August 2002 Letters To The Editor
or return to August 2002 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
TREND INTENSITY INDEX
Editor,
With regard to the recent article on trend intensity ("Trend Intensity
Index" by M.H. Pee, June 2002 S&C), I would like to suggest that
your readers may be better served if such methodology included comparison
data from the accepted standard methods currently being employed - in this
case, the ADX and related DMI that are currently available on the major
charting services. More specifically, Pee's article employs moving averages
in such a manner that unnecessary bias and lag will be introduced. The
classic method (that is, the one put forth by J. Welles Wilder) circumvents
this phenomena by employing maximum and minimum price changes over the
sampling interval.
Schippi, via e-mail
TRIX UPDATE
Editor,
In reading the June 2002 STOCKS & COMMODITIES, I noted letters from
readers concerning the TRIX indicator. One reader in particular requested
information in EasyLanguage on the construction of the indicator. Another
person replied with information that is incomplete. For the TRIX indicator
to work you also need to have the function "TRIX" included in
the code.
Here is the function:
Inputs : Price(NumericSeries),Length(NumericSimple);
Variables : TripleXAvg(0);
If Length <> 0 Then Begin
TripleXAvg = XAverage(XAverage(XAverage(Log(Price), Length) , Length) ,
Length);
Trix = (TripleXAvg - TripleXAvg[1]) * 10000;
End
Else
Trix = 0;
TRIX:
Inputs: Price(Close), Length(18);
If CurrentBar > 1 Then
Plot1(TRIX(Price, Length), "TRIX");
Plot2(0, "Zero");
{Alert Criteria}
If Plot1 Crosses Over 0 Then
Alert("TRIX has crossed to positive territory")
Else
If Plot1 Crosses Under 0 Then
Alert("TRIX has crossed to negative territory");
Now you have an indicator that will work. Maybe this information can be
shared with those interested.
Your magazine is great.
Ron E., via e-mail
HOW ACCURATE IS THE A/D LINE?
Editor,
I've read and reread the article "How Accurate Is The A/D Line?"
by Larry McMillan in the April 2002 S&C. Is the "stocks-based"
advancing/declining data readily available? I've tried both the 21/55 and
4/13 moving averages [as discussed in The Arms Index by Richard
Arms] as an attempt to create a trading system, but did not find the results
promising. After reading this article, I wonder if my results would have
been different (no doubt, but useful?) with "stocks only" data?
Has McMillan tried?
R.J. Sweren, via e-mail
Larry McMillan replies:
The "stocks-based" breadth data is available to subscribers
of any of our newsletters - The Option Strategist, The Daily Strategist,
and Daily Volume Alerts. It is published in each issue of those
newsletters. I do not personally know of another source, although I understand
one of the mutual fund data providers has a similar figure available. I
will make you, or anyone else, this offer: For a nominal fee, I will supply
you with our "stocks only" data going back four or five years,
which should be more than sufficient to get a history for system testing.
If interested, contact me at lmcmillan@optionstrategist.com.
As for the breadth data affecting the Arms index (TRIN), it most certainly
does, just as it affects any indicator that uses market breadth in its
calculations. When I first wrote about this phenomenon, I did a study of
a "stocks only" Arms index, most of which was published in the
article. Essentially, the Arms index has been giving overly high readings
because of the distortion in the data. High readings make the Arms index
appear overly bullish, when in fact it is not. Just recently, on April
26 and 29, two very high Arms readings were registered Ñ so high, in fact,
that proponents of the Arms index were calling for a major bull market
because past occurrences of such high readings had led to long-term rallies
in the broad market. Alas, that did not happen, as we all know. The culprit,
of course, was the distortion in the Arms index caused by the NYSE advance-decline
data.
As for creating a "system" using the Arms index, I generally
use the index as a guide, not a rigid system: If the 21-day Arms index
rises above 1.30 then later falls back below 1.28, that is the buy signal.
Somewhat lower numbers would be used for longer-term moving averages, if
you desire a longer-term approach. I also use other indicators, in addition
to the Arms index, as a means of confirming major turning points (particularly
the equity-only put-call ratio and option implied volatility).
COUNTING ELLIOTT WAVES
Editor,
As an Elliott wave practitioner of approximately 20 years, I was attracted
to the article "Counting Elliott Waves" (STOCKS & COMMODITIES,
June 2002). After reading the article, I referred to my 1983 copy of Elliott
Wave Principle by A.J. Frost and Robert Prechter. On page 53, the text
reads, "...wave four in a five-wave sequence should not overlap wave
one..." and "...the middle wave (3)...is never the shortest..."
Curiously, the figures on pages 90 and 91 contradict at least one, almost
always both, of these rules in each example of a five-wave sequence. Has
the theory been rewritten?
Thomas Wood, via e-mail, Flushing, MI
The theory has not been rewritten. Our illustrations were created to
display the intermediate and primary waves. The two points you mention
are stated in the articles. There may be a slight overlap of wave 4 into
wave 1.-Editor
CENTER OF GRAVITY OSCILLATOR
Editor,
I have read the article "The Center Of Gravity Oscillator"
by John Ehlers in the May 2002 S&C and I cannot find any information
on how to create CG1. I suspect that it uses the open and close. Do you
have an Excel spreadsheet that sets the structure for the equations for
CG and CG1?
I have attached an example of an Excel spreadsheet for a stock. It is
an example of what I think you said. It also includes what I think the
structure of CG1 may be.
Thank you for your good work. I read your magazine from cover to cover
and hope that I can learn from the best. Please let me know if the spreadsheet
is correct or not and what the corrections should be if they are required.
Lynn Trent, via e-mail
If you are a MetaStock user, try posting a message to the MetaStock
user list. Someone in that e-community has also put together an Excel spreadsheet
formula for the CG oscillator that you could compare with yours. And if
you check in our Traders' Tips section this month, you'll find code for
the center of gravity oscillator contributed by technical analysis software
developers.
Finally, we have posted reader Lynn Trent's spreadsheet to the subscriber
area of our website, http://technical.traders.com/sub/sublogin.asp.
Login requires subscriber number (found in upper left of mailing label)
and last name. -Editor
CLARIFICATION: METASTOCK DIVERGENCE FORMULAS
Editor,
First of all, I love your magazine and I learn many new things from
it each month. Please keep up the good work.
The reason for this message is that I tried to copy and paste both of
the MetaStock divergence formulas (that is, the divergence formula and
the double-successive divergence formula) that were published in the July
2002 Traders' Tips column into MetaStock's Indicator Builder. Neither of
these formulas seem to work. Please let me know if the formulas are correct,
and if they are not, please provide the corrected version.
Marion Dickey, via e-mail
Christos Siannas replies:
The formulas are not for the Indicator Builder, but rather for the MetaStock
Explorer. Here are the steps:
1. Run the Exploration
2. You see the divergence between Rsi (14) and C (Figure 1)
3. V1>V3 and V2<V4.
READERS' CHOICE AWARDS
Readers,
Did you get this issue and ask, "Where's the Readers' Choice Awards
ballot?" Don't worry - we've moved the voting for our annual awards
for products and services to later on this year. We'll be providing the
details in an upcoming issue on how you may be able to vote in this year's
poll.-Editor
Back to August 2002 Contents
