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Also in this issue: ■The Detrending Price Oscillator ■ Interview With Dan Zanger
■Developing A
Trading Plan ■ A Long-Haul Method ■ Inflation-Adjusted Returns
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CONTENTS 8
BONUS ISSUE 2014, VOLUME 32 NUMBER 4
Developing Your Own Trading Plan
READERS’ CHOICE AWARDS
by Solomon Chuama Here’s an example of how you can execute your own trading system based on current market analysis.
26
the 2014 Readers’ Choice Awards, Awards, with products and services that our subscribers are using and nd useuse ful, in more than 20 categories.
FEATURE ARTICLE
12
The Detrend Reveals The True Trend by Martha Stokes We would all like to trade bottoming and topping markets. Here’s one way to do it.
19
A Trading Method For The Long Haul
22
INTERVIEW
36
42
Listening To The Market by Danish Kapur Are there ways that investors can listen to what the market may be trying to tell us?
Trading Using Planetary Movements by Khit Wong Is it possible to achieve market timing via planetary movements? Our rst inclination would be that it wouldn’t be possible, but let’s give it the benet of the doubt. Here’s an easy nancial astrolastrol ogy tool you can use to judge for yourself.
Inflation-Adjusted Market Returns by Ron McEwan Does ination explain why markets are higher in dollar value and why they seem to be worth less in purchasing value? Here’s a detailed look.
25
Seeing The Patterns With Dan Zanger by Matt Blackman Dan Zanger of Chartpattern.com is a swing trader and technical analyst focused on stocks — and a force in stock trading. He has spent 20 years studying every type of chart formation imaginable and nding what works.
TCA
by Donald W. Pendergast Jr. You can apply this model to any time frame on any equity. The best part is that it’s so simple, anyone can implement it.
2014 Readers’ Choice Awar Awards ds STOCKS & COMMODITIES presents
DEPARTMENTS 6 35 45 45 46 46
TCA
Opening Position †Traders’ Glossary Classified Advertising Traders’ Resource Advertisers’ Advertiser s’ Index Editorial Resource Index
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Bonus Issue 2014 • Volume 32, Number 4
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hoever said the markets don’t throw us unexpected surprises? After all, isn’t that what makes the markets what they are? Yet when things are going smoothly, many seem to forget that reality and instead dwell in hope. That feeling of hope is one of the culprits that makes us blind to what really goes on in the nancial markets. If only we could take a magic pill that would make that feeling of hope disappear! But that wouldn’t be realistic, would it? In late January 2014, the market showed off its power. Anybody who is in the business of mentoring or educating traders was showered with emails asking if this was the start of the long-awaited correction. But let’s be realistic — nobody knows the answer to that question. It all depends on how much of a correction it is and how much it rebounds. That’s the typical response you’ll hear i n the media. Unfortunately, traders don’t have the luxury of waiting to see how far the market falls before it rebounds. Neither can they wait for the rebound to take place. Traders need to exit long positions as soon as t hose sell signals start ashing. Then they can wait until the rebound before reentering long positions. In the meantime, traders have the option of making some small prots on short-term swings, and if the trend reverses, taking advantage of the downtrend.
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important to be aware of the different paths the markets can take. There are so many avenues to make money regardless of which way the markets are heading. You could be trading equities, exchange traded funds (ETFs), currencies, futures, options, bonds, and so forth. That’s all the more reason to gain a broad perspective of the markets, which is what we at Technical Analysis of STOCKS & COMMODITIES try to bring to our readers. And it’s also nice to receive feedback and hear from our readers, which is why each year we request that you vote for your favorite products and services i n our Readers’ Choice poll. In this issue, our 2014 Bonus issue, we reveal the results of your votes. The Readers’ Choice Awards (RCA) starts on page 26. Regardless of what you trade, what your trading style is, or what your level of experience is, you are bound to nd products and services that interest you in the RCA. Thank you for voting. We hope you will enjoy this special edition of STOCKS & COMMODITIES. A s always, we look forward to bringing you more articles on technical analysis, trading, investing, and the markets in the future. Happy trading!
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T
here’s a saying that if you fail to plan, then you have already planned to fail. What, then, is a trading plan? A trading plan is an embodiment of your trading goals, risk management rules, and your trading system. Sadly, 90% of new traders don’t survive the markets because of haphazard trading. A trading plan is a well-thought-out approach to executing a trading system of your own based on the market analysis in order to limit trading mistakes or losses. Trading plans differ from one trader to another because of different styles of trading. But it’s not enough to develop a trading plan; you also have to be able to stick to it. In this article, I will provide examples of my goals and of my trading system, on which a trading plan can be based. The goals I set for myself are the motivating factor in my trading. Besides goal-setting, you must have some interest in the business you run. Here were my goals when I started trading:
Winning The Battle
Developing Your Own Trading Plan Here’s an example of how you can execute your own trading system based on current market analysis.
by Solomon Chuama 8 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
1. To be a successful trader. If 90% of new traders hardly survive the market, then I choose to be in the 10% of successful traders. How do I go about it? During any trading session in which the market is not favorable, I agree to let go a maximum loss of 10% of my trading capital. That means if I am trading on ve positions, each position should carry a maximum loss of 2%, thereby giving up an aggregate loss of 10%. Second, I abstain from trading if the market is not discernible. 2. To make $3,000 monthly. I set a target prot of $150 per day or $750 per week on my ve positions. My monthly target is $3,000.
N O T R E V I H C N A O J
TRADING PLAN
3. To be a full-time trader. To be a full-time trader, I have to trade morning and evening sessions. As I stated earlier, I made it a goal to achieve a target prot of $3,000 per month. Every six months, I evaluate my overall trading by preparing accounting statements to know if I have broken even. An example of my business plan can be seen in sidebar “Trading Business Plan For The First Year.” You can see the formats of my prot & loss statements and balance sheet in sidebar “Prot & Loss Statements And Balance Sheets.” I analyze them every six months to ascertain my initial net income after considering every other expense. I prepare my balance sheet statement so I know my assets and liabilities. If my evaluation showed a favorable report, I will set a new target for myself. If it didn’t, I will continue with my previous target. This was a method I used to encourage and motivate myself. You can do something similar.
Trading Business Plan For The First Year Revenues $ Expenses My initial assets: Laptop Savings 5000
Total
Indicators that show the conditions of the market
n
Denition of risk n Denition of entry rules n Denition of exit rules. n
Moving averages Stochastic oscillator
n
I apply exponential moving average (EMA) crossovers to show me the recent price swing. I use a shorter EMA to catch early trends to enable me to make prots. It is also best to know what the market speculators are c urrently doing and compare that to what they did the previous week. The stochastic oscillator is an indicator that signals a possible reversal. We want to know where the previous trend is ending and where the price is likely to change direction. The stochastic oscillator assists me in identifying trends that are ending. The main function of the stochastic oscillator is to
250
Telephone expenses
150
Stationery
200
Copier/ printer
500
Generator fuel
50
Electricity bill
50
5000
Total
2800 5000
Less Operating Expenses: Internet Connectivity Generator Fuel Stationery My wage Electricity Bill
I’ll go over each of these and then provide an illustration with a chart.
n
Forex books
Sales (profit for the period July–December 2011) ------------ XXX Less Cost of Sales (Purchases) ------------------------------------- XX _______ Gross Profit---------------------------------------------------------- XXX
Time frame
Application of indicators: I typically use two indicators in my trading system:
200
Profit and Loss Statement for the period ended December 31
n
Time frame: The selection of time frame varies from one trader to the next because of different styles of trading and individual personality. Before you choose a time frame to trade, you have to try different ones and settle on the one that is most suitable for you. If you want to be an intraday trader, you may want to consider the following time frames: one-minute, three-minute, ve-minute, 10-minute, 15-minute, 30-minute, and 60-minute to nd the one you are comfortable wit h.
Internet connection
Balance carried down
4. To develop a trading system. Another important component of my trading plan is a trading system. The trading system should include:
$ 800
XX XX XX XX XX
Bank charges XX Subtotal ------------------------------------------------------- XX _______ Net Profit XXX
Balance Sheet Statement as of December 31 Fixed assets: Office equipment------------------------------------------- XXX Current assets: Bank------------------------------------------------------------ XXX Cash------------------------------------------------------------ XXX Total
_______ XXX
Financed by Capital------------------------------------------------------------------ XXX Add net profit--------------------------------------------------------- XX _______ Total ---------------------------------------- XXX
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 9
TRADING PLAN
S E T O U Q A T E M
FIGURE 1: TRADING SYSTEM IN ACTION. Combining exponential moving average crossovers with the stochastic oscillator is a simple trading system any trader can begin trading with.
A trader without a trading plan is a gambler, whereas a trader with a plan is a disciplined, coordinated, and results-oriented trader.
measure overbought and oversold conditions of the market. It is scaled from zero to 100. I place a buy order when the market is oversold, or where the stochastic dotted line is below 30; similarly, I place a sell order when the market is overbought, or where the stochastic line is above 70. After the application of indicators to my trading system, I dene my money management rules, which will dene my risk.
Denition of my risk: As a trader, this is how I go about setting up money management rules. First, I allow 2% of my capital for each position. I would like to trade ve positions during any trading session; thus, I would be risking only 10% of my capital. Second, I input a stop-loss of 100 pips for each position. Third, I do not set any prot target; rat her, I adopt an exit rule. Denition of entry rules: I look at the chart and at the indicators before making my entries. I abstain from trading if the market trend is not discernible. I rely more on my EMA, because it gives me good signals. I will buy if: n
The ve-period EMA crosses over the 12-period EMA line and this is conrmed by the stochastic l ines, which are already in the oversold condition.
I will sell if: n
“Would you like your dividend in nickels, or bitcoin?” 10 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
The ve-period EMA crosses under the 12-period EMA line and the stochastic lines are in the overbought condition.
Denition of exit rules: I use these methods to exit my trades: n
n
Trailing stop: Trailing stops are used to lock in prots as the market moves in my favor. I can place my trailing stop at X amount if the price moves by X amount in my favor. Sometimes this stop takes me out of my trade. Stop-loss: For each lot, I place a stop-loss of 100 pips.
I do not set prot targets for my trades. n
Voluntary closure of trade: I close my trades when I am through with my trading or when it has satisfactorily
met my target prot or loss. In Figure 1 you see an example of my trading system. I entered a short position on July 5, 2012 after the moving average crossover signaled a downtrend. I closed the position on July 12, 2012 after I got an exit signal from the stochastic oscillator, which, at that time, had moved into the oversold region. I gained close to 300 pips from that trade. CREATE YOUR ROAD MAP
A trader without a trading plan is a gambler, whereas a trader with a plan is a disciplined, coordinated, and results-oriented
trader. A trading plan is a guide, a personalized plan for your trading goals, risk tolerance, and individual lifestyle. When strictly followed, it prevents the development of adverse psychological factors in trading, and it reduces a fair amount of bad trades and stress. Solomon Chuama has been working in the nancial industry for 14 years. He is a trading seminar organizer and instructor who passes onto students his forex trading knowledge and passion. Starting as a novice, he came across established trading facts that brought about the changes he needed to turn him into a successful trading professional. FURTHER READING
Chuama, Solomon [2012]. “Decimal Places In Forex,” Technical Analysis of STOCKS & COMMODITIES, Volume 30: November. [2013]. “Triple Approach To Forex Markets,” Technical Analysis of STOCKS & COMMODITIES, Volume 31: Bonus Issue. ‡MetaTrader (MetaQuotes Software Corp.) ‡See Traders’ Glossary for denition ‡See Editorial Resource Index
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THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE OF FUTURE PERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 11
12 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
CYCLES
Is A Turn Approaching?
The Detrend Reveals The True Trend We would all like to trade bottoming and topping markets. Here’s one way to do it.
Peak
In
our modern, automated marketplace, trends can obscure a topping or bottoming formation. Sophisticated new professional side orders have changed how stocks and indexes form tops and bottoms. Many once-common topping and bottoming formations rarely occur in the automated marketplace. Technical traders need to use alternative analysis tools to properly identify these new patterns. The detrending price oscillator makes it easy and reliable to analyze a cycle of a stock or index to anticipate sudden price action.
G N I D L O G D I V A D
THE DETREND INDICATOR Although the detrending indicator used is called a detrending price oscillator, this discussion goes beyond the normal use of an oscillator and enters the realm of cycle theory. First, a note here: Cycle theory always uses the “trough to trough” measure to calculate the timeline of a cycle. Peak to peak is never used. This approach provides a more accurate determination of the length of the cycle. Thus, a four- or six-year cycle is trough to trough with one peak between the two troughs (Figure 1). Peaks are not used, as they tend to have more variants than troughs. Cycle periods are averages, which are not precise. A four-year cycle will not always be exactly four years.
by Martha Stokes
Trough Trough FIGURE 1: TIMELINE OF A CYCLE. Cycle theory always uses the “trough to trough” measure to calculate the timeline of a cycle.
A popular detrending formula is: n
Σ Close
j
Moving average =
j = i
n
or: Detrending price oscillator (DPO) = Close – Moving average [(n / 2) + 1] days ago The purpose of using a detrending indicator is to remove the uptrend or downtrend to reveal the underlying cycle within those trends. Cycles expose patterns in price that are not as easily seen in trends. The new automated orders used by the institutions have signicantly altered tops and bottoms. The head & shoulders top, as an example, rarely forms nowadays. However, the detrending indicator identies the extreme deviation even without the typical price pattern. Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 13
0 0 0 2 C T
FIGURE 2: WEEKLY CHART OF THE DOW JONES IND USTRIAL AVERAGE.Here you see the detrending indicator with an eight-per iod setting. What it does extremely well is identify topping and bottoming conditions before the top or bottom commences. The detrending indicator forms lower cyclical highs with failed peaks and lower troughs just before a top commences.
HERE’S SOME TERMINOLOGY Extreme peak: An unusually long upward cycle pattern that is beyond the normal range of the cycle. The extreme peak tends to shorten the cycle timeline. Extreme trough: An unusually deep downward cycle pattern beyond the normal range of prior cycle peaks. The extreme trough tends to shorten the cycle timeline. Extended peak: An upward cycle pattern that extends far beyond the normal range of the cycle. The extended peak lengthens the cycle timeline. Extended trough: A downward cycle pattern that extends far beyond the normal range of prior cycle troughs. The extended trough lengthens the cycle timeline. Reverberating cycles: Cycles that have experienced an extreme or extended pattern on the peak and trough tend to reverberate afterward. This means that neither a peak nor trough forms. Instead, the cycle becomes narrow in scope and choppy. Failed peaks: A peak that fails to rise to the prior normal-range level of the cycle. Failed trough: A trough that fails to move down to the prior, normal-range level of the cycle.
FINDING THE PEAKS AND TROUGHS The chart of the Dow Jones Industrial Average (DJIA) in Figure 2 shows how the detrending indicator can be used to expose the cycles within this index. What it does extremely well is identify topping and bottoming conditions before the top or bottom commences. The detrending indicator forms lower cyclical highs with failed peaks and 14 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
The goal of a detrending indicator is to remove the uptrend or downtrend so that a cyclical pattern is exposed. lower troughs just before a top commences. In the DJIA, the detrending indicator forms an extreme trough prior to the nal low of 2008, allowing traders to prepare for the end of the downtrend. A failed peak develops, which indicates a weakness in the 2009 weekly cycle. Then the detrending indicator signals the absolute low has been reached in 2009 as a higher trough forms. As the higher trough of 2009 moves into a peak mode, the troughs become shall ower, which indicates an uptrend with momentum is underway. The cycle reverberates after the extreme trough with no true peak or trough from July 2009 to April 2010. The DJIA moves up to a high value in 2010 but a lower detrending cycle peak gives an early warning t hat a correction is beginning. The W bottom trough is a strong signal the lows have been reached for the 2010 correction. The high of the DJIA in 2011 once again shows cycle peaks that are lower and shallower with lower troughs. This cycle is also shortened and compressed, a signal that a more signicant correction is about to occur. The last trough of 2011 has higher lows preceding the move up in late 2011. The detrending cycle analysis exposes cyclical patterns that often diverge from the price action far ahead of the trend shifts. This can be an invaluable tool for traders trading stocks or options. Figure 3 of the NASDAQ Composite Index also shows failed peaks preceding downturns and corrections. A topping pattern is
FIGURE 3: WEEKLY CHART OF THE NASDAQ COMPOSITE. Here you see the detrending indicator with an eight-period setting. Notice the failed peaks preceding downturns and corrections.
evident by the failed peaks and the lower troughs. The extreme trough on the detrending cycle in 2008 precedes the nal low of 2009. The lowest low of the bear market for the NASDAQ
has a higher trough cycle pattern indicating the conclusion of the downtrend. A reverberating cycle occurs in this index also, similar to the DJIA between June 2009 and March 2010.
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Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 15
FIGURE 4: CHANGING DYNAMICS OF A CYCLE. On this chart of Apple, Inc. you can see how extreme patterns reverberate and eventually return the cycle.
A weaker peak occurs in June 2010 and a trough in September 2012, followed by a peak in December. Then the cycle reverberates again, losing all peak and trough patterns until late 2011. During reverberation periods, the cycle lost its timeline.
THEY EXIST IN EQUITIES The detrending indicator works well on stocks, providing valuable information in shorter time frames. On the chart
of Apple Inc. (AAPL) in Figure 4, you see how a cycle can change dynamics and how extreme patterns reverberate and can eventually return the cycle. In 2008 after an extended peak pattern, AAPL formed an extreme trough, followed by an extreme peak, which is typical when an extreme trough forms. The extreme peak was followed by another extreme trough. In 2009, the cycle has a reverberation. Reverberations simply mean the cycle has been disrupted.
FIGURE 5: MCDONALD’S CYCLES. The cycles were not disrupted even though it developed a few extended peaks and troughs. The trough to trough of the cycle shortened considerably during the extreme peaks and troughs. 16 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
FIGURE 6: DAILY CHART OF WALT DISNEY COMPANY WITH A FIVE-PERIOD SETTING.Here you see a consistent daily cyclical pattern with an extended trough in August 2011.
Extreme peaks and troughs reverberate similarly to the aftersetting. DIS has a consistent daily cyclical pattern with an exeffects of an earthquake. Reverberating cycles do not form tended trough in August 2011; then the cycle quickly returns dened peaks or troughs. Whenever a reverberation occurs, it to its normal pattern. The deepest trough precedes the nal low indicates a disrupted cycle. in October, where the trough is shallow. Then in 2010, the cycle resumes but with more sharply dened peaks and troughs than before, with steeper peaks and shallower troughs. A trader needs to watch these sharper cycles to see if lower peaks and lower troughs form. If that occurs, then the stock will shift to a topping formation. McDonald’s Corp. (MCD) had a different reaction to the 2008 stock market collapse (Figure 5). MCD cycles were not disrupted even though a few extended Breakout Trading Bull Flags peaks and troughs developed. What did happen is the trough to trough of the cycle shortened considerably during the extreme peaks and troughs. Now it is starting Momentum Stocks Pivot Points to lengthen that trough-to-trough cycle. However, it is still a shorter time frame than pre-2008. This analysis can help a Swing Trading Key Reversals trader during volatile market conditions. It allows traders to anticipate the shorter cycle trough to trough and allow for the steeper peaks and shallower troughs. The detrending indicator for analysis Home of DAN ZANGER, world record holder for of stock or index cycles is best used on parlaying $10,775 into $18 million in 18 months! a longer-term scale. Meanwhile, daily charts can reveal patterns to assist in THE ZANGER REPORT identifying the lows of bottoms and the highs of tops. Figure 6 shows Walt Disney Company (DIS) on a daily chart with a ve-period
Come visit one of the most popular trading chat rooms for Breakout Trading.
Home of
.
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 17
FIGURE 7: DAILY CHART OF GENERAL ELECTRIC WITH A FIVE-PERIOD DETRENDING INDICATOR.The detrending indicator has an extended trough prior to the bottom low in October. The cycle reverberates in November and then resumes a trough-to-peak cycle.
In the chart of General Electric (GE) in Figure 7, the detrending indicator has an extended trough prior to the bottom low in October. The cycle reverberates in November and then resumes a trough-to-peak cycle. Detrending i ndicators detrend a trending stock or index, so they work best in moderately trending and velocity market conditions.
CYCLES , EXPOSED
®
NeuroShell Trader Intelligent Power
The detrending indicator works for uptrends and downtrends, but it is not as useful in sideways market conditions. The detrending indicator exposes the cycle within a trend. Cycle patterns can be studied to nd extreme peaks, extreme t roughs, extended peaks or troughs, reverberations in cycles, and other deviations of normal cycle patterns. The detrending indicator shows when a cycle has shifted its timeline, whether it is shorter or longer, and any deviations that move in opposition to price. Deviations in a cyclical pattern, especially extreme or truncated troughs or peaks, are an early warning to traders. As with all sophisticated indicators, the detrending oscillator requires skill and practice to interpret properly. To use this indicator correctly, traders should study charts of stocks and indexes before attempting to employ it in their trading analysis. Martha Stokes, CMT, is a lecturer and author of cycle evolution theory. She is a technical analyst for TechiTrader stock market trading courses, workshops, and virtual classes. In addition, she writes several educational newsletters for active traders. To learn more, visit technitrader.com or www.marthastokes.com.
FURTHER READING
Winner 12 years in a row!
www.NeuroShell.com 301.662.7950
Stokes, Martha [2013]. “Balancing Your Indicators,” Technical Analysis of STOCKS & COMMODITIES, Volume 31: Bonus Issue. [2012]. “Riding The Velocity Express,” Technical Analysis of STOCKS & COMMODITIES, Volume 30: May. [2010]. “Volume: The Forgotten Oscillator,” Technical Analysis of STOCKS & COMMODITIES, Volume 28: July. ‡TC2000 (Worden Brothers) ‡See Editorial Resource Index
18 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
A Trading Method For The Long Haul You can apply this model to any time frame on any equity. The best part is that it’s so simple, anyone can implement it.
3. You only take long positions in stocks that have recently beat their quarterly earnings estimates and/or have a steady trend of earnings growth and positive earnings surprises.
by Donald W. Pendergast Jr.
S
ometimes even a picture-perfect trade setup fails to deliver prots and may even result in a loss. But when you see a convergence of daily chart price dynamics like the one I’ll demonstrate here, the case for a long trade becomes fairly compelling. In Figure 1, you get a closer look at an interesting and attractive long swing entry setup in UGI Corp. (UGI). If you are a new or struggling trader and still need help in sorting out your ideal trading strategy, consider whether this kind of trading model makes sense to you: 1. You only take long positions when the dominant long-term trend is up — as dened by a 200-period exponential moving average (EMA). 2. You take long positions only when they have completed a proportional pullback/correction against the dominant long-term trend.
Yes, it’s a dirt-simple model, and you don’t need to know a thing about algorithmic trading, neural networks, or high-level mathematics to implement such a strategy — one that can a lso be used on 60-minute, daily, or weekly charts, depending on how frequently you want to trade. Here are the basic tools you’ll need in order to scan for potential trade candidates: 1. A scanning/screening feature such as TradeStation’s RadarScreen. 2. A list of liquid, large- and mid-cap stocks (or even small-caps, if you love volatility) with an average 50-day trading volume of one million shares. The S&P 500/400 component stocks are perfect for such a strategy. 3. Access to a fundamental screening service such as Investor’s Business Daily’s screen center, Zacks.com, MidnightTrader.com, or a similar service that can easily help you lter the earnings winners from t he losers. Bonus Issue 2014
• Technical Analysis of STOCKS & COMMODITIES • 19
R R O M I K K I N : E G A L L O C
TRADING SYSTEMS
UGI: UGI Corp., daily 9/9/13
40.50 looks like a strong resistance level
UGI appears to be at or near a multicycle low as it continues to find support near its 200-day EMA. The stock had a fantastic Q2 earnings release on July 30, 2013 but had virtually no follow-through — and then sold off hard.
Red line = 6-day EMA
??
2-day RSI is deeply oversold; a break above 38.45 could be the spark that ignites a bullish reversal.
200-day EMA
RSI (2)
RSI Average true range
2013
20
28
Jun
10
17
24
Jul
8
15
22
29
Aug 5
12
19
26
Sep
16
N O I T A T S E D A R T
FIGURE 1: UGI CORP. (UGI). UGI shares may be setting up for a bullish reversal; a break back above 38.42 may be the catalyst to bring buyers back into this stock.
4. You need some time each evening to do a bit of scanning/screening, earnings research, and the like, plus some time each morning to enter/exit or adjust your trading positions. Using a program such as TradeStation, you’ll want to be looking for stocks with these characteristics: n
A two-period RSI reading below 5.00 (Figure 2)
n
Trading above its 200-period EMA
n
An average daily volume of one mill ion shares or greater
n
It must have beaten its most recent quarterly earnings estimates and ideally have a strong history of positive earnings surprises over the past eight to 10 quarters
n
The stock’s beta should also be greater than 1.00 (meaning that it is more volatile than the S&P 500 index [.SPX]).
Most days, you’ll get a handful of high-quality stocks t hat pass all of these screens, so you’ll need to do some additional screening: 1. Choose those stocks with the highest four-week comparative relative strength vs. the .SPX 2. Choose from industry groups that are also far outperforming the .SPX 3. Diversify across sectors and/or industry groups to avoid over-concentration of risk. You also need to consider just how many stocks you want to hold in your portfolio at any given time; in the January 2011 issue of STOCKS & COMMODITIES, my article “Making A Good System Great” shared my research on how adjusting the total number of stocks in a portfolio — and how rapidly new positions could be added — made a huge difference in the protability of a basic, long-only trading system based on pullbacks. Extensive testing revealed that a four- to six-stock
N E E R C S R A D A R N O I T A T S E D A R T
FIGURE 2: RSI SCREEN. UGI’s two-day RSI reading is at a minuscule 2.03, nearly as low as it can possibly go.
20 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
portfolio in which the addition of new positions was limited to a maximum of two per day produced the best combination of net prots, with modest drawdowns, and a smooth equity curve. ENTRY TRIGGER
The moving average filter will help limit the amount of portfolio positions in times of extreme bear markets.
So far, you’ve been given all of the essentials needed to build a successful, long-only trading system, but you still need to know gains over an extended time period. Monitor your results in what the actual entry trigger is. The answer a trading simulator, and only begin trading it after you have is simple: You wait for the two-period RSI to 100% condence in this method. dip below 5.00 and then patiently wait for a bullish reversal bar that will break the previous string of lower highs. That’s Donald W. Pendergast Jr. has written more than 1,200 articles it, assuming all of the other technical and fundamental fac- for Traders.com Advantage at www.traders.com since October tors are in place. 2008 and is currently available for nancial markets consulting In the case of the UGI example, that means looking for and research assignments. He may be reached at puertoricool@ the stock to turn higher, taking out 38.42 once again. Once yahoo.com. lled on the trade, place your initial stop beneath the most recent swing low (near 38.00) and then trail everything with FURTHER READING a three-bar trailing stop of the daily lows (or hourly lows if Pendergast Jr., Donald W. [2013]. “Swing Trading With Three using a 60-minute chart, and so on) until the stock gets back Indicators,” Technical Analysis of STOCKS & C OMMODIabove its six-period EMA. Then hold the position until you TIES, Volume 31: December. get a close back below the six-period EMA; at that point, you [2011]. “Making A Good System Great,” Technical would go back into cash. Analysis of STOCKS & COMMODITIES, Volume 29: JanuThis method is difcult (if not impossible) to accurately ary. backtest unless you can also include all of the earnings in[2014]. “TGT: Nearing Swing Price Target?” Traders. formation within the backtest programming, but from visual com Advantage, January 31, http://technical.traders.com/ analysis, it appears to have immensely favorable potential tradersonline/display.asp?art=7817. over the long haul, especially for disciplined traders who keep • www.midnighttrader.com/ their maximum portfolio risk (that is, portfolio heat ) at 4–5%. • Investor’s Business Daily’s screen center, http://research.investors. com/screen-center The moving average lter will also help limit the amount of • Zacks.com portfolio positions in times of extreme bear markets, which ‡TradeStation is yet another big plus for risk-averse traders. Take plenty of time and tweak this basic trading framework ‡See Editorial Resource Index until you can personally witness its potential for producing
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Bonus Issue 2014
• Technical Analysis of STOCKS & COMMODITIES • 21
QUANTITATIVE ANALYSIS
Spread It Thin, Please!
Infation-Adjusted Market Returns Does infation explain why markets are higher in dollar value and why they seem to be worth less in purchasing value? Here’s a detailed look.
by Ron McEwan
S
ay it’s circa mid-September 2012 — the markets are attempting to reach all-time highs again (for the third time since 2000). Also reaching new highs is the price of gas, food, and many everyday living necessities. With the indexes reaching these levels, why does it seem like purchasing value is going down? The talking heads on the business news attribute this to ination. Does this explain why markets are higher in dollar value and why they seem to be worth less in purchasing value?
MAKING THE ADJUSTMENTS To answer this question I looked at the markets with an ination adjustment. It’s not that difcult; all you have to do is enter monthly price data for the index or security of choice. In my example, I used the S&P 500 index data series going back as far as 1871. You will also need the data for the Consumer
FIGURE 1: EXAMPLE OF SPREADSHEET. By plotting the original price series and adjusting it for inflation, you get a different perspective when you look at price charts.
Price Index—All Urban Consumers (CPI-U). The CPI data is available from the US Bureau of Labor Statistics. The spreadsheet in Figure 1 consists of six columns. The
FIGURE 2: MONTHLY CLOSING PRICE FOR THE S&P 500. Here you see the S&P 500 vs. inflation-adjusted prices going as far back as 1871.
22 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
FIGURE 3: THE 1929 MARKET CRASH. Here you see that inflation kept up with market performance.
rst column is the date eld. The second is the monthly closing price for the security series being adjusted for ination, which in this case is the S&P 500 index. The next column is the monthly CPI gure. In the fourth column, the return for the month-to-month CPI is calculated as:
monthly closing prices to the data series that was adjusted for ination over the same time period.
IS
The chart in Figure 2 examines the monthly closing price for the S&P 500 index going back to 1871. The chart in Figure 3 covers the period of the 1929 market crash. It appears that ination kept up with market performance when the markets went up and down.
(This month’s CPI minus last month’s CPI) divided by [(This month’s CPI plus last month’s CPI) divided by 2] The equivalent formula in the Excel spreadsheet would be: =((C3-C2)/((C3+C2)/2)) The cumulative rate of ination is calculated in the next column by entering “1” in cell E3, and in cell E4, the formula:
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E3*(1+D4) Copy this formula down to the end of your data series. The next step, in column F, is to multiply t he monthly close (column B) by the cumulative rate of ination (column E). Again, copy this down to the end of the data series. Your workbook should look similar to what you see in Figure 1. If you plot columns A (date), B (price), and F (ination adjustment), you can compare the original price series for
With the indexes reaching these levels, why does it seem like purchasing value is going down?
THERE A SPREAD?
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• Technical Analysis of STOCKS & COMMODITIES • 23
QUANTITATIVE ANALYSIS
FIGURE 4: THE SPREAD. On this chart of the S&P 500 index and its inflation-adjusted price, you will notice that as the markets are moving higher, inflation appears to be eroding the value of the move.
Noisy indicators delay your analysis
In the chart in Figure 4 you can see more closely that while the markets are attempting to regain their previous highs, ination appears to be eroding the value of this move. The current spread between real market prices and ination-adjusted prices should be viewed as ominous. How this discrepancy eventually resolves itself may not be welcome to long-term investors. How much did prices really move since September 2012? This is something you should be aware of. Ron McEwan is an independent trader and market technician. He may be reached at
[email protected].
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FURTHER
Tools for: TradeStation, AmiBroker, Investor/RT, MultiCharts, NeuroShell Trader, eSignal, NeoTicker, Tradecision, TradingSolutions, MATLAB, Ninja Trader, Genesis TradeNavigator, Market Delta, Extreme charts, DLLs for custom software
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24 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
READING
McEwan, Ron [2013]. “Lunar Cycles And Stock Market Volatility,”Technical Analysis of STOCKS & COMMODITIES , Volume 31, Bonus Issue. ________ [2012]. “Mining For Gold,” Technical Analysis of STOCKS & COMMODITIES, Volume 30: November.
REAL WORLD
Hello, Can You Hear Me?
Listening To The Market Are there ways that investors can listen to what the market may be trying to tell us?
Danish Kapur
M
ake no mistake about it: When the market is about to change course, it is not going to call you and tell you of its plans. However, there are ways that investors can listen to what the market may be trying to tell us. What are the signs? Are there any obvious clues that we should pay attention to that are signaling a change in the markets? Maybe you’ve encountered some of these situat ions before: Analysts start talking about how a particular company will do 30 or 40 years from now. People start assuming that a particular company will grow larger than all other companies in its sector combined. Investors start fantasizing that an unprotable company with outrageously high valuations will soon be generating huge prots. Everyone starts t hinking that the conventional wisdom and methods of evaluation no longer work. People start borrowing money at an astonishingly high rate to invest in incredibly overvalued stocks. But here is where you should stop and listen; when these types of scenarios start occurring, it’s a good indication that the market is saying something. Those who continue to ignore its message will most likely soon pay a heavy price. Such scenarios are not new. They occur every so often, but the outcome is almost always the same. It’s well known that most people lose money in the markets. When investors forget that what goes up also can go down, not only are they taken by surprise, but very often, they don’t get a chance to react. EXPECT THE UNEXPECTED
When people who follow the time-tested strategy of diversication are looked upon as losers, when those who decide to invest more in safe, low-yielding asset c lasses are laughed at, it’s time to be careful. It is then that we should start focusing on the shorter time frame rather than the decade-long time frame. Earnings and valuations have always mattered and will always continue to matter. There will never be a new economy where the rules of game will be different than they were yesterday. The same valuation methods that existed centuries ago are as valid today as they were then. Even the same old market hysterias tend t o resurface from time to time. Those who pay attention to such emotions playing out in the markets and who can put their own sense of greed aside will be around to take advantage of the next market movement. Those who can’t will be taken out, and the unsympathetic market will never miss them. CAUTION: TURN AHEAD
Thinking that things can turn around drastically at the single turn of wheel is really just sowing the seeds of disaster. As we all know, the wheel usually stops at the wrong place at the wrong time. Patience is a virtue that you must put above all else before you embark on any type of market analysis. Only patient investors will be rewarded by the market.
The nancial markets aren’t the way they are because they are easy to predict; on the contrary, the markets are the way t hey are because they aren’t easy to predict. They are constantly full of surprises. When markets start looking easy to predict, or when market participants get used to expecting a particular amount of Danish Kapur is a trader, author, and commentator. He may return no matter what , that’s the point at which the markets be reached at www.danishkapur.com. start to surprise us. FURTHER READING
The markets are the way they are because they aren’t easy to predict. They are constantly full of surprises.
Kapur, Danish [2013]. “The Secret To Success? Small Losses,” Technical Analysis of STOCKS & COMMODITIES, Volume 31: April. _____ [2011]. “When Not To Trade,” Technical Analysis of STOCKS & COMMODITIES, Volume 29: December.
Bonus Issue 2014
• Technical Analysis of STOCKS & COMMODITIES • 25
R R O M I K K I N : E G A L L O C
2014 Readers’ Choice Awards READERS’ CHOICE INDEX
We
are pleased to present the Technical Analysis of
purpose. Just because a service or product is not listed does not necessarily mean that the product does not have features germane to the category. In addition, some categories are divided by cost so that the comparisons can be made on a more level playing eld. The winners in the Readers’ Choice Awards are almost always the dominant players in their niche, and rightfully so. You may have special needs for your trading, however, so you should keep in mind those products that are not the big names in the category of your interest before you make your nal decision. The RCA is designed to be an aid for you when you are deciding on which of the numerous products and service s currently available to use for your trading and investing. With that in mind, we think you’ll nd the Readers’ Choice a ter ric guide to products and services that you’ll be interested in.
STOCKS & COMMODITIES
magazine 2014 Readers’ Choice Awards (RCA). Each year, we put before our readers a ballot of products and services related to technical analysis and trading. The following pages present the products and services you and your peers chose this year a s your favorites. The Readers’ Choice Awards begins each year with a list of products gathered by the editors of STOCKS & C OMMODITIES, with space for write-in votes (given that our list doesn’t claim to be complete). Then, to nd out what our readers nd to be the most useful for their trading, we ask them to choose their favorite products or the ones they nd most useful from various categories by going to our website, Traders.com, and lling out the survey there. After that, we compile the results, just in time for the Bonus Issue you hold in your hands. Products are categorized by their primary
CATEGORY REAL-TIME / DELAYED DATA (CONTINUOUS FEED)
26
End-of-day data
27
Stock brokerages
27
Futures brokerages
28
Forex brokerages
28
Institutional trading platforms
28
Professional trading platforms
29
Online analytical platforms
29
Standalone analytical software, $1,000+
30
Standalone analytical software, $500–$1,000
30
Standalone analytical software, $500 and less
30
Software plug-ins
31
A.I. software (expert, neural)
31
Portfolio management software
32
Option analysis software
32
Futures trading systems
32
Options trading systems
33
Stock trading systems
33
Trading centers / schools / training
33
Technical analysis websites
34
Favorite S&C article
34
AWARD
PRODUCT
COMPANY
WEBSITE
Winner
TradeStation
TradeStation
www.TradeStation.com
First Runner-Up
TC2000.com Platinum
Worden Brothers, Inc.
eSignal
eSignal, an Interactive Data company
Finalist This category included data services that provide a continuous stream of information, whether the transmission is instantaneous or delayed for 15 to 30 minutes.
Real-time/delayed data
www.worden.com www.esignal.com
Semi-Finalist
Bloomberg Professional Bloomberg Service
www.bloomberg.com
Semi-Finalist
MetaStock XENITH
MetaStock
www.metastock.com
Semi-Finalist
Reuters Data
MetaStock
www.metastock.com
Honorable Mention DTN.IQ
DTN
Honorable Mention
CQG, Inc.
CQG Integrated Client
26 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
www.dtniq.com
www.cqg.com
2014 Readers’ Choice Awards CATEGORY
AWARD
PRODUCT
COMPANY
WEBSITE
Honorable Mention
Genesis Financial Data
Genesis Financial Technologies
www.GenesisFT.com
TC2000 Gold
Worden Brothers, Inc.
www.worden.com
Yahoo! Finance
Yahoo! Finance
Reuters DataLink
MetaStock
eSignal
eSignal, an Interactive Data company
www.esignal.com
DTN.IQ
DTN
www.dtniq.com
Morningstar Daily Data
Morningstar
Winner END-OF-DAY DATA (DOWNLOAD ON DEMAND) First Runner-Up
finance.yahoo.com
®
Finalist In this category, we included data services for which the user initiates the download of data to the user’s computer, even if the data is 15–30 minutes old.
Finalist
Semi-Finalist
Honorable Mention
www.metastock.com
www.morningstar.com
Honorable Mention EODData
EODData
www.eoddata.com
Honorable Mention
Genesis Financial Data
Genesis Financial Technologies
Honorable Mention
Premium Data
Norgate Investor Services www.premiumdata.net
Honorable Mention
OmniData Real Time and End-of-Day Data
Nirvana Systems, Inc.
Honorable Mention
Unfair Advantage (UA)
Commodity Systems, Inc. (CSI)
www.csidata.com
Winner
Interactive Brokers
Interactive Brokers
www.interactivebrokers.com
www.GenesisFT.com
omnitrader.com
STOCK BROKERAGES
Some stock brokerages have been around since the turn of the last century and have names entrenched in Wall Street; others are products of the modern era or even of various mergers that have taken place over the years. This category includes both full-ser vice and discount stock brokerages.
First Runner-Up thinkorswim
thinkorswim by TD Ameritrade
First Runner-Up TradeStation
TradeStation
First Runner-Up
TD Ameritrade
TD Ameritrade, Inc.
www.tdameritrade.com
Finalist
Fidelity Brokerage
Fidelity Investments
www.fidelity.com
Semi-Finalist
Charles Schwab
Charles Schwab & Co., Inc. www.schwab.com
www.thinkorswim.com
Honorable Mention E*Trade
E*TRADE Group, Inc.
Honorable Mention Scottrade
Scottrade Financial Services, Inc.
www.TradeStation.com
www.etrade.com www.scottrade.com
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 27
2014 Readers’ Choice Awards CATEGORY
AWARD
PRODUCT
COMPANY
WEBSITE
Honorable Mention optionsXpress
optionsXpress
Winner
Interactive Brokers
Interactive Brokers
www.optionsxpress.com
www.interactivebrokers.com
FUTURES BROKERAGES First Runner-Up TradeStation
www.TradeStation.com
TD Ameritrade
TD Ameritrade, Inc.
www.tdameritrade.com
optionsXpress
optionsXpress, Inc.
www.optionsxpress.com
Honorable Mention
AMP Global Clearing
AMP Global Clearing, LLC www.ampclearing.com
Honorable Mention
Mirus Futures
Mirus Futures
www.mirusfutures.com
Honorable Mention
RJO Futures
RJO Futures
www.rjofutures.com
Winner
Interactive Brokers
Interactive Brokers
Finalist The choice of futures broker can sometimes make the difference between a good and bad ll. Here are some of the futures brokerages you told us you are using and like.
TradeStation
Semi-Finalist
www.interactivebrokers.com
FOREX BROKERAGES
When selecting a forex brokerage, it is important to know what their spreads are, the research tools they offer, the types of accounts available, leverage options, and that they are backed by a reliable institution.
INSTITUTIONAL PLATFORMS
Institutional money managers require the best that current technology has to offer. The trading platform offers realtime access to domestic and
First Runner-Up TradeStation
TradeStation
Finalist
FXCM
Forex Capital Markets, LLC www.fxcm.com
TD Ameritrade
TD Ameritrade, Inc.
Semi-Finalist
Honorable Mention E*Trade
E*TRADE Group, Inc.
Honorable Mention OANDA
OANDA Corp
Honorable Mention Alpari
Alpari US
Honorable Mention FOREX.com
FOREX.com
Winner
TradeStation
TradeStation
www.TradeStation.com
www.tdameritrade.com
www.etrade.com www.oanda.com
www.alpari-us.com
www.FOREX.com
www.TradeStation.com
First Runner-Up NinjaTrader
NinjaTrader, LLC
First Runner-Up
Interactive Brokers
Interactive Brokers
First Runner-Up
MetaStock Professional
MetaStock
www.metastock.com
Finalist
Bloomberg Professional Bloomberg Service
www.bloomberg.com
28 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
www.ninjatrader.com
www.interactivebrokers.com
2014 Readers’ Choice Awards CATEGORY foreign markets, multiple news sources, and fundamental data resources. Sophisticated analytics are often available for more esoteric instruments.
AWARD Finalist
Semi-Finalist
Semi-Finalist
PROFESSIONAL PLATFORMS
Not as all-encompassing as the institutional platform but still top level for the professional trader, the professional platform may include many of the same features: hardware, software for charting and analysis, and real-time data. News access and options analysis are often available.
ONLINE ANALYTICAL PLATFORMS
This category includes products that retrieve and present data from remote servers (as well as the Internet) and offer many of the analytical tools found in standalone software. Data is supplied as part of the service.
PRODUCT
COMPANY
WEBSITE
eSignal
eSignal, an Interactive Data company
www.esignal.com
X_TRADER
Trading Technologies International, Inc.
tradingtechnologies.com
DTN ProphetX
DTN
www.dtniq.com
Honorable Mention FastTrack
Track Data Corporation www.trackdata.com
Winner
TradeStation
TradeStation
www.TradeStation.com
First Runner-Up thinkorswim
thinkorswim by TD Ameritrade
www.thinkorswim.com
Finalist
NinjaTrader
NinjaTrader, LLC
www.ninjatrader.com
Finalist
Interactive Brokers
Interactive Brokers
Semi-Finalist
AmiBroker Standard
AmiBroker.com
Semi-Finalist
MetaStock XENITH
MetaStock
www.interactivebrokers.com
www.amibroker.com
www.metastock.com
Honorable Mention eSignal
eSignal, an Interactive Data company
www.esignal.com
Honorable Mention MetaTrader
MetaQuotes Software Corp.
www.metaquotes.net
Honorable Mention
CQG Integrated Client
CQG, Inc.
www.cqg.com
Winner
thinkorswim
thinkorswim
First Runner-Up TradeStation
TradeStation
Finalist
StockCharts.com
StockCharts.com, Inc.
www.stockcharts.com
www.worden.com
www.thinkorswim.com
www.TradeStation.com
Semi-Finalist
FreeStockCharts.com
Worden Brothers, Inc.
Semi-Finalist
NinjaTrader
NinjaTrader, LLC
Semi-Finalist
AmiBroker Standard
AmiBroker.com
Honorable Mention
Interactive Brokers
Interactive Brokers
Honorable Mention eSignal.com
www.ninjatrader.com
eSignal, an Interactive Data company
www.amibroker.com
www.interactivebrokers.com www.esignal.com
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 29
2014 Readers’ Choice Awards CATEGORY STANDALONE ANALYTICAL SOFTWARE, $1000 AND MORE
These packages provide the tools for charting markets and indicators, performing technical and sometimes fundamental analysis, and some include advanced system development capabilities. Some packages may focus on a particular area of technical analysis, such as cycles.
STANDALONE ANALYTICAL SOFTWARE, $500–$1000
These products will provide charting and technical analysis. Some will include system development, ready-to-go trading systems, or may focus on a particular style of technical analysis.
STANDALONE ANALYTICAL SOFTWARE, $500 AND LESS
AWARD
PRODUCT
COMPANY
WEBSITE
Winner
MetaStock Professional
MetaStock
www.metastock.com
First Runner-Up NinjaTrader
NinjaTrader, LLC
www.ninjatrader.com
Finalist
eSignal, Advanced GET Edition
eSignal, an Interactive Data company
Finalist
NeuroShell Trader Professional
Ward Systems Group, Inc. www.neuroshell.com
MultiCharts
MultiCharts, LLC
Semi-Finalist
Honorable Mention AbleTrend
www.esignal.com
www.multicharts.com
AbleSys Corporation
www.ablesys.com
Honorable Mention
Fibonacci Trader 4 Real Time
Fibonacci Trader Corporation
Honorable Mention
TradeNavigator Platinum
Genesis Financial Technologies
www.GenesisFT.com
Winner
MetaStock
MetaStock
www.metastock.com
www.fibonaccitrader.com
First Runner-Up NinjaTrader
NinjaTrader, LLC
www.ninjatrader.com
Finalist
VectorVest 7 EOD
VectorVest, Inc.
www.vectorvest.com
Finalist
MultiCharts
MultiCharts, LLC
Finalist
OmniTrader
Nirvana Systems, Inc.
Wealth-Lab
Wealth-Lab
www.wealth-lab.com
Honorable Mention
TradeNavigator Gold
Genesis Financial Technologies
www.GenesisFT.com
Honorable Mention
AIQ TradingExpert Pro
AIQ Systems
www.aiqsystems.com
Winner
TC2000
Worden Brothers, Inc.
www.worden.com
NinjaTrader, LLC
www.ninjatrader.com
Semi-Finalist
First Runner-Up NinjaTrader
www.multicharts.com
omnitrader.com
®
Finalist Here, technically based soft ware may be part of a data subscriptio n service, aimed at
Semi-Finalist
AmiBroker Standard
AmiBroker.com
eSignal
eSignal, an Interactive Data company
30 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
www.amibroker.com www.esignal.com
2014 Readers’ Choice Awards CATEGORY
AWARD
the introductory level participant, or offer a special product at a good price. Some of these products have a rich feature set that diehard technical analysts can utilize.
PRODUCT
COMPANY
WEBSITE
Honorable Mention MultiCharts
MultiCharts, LLC
Honorable Mention OmniTrader
Nirvana Systems, Inc.
Winner
VectorVest ProTrader 7
VectorVest, Inc.
First Runner-Up
Jurik Research Software Jurik Research Software www.jurikres.com
Finalist
Dr. Elder Trading Room for MetaStock
MetaStock
www.metastock.com
Finalist
John Murphy’s Chart Pattern Recognition
MetaStock
www.metastock.com
Semi-Finalist
Bollinger Band Toolkit for MetaStock
MetaStock
www.metastock.com
Semi-Finalist
Bollinger Band System for MetaStock
MetaStock
www.metastock.com
Honorable Mention
MESA for NeuroShell Trader
MESA Software
www.mesasoftware.com
Honorable Mention
MESA for TradeStation
MESA Software
www.mesasoftware.com
www.multicharts.com
omnitrader.com
www.vectorvest.com
SOFTWARE PLUG-INS
If you need a specic function that your technical analysis software doesn’t already include, a third-party software developer may t the bill with a software plug-in. Listed here is just a sampling of third-party software that complements some of the major technical analysis packages.
Honorable Mention
Nison’s Candlesticks Unleashed for MetaStock
MetaStock
www.metastock.com
www.metastock.com
Honorable Mention
Price Headley’s Big Trends Toolkit 2.0
MetaStock
Honorable Mention
VectorVest Options Analyzer
VectorVest, Inc.
Honorable Mention
Rahul Mohindar’s Automated Trend Modules
MetaStock
Honorable Mention
ASCTrend Indicator
AbleSys Corporation
NeuroShell Trader ARTIFICIAL INTELLIGENCE Winner Professional SOFTWARE (EXPERT, NEURAL) First Runner-Up OmniTrader
www.vectorvest.com
www.metastock.com
Ward Systems Group, Inc. Nirvana Systems, Inc.
www.ablesys.com
www.neuroshell.com
omnitrader.com
®
NeuroShell Trader ®
Trading Software for Stocks, Commodities, Futures and Forex!
Finalist
VantagePoint Intermarket Analysis Software
Market Technologies, LLC www.tradertech.com
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 31
2014 Readers’ Choice Awards CATEGORY Articial intelligence is a sys tematic approach to trading. An expert system is generally designed by the vendor and provides the trader with signals. A neural network trains itself on the data and creates its own rules. These packages are best suited for traders with an analytical bent.
PORTFOLIO MANAGEMENT
Portfolio management software is available that automates the analysis of returns, cash ow, tax impacts, and prot & loss.
OPTIONS ANALYSIS SOFTWARE
To handle a different set of analytic s than trading equities and futures, software packages have been developed to handle the area of option analysis. Many packages offer both analytics as well as an education in option trading.
FUTURES TRADING SYSTEMS
Software in this category is aimed at providing you with a more systematic approach to the futures markets. Some packages are a trading system, while others include analytic al
AWARD
PRODUCT
COMPANY
Finalist
AIQ TradingExpert Pro
AIQ Systems
Semi-Finalist
NeuralWorks Predict
NeuralWare
Semi-Finalist
TradingSolutions End of Day
NeuroDimension, Inc.
Honorable Mention
Gene Hunter
Ward Systems Group, Inc. www.neuroshell.com
Winner
GainsKeeper.com
Wolters Kluwer Financial Services
www.gainskeeper.com
TradeLog Software
www.tradelogsoftware.com
www.Adaptrade.com
www.TradersCoach.com
First Runner-Up TradeLog
WEBSITE
Finalist
Market System Analyzer Adaptrade Software
Semi-Finalist
The Trader’s Assistant
TradersCoach.com
Honorable Mention
Fund Manager
Beiley Software
Winner
thinkorswim
www.aiqsystems.com www.neuralware.com
thinkorswim by TD Ameritrade
www.beiley.com/fundman
First Runner-Up OptionStation
TradeStation
First Runner-Up
Interactive Brokers
Interactive Brokers
Finalist
OptionVue 7
OptionVue Systems International Inc.
Semi-Finalist
Optionetics Platinum
OPTIONETICS, Inc.
www.tradingsolutions.com
www.thinkorswim.com
www.TradeStation.com
www.interactivebrokers.com www.optionvue.com
www.optionetics.com
Honorable Mention OptionScope
MetaStock
Winner
TradeStation
TradeStation
www.TradeStation.com
First Runner-Up
eSignal, Advanced GET Edition
eSignal, an Interactive Data company
www.esignal.com
Finalist
OmniTrader
Nirvana Systems, Inc.
omnitrader.com
AbleTrend
AbleSys Corporation
www.ablesys.com
VantagePoint Intermarket Analysis Software
Market Technologies, LLC www.tradertech.com
Semi-Finalist Semi-Finalist
32 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
www.metastock.com
2014 Readers’ Choice Awards CATEGORY capabilities. To implement the trading rules, it should be a technique that you are comfortable with.
OPTIONS TRADING SYSTEMS
AWARD Semi-Finalist
PRODUCT
COMPANY
MTPredictor
MTPredictor Ltd.
www.mtpredictor.com
MESA Software
www.mesasoftware.com
Honorable Mention R-MESA Honorable Mention
Blue Wave Trading Preci- Blue Wave Trading Re www.bluewavetrading.com sion Indicators / System search and Development
Winner
thinkorswim
thinkorswim by TD Ameritrade
First Runner-Up TradeStation Finalist While many traders may track the underlying security to generate signals for the options, there are packages that generate signals based on the options activity itself.
STOCK TRADING SYSTEMS
A disciplined technical approach is also applicable to your stock portfolio. Make sure the package employs a method that you are comfortable with. In addition, check the data format requirements to ensure that your own database is compatible or determine if you will need to switch data vendors.
TRADING CENTERS, SCHOOLS, TRAINING
When you’re just starting out in trading or taking your trading to the next level, some professional training helps, whether it’s the support provided by a daytrading center, courses, or tutoring.
WEBSITE
Semi-Finalist
TradeStation
www.thinkorswim.com
www.TradeStation.com
eSignal, Advanced GET Edition
eSignal, an Interactive Data company
OPTIONETICS
OPTIONETICS, Inc.
www.optionetics.com
AbleSys Corporation
www.ablesys.com
Honorable Mention AbleTrend
www.esignal.com
STOCK TRADING SYSTEMS Winner
TradeStation
TradeStation
www.TradeStation.com
First Runner-Up
eSignal, Advanced GET Edition
eSignal, an Interactive Data company
www.esignal.com
Finalist
OmniTrader
Nirvana Systems, Inc.
omnitrader.com
AbleTrend
AbleSys Corporation
www.ablesys.com
Honorable Mention
Greg Morris’ Indicators & Trading Systems
Wall Street Software
www.wallstreetsoftware.com
Honorable Mention
Chaikin Power Tools
Chaikin Stock Research, LLC
www.chaikinpowertools.com
Winner
FREE Worden Training
Worden Brothers, Inc.
www.worden.com
First Runner-Up
TradeStation Training
TradeStation
www.TradeStation.com
Finalist
TopDogTrading.com
Top Dog Trading
TradingAcademy.com
Online Trading Academy www.tradingacademy.com
eSignal Learning
eSignal, an Interactive Data company
Semi-Finalist
Semi-Finalist Semi-Finalist
www.topdogtrading.com
www.esignal.com
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 33
2014 Readers’ Choice Awards CATEGORY
TECHNICAL ANALYSIS WEBSITES
Some websites provide a wealth of technical information, indicators, charts, sentiment, and opinion. Of those with a technical focus, our readers pick their favorites.
AWARD
PRODUCT
COMPANY
Honorable Mention
CBOE Education Center
Chicago Board Options Exchange
Winner
stockcharts.com
StockCharts.com, Inc.
FAVORITE S&C ARTICLE FROM 2013
www.cboe.com
www.stockcharts.com
First Runner-Up FINVIZ.com
FINVIZ.com
Finalist
Traders.com
Technical Analysis, Inc. www.Traders.com
Yahoo! Finance
Yahoo! Finance
Finalist
FINVIZ.com
finance.yahoo.com
Finalist
freestockcharts.com
Worden Brothers, Inc.
Finalist
Investors.com
Investors Business Daily (IBD)
Barchart.com
Barchart
Semi-Finalist
CATEGORY
WEBSITE
www.worden.com Investors.com
Barchart.com
Honorable Mention elliottwave.com
Elliott Wave International www.elliottwave.com
Honorable Mention TC2000.com
Worden Brothers, Inc.
Honorable Mention thinkorswim.com
thinkorswim by TD Ameritrade
www.thinkorswim.com
Honorable Mention Bigcharts.com
MarketWatch, Inc.
cbs.marketwatch.com
www.worden.com
Honorable Mention
Top Dog Trading
TopDogTrading.com
www.topdogtrading.com
Honorable Mention
Master The Gap
MasterTheGap.com
MasterTheGap.com
AWARD
ARTICLE TITLE
AUTHOR
ISSUE
Winner
Swing Trading With Three Indicators
Donald Pendergast
December 2013
First Runner-Up
Indicator Rules For Swing Trading Strategies, Part 1
Sylvain Vervoort
May 2013
First Runner-Up
The DMI Stochastic
Barbara Star, PhD
January 2013
Finalist
The 1-2-3 Wave Count
Sylvain Vervoort
June 2013
Finalist
NinjaTrader product review
S&C staff
May 2013
Finalist
Oscillators, Smoothed
Sylvain Vervoort
September 2013
34 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
2014 Readers’ Choice Awards
CATEGORY We asked readers to vote for their favorite STOCKS & COMMODITIES article from the past year. Find them all at our website at www.Traders.com!
AWARD
ARTICLE TITLE
AUTHOR
ISSUE
Semi-Finalist
Explore Your Options
Price Headley/Tom Gentile Various
Honorable Mention
Understanding The Yield Curve, Part 1
Giorgos E. Siligardos
November 2013
Honorable Mention
‘Trendy’ Chart Patterns
Thomas Bulkowski
May 2013
Honorable Mention
Traders’ Tips
Various
Various
Honorable Mention
Finding Low-Risk Entry Points
Danish Kapur
January 2013
Subscribers can revisit past articles online in the archives at our website, www.traders.com. If you are not a subscriber, you can purchase individual articles from the STOCKS & COMMODITIES online store at http://store.traders.com.
SUBSCRIPTION GIVEAWAY RECIPIENTS Congratulations to the following 10 subscribers of Tech- nical Analysis of STOCKS & COMMODITIES magazine who voted in this year’s Readers’ Choice Awards poll and won our drawing for a complimentary subscription. Thanks to everyone who took the time to vote! 1. 2. 3. 4. 5.
Jim Ward Cleave Malcolm Robert Ranney Steven Palmer Barbara Reinhart
6. 7. 8. 9. 10.
Philipp Bliedung Tom Bates Gary Long Valere Von Bredow Roger Bernard
Accumulation — An addition to a trader’s original market position. The rst of three distinct phases in a major trend in which i nvestors are buying. Adverse Excursion — The loss attributable to price movement against the position in any one trade. Astrophysical Cycle — Any earthly cycle, such as a market cycle, that has been scientically related to the physics of the planetary system. Beta (Coefcient) — A measure of the market/nondiversiable risk associated with any given security in the market. A ratio of an individual stock’s historical returns to the historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock's beta would be 1.2. Breakout — The point when the market price moves out of the trend channel. Channel — In charting, a price channel contains prices throughout a trend. There are three basic ways to draw channels: parallel, rounded, and channels that connect lows (bear trend) or highs (bull trend). Correction — Any price reaction within the market leading to an adjustment by as much as one-third to two-thirds of the previous gain. Cycle — A variation where a point of observation returns to its origin. Detrend — To remove the general drift, tendency, or bent of a set of
statistical data as related to time. Directional Movement Index (DMI) — Developed by J. Welles Wilder, DMI measures market trend. Discretionary Trader — A trading style that uses personal judgment to evaluate an indicator’s signals. Drawdown — The reduction in account equity as a result of a trade or series of trades. Exchange-Traded Funds (ETFs) — Collections of stocks that are bought and sold as a package on an exchange . Exponential Moving Average — A variation of the moving average, the EMA places more weight on the most recent closing price. The formula for calculating EMA is: EMA = (Today’s closing price * k) + (Yesterday’s moving average * (1-k)), where k = 2/(n+1); n = no. of periods. Frequency — The number of complete cycles observed per time period (i.e., cycles per year). Oscillator — Technical indicator used to identify overbought and oversold price regions. An indicator that detrends data, such as price. Relative Strength — A comparison of the price performance of a stock to a market index such as the Standard & Poor's 500 stock index. StochasticOscillator — An overbought/oversold indicator that compares today’s price to a preset window of high and low prices. This data is then transformed into a range between zero and 100 and then smoothed.
Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 35
INTERVIEW
On Trading, Markets, And Doing What Works
Seeing The Patterns With Dan Zanger Dan Zanger of Chartpattern.com is a swing trader and technical analyst focused on stocks — and a force in stock trading. He is the world record holder, independently audited, for the largest percent change in a personal portfolio
for a 12-month period (and unofcially for an 18-month period). His one-year record between 1998 and 2000 during the tech bubble was a gain of 29,233%. All in all, over time, he was able to turn $11,000 into more than $40 million. How does he achieve these types of returns? He has spent 20 years studying every type of chart pattern formation imaginable and nding what works. His thrice-weekly newsletter regularly highlights some of these patterns in his stock analyses. S TOCKS & C OMMODITIES contributor Matt Blackman rst interviewed Dan
Zanger for this magazine in our August 2003 issue. Catching up with him once more, he spoke with Zanger via telephone on January 12, 2014 to nd out how he has fared in the markets in the decade since.
It’s hard to believe it has been more It’s basically impossible for most than 10 years since our last S TOCKS individual traders to trade the news, & C OMMODITIES interview. Do you which for the most part is old informastill mainly use chart patterns and tion by the time it’s published. How volume to trade? do you know if, say, it’s too late to A lot has changed since that interview buy, or the move is part of some sort 10 years ago, but I still use the same of a pump and dump operation? You techniques — chart patterns, price, and look at the charts. volume — to trade, which continue to be very effective. For momentum and swing What other indicators or factors help trades, those techniques are the lifeblood you determine when to trade? Do you in this type of trading environment, espe- use cycles, oscillators, trendlines, supcially for the active Jesse Livermore–type port/resistance, and so on? trader. For the longer-term investor or I do like one custom oscillator in parmutual fund, it’s completely different. ticular that uses market breadth advanceBut for those who don’t have the where- decline data to give me a heads-up on withal to hire a huge staff, count how trend strength and potential reversals. many trucks are leaving the factory, and Daily bars are important, and the length pore over sales reports and hundreds of of the run is important. Is the stock compages of nancial records, there really is ing out of a short-term correction? Has no other way. The average Joe just can’t it been running for a few weeks or a few hope to do what institutions do. Chart months? Is it becoming exhausted? Has patterns and volume are the best tools the market been moving up for two to available to the retail and independent four weeks on falling volume, which is professional trader. a warning sign? Institutions build the price patterns Support and resistance are important, with their buying habits and I just wait as are snapbacks. Moving average lines to trade them based on some catalyst. have more precedent these days than 36 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
Chart patterns and volume are the best tools available to the retail and independent professional trader. trendlines because they have become more popular. For example, bounces off the shorter-term 10- and 21-day moving averages (MAs) can be powerful. Longerterm MAs like the 100- or 150-day also work quite well. The 200-day MA hasn’t been as effective as it used to be, as more traders use the 150-day one. There are all kinds of cycles; October to March, the summer cycle, the August to September time frame. There are monthly cycles during which 401k money is invested on the rst of the month. But there are so many cycles that by the time you combine them all with moving averages and other indicators, it can get pretty confusing. Just deciphering all that information is a massi ve job. I don’t nd cycles to be as effective as they were eight to 10 years ago.
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INTERVIEW
The Fed is basically re-inating assets. To get the economy going, it is nearly impossible to get money into the hands of the people again when so many jobs have gone overseas and wages are stagnant. The only thing the Fed can do is to re-inate assets to get people feeling condent again. But that only impacts the people with assets, which is mostly the wealthy.And with Janet Yellen taking over the reins at the Fed, I don’t expect much to change.
M O C . N R E T T A P T R A H C
FIGURE 1: MONSTER GAPS IN LINKEDIN (LNKD).Here you see two monster gaps in LNKD that occurred in 2013.
What about the four-year Presidential cycle? How useful has it been for you? At times it has been powerful, but I think what’s become more important
now is what the Fed is doing. It has been stepping on the scal gas pedal since 2008 and the market has become more focused on the Fed than anything else.
FIGURE 2: QUITE THE WINNER. Apple (AAPL) surges, then tops out around $700 in September 2012. 38 •
Bonus Issue 2014
• Technical Analysis of STOCKS & COMMODITIES
In the last decade we’ve had two big bull rallies in 2003 and 2009 as well as another brutal bear market from 2007 into 2009. What would you say are the biggest changes in how you trade now versus back in 2003? Oil and commodities were hot back then. They’re not now. There were a couple of big movers back then like Google (GOOG), Baidu (BIDU), Sina (SINA), and some of the other Internet stocks as well as fertilizer stocks. They were making huge moves in which I made a quite a lot of money then. GOOG was so undervalued after its IPO and it was such a monster winner for me. It was easy money. But since 2009, the biggest movers have basically been Priceline (PCLN) and Apple (AAPL). Apple was the biggest mover. The move since 2009 has been more of a constant melting up than the powerful surges that we saw in 2004–06. That has made it more difcult to trade since I concentrate on volume and big, sharp, upside moves. There have certainly been fewer of them. Also, there has been more worri some news — bombings, riots, Greece, Europe, and more scare tactics. Yes, it has been a more difcult market. That doesn’t mean I haven’t made hefty sums of cash, because I have, but this period has been more dened. One of the biggest changes in the market since 2003 was the massive upside gaps on positive earnings in many of the market leaders like LinkedIn (LNKD) and Netix (NFLX). It’s harder to be involved in a big winning stock because the gaps can be much more violent, much more so than during the 2003–07 rally. This has made it nearly impossible to
take a position with any volume or size. LNKD was $112 one day and $145 the next, which was a gap up of nearly 40% on earnings (Figure 1). Even PCLN was gapping up $40 on earnings. Back in 2004–06, you might have a $10–12 gap but you could still step in. Things are different now, and I think the market is much more tuned into earnings, which have consistently powered these gaps. Stocks can also gap down $40–50 like GOOG did when they released earnings early [in October 2012]. The ballgame has denitely changed since 2008. When there are big upside moves, you can’t get in because the majority of the move is already over. Do you still use options to get into stocks when you are looking to take larger positions? I started using options with GOOG in 2004–05. At times, in some of the highdollar stocks, buying options can be very worthwhile, but you have got to be in at the right time and be quick to get out. The trade will just eat you alive if you get it wrong. Options are only for very seasoned traders who really know what they are doing. I didn’t use them before 2004 and by then, I’d been trading for more than 20 years.
Markets were still plunging into have been some of your biggest winners 2009 but the leaders like Baidu, Apple, since the 2009 bull market began? and Priceline were starting to turn up. Yes, Google was a huge winner for Priceline was a thinly traded, volatile me in 2004–05. In the 2009 rally, it was stock but it was bucking the downtrend. Apple, Apple, and Apple. It had two big I think it was already up about 20% by runs: January to April and then August the time the market bottomed. I was to September 2012 (Figure 2). I also had What type of options do you like? highlighting these high-beta stocks that some Priceline. I like deep in-the-money calls with were very sensitive to the market and strike prices that are $50, $60, or $80 that had started to move up as the market What caused you to sell Apple in Sepbelow the stock price. was plunging in my ChartPattern.com tember 2012? newsletter at the time. Apple exhibited a It couldn’t hold $700 then it broke What alerted you that the market was nice bottom with evidence of capitulation down, which was a classic sell sign. topping in 2007, and what steps did you and a solid base in 2008. When a stock breaks a century mark, take then to reduce your exposure? But it was still a scary time. Stocks it’s a warning. Apple also broke its 10You had the huge US real estate bubble were still very jittery and it was hard to day and 21-day MAs, which is another that was popping. Bear Stearns was col- hold positions. Moves weren’t prolonged warning sign. When that happens, it’s lapsing and went out of business. Energy and there were a number of fast pull- time to check out. prices were soaring beyond belief. There backs. There was still a lot of negative were food shortages and riots over food news about bankruptcies, Greece, and the What are some of the other key factors prices happening around the globe. In market was still gyrating. It was more you look for in a stock before buying stocks, I saw a lot of big rounded tops, of an investor’s market for those who it? head & shoulders tops, and interest rates were prepared to hold their positions I like to see how frisky a stock is. I were starting to move. I even sold my for a while. I wasn’t ready to step in like to see stocks that are jumping and yacht in November 2007, which turned heavily, but I was starting to nibble at a that have some volume. Stocks that out to be perfect timing in retrospect. few stocks and watch the bases build. move freely and easily like jack rabbits are what I look for. What gave you the heads-up that stocks Back in 2004–05 you had some big winwere beginning to bottom in 2008–09, ners, including Google, which was your You mentioned some of the impacts of which caused you to turn bullish? biggest single stock winner ever. What the Fed’s quantitative easing and easyBonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 39
a double whammy. Easy-money policies combined with good earnings were the key reasons for this. People just kept buying the dips. When markets aren’t in strong rally mode, what do you do with your cash? In your newsletters a while ago, you mentioned you had been holding some dividend stocks and REITs. I don’t have REITs anymore. As soon as bonds started cracking and rates started to climb, I got out of my REITs. I was seeing saucer-like tops, so I exited. Now, when markets get soft, I simply go to cash. money policies. How have they changed the markets and how you trade them? In your newsletters, you have discussed Central banks dropped rates so low what to do when the “dogs get wings.” around the globe that there was no other Could you explain what you mean by place to go. And low interest rates put a that? When you see $2 stocks with no oor under stocks. Central banks were mandating ination in assets. There’s no earnings that no one has heard of and real money to be made in bonds while the which have been atlining for years government pays 1.5% or so on 10-year suddenly go to $14, and $4 stocks go to Treasuries. Dividend stocks are paying $24 in a couple of days, it’s a huge red ag that the market is getting ready to 2–4%. As soon as earnings came out on a break. Bigger players can’t make phone stock, buying it was a no-brainer. It was calls and collude like they used to 90 or
FIGURE 3: THE FROZEN ROPE. Here you see a chart showing Dan Zanger’s bearish frozen rope chart pattern and the breakdown. 40 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
100 years ago. In the 1920s they’d get together over martinis and agree to drop stocks on a specic day. Nowadays, they run the dogs as a signal that the market is getting ready to break — they run a piece-of-crap stock up $20. When I start seeing that, it’s a signal that the market is about to drop. What other signs do you look for to tell you that the market is approaching a top? Near the end of any big rally, we see increasing signs of froth. In the last stage, stocks tend to go parabolic. Stocks will break above their longer-term rising trend channels, especially on aboveaverage volume. That volume shows that retail buyers are entering en masse, and popular stocks — even the “dogs” — head straight up. This usually signals the beginning of the end of the rally. That’s when some of the biggest gains occur, but it is also the exhaustion phase. The problem is, when the market breaks, it does so with a vengeance. So although this nal phase can be very rewarding with some of the biggest gains, it’s a very risky time to be trading. We saw the biotechs run hard in the latter part of 2013 and into 2014, which was eerily similar to 1999 when the biotechs absolutely exploded in October 1999. DNA sequencing stocks really took off at that time, but that was the precursor to the end of the bubble. Tech, especially Internet stocks, ran hard for about four months, pushing the NASDAQ up to a peak of 5132 in March 2000. In the nal parabolic phase, stocks can peak quickly or they can take three to four months, but you know once a stock or index goes parabolic, the time of reckoning is close at hand. Big rallies never end well. What are your favorite reversal stock patterns? Some of my favorites are the frozen rope pattern and tight rising channel that signal a top in the market (Figure 3). Another is the naked bar, which can occur at both tops and bottoms. The double bottom, inverted head & shoulders, at channel bottom, and cup & handle or rounded bottom are important patterns to indicate when a market has bottomed.
What advice do you have for someone who is getting serious about trading today who is either younger or nearing retirement and wants to manage their own portfolio? First, they need to get a good charting program, learn how to read charts, and get a couple of computer monitors. They also need to read essential books like How To Make Money In Stocks by William O’Neil. Next, it’s important to get some serious training, like joining our trading chat room to learn what it’s like to trade in real time with other traders. But as with any profession, it will take a few years and plenty of discipline to get the feel for how trading works. It’s like getting a university degree. It’s also important to not believe in the companies you invest in. Don’t believe in the market. Trades should never be based on beliefs or feelings but on solid technical and fundamental facts. Don’t play with all your cash, don’t use margin, and don’t use options. What does retirement look like for Dan Zanger? [Laughs] I don’t have an exit strategy. Exit and do what? I love what I do. It’s been great speaking with you again, Dan. Thanks for your time. Thank you! FURTHER READING
Blackman, Matt [2003]. “Chart Patterns, Trading, And Dan Zanger,” interview, Technical Analysis of STOCKS COMMODITIES,
&
Volume 21: August. Livermore, Jesse [1991]. How To Trade In Stocks, Traders Press: Greenville, SC. Originally published in 1940. O’Neil, William J. [2009]. How To Make Money In Stocks , 4th ed., McGrawHill (rst published in 1988).
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Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 41
A Different Perspective
Trading Using Planetary Movements Is it possible to achieve market timing via planetary movement? Our rst inclination would be that it wouldn’t be possible, but let’s give it the benet of the doubt. Here’s an easy nancial astrology tool you can use to judge for yourself.
by Khit Wong inancial astrology, or market timing by planetary movements, is a topic that gives traders complex and mixed feelings. On one hand, it is viewed as a difcult topic to comprehend and perceived as something that has nothing to do with what goes on in the markets. On the other hand, it is worshipped by some traders as an accurate
F
42 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
timing tool, but only if you know how to use it properly. In this article, I would like to share one of the easiest nancial astrology tools that any trader can try to implement for the sake of seeing whether there is any correlation between astrology and the nancial markets.
INGRESS, EGRESS, OR REGRESS? Since there are a lot of vocabularies in the eld of nancial astrology like retrograde, declination, and conjunction, which are terms most market participants have never heard of, I will keep it simple and only show the examples that have to do with ingress. When we think of the term ingress, we naturally think of it as meaning a place to enter. In the eld of planetary science,
R E N U R B Y R R A B
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it refers to when a planet starts moving into a new regime. In contemporary astrology studies, the heaven is divided into 12 equal regions, which are the 12 signs of the zodiac — something we are all familiar with. Each zodiak sign takes 1/12 of the heaven in equal space. While the planets keep circling in the sky, each time a planet steps into a new zodiac region, it is called an ingress. Your personal horoscope actually originates from where the sun was located (that is, in which zodiac sign) when you were born. While your personality is greatly shaped according to this zodiac sign, so is your life, according to some cultures’ beliefs (less so in others). But the zodiac signs go beyond inuencing our personal lives. Studies have shown that stocks and forex pairs also have a subtle interaction with these zodiac signs. I know what you’re thinking — it’s hard to believe, but stick with me.
Uranus ingress Aries 2010-05-28
FIGURE 1: DOW JONES INDUSTRIAL AVERAGE. The Uranus ingress date of May 28, 2010 served as a base for the market to advance over time.
WHEN DOES THE INGRESS HAPPEN? Before getting to the examples, you need to have an astrology ephemeris so you can locate when the ingress times are. An ephemeris is an astrological calendar that describes where the planets are at any given Uranus ingress Pisces time. Fortunately, it is widely 2003-03-11 available on the Internet. An Internet search on the term “today’s aspect” will turn up several websites with this information. FIGURE 2: A BULL MARKET BASE. The Uranus ingress of Pisces on March 11, 2003 served as a base for the bull market in 2003–07. With an online ephemeris, you can start to look up the ingress dates. For example, May 28, 2010 is the date for the Uranus. Uranus ingressed Pisces on March 11, 2003. Now Uranus ingress of Aries. Now, if you look at the chart of the let’s look to see what the DJIA did at that time (Figure 2). We Dow Jones Industrial Average (DJIA) in Figure 1 and check can see that this ingress of Pisces served as a base for the bull its movement on that day, you’ll notice that the Uranus ingress market of 2003–07, and it worked nicely with the 2008–09 served as a base for the market to advance as time went by. nancial crisis. It also mysteriously served as another support at the same price level. That’s quite a coincidence! And it’s not just a one-time incident, which means it’s posI know most of you reading this will think yes, it is interesting, but I am not going to wait seven years to place one trade. sible there is a correlation between the markets and planetary movements. Let’s trace back to an earlier ingress date of But in fact, the same theory applies to other faster-moving Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES • 43
M O C . A I N A D T E N
TRADING TECHNIQUES
planets like Mercury. Let’s look at another example. On the chart of the EURUSD in Figure 3 you see that where Mercury ingresses Gemini serves as an obvious bottom in the euro in May 2013. For intraday trading, I prefer Mercury ingress Gemini to use moon ingresses to trade 2013-05-15 with a tight stop-loss of around 25 pips on volatile markets such as the yen, euro, and British pound markets. I have traded using this strategy for about six months now and have found it to work well. From the chart in Figure 4, you can see that the market usually stays near the ingress point and moves don’t exceed more than 25 pips. It tends to FIGURE 3: A BOTTOM IN THE EURO. The Mercury ingress of Gemini on May 15, 2013 served as an obvious bottom in the euro in May 2013. act as a support or resistance level, but when these levels are further tested and secured, you are likely to see a signicant movement, which gives you the opportunity to reap prots with little drawdown. Studies have shown that stocks and While you may view with skepticism the idea of achieving forex pairs also have a subtle inter- perfect market timing via planetary movements, I encourage everyone to try what I’ve described on a chart and see if it action with these zodiac signs. reveals any interesting movements in the markets. You may be surprised with what you nd. And on that note, I would like to end with my favorite quote:
Moon ingress Capricorn 2013-05-26
There is no chance in nature, because mathematical principles of the highest order are at the foundation of all things. Faraday said, ‘There is nothing in the Universe but mathematical points of force.’—W.D. Gann
Khit Wong has been trading the nancial markets for more than 10 years. He has had an interest in studying the relationship between astrology and the markets for more than seven years and uses methods to apply this relationship to his trading. He may be reached via http:// trineaspect.com. ‡Netdania.com
FIGURE 4: INGRESS POINT AS SUPPORT & RESISTANCE. Notice how the euro stayed close to the ingress level. But once it exceeded more than 25 pips below the ingress, there was a significant drop. 44 • Bonus Issue 2014 • Technical Analysis of STOCKS & COMMODITIES
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The information in Traders’Resource is the most accurate at the time of posting and is subject to change. Because the vendors posting to Traders’ Resource are responsible for their own listing, Technical Analysis, Inc. declines any and all liability for any representations made by the businesses and individuals listed. Nor can Technical Analysis, Inc. endorse any business or individual listed on Traders’ Resource. Technical Analysis, Inc. makes no warranties, express or implied, as to the accuracy and reliability of claims herein. You agree to release Technical Analysis, Inc., together with its respective employees, agents, officers, directors and shareholders, from any and all liability and obligations whatsoever in conne ction with or arising from your use of Traders’ Resource. If at any time you are not happy with the information posted to Traders’ Resource or object to any material within Traders’ Resource, your sole remedy is to cease using it. This list is updated frequently. If you are aware of a business that should be listed, please email us at
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