June 2005 Letters To The Editor
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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
FLAGS IN A BEAR MARKET?
I just finished Markos Katsanos' recent S&C article, "Measuring Flags And Pennants" (April 2005), and was thoroughly impressed. The accuracy of his revised price predictions are truly amazing for the small sample size presented. I am wondering how this formula will perform for larger sample sizes and in bear versus bull markets.
I am relatively new to the whole concept of backtesting, having just signed up for a TradeStation trial, and my higher math skills are very rusty. But I am eager to explore these tests at some point in the future. I also eagerly await Katsanos' next article on applying this newfound result. Thanks for the insightful analysis.
Brent Brewer, CFA
Markos Katsanos replies:
Thank you for your interest in my article. The coefficient r2 suggests the simplified formula would explain only about half of the cases. This was verified by my statistical research on 100 flags and pennants during the period of 11/13/2002-11/15/2004, which included a bullish and a sideways market but not a bear market. This process revealed that 57% of the cases were within +/-10% of the predicted price objective. Nevertheless, using the formula removes emotions from trading and prevents you from blaming yourself for selling too soon or too late.
I confess that the examples I chose to present in the article belonged to the cases that were predicted successfully. Further testing (presented in the May 2005 issue) detected very few flags during the 2000-02 bear market, and therefore, any statistical conclusions would be inaccurate.
METASTOCK CODE FOR BREAKOUT CANDIDATES
In the April 2005 Letters to S&C column, Markos Katsanos replied to Christine Martin that to scan for breakout candidates, you need only copy the code into a MetaStock exploration. Was he saying that the four sets of code should be set out in columns A, B, C, and D? Or am I to scan using the breakout system test as the exploration term? Thank you for your assistance.
Markos Katsanos replies:
Copy the entire code for entering long into the "Filter" column of MetaStock explorer. You can leave all other A-F columns blank.
B WAVE RETRACEMENTS
I read with interest David Penn's recent article on the current wave count ("Elliott Wave 2005," April 2005). I was particularly interested in his recitation from the Prognosis Software manual the rule concerning the B wave. Specifically, it states that "the B wave traces no more than 61.8% of A." Although the B wave traces no more than a 0.618% retracement, would I be correct in assuming this doesn't mean it has to reach that retracement?
If my understanding is correct, then it's possible that 1230 could be the top of the B wave, and perhaps we are starting the C wave now, as I write this. Is my reasoning flawed in some way? I would be interested in your thoughts on this topic.
Technical Writer David Penn replies:
Thank you for writing and for reading Technical Analysis of STOCKS & COMMODITIES.
I think you are correct. In a zigzag corrective pattern, the B wave does not necessarily have to retrace 61.8% of the previous A wave. So it is possible that the B wave ended in March 2005 at or around 1230, as you pointed out.
I have held out for the possibility that the B wave might not be over. But that has been more of a hedge against calling a top too early -- as Elliotticians have had a tendency to do.
TRADING COMMODITY INDEX FUTURES
I am interested in trading commodity index futures. What resources are available (brokers, trading platforms, and so on) so that I might follow this pursuit?
Staff Writer Dennis Peterson replies:
The first problem you need to solve is your datafeed. You must decide whether you want EOD (end of day) or real-time. A number of data vendors are available, but you want to base your datafeed decision on the software you will use for your analysis of the futures data.
Continuous contract data is necessary if you want to perform longer-term technical analysis. CSI and Reuters are two data services that offer a large selection of continuous contract types, although many other services may also.
Software that deals specifically with commodities often has its own proprietary datafeed. Some of these packages are attractive, but we would suggest comparison shopping before you commit to something that locks you into a monthly datafeed charge.
Finally, a number of online brokers are available through which you can trade commodities. Check the "Data Services" category in the Advertising Index toward the back of this magazine for some to follow up on. You will also find a listing there of data services to follow up on.
INTRADAY SOFTWARE IN INDIAN EXCHANGES
I trade in the Indian stock exchanges (National Stock Exchange and the Bombay Stock Exchange). Is there any software that can be used in these exchanges for intraday buy and sell signals?
You have many choices for software that can be used with these exchanges. The first step is to look at what format your data is in, then find software that is compatible with your data format. For example, if your data uses the date, open, high, low, and close on a spreadsheet, MetaStock will support the format, as will a host of other applications.--Editor
WHAT TRADING SOFTWARE TO BUY?
I am looking to invest in some trading software and, given all the choices available, I was hoping you could either make a recommendation or direct me to where I could find reviews on the various programs. Thanks in advance.
David Barwinski, via email
Technical Writer David Penn replies:
Your choices are really quite wide-ranging. The trading software that works best for you will depend on the type of trading that you are interested in doing: stocks or futures -- or forex? End-of-day trading or intraday trading? There really are a number of factors involved.
One recommendation I can give without qualification is to stick with products that give you a free trial period. Even the most thorough review won't tell you how you will respond to a given platform's setup and mode of operation. Some of these platforms can be very expensive; if they won't let you have a test drive, then I'd strongly consider taking my business elsewhere.
That said, we publish reviews of trading software products every month in Technical Analysis of STOCKS & COMMODITIES. Even paging through a few issues will expose you to some of the many options out there.
I'd also recommend reading through our Bonus Issues. Our annual Readers' Choice Awards for investment-related products and services are published there. That will give you a good sense of the products that our readers have found most worthwhile over the years.
Thanks for writing.
Where can I order the Wyckoff course on technical analysis of the stock market?
We offer a book on the Wyckoff method called Charting The Market: The Wyckoff Method. You can purchase it by calling our circulation department at 800-Technical or by visiting our Online Store at Traders.com.
In addition, you can find details on some other Wyckoff courses and products by using the search feature at the Traders' Resource area of our website, Traders.com. For example, the Wyckoff Stock Market Institute lists several products there.
Finally, Richard D. Wyckoff's original book, How I Trade And Invest In Stocks And Bonds, is available in reprinted form from Fraser Publishing Co. at www.fraserpublishing.com.
With an annual subscription (a new one), is it possible to read old articles (an article from 2000, for example)? Thanks in advance.
Dott. Alan Lugiai
Unfortunately, our past articles are not available online for free viewing, only for purchase. Your subscription to STOCKS & COMMODITIES magazine gives you the hardcopy magazine, plus access to the Subscriber Area at our website, where you will find code from our articles for copying and pasting into your technical analysis software.
Subscribers to our online companion publications, Working Money and Traders Advantage, do have access to archived articles for those publications. However, online versions of STOCKS & COMMODITIES articles are only available for purchase individually through our Online Store at our website, http://www.Traders.com.--Editor
SEEKING ONLINE TRADING COMPETITIONS
Are you aware of any trading competitions on the web, that is, a site where traders post their picks and compete against other traders? I would be grateful for any advice.
You'll find various trading competition sites on the web, including the virtual stock exchange by Marketwatch; Stocks Quest; and Fantasy Stocks. Try searching through Google or another search engine for other competition sites.--Editor
Can you patent an indicator? If so, what would be the advantages or disadvantages of doing so? Could you charge those who use it or include it in their charting program? Do you know of anyone who has patented an indicator? If so, who and what indicator? Are there resources for information on this topic? Thanks for any information you can provide.
Patents are issued by the US Patent and Trademark Office (USPTO) and help protect inventions by granting the patent holder "the right to exclude others from making, using, offering for sale, or selling" the invention in the US or "importing" the invention into the US. Most US patents are good for 20 years. Obtaining and enforcing patents in other countries are subject to their application processes and rules, which may differ.
It is certainly possible that an indicator that someone develops may qualify for a patent, providing it's truly original and unique, and if it can be claimed to be a "process" or "method" or a computer algorithm and more than just a mathematical formula, which are not patentable. Patenting an indicator would be useful if the inventor's interest is in selling or licensing the indicator. But obtaining a patent can be a lengthy and somewhat expensive process. Receiving approval for a patent can take two years and using a patent attorney is recommended.
Applications for patents are examined by the Patent Office for both technical and legal merit. Prior to filing a patent application, a search of existing patents must be conducted. A preliminary search can be conducted online by anyone through the website of the USPTO at http://www.uspto.gov/patft/index.html. If you're curious, try looking up names or descriptions of existing indicators there to see if they might be patented, although this type of search may not be conclusive.
Most charting indicators in our field are not patented, although the names of them are sometimes trademarked or servicemarked, and documents, manuals, or books describing them are copyrighted (although that only helps protect the language of the document from being plagiarized, not the idea behind the indicator being used or programmed by someone else). However, most software companies keep their source code a trade secret. Trade secrets are covered under state law and have no time limit. Likewise, the formulation or code for an indicator (or system) is sometimes undisclosed, meaning the logic or rules aren't revealed or are revealed only with the signing of a nondisclosure agreement.
Informational materials providing a broad overview of the process of obtaining a US patent, including general requirements and an FAQ, are available at the Patent Office's website at www.uspto.gov/main/patents.htm.
I also found a useful website about patents at the FindLaw.com website at:
and another useful article at:
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