January 2006 Letters To The Editor
or return to January 2006 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 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
BOLLINGER BANDS VS. CCI
Had Neil Jon Harrington contacted me prior to writing his article ("The Link Between Bollinger Bands And The Commodity Channel index," October 2005 S&C), I could have saved him some trouble, for the relationship between the commodity channel index and Bollinger Bands is well known and has been widely explored.
If the same input data is used and the constants equalized, it is true that the main difference in logic between the two approaches comes down to the difference between standard deviation and mean absolute deviation. However, that is not a trivial difference; it is a significant and crucial difference. When prices are close to the average, there is little difference between the calculations, but when prices move away from the average, the differences become dramatic. This is due to the squaring of the deviations from the mean in standard deviation, a calculation that accentuates large deviations. Mean absolute deviation has no such magnifying mechanism.
This difference is most critical when it is the greatest - that is, at the extremes - because it allows our definition of relatively high and low - the Bollinger Bands - to remain germane to the rapidly evolving price structure.
Please note that these two series cannot be made to correspond by adjusting the constants involved, since the difference is nonlinear. This nonlinearity arises from the squaring of the differences in the calculation of standard deviation. For a normally distributed series, MAD is approximately equal to 0.7979 standard deviation; however, security prices are not normally distributed, so we can expect the difference to be somewhat greater.
Though Mr. Harrington did "uncover" the facts, he missed the worth. Traders should not consider %b - that is, the oscillator derived from Bollinger Bands - and the commodity channel index to be interchangeable. Donald Lambert and I created different tools for different purposes; each has its unique characteristics and utility.
Thanks again for your fine publication, which I read religiously.
John Bollinger, CFA, CMT
Readers: See also the explanatory article on Bollinger Bands called "Bollinger Bands Vs. Trading Bands" in the December 2005 S&C.-Editor
FLOYD UPPERMAN INTERVIEW
I read your interesting article on Floyd Upperman in the November 2005 S&C. I wish to enhance my knowledge of COT reports. Does Mr. Upperman offer a book or newsletter on this subject? P.S. Keep up the good work.
Jerry, via email
Floyd Upperman replies:
Thank you for your kind comments regarding the interview with me in the November 2005 issue of STOCKS & COMMODITIES.
I believe you will find everything you are looking for at my website, www.wizkid-trading.com. It's full of free information about the COT and how I use the COT as part of a trading system. My upcoming book is titled Commitments Of Traders and you can pre-order it now from Amazon.com. It will ship in mid-December 2005. You may also consider becoming a member of my main site (www.upperman.com) to access all my proprietary COT tools, charts, and indicators.
Thank you and good trading.
TRADING AS A DAY JOB
I've subscribed to STOCKS & COMMODITIES for many years and have benefited greatly from your magazine's articles. Thanks for a great publication. At this point, I'm considering stopping the "day job" and focusing full time on investments.
Are you aware of any resources to help individual trading and investment professionals obtain health and disability insurance at reasonable rates? Are there any professional associations for traders and investors that provide health insurance options for their members?
David B., via email
Try contacting the Market Technicians Association at www.mta.org or 732 596-9399, email@example.com. While they probably don't offer these services themselves, they may be able to direct you to an agency that does. Or you might look for group-buying opportunities or cooperatives with other types of self-employed people, not necessarily just for traders.
In addition, look into the tax-deductibility of your health-care expenses as a self-employed taxpayer, regardless of where you purchase your health care from.
Otherwise, perhaps our readers will have a suggestion.-Editor
INDIAN STOCK MARKET
I am in India and am a stock market technical analyst. I would like to know from where and how I can get the following support for my work:
1) Data services: Software and the source code for data management. I would like to become a data vendor for MetaStock. Kindly advise.
2) Technical analysis software source code: This is to have my own technical analysis software for the Indian market.
Vinayak More, via email
I'm afraid you're going to have to create your own source code if you wish to create your own software product. Good luck.-Editor
Back to January 2006 Contents