January 2004 Letters To The Editor
or return to January 2004 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 email@example.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
I just passed my Series 3 test. Is there a conference/workshop for women in the commodities/futures business?
Elizabeth Braun Andreini
There are several conferences related to the commodities/futures business. I don't know of any that are specifically targeted to women, however. Check with professional women's associations or the Market Technicians Association to find out if they do. -- Editor
DAYTRADING THE E-MINI USING STOCHASTICS
I would like to backtest and possibly use Lawrence Chan's simple system using stochastics and a simple moving average, as described in his August 2003 article, "Daytrading The E-Mini."
I like the trend logic and its apparent simplicity. However, I am confused about his rules on page 22 of that issue. He states that S = a 10-period simple moving average of stochastic and the slow D parameters(45-period and five period smoothing).
My understanding of stochastics is that slow D is the moving average of the %k parameters. If I am interpreting his parameters correctly, my %k settings (in MetaStock) would be 45, 10, and my %D setting would be 5. I am probably confusing terminology, but my first inclination was to make %D 10 because of my understanding of stochastics. Can you clarify the proper settings?
Also, in regards to reducing the data, isn't that the same as only trading signals between 1035 and 345 (based on the data in the article)? I would like to understand the system. Your help would be greatly appreciated.
Thank you for the great magazine, and the technical analysis education you provide.
Lawrence Chan states that the parameters for the slow %D are 45 and 5. If you are looking specifically for calculating slow %D in MetaStock, I recommend you contact Equis International directly. Regarding your next question, reducing the data is not the same as only accounting for trading signals between 10:35 and 3:45. The objective of the article is to show you how reducing data can lead to different and cleaner values. -- Editor
Thanks for the product review of Investor/RT in your August 2003 issue. It's about time the company was recognized as a leader in its field! My only comment about the review is that you completely missed the diverse functionality of this program for pairs and basket trading.
In this market especially, more and more people are looking for ways to actively invest while being market neutral, and pairs and basket-type of trading is a great way to achieve this. Investor/RT has made significant improvements in the way they chart pairs -- the software calculates them to a T (with bar charts); don't open a pair until both stocks are open; can filter for just NYSE ticks (via eSignal); and the ease of creating complicated multifactored spreads is particularly helpful.
I/RT really is a great platform for all types of trading -- not just one-sided momentum or whatever.
Thanks for your great magazine, and keep up the good work.
Many of us go about looking for numerical methods that work in the markets. Your fine publication, which I look forward to each month, is dedicated to such a pursuit. It seems, though, that a mass of research should already exist on the subject. Such research might take the S&P 500, for example, and apply many different common numerical methods to see which might be effective -- such as price crossing a moving average, several moving averages crossing, and so forth. I would think it would be instructive for your readers if you were able to lead us to a body of this research.
Mark Ballard, via email
Unfortunately, the subject of technical analysis is not popular among academic researchers. However, from time to time you do see some scientific research in various journals such as The Journal Of International Economics, and The Journal Of International Securities, to name a few. Good luck. -- Editor
I particularly appreciated the article by Spyros Raftopoulos in the November 2003 S&C on the zigzag trend indicator. I believe his indicator solves the problem of the "dynamicity" of the zigzag legs and could dramatically help identify chart pattern formations such as head and shoulders, or trendlines touching two or more peaks or troughs. For this reason, I hope to read more on the development of this indicator as well as more by the author.
ZIGZAG TREND INDICATOR
I am a longtime subscriber and look forward to reading STOCKS & COMMODITIES each month.
At first I thought the zigzag trend indicator, presented by Spyros Raftopoulos in the November 2003 S&C, was something entirely new and exciting. I applied the MetaStock and EasyLanguage codes to my software and compared my results to those in the article and got the same result. It then dawned on me that the zigzag trend indicator was working the same as, and providing exactly the same trading signals as, the centuries-old trailing stop (or maximum loss stop) of the same percent or points value, and therefore provides nothing new except far more complex code. After all, the zigzag is designed to zig or zag from the highest high in a long position or the lowest low in a short position when a reversal of X% (or Y points) is detected!
When I compared ZZT signals to trailing stop signals that I programmed in EasyLanguage, I got the same result on either exactly the same date (bar) or within one to two days. So I no longer see the ZZT indicator as new or exciting. Maybe other readers have also discovered what I did. The author's response would be appreciated.
Spyros Raftopoulos replies:
Trailing stops and zigzag trend (ZZT) have only one thing in common: their output depends on the reversal amount. Everything else is different.
First, while trailing stops and stop losses provide trading signals that are levels of trading activity, ZZT is an analytical tool of broader use, although its indications could be also interpreted as trading signals. It should be stressed that not every indicator used in technical analysis provides such signals. Take the zigzag indicator, for one: While it reveals the major trends very clearly, it is not tradable in and of itself. It was not my intention to provide any real trading system. The only reason for my reference to points gained by ZZT was to show that it usually provides better indications than other tools in "noisy" conditions. But a real system needs much more than the values returned by any single indicator, because an indication is not necessarily a buy or sell signal. The two words are not synonymous.
Second, even when you treat ZZT indications as signals, you have the option of using them either for entries or for exits. On the other hand, trailing stops provide exit signals only, and they are not very meaningful if you do not already have an open position.
Third, while a trailing stop represents the distance from a favorable price level like that of a temporary swing, ZZT takes into account only the important swing points, which are the absolute peak and the absolute trough of the period. The fact that there are, indeed, times that a trailing stop is reached on the date that ZZT changes direction means no more than this; by coincidence, the trailing stop has used the major peak or trough as starting point. It is in this case only that it works like ZZT!
ZZT is nothing more and nothing less than a tool for the objective confirmation of significant trends of prices.
By the way, I might suggest you review the results of your tests after applying the MetaStock and TradeStation versions of ZZT. Although similar, they are not exactly the same due to differences in the confirmation logic of the zigzag function. This has nothing to do with ZZT. The difference lies in the zigzag versions of the two programs.
TRADER'S INDEX (TRIX)
I read David Penn's description of the TRIX indicator ("Charting The Market," September 2003). I was wondering if this code is available for TradeStation.
In addition, I was wondering what the best values are for the second- and third-exponential moving averages (EMAs) that make up the indicator, as there are no guidelines as to what they should be.
Simon Esses, via email
Renaissance Capital Management
The values you use for calculating EMAs are consistent. The second exponential is the EMA of the EMA of the first one and the third exponential is the EMA of the EMA of the second one. --Editor
Bollinger Bands can be used to predict an explosive price movement, but not the price direction. Which other indicator(s) can I use to determine the direction and when the rapid price movement will occur? Would you also happen to know of any website that features (preferably for free) a list of stocks with very low BB width?
Steven Schon, via email
You could benefit by exploring momentum indicators since you want to look at price direction and rate. Regarding your question about websites, I would recommend visiting our Traders' Resource section at www.Traders.com. -- Editor
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