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Technically Speaking, August 2011

Letter from the Editor

Last month, we carried the news that Julie Dahlquist, PhD, CMT, had been named as the new editor for the Journal of Technical Analysis, which is the scholarly publication of our organization. Many of us look forward to the next issue, as we always have, to learn the details of new techniques in our field and to see examples of in-depth research topics. Research articles can also be submitted to this newsletter. Generally, shorter articles will be found in the newsletter while detailed and thorough examinations of a topic are more suitable for the journal. The monthly publication schedule also allows for immediate feedback to the author from the thousands of members around the world who will see the article. Hopefully you’ll find the research being offered in Technically Speaking useful. We’ve also included member profiles in this issue, which may help newer members see that there is no single career path in the field. MTA members have varied backgrounds, and success is determined by hard work more than any other factor. We

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.

What's Inside...

A Market Technician Considers Value at Risk

by Michael Carr, CMT

Value at Risk (VaR) is an important risk management tool used by many institutional traders. In an article called “A Primer on Value at Risk” posted by the New York Society of Security Amalysts...

Product Review of EidoSearch: Forms Shape Ideas

by George Rahal

Any opinions expressed in the review are those of the author and not an official position of the MTA, which does not endorse this orany other commercial product. The purpose of this article is to...

Interview with Keene Little, CMT

by Keene Little & Amber Hestla-Barnhart

How would you describe your job? I have been a full-time trader since early 2000. In addition to trading my own account I also manage and trade several small accounts for others. I analyze the...

From Snow to Lo: Data Visualization and Traders

by Michael Carr, CMT & Amber Hestla-Barnhart

Traders use charts to visualize data, and price charts are an indispensible aspect of technical analysis. One of the many interesting aspects of technical analysis is that academia takes many of the...

Member Profile: Ed Carlson, CMT

by Amber Hestla-Barnhart

Ed Carlson, CMT, has enjoyed a long and interesting career in the financial industry. Traditional jobs, or at least what many think of as traditional analyst positions, are disappearing and Ed’s...

Long-Term Fundamentals Offer Clues to Technicals

by Michael Carr, CMT

Technicians usually focus on price action in a stock or market. Fundamentals are often thought of as an unnecessary input to the decision making process. Robert Edwards, co-author with John Magee of...

Trading with Volatility

by Michael Carr, CMT & Amber Hestla-Barnhart

Global markets have recently reminded investors that volatility is a part of the investment environment. In US markets, volatility is defined and measured by the VIX Index. This offers traders a...

MTA Announcements

Fall 2011 CMT Exam Administration – Registration is Open! Registration for the Fall 2011 Administration of the CMT Exam is open for all levels! Sign up today to ensure your preferred location...

A Market Technician Considers Value at Risk

A Market Technician Considers Value at Risk

Value at Risk (VaR) is an important risk management tool used by many institutional traders. In an article called “A Primer on Value at Risk” posted by the New York Society of Security Amalysts VaR is described as an important and unique measure of risk They offer Risk posted by the New York Society of Security Amalysts, VaR is described as an important and unique measure of risk. They offer praise of VaR as a practical and understandable tool: 

Most measures show risk either as a percentage (as standard deviation and tracking error do) or in units (as the Sharpe and Treynor riskadjusted measures do). VaR shows risk in terms of money—that is, the money that might be lost.

Risk has been defined in academic terms for decades. Standard deviations, a measure of volatility, have served as the core for most of the discussion. But most investors, and almost all traders, think

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)

Michael Carr, CMT

Michael Carr, CMT

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Product Review of EidoSearch: Forms Shape Ideas

Product Review of EidoSearch: Forms Shape Ideas

Any opinions expressed in the review are those of the author and not an official position of the MTA, which does not endorse this orany other commercial product.

The purpose of this article is to educate readers on EidoSearch, a platform for technical and quantitative investment professionals. The article will first provide a walk-through of the primary search feature. It will also discuss other features and functions; current and future capabilities; user interface and user friendliness; research and trading applications; and how to learn more about the platform.

The EidoSearch concept is simple. Load up a chart, search for similar looking charts. Stated more technically, one selects a time series, represented by a graph, as the search query. The search results are other time series that best-fit the query, similar to R-squared. The time series can be stock prices, indicators derived from stock prices (moving averages, RSI), price charts of other asset

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)

George Rahal

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Interview with Keene Little, CMT

Interview with Keene Little, CMT

How would you describe your job?

I have been a full-time trader since early 2000. In addition to trading my own account I also manage and trade several
small accounts for others. I analyze the financial markets and write daily market commentary (for both a paid
subscription service and my blog site (http://blog.capitalmarketvision.com/). Here’s a short bio:

Accomplishments

  • Chartered Market Technician, member of Market Technicians Association.
  • Write daily and weekly market commentary for traders and investors.
    • Analyze and write for a subscription newsletter — OptionInvestor.com — providing live market commentary for
      active traders and a weekly summary showing longer term trading signals to assist traders, investors and
      fund managers in their trading decisions.
  • Provide specialized assistance to fund managers — forecasts, market timing signals, trade setups and portfolio
    management; short term and longer term charts prepared for customers and brochures

    • Analyze financial markets (global, stock, bonds, commodities, currencies) for intermarket relationships to
      help portfolio managers

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)

Keene Little

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From Snow to Lo: Data Visualization and Traders

From Snow to Lo: Data Visualization and Traders

Traders use charts to visualize data, and price charts are an indispensible aspect of technical analysis. One of the many interesting aspects of technical analysis is that academia takes many of the concepts technicians study and apply a different perspective to the tool. Quantitative analysis is similar to many of the screening techniques technicians have long used, and in some cases quantitative analysis involves applying technical principles like relative strength to fundamental data. Behavioral finance is offering explanations for why chart patterns work. Data visualization is another example of this idea.

Data visualization is an effort to present information in a meaningful manner. Edward Tufte, a professor at Yale University, has been one of the leaders in this field, and has written several classic books on the subject. He defines the subject simply as “Data graphics visually display measured quantities by means of the combined use of points, lines, a coordinate

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)

Michael Carr, CMT

Michael Carr, CMT

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Member Profile: Ed Carlson, CMT

Member Profile: Ed Carlson, CMT

Ed Carlson, CMT, has enjoyed a long and interesting career in the financial industry. Traditional jobs, or
at least what many think of as traditional analyst positions, are disappearing and Ed’s story may help
others find success in the field. We hope that this will be the first in a series of career paths followed by
MTA members.

Ed’s start in the business came about almost by accident. In late 1989, he had returned from a yearlong internship in China and finished his MBA that year. By early 1990 the economy was headed into a
short recession and like many recent graduates, he was having trouble finding employment. A sixmonth stint working the graveyard shift on a factory floor during the winter of 1990 gave him an appreciation for any desk job that might come along.

One day, during lunch at a small restaurant,

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)

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Long-Term Fundamentals Offer Clues to Technicals

Long-Term Fundamentals Offer Clues to Technicals

Technicians usually focus on price action in a stock or market. Fundamentals are often thought of as an unnecessary input to the decision making process. Robert Edwards, co-author with John Magee of the classic book on chart patterns, Technical Analysis of Stock Trends, is said to have completed his analysis of a chart without even knowing the name of the company.

This is definitely an approach that can be applied successfully. Fundamental analysts can be equally successful using only the data found in financial statements and failing to consider price charts at all. Both approaches which rely on a purist philosophy ignore a large amount of information that can be potentially useful. Recognizing this, John Bollinger, CFA, CMT, has written about Rational Analysis, which combines any potentially useful information into the analysis approach.

Fundamental data can be charted, just like price data. In the chart below, we see that earnings are plotted

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)

Michael Carr, CMT

Michael Carr, CMT

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Trading with Volatility

Trading with Volatility

Global markets have recently reminded investors that volatility is a part of the investment environment. In US markets, volatility is defined and measured by the VIX Index. This offers traders a unique insight into the implied volatility of prices. Some commentators have taken to calling the VIX a ‘fear index’ because volatility spikes as prices fall and traders seem more fearful than complacent during rapid declines, such as the one most markets experienced after multiple tragedies struck Japan in March.

While the methodology for calculating the VIX is available, it is complex and requires that liquid options markets exist for the security being  examined. Not all tradables, especially emerging markets, will necessarily have options contracts available. Global markets tend to show a high degree of price correlation in times of crisis but general tendencies such as this make poor trading rules since they only work until they stop working. This means

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)

Michael Carr, CMT

Michael Carr, CMT

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MTA Announcements

MTA Announcements

Fall 2011 CMT Exam Administration – Registration is Open!

Registration for the Fall 2011 Administration of the CMT Exam is open for all levels! Sign up today to ensure your preferred location by visiting: http://go.mta.org/registercmt. If you need help registering or have any trouble scheduling your exam with Prometric (our outside test center), contact Marie Penza at 646-652-3300.

For detailed instructions on registering online, click here.

To read an important announcement regarding the test dates for the Fall 2011 Administration, click here.

Membership Dues Renewal

Approximately 25% of our membership has dues expiring in the months from June to August! It is important that you renew in a timely fashion to ensure there is no disruption in overall MTA services. To renew…

    • Login into your account by visiting http://www.mta.org Select the MyMTA link to access your account information.
    • Once logged in, look to the right of the

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.

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New Educational Content This Month

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