August 2007 Letters To The Editor

or return to August 2007 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


METASTOCK CODE FOR MOVING AVERAGE CROSSOVERS

Editor,

I am looking for the MetaStock code for Dimitris Tsokakis' article, "Anticipating Moving Average Crossovers" (February 2007 S&C). Your Traders' Tips section of that issue refers readers to your website for the rest of the MetaStock listing. Could you please advise where I may find the complete listing?

Ken Koschel

Complete code from the February 2007 Traders' Tips section can be found here:

https://www.traders.com/Documentation/FEEDbk_docs/Archive/022007/TradersTips/TradersTips.html
Or, to navigate to this web page from our homepage, go to www.Traders.com, and in the red box at left, click on STOCKS & COMMODITIES, then click on "Back Issue Index" in the right-hand column underneath the "Tour" button, then click on "2007 articles," then look for the February listing.

Incidentally, the AmiBroker code that was given by Tsokakis in his article can be found in the Subscribers Area of our website at:

https://technical.traders.com/sub/sublog.asp
Accessing the Subscribers Area requires logging in with your subscriber number (found on the magazine's mailing label) and last name.--Editor



NOVICE TRADERS' NOTEBOOK

Editor,

I downloaded something called "Novice Traders' Notebook" from your Online Store, but it turned out to be an article rather than an actual notebook. How would I get the whole notebook?

W.H. Dowdy

Our Novice Traders' Notebook is a series of short tutorial articles on technical analysis and charting topics. It is a collection that is posted at our website, not an actual notebook for purchase. Readers will find the series here:

https://www.traders.com/Documentation/RESource_docs/NoviceTraders/NoviceTrader.html
To navigate to this web page, go to our homepage at www.Traders.com, and in the red box at left, click on STOCKS & COMMODITIES, then under "1982 to present" in the red box, click on "Novice Traders' Notebook." Then click on the topic that you would like to visit.

In addition, from time to time we have published full-length articles from contributors under the theme of "Novice Trader." These individual articles are available for purchase from our Online Store at https://store.traders.com/. --Editor



ROCKET INDICATOR

Editor,

I was interested in a TradeStation indicator that was published in STOCKS & COMMODITIES called the rocket indicator. Can you tell me how I can find it?

The indicator I am taking about has a moving average line on the bottom that moves with volume, and a moving average line above the bottom one that moves up, either black or red for shorts, or green for longs (see Figure 1). It may be called something else. I changed the red to black.

David

Sorry, we are not familiar with the rocket indicator and have not published any articles on it. Maybe someone reading this can recommend an information source on it.--Editor



RECTANGLE FORMATIONS

Editor,

I would like to applaud Markos Katsanos for his June 2007 article in S&C, "How Effective Are Rectangles?" However, I would like to discuss a few of the statements he makes, in addition to correcting a few points that he makes in reference to my book, Encyclopedia Of Chart Patterns.

He writes, "Rectangles are long-term formations that can extend from three months to a year." I know of no such minimum. My average rectangle length was three months in the first edition of my book and even shorter in the second edition, 2.5 months. My average-length rectangle would not qualify for his minimum-length one. He used just 100 samples, which pales to the 1,050 combined samples I used in my second edition or even the 297 (combined) I used in the first edition. By combined, I mean that I split rectangles into two types, tops and bottoms, and in the second edition further split them into bull and bear markets, up and down breakouts.

Mr. Katsanos quotes from my book, "The actual breakout is opposite that shown by premature breakouts 75% of the time." However, if you revisit my book you will see that I wrote that for rectangle bottoms only, not rectangle tops, which have a lower rate. In fact, Katsanos writes, "premature breakouts are indistinguishable from actual ones." Thus, where premature breakouts occur is a moot point. It's why I consider premature breakouts to be genuine ones in my second edition.

Mr. Katsanos states that the typical "throwback" lasts "the usual one- to three-day duration." Here's a portion of my definition of a throwback from the second edition: "Prices decline to, or come very close to, the breakout price ... within 30 days after the breakout. White space must appear between the hooking price action of the throwback and the breakout price." I added the white space requirement to prevent exactly the situation that Mr. Katsanos allows, that of the stock sliding along the breakout price and retracing little or nothing in the case of a one-day throwback.

Under "The Measuring Formula" heading he writes, "The rectangles had the lowest failure rate (0%) ... the main reason for Bulkowski's low failure rate was that the commonly established price target was too low."

The failure rate has nothing to do with price targets or the measuring formula. In my first edition, I define failure rate as the "percentage of formations that do not work as expected, including 5% failures." Rectangle bottoms with downward breakouts fail 4% of the time and rectangle tops with upward breakouts fail 2% of the time, both of which he didn't mention. The second edition refines the range from 4% to 16% for the eight variations I studied, with none having a 0% failure rate.

I found that the measuring rule -- based on the full height of the rectangle -- works between 50% and 85% of the time. For this reason, I recommend multiplying the height of most chart patterns, including rectangles, by the measuring formula's success rate and then adding it to (for upward breakouts) or subtracting it from (for downward breakouts) the breakout price. That usually boosts the measure rule's success rate to over 90%. Mr. Katsanos' article recommends trading more distant price targets, but I wish him luck with that.

Thomas N. Bulkowski,
author of Encyclopedia Of Chart Patterns

Markos Katsanos replies:

Thank you for your comments. First, I would like to mention that I chose to study rectangle formations further because, according to the first edition of your book, rectangle bottoms were the best-performing bullish formation. My work focuses on the evaluation of realistic price targets for upside breakouts, so I only included rectangle bottoms with upside breakouts in my study. This should address some of your concerns regarding sample sizes, premature breakouts, and failure rate.

Concerning your comments on rectangle durations, the average is not an accurate representation of the true rectangle mean duration. That's why I used a frequency distribution to calculate the most likely duration. It deviated considerably from the average and was only 110-130 days. Regarding throwbacks, I included statistics only for the first throwback after the initial breakout, since I thought this would be more helpful to traders in choosing an appropriate entry time.

Editor's note: In addition to Encyclopedia Of Chart Patterns, Thomas Bulkowski is also author of Getting Started In Chart Patterns and Trading Classic Chart Patterns. He is also a Contributing Writer to this magazine.



ONLINE VERSION?

Editor,

I'd like to ask why you don't publish an online version. I live in Portugal and was a subscriber for a year a while back, but it was quite painful receiving the magazine almost two months late, or worse, not receiving it at all.

Most magazines and newspapers have online versions, and I think you are losing many subscribers, especially foreign subscribers like me.

As one of the biggest technical analysis magazines, you really need to review your online position.

Fernando Santos

Thank you for your comments. We are currently testing out a method to possibly display S&C online.

You can view a new version of our Traders.com tabloid publication online every other month at the following URL:
 

    https://www.traders.com/Tabloid/Tabloid.html$New
For your interest, we also offer two other publications that are online publications: Working Money and Traders.com Advantage. More information is available from our website at www.Traders.com.--Editor



READERS' CHOICE AWARDS

Editor,

Could you email me the Readers' Choice article about AbleSys Software? I really like their software.

Eleanor

The Readers' Choice Awards listings are presented in the annual Bonus Issue of STOCKS & COMMODITIES. The Readers' Choice Awards are based on the result of a poll we ask subscribers to participate in, which asks them to vote for their favorite products and services. We then tally the results and list the winners and runners-up.

Our Bonus Issue is mailed to subscribers in February and also throughout the year to new subscribers. For information about subscribing, please contact our subscription department at 800-Technical or Circ@ Traders.com.--Editor


Back to August 2007 Contents

Originally published in the August 2007 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2007, Technical Analysis, Inc.