickens' heads to make predictions. You guys do the same thing, but with charts." This statement gave me pause, but gave me (if you'll pardon the saying) some food for thought. Among other things ("Should I run away now?"), the remark made me reflect on what it is that technical analysts do. We try to make predictions, but there is also science in what we do. We use indicators and chart patterns, most of which are mathematically derived and some of which are extremely complex. We create computer-programmed systems to determine when to enter and exit trades. We apply money management strategies. We employ psychological discipline. There are many variables that come into the picture, and the number of variables increases as we try new trading methods and instruments -- options, for example, the theme for this issue.
Consider, if you will, the number of strategies you can apply when trading options. One such strategy is the calendar spread, discussed in the article by Joe Corona and Bill Winger starting on page 25. This strategy takes advantage of the differences in time value between options, bringing in plenty of different variables. There are certainly some complexities involved in trading options. Options can also provide insight into investor sentiment through put/call ratios, short interest, volatility index, and contrarian indicators, to name only a few. And you can find out more about these in our interview with options expert Bernie Schaeffer, which starts on page 68. These strategies and indicators are only part of the puzzle, however. There's more -- lots more. Read our review of the Optionetics Platinum 2.0 site on page 94 to get an idea of the analytical tools that need to be considered before you place that trade. You have the greeks: delta, theta, gamma, and vega. You have historical volatility, implied volatility, and different strategies such as butterfly spreads, straddles, strangles, ratio spreads Éthe list goes on.
Finally, for the past 20 years, we here at Technical Analysis of STOCKS & COMMODITIES have been giving you, our readers, articles and insight on various systems, indicators, chart patterns, money management, strategies, and more. Without the titans and heroes of technical analysis discussed by David Penn on page 32, technical analysis would be nowhere. And on this, our 20th anniversary, we salute those who have made technical analysis what it is today, a scientific endeavor with a touch of art. Without these titans and heroes, where would we be today?
Would we be able to perform technical analysis by cutting off a chicken's head? I think not.
Happy anniversary!
Jayanthi Gopalakrishnan,
Editor
Originally published in the October 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.