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Technically Speaking, February 2012

LETTER FROM THE EDITOR

This month we are providing a detailed overview of several interesting techniques. Scott Hathaway introduces pentagonal analysis with detailed examples and a complete explanation of how you could apply the ideas to any chart. Manuel Amunategui, CMT, offers very specific trading strategies that can be applied to help manage risk. James Brodie, CMT, describes the techniques he applies to trade a hedge fund. We also feature an interview with Esther de S.G. Elkaïm, CMT. These interviews are highlighting the diversity of technical analysis opportunities and hopefully showing the possibilities for those considering a career in technical analysis. Over the past months, the MTA has been searching for the right person to help bring the CMT program to the next level. After a thorough process, Robert Johnson, Ph.D., CFA, CAIA, was selected as Director, CMT Studies. Dr. Johnson will focus on enhancing the professionalism of the CMT Program and will eventually develop a customized curriculum for our candidates. In next month’s newsletter, we’ll have an interview with Dr. Johnson and get his first thoughts

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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...

BACK TO THE DRAWING BOARD: A PENTAGONAL ANALYSIS OF THE DOW JONES INDUSTRIAL AVERAGE SINCE 2000

by Scott Hathaway, CFTe

The Dow has had quite a rollercoaster ride ever since the previous all-time high of 11,750.28, back in January of 2000. This January marks the 12 year anniversary, which is 12 squared months (144...

INTERVIEW WITH ESTHER de S.G. ELKAIM, CMT

by Esther de S.G. Elkaïm & Amber Hestla-Barnhart

How would you describe your job? I advise clients regarding their financial investments based on my research and beliefs about where the markets will go in the future.  What led you to look at...

RISK, A LEADING INDICATOR

by Manuel Amunategui

Most trading strategies have a common goal, to reach the successful conclusion of a bet and walk away with a profit. But while the position is open it is at risk and stays that way until closed...

TAKING EMOTION OUT OF TRADING

by James Brodie, CMT

Sherpa Funds in Singapore is a small team with over 50 years trading experience, spread between London, New York, Tokyo and Singapore. We have worked for Credit Suisse, Barclays Capital, Bankers...

WELCOMING THE MTAEF’S FIRST INTERN

by Bruce Kamich, CMT

The MTA Educational Foundation (MTAEF) would like to welcome Marcelo Kim, the first intern selected in the MTAEF’s new Internship Program. Over the next four months, Marcelo will be shadowing...

2012 ANNUAL SYMPOSIUM SPEAKER PROFILE – MICHAEL COVEL

by Michael Covel

Michael W. Covel is the author of “Trend Commandments” and “The Little Book of Trading.” Mr. Covel’s  past bestsellers include “Trend Following” & “The Complete Turtle...

BACK TO THE DRAWING BOARD: A PENTAGONAL ANALYSIS OF THE DOW JONES INDUSTRIAL AVERAGE SINCE 2000

BACK TO THE DRAWING BOARD: A PENTAGONAL ANALYSIS OF THE DOW JONES INDUSTRIAL AVERAGE SINCE 2000

The Dow has had quite a rollercoaster ride ever since the previous all-time high of 11,750.28, back in January of 2000. This January marks the 12 year anniversary, which is 12 squared months (144 months), an observation that will come in handy a few charts from now. What a great time for a large-scale geometric perspective.

Can we fit the market into a geometric shape? And where and how would we start? How about at the very beginning of this big mess: the initial down trend from the previously mentioned high in Jan ’00 to the major low of 7197.49 in Oct ’02, expressed as a vector from high to low. All predominant reversals since are geometrically related to this vector, as we shall soon see.

The first chart shows the market conforming well to a large pentagon drawn from this vector (for a detailed breakdown of the actual technique of drawing

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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)

Scott Hathaway, CFTe

Scott Hathaway, CFTe

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INTERVIEW WITH ESTHER de S.G. ELKAIM, CMT

INTERVIEW WITH ESTHER de S.G. ELKAIM, CMT

How would you describe your job?

I advise clients regarding their financial investments based on my research and beliefs about where the markets will go in the future. 

What led you to look at the particular markets you specialize in instead of another tradable?

I very much enjoy following all markets, as they move in different directions. However, I especially like precious metals which represent “real” assets and currencies whose fluctuations reflect the always-changing worldwide economic conditions.

Do you look at any fundamental or economic inputs to develop your opinions?

I mostly rely on technical patterns and signals which I believe provide a more disciplined guidance of market entry and exit points than fundamental analysis and valuation.

Can you share any longer term market opinions?

Since the 2007-2008 financial crisis, the deflation scenario is well established. From time to time, big injections of money by governments cause a countertrend to this scenario. In deflation, all assets are

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)

Esther de S.G. Elkaïm

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RISK, A LEADING INDICATOR

RISK, A LEADING INDICATOR

Most trading strategies have a common goal, to reach the successful conclusion of a bet and walk away with a profit. But while the position is open it is at risk and stays that way until closed anywhere between full profit and full loss. Accessing other people’s risk, where they got in and how much of it is underwater, is the ultimate leading indicator. Unfortunately, besides the risk and back-office team of big brokerages and exchanges, few have access to this gold mine of data, and none can legally use it to trade (Peck, 100).

But how about inferring that information by overlaying basic trading strategies over market movements? This isn’t about unearthing profitable strategies, at least not directly, but to reverse engineer the market’s past intentions to induce future ones.

The idea of watching popular market strategies to anticipate crowd behavior isn’t new, the 200 day moving-average, amongst many others, springs

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)

Manuel Amunategui

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TAKING EMOTION OUT OF TRADING

TAKING EMOTION OUT OF TRADING

Sherpa Funds in Singapore is a small team with over 50 years trading experience, spread between London, New York, Tokyo and Singapore. We have worked for Credit Suisse, Barclays Capital, Bankers Trust and TD Securities and dealt in Foreign Exchange, Interest Rates, Emerging Markets, and Credit products. In 2010 we decided to channel our experience to create proprietary trading algorithms for liquid markets.

Primarily we wanted to eradicate human emotion from the whole trading process, but of course we also wanted to maximize long term growth, minimize negative return volatility and reduce the occurrence of large downside losses. We focused our back testing from 2003 on “liquid markets” such as G11 currencies, equity indices, interest rate futures and a handful of globally liquid commodities. We programmed all kinds of traditional forms of technical analysis (including DeMark indicators), mathematics, historical volatility measures etc. and began writing and back-testing rules. We quickly found

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)

James Brodie, CMT

James Brodie, CMT

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WELCOMING THE MTAEF’S FIRST INTERN

WELCOMING THE MTAEF’S FIRST INTERN

The MTA Educational Foundation (MTAEF) would like to welcome Marcelo
Kim, the first intern selected in the MTAEF’s new Internship Program. Over
the next four months, Marcelo will be shadowing various technicians in Boston and New York. If Marcelo contacts you, the MTAEF asks that you please try to accommodate him in your schedule! Below is an introduction from Marcelo:

“My name is Marcelo Kim and I am a recent graduate of Baruch College. At Baruch, I majored in finance and was a member of the Golden Key Honor Society. My past work experience includes: working as a business analyst intern at AXA Liabilities Managers and as an intern at a local accounting firm. I am an avid fan of all sports and also played tennis for the Baruch team. You would be surprised to know that I speak Portuguese fluently as I was born and raised in Sao Paulo, Brazil!

I

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)

Bruce Kamich, CMT

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2012 ANNUAL SYMPOSIUM SPEAKER PROFILE – MICHAEL COVEL

2012 ANNUAL SYMPOSIUM SPEAKER PROFILE – MICHAEL COVEL

Michael W. Covel is the author of “Trend Commandments” and “The Little Book of Trading.” Mr. Covel’s  past bestsellers include “Trend Following” & “The Complete Turtle Trader.” His trend following books have been translated into over 10 languages.

In 2009, Mr. Covel directed the documentary film “Broke: The New American Dream.” He has presented live to audiences in Chicago, Dallas, Hong Kong, Las Vegas, Macau, Miami, Paris, São Paulo, Tokyo and Vienna. Mr. Covel’s research firm (www.trendfollowing.com) has been training trend following traders since 1996, across over 70 countries. His original website was TurtleTrader®, which has drawn millions of visitors.

Mr. Covel holds a B.A. in politics and government from George Mason University and an MBA from The Florida State University.

A note from Michael Covel:

“For 15 years, I have pushed hard to define trend following standards through books, film, web, and live

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 Covel

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New Educational Content This Month

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