September 2006 Letters To The Editor
or return to September 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 editor@traders.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
IMPLIED VOLATILITY
Editor,
I enjoyed Sam Bhugaloo's recent article in STOCKS & COMMODITIES ("The Power Of Implied Volatility," July 2006); the beer froth analogy really helped explain exactly what is going on. I have some questions:
1. Some charts use two years of implied volatility data and others use six months. Doesn't that have an impact on the percentage increase or decrease? How do you know which time to use?
2. What sources offer the information you used in the article so I can begin to track some of the implied volatility? I see that you've used Optionetics; are there others?
Martin Bedick
Sam Bhugaloo replies:
Thanks for your email. I have had much positive feedback since the article was published and I am currently working on another that I hope will be published also in due course.
You have asked a couple of interesting questions. Here are my responses:
1. The percentage increase or decrease will be the same amount irrespective of which chart you use. If you look at the implied volatility (IV) chart of corn as of July 10, 2006, both the six-month and two-year chart indicate the IV to be at 37.8%.I use the two-year chart as an indication of support and resistance levels. From this, I can see that corn traded to about 45% IV before falling. The six-month chart tells me two things: a) corn IV retraced 50% from 37% to 28% before increasing and so did future prices; b) corn IV can do two things from here: either this is the beginning of a new increase in implied volatility or it can test the 45% resistance before falling, and similarly, futures prices will decline.
2. There are many service providers offering data regarding implied volatility. I prefer Optionetics because this information is free and the charts are very readable. I will provide the link for this since it is not that obvious to get to from their home page:
https://platinum.optionetics.com/cgi-bin/oamergef/www/tablesf/rank6moClick on any of the commodities listed and scroll to the bottom of the page. Here, you will see two charts: one for six months and the other for two years.Let me know if you have any further questions.
MORE ON IMPLIED VOLATILITY
Editor,
I was very appreciative of Sam Bhugaloo's article on commodity volatility in the July 2006 S&C. My question is, where do I find a good source for volatility charts? Is Optionetics the best or only source?
Bruce H.
Sam Bhugaloo replies:
I recommend Optionetics mainly because the information is free and because the charts are displayed in six-month and two-year intervals. The information on this link is updated daily at around 23:00 UK time. Depending on where you live, you can work out the time difference. Other service providers offer the information, but it will come at a cost.
IMPLIED VOLATILITY AND FUTURES
Editor,
I enjoyed "The Power Of Implied Volatility" in the July 2006 S&C. I wanted to know if the author is aware of an implied volatility indicator for TradeStation users to assist with speculative futures trading. (I do not trade options.)
George
Sam Bhugaloo replies:
Thanks for your email and I am glad you liked the article. I also don't trade options but use implied volatility (IV) to trade futures. I don't use TradeStation.
The software I do use has IV functionality, but I still use charts from Optionetics because they are easy to follow and have the intervals I like, as discussed in my answer to the previous question.Looking at the charts, corn seems to be approaching a 100% increase in IV, indicating a pullback in the near future.
VIRTUAL TRADING
Editor,
I'm wondering if you could perhaps provide me with some information regarding the name(s) of one or more concerns that provide traders with simulated accounts whereby they may showcase their trading skills. I would expect to pay for such a service.
Many financial institutions provide such accounts for interested parties for a limited period of time, but their aim is likely to attract new clients.
Richard K.
You are correct that brokerages do offer simulated trading accounts. Here are a couple you could try:
• https://www.hosthemarketworks.com
• https://vse.marketwatch.com
TRADERS' ASSOCATION
Editor,
I'm trying to find out if there's one or two major associations in the US that serve the needs of daytraders and swing traders. Do you know of any such associations, along with their contact information?
J. Nevins
Here are a couple of organizations that are associated with technical analysis and that may serve your needs:
• Market Technicians Association, Inc.
Woodbridge, NJ
732 596-9399
www.mta.org• Technical Securities Analysts Association
San Francisco, CA
415 543-2111
www.tsaasf.org
STOCK SCREENERS
Editor,
Great article on bowl screens ("Going Forward Using Stock Screeners" by Sharon Yamanaka, July 2006 S&C). I just started using her latest screen and like the list of stocks that filter through. I'm amazed at some of the moves that this screen uncovers. Thanks for putting another arrow in the quiver.
Tom Schoene
STAYING IN PHASE
Editor,
I was looking through your article archives for a John Ehlers article called "Stay In Phase." Could you please tell me when it was published?
L. Sakal
John Ehlers' "Stay In Phase" was published in the November 1996 S&C.
Past articles published in Technical Analysis of STOCKS & COMMODITIES can be purchased at the Online Store at our website, www.store.Traders.com, as a downloadable electronic file.--Editor
THREE-LINE BREAK CHARTS
Editor,
I remember reading an article about three-line break charts in S&C magazine some time ago but I cannot find it using your search engine. Where can I find this article?
Neil McLaughlin
The article was "Three-Line Break Reversal Signals" by William Arnold (October 1997, Volume 15:10). Here is the abstract for the article: "This charting technique is a simple but effective technique for determining the direction of the trend as well as changes in the trend."
Past articles are available through the Online Store at our website, www.Traders.com. --Editor
HISTORICAL CHARTS OF VALUATION RATIOS
Editor,
1) In your opinion, is "fusion analysis" (that is, fundamental and technical analysis combined) really an up-and-coming area?
2) On the same topic, I would like to find historical charts of valuation ratios, such as price-to-earnings, price-to-sales, price-to-book value, debt-to-equity, and so on. That is, I want to see a chart with the stock action in time and price as usual, but also with these valuation ratios in time on a historical basis.
Is this possible with any software or service that you have reviewed or that you have heard of?
John Gfeller, CMT
The idea of combining fundamental and technical analyses has been around for some time. Traders often use fundamental analysis to help identify what to trade and use technical analysis to time their trades.
As for historical charts of valuation ratios, try www.morningstar.com. --Editor
SOFTWARE REVIEW?
Editor,
Your site and magazine are excellent trading resources.
Have you ever done a review of APS Automatic Patterns Search from a company called Tradingpatterns.com (listed at your site)?
If you have, I would like to order the issue, if you could kindly point me to the right number.
Alexander
Sorry, we have not reviewed this product. --Editor
ONLINE STORE AT TRADERS.COM
Editor,
At times in the past couple of years I have purchased articles in STOCKS & COMMODITS and paid the few dollars each time by credit card. I looked at your website today and there appears to be no articles for sale. Have you stopped selling articles or am I just missing the facility? I was hoping to find some articles on trading ranges.
Jack Simpson
Glasgow, ScotlandYes, we still sell our past articles at the Online Store at our website at https://store.traders.com/articles.html. You can search by keyword or author last name for articles on your topic of interest.
In the meantime, here are a few articles on trading ranges that may interest you, including a series of articles on trading ranges written by former S&C Editor John Sweeney:
Sweeney, John [1992]. "Trading Ranges With Moving Averages," Technical Analysis of STOCKS & COMMODITIES, Volume 10: June.As well as:
_____ [1992]. "Returning To The Basics," Technical Analysis of STOCKS & COMMODITIES, Volume 10: July.
_____ [1992]. "Trading Back Into A Range," Technical Analysis of STOCKS & COMMODITIES, Volume 10: August.Luisi, Joe [1995]. "On Range Trading," Technical Analysis of STOCKS & COMMODITIES, Volume 13:
Abstract: Markets move from trading ranges to trends and back. Here are methods to identify the trading opportunities based on identifying trading ranges.
Kramer, Bruce C. [1994]. "Using Indicators In Trading Ranges And Trends," Technical Analysis of STOCKS & COMMODITIES, Volume 13: April.
Abstract: Traders use indicators for generating buy and sell signals in a market. But what indicators should you use and when? Here's one private trader's technique for recognizing trends and trading ranges.
Weinberg, Jack L. [1995]. "The Range Indicator," Technical Analysis of STOCKS & COMMODITIES, Volume 13: June.
Abstract: Here's a new indicator based on the change in a day's trading range as evidence of the start of a new trend in a market.
CHARTING SOFTWARE FOR MAC?
Editor,
Can you tell me of any end-of-day technical charting packages for a Mac computer?
David Emmons
Check the Traders' Resource database at our website at www.Traders.com for charting packages for the Macintosh platform. Use the search feature in this area to search in the "Software" category for the Mac operating system, which is the first field in the list of searchable criteria.
If you see any listings there that interest you, you can check whether we've published a review of the package by using the search engine at our website and searching in the S&C area or at the Online Store. --Editor
ERRATA: July Q&A
Editor,
Here are a couple small corrections to my Q&A column that appeared in the July 2006 S&C.
In the first question, a reader asked, "Could one of you academics who believe the stock market is a zero-sum game..." However, the stock market is not a zero-sum game. Futures trading is. So the questioner would either have to rephrase his question to say, "Could one of you academics who believe the stock market is not a zero-sum game..." or say instead, "Could one of you academics who believe the futures market is a zero-sum game..."
In my response to the third question, "trade as theoretical value" should have read "trade under theoretical value."
Thank you for noting these corrections.
Donald R. Bright
www.stocktrading.com
ERRATA: SEC's DAYTRADING RULES
In "Is Overnight Trading A New Way To Daytrade?" by Thomas Carr in the July 2006 S&C, the article states that "...the rule prohibits undercapitalized traders from daytrading more than twice in any five-day period." A reader called to question this statement, saying the SEC limits daytrading to three times, not two times in a five-day period, which is a rule that went into effect in 2001.
The article was about pattern daytrading. Checking the NASD and SEC's definition of a pattern daytrader, we find that anyone who buys and sells a security on the same trading day more than three times within five consecutive trading days is considered a pattern daytrader. If this applies to you, it is necessary to maintain an equity balance of at least $25,000. --Editor
Back to September 2006 Contents
Originally published in the September 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine.
All rights reserved. © Copyright 2006, Technical Analysis, Inc.