Letter from the Editor
We’re featuring a couple longer articles this month, which we think fit well in our newsletter. George Rahal takes a detailed look at quantifying potential rewards relative to risk, an important trading consideration. His contribution is well written and understandable to the novice trading system developer while offering new insights to veteran programmers.
Andy Ratkai, CFA, recently prepared a report for his clients that brought together several interesting macro insights. In a way, he ties wave analysis into behavioral finance and raises a number of thought-provoking ideas. Buff Dormeier, CMT, continues to share high quality research on methods for applying volume to market analysis. He recently released a book which adds to the Body of Knowledge of Technical Analysis while offering actionable guidance for traders. It’s also that rare book which is interesting and a fun read. Although we never make guarantees in our profession, I am confident that I could guarantee everyone will learn something form this book as Buff combines historical stories with new techniques.
Next month, many members will gather at the Annual Symposium in New York. This event is always well-attended and highly educational. It’s also an opportunity to meet other members, and I hope to meet many of you so that I can learn what you expect from your newsletter.
Sincerely,
Mike Carr, CMT
What's Inside...
Revising the Reward-Risk Ratio
by George RahalReward-Risk is a term for the ratio of the potential profit to the potential loss of a trade. In using such analysis, the entry price and the prices at which profits or losses will be taken are...
Social Values and Political Fragmentation: Right on Schedule
by Andre Ratkai, CFANote: The Long Wave and Social Values help to explain to me (and hopefully others) the current political fractiousness, rise of Tea Party, etc. It’s just a view of the world today, rather than the...
Investing With Volume Analysis: Identify, Follow, and Profit From Trends by Buff Dormeier, CMT
by Buff Dormeier, CMT & Michael Carr, CMTRecognized with the Dow Award for his 2006 paper on volume, Buff is already a recognized expert on the subject. In that paper, he introduced the Volume Confirmation Price Indicator (VCPI). With this...
Portfolio Simulation to Optimize Trading Systems
by Rick J. Martin, CMT, CAIA, CFPOn May 19, 2006, Rick made a presentation as part of the MTA Education Seminar. It is available in the On Demand Video Archives. The presentation is another example of the timeless value of the...
Interview with Jason Meshnick, CMT
by Jason Meshnick, CMT & Amber Hestla-BarnhartHow would you describe your job? I create web-based investment research tools and reports for investors. I work for the Wall Street On Demand division of Markit, which designs, builds, and hosts...
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Board Elections Underway – Vote Now! Members, Honorary Members and Emeritus Members, please note the following: Online proxy voting for the upcoming election of MTA At-Large Board positions (3)...
Reward-Risk is a term for the ratio of the potential profit to the potential loss of a trade. In using such analysis, the entry price and the prices at which profits or losses will be taken are predetermined Measuring the units of reward per risk in advance aids in deciding whether to enter a position. However, since the outcome of a trade is uncertain, this widely known and used measurement must be revised in order to account for the probability of the trade’s success or failure, which can be done through expected value. In expected value, a set of future values, or payouts, are adjusted to reflect the probability that each will materialize. For a stock, given a $10 entry with a profit target of $16 and a stop-loss at $8, the reward-risk is $6 to $2, a 3:1 relationship; these are the set of future values. Additionally, say the probability of
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Contributor(s)

George Rahal
George Rahal has been writing about financial markets for several years. He began his career in Lazard Capital Markets’ equity research department. He has since been involved in technical research and trading, which he applies in his current role at Landor Capital...
Note: The Long Wave and Social Values help to explain to me (and hopefully others) the current political fractiousness, rise of Tea Party, etc. It’s just a view of the world today, rather than the basis of our investment management process. Our day-to-day portfolio decisions are based on a whole different set of parameters than the Long Wave. Lost in the daily cacophony of 24-hour news, instantly politicized media scrutiny, and fashion models posing as financial analysts is the truly long-term view of how our society has gotten to where it is today. This isn’t referring to the typical 3-year “long-term” of Wall Street, but a very long-term view that encompasses the balance that must occur to survive. If you think about it, any political or economic system that survives over the long-term must have ebbs and flows because they rebalance the system. No economic sector can indefinitely grow much faster than
To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.
Contributor(s)

Andre Ratkai, CFA
Andre Ratkai, CFA is President and Chief Investment Officer of Praxis Advisory Group, Inc., an independent investment advisor providing portfolio management and asset allocation services for stock, bond, and mutual fund investors. Mr. Ratkai provides the investment management...
Recognized with the Dow Award for his 2006 paper on volume, Buff is already a recognized expert on the subject. In that paper, he introduced the Volume Confirmation Price Indicator (VCPI). With this book, he furthers not only his reputation as probably the foremost expert on the subject but he also demonstrates that he is a talented story teller as he makes the history of technical analysis come alive for readers. If we are perfectly honest, at least in my opinion, too many technical analysis books devote their first few chapters to the basics of technical analysis with a few comments on its historical perspective. I usually barely skim these sections because I’ve already read the story several dozen times and wonder why it needs to be repeated. Buff tells it differently, starting in the beginning with examples from Biblical times and moving forward through time to draw on Wyckoff and
To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.
Contributor(s)

Buff Dormeier, CMT
Buff Dormeier serves as the Chief Technical Analyst at Kingsview Investment Partners. Previously, he was a Managing Director of Investments and a Senior PIM Portfolio Manager at the Dormeier Wealth Management Group of Wells Fargo Advisors. In 2007, Dormeier’s...

Michael Carr, CMT
Mike Carr, who holds a Chartered Market Technician (CMT) designation, is a full-time trader and contributing editor for Banyan Hill Publishing, a leading investment newsletter service. He is an instructor at the New York Institute of Finance and a contributor to various...
On May 19, 2006, Rick made a presentation as part of the MTA Education Seminar. It is available in the On Demand Video Archives. The presentation is another example of the timeless value of the material presented in MTA meetings. Modeling is a basic technique used by many technicians. It usually involves back testing an idea against a security and finding parameters that deliver optimal, or at least acceptable, performance when considering the tradeoff between risk and reward. Rick tackled this subject with some unique and potentially profitable insights. He began by reviewing four commonly seen trading myths. All too often, even the most experienced technicians will spot something that looks too good to be true. Rick envisions their reaction to be, “I have found the holy grail of indicators. They work great when I overlay them on a chart.” He points out that while the indicator may look good in a
To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.
Contributor(s)

Rick J. Martin, CMT, CAIA, CFP
Rick Martin is the founder and Managing Member of SectorBets Group, LLC. He was previously the Director of Research for Ryan Beck & Co. and the principal of Ryan Beck Kronos Fund, LP. Rick has over 24 years of investment and securities experience. In addition to his...
How would you describe your job? I create web-based investment research tools and reports for investors. I work for the Wall Street On Demand division of Markit, which designs, builds, and hosts websites for retail brokers, major financial institutions, and media outlets worldwide. Our work is designed to seamlessly integrate into our client’s sites, so even though you’ve probably been on our web pages, it’s unlikely that you would know it. One of my key roles involves building models using our SmartText technology to publish dynamically generated commentary on various asset classes and markets. For example, I’ve built several models that read the trend and momentum of a security and return an easy to understand analysis of the technical condition of that security. My number one goal is to make technical analysis more approachable to individual investors. As they learn the correct ways to use the tools, they’ll become more successful
To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.
Contributor(s)

Jason Meshnick, CMT
Jason Meshnick, CMT, is the Director of Product Management at Markit Digital, a division of IHS Markit. There, he creates well-known market analytics including the CNN Business Fear & Greed Index. His past career included work as a principal trader, market maker, and hedger....

Amber Hestla-Barnhart
Bio coming
Board Elections Underway – Vote Now! Members, Honorary Members and Emeritus Members, please note the following: Online proxy voting for the upcoming election of MTA At-Large Board positions (3) is now underway! If you haven’t voted, you can do so by clicking here. You will need your MTA Member ID Number to vote. When entering your Member ID Number, please leave out the first four zeros and the last “I”. This will leave you with a five digit ID number. If you have any questions regarding the proxy voting process, please contact Marie Penza, MTA Director of Member Services, at 646-652-3300. We welcome, and appreciate, your participation! Spring 2011 CMT Exam Administration – Level 3 Closing Soon Registration for the Spring 2011 Administration of the CMT Level 3 Exam closes on April 8th, 2011 at 5 PM EST. If you plan to register for the CMT Level 3 Exam this administration, please make sure you
To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.
New Educational Content This Month
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November 22, 2023
Utilizing Trend & Mean Reversion in Breadth Studies to Gauge Market Conditions
Presenter(s): Victor Riesco
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November 18, 2023
Beating the Bench
Presenter(s): Scott Brown, CMT
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October 25, 2023
Equity Risk & Potential – Q4, ’24 & Beyond
Presenter(s): Timothy Hayes, CMT