July 2004 Letters To The Editor
or return to July 2004 ContentsThe 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 firstname.lastname@example.org. 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'm a regular reader of your magazine and very much look forward to it each month. I rarely read the Letters to S&C column, and I don't think I've ever written a letter to any editor, except for this one to you now.
In the May 2004 S&C, I happened to read a letter to the editor wherein a reader wrote disparagingly about the article "Reversal Date Indicator: Predict, Identify, And Trade Future Market Swings" by John Crane (S&C, February 2004). I couldn't believe what I was reading, as the writer was trashing the article as basically worthless and just a "come on" or sales pitch for Crane's more detailed book, Advanced Swing Trading.
Clearly, all of your article contributors (that is, not your staff writers) have an interest in contributing writings to your magazine precisely to gain exposure through your well-respected publication and thereby to indirectly promote their other materials, by which we, as readers, often greatly benefit. I can't tell you how many times I have followed up with an author or an advertiser because of something published in your magazine, and I'm sure it's the case for much of your readership as well.
In complete contrast to that reader/letter-writer, I read John Crane's article on reversal dates and immediately found it to be absolutely the best trading technique I've ever come across, and simply by way of that brief article, I was able to apply it in the actual marketplace on the very next trading day. That article was like an epiphany for me.
I had absolutely no association with that author, John Crane, before that article, but after reading it and putting the technique to work in the marketplace, I have to admit that prior reader/letter writer was probably right after all... the article was a fantastic sales pitch. It got me hooked!
Thank you very much for your great magazine articles!
John Gerrety, via email
PHASE CHANGE INDEX
On page 35 of the May 2004 S&C in "Phase Change Index," I think column G is incorrect. At least, the results I get after I typed in the formulas don't agree with what is shown.
For example, using the long formula shown for column G on page 34, I got for cells G35 through G39 the values 31.34382, 37.40206, 23.59735, 21.67471, 21.48. What is the correct formula?
In addition, the formula in column I is overly complex and can be simplified to =(G35+H35)/2.
By the way, I wasn't able to find this code at your website, either.
Don, via email
M.H. Pee replies:
Both the formulas in column G and I are correct. I could not identify your problem regarding the difference in values obtained in cells G35 through G39 since I don't have access to your spreadsheet. Most likely, it is due to mistakes in keying in the long formula of column G or the data entry in column E. I will email you the actual spreadsheet file.
Please let me know if you need further clarification.
Editor: M.H. Pee's spreadsheet has been posted at the Subscribers' Area of our website at http://technical.traders.com/sub/sublogin.asp. Login requires your subscriber number and last name.
TRADESTATION CODE FOR PHASE CHANGE INDEX
M.H. Pee's article on the phase change index seemed very interesting and well researched. Could we please have the TradeStation code as well?
Alan Khazam, via email
Sorry, we don't specialize in publishing TradeStation code. Please contact TradeStation with your request, or try a forum such as our message boards at http://Message-Boards.Traders.com/. -Editor
It appears to me that the B-indicator code for MetaStock given in the Traders' Tips section of the April 2004 S&C, which was based on David Sepiashvili's article "Trend-Quality Indicator" in that same issue, is not correct. For that matter, I don't think the TradeStation code is correct either. The article states that the B-indicator is defined as follows:
The MetaStock formula shows the formula as I have shown here, but with the absolute value of the noise substituted for the noise value in the denominator. Other vendors do not indicate the absolute value in the denominator. In any event, the article states that when the B-indicator is plotted, it should be bound between zero and 100. The MetaStock formula does not do that. For some stocks, I get values of the B-indicator that are in the thousands. I have talked with others who have found the same problem. Please look into this and if an error is found, print a correction in Traders' Tips.
Bill Blue, via email
Since Equis International (developer of MetaStock) composed the code, we have forwarded your letter to them for comment.-Editor
COMBINING PRICE AND VOLUME
I am enjoying your magazine very much and wanted to commend you and Tim Ord on his article in your May 2004 issue, "Price + Volume = Price Movement."
In it, Ord describes a powerful and elegant indicator with some interesting results. There appears to be a small omission in his rules, however. He does not explain what happens if the price tests a previous high or low on an increase in volume. Should we treat this the same as if the price tested a high or low on a 3% or smaller decrease in volume (rule 2)?
I also enjoyed your interview with John Murphy in that same issue. There isn't enough intermarket and seasonality analysis to be found in the financial press. Keep up the good work.
Alex Roslin, via email
Tim Ord replies:
I appreciate it when readers dive into an article the way you did and make an observation that I may not have made clear in my May 2004 article, "Price + Volume = Price Movement."
There actually was not an omission in rule 2. To reiterate rule 2: "When price tests a previous high or low on a 3% or smaller decrease in volume, it implies that the high or low will be exceeded." Let's say the previous high of XYZ had volume of 100,000 shares and the retest of that high comes in at 97,000 shares (3% less volume). That would imply the rally should continue past the previous high. Let's keep the same XYZ stock with volume on the previous high at 100,000 shares and the retest comes in at 100,000 shares (0% more volume than the previous high). Now the retest has 0% more volume, which is still 3% or smaller decrease in volume. The smallest amount that volume can shrink on a retest and still be bullish is 3%.
Putting it a different way, if volume is 97% or higher of the previous high, then that is bullish. Then if the volume on the retest (on the example given) came in at 110,000 shares, then volume would be +110% of the previous high and even a more bullish scenario. These same ratios work for the bottom test as well.
I hope this clears the picture for you. Thank you for taking the time to comment.
ERRATA: MARKET-VOLUME.COM REVIEW
On page 87 of the June 2004 S&C, the pull-out quote at the bottom of the page should have read, "MarketVolume.com provides three different types of charts: Exchange Volume, Index Volume, and MV Select Volume."
ERRATA: RANKED RELATIVE STRENGTH
There is an error in Figure 1 on page 16 of the May 2004 article "Ranked Relative Strength" by Jeff Parent. As the person who generated the daily 12-stock price average for the chart, I can say with authority that the x-axis was meant to start at 12/20/1855 and run through 1885. I believe the time shift stems from the fact that I created the original Excel spreadsheet on a Macintosh.
In regard to another article in that same issue ("Better Returns With Single-Stock Futures" by Jeffrey Seyler), readers might be interested to hear that single-stock futures are not exactly new. Time sales were very common at the New York Stock Exchange throughout the US Civil War. While 15-, 30- and 60-day contracts were most common, one-year contracts popped up occasionally before the panic of 1857. After the panic, the NYSE banned contracts longer than 60 days. By 1885, time sales were very rare.
The 19th Century Stock Price Project
1609 Laurel Crest. Madison, WI 53705
ERRATA: TRIANGULAR FORMATIONS
In the June 2004 S&C, reader Eddie Chu reported problems regarding the TPR code I gave in my March 2004 S&C article on triangular formations. Since it was I who provided the code for the MetaStock formula and since users of other software may experience similar problems, I refer you to the letter I sent you several weeks ago:
Regarding the MetaStock formula for the triangular pattern rank (TPR) that appeared in my March 2004 article, "Mechanically Recognizing Triangular Formations," I got several emails from S&C readers reporting that the formula didn't function. I must say that the formula is correct, but yes, it may produce no results if the configuration of the software is not appropriate for the TPR. Users of software other than MetaStock may experience the same problem.
In order to reduce the scanning time of huge databases, most software calculates the scanning filter using minimum data records for each equity. For example, to calculate a five-day simple moving average of today, most software usually loads only the last five days of the price data. The TPR as described in my article needs many historical price records to produce results, so the software must be configured and forced to load a longer time period of price data for each equity.
MetaStock users may go to the MetaStock Explorer Options menu and uncheck the "load minimum records" option. Also, from the same menu, they must force MetaStock to load many price records (1,000 or more, for example) for each equity before the filtering process. Users of other software may do a similar configuration.
- Giorgos Siligardos
The TPR MetaStock code and this letter are posted to the Subscriber Area of our website at:
Login requires subscriber number and last name. Subscribers can find code given in our articles there.-Editor
Back to July 2004 Contents