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Technically Speaking, July 2009

Letter from the Editor

This month’s newsletter focuses on the work of only two technicians. Ralph Vince defined the science of money management and offers some additional insights to our readers. Harry Dent approaches the markets from a unique viewpoint and offers our readers a lesson in thinking outside the box. These types of articles are much longer than we could have presented a year ago when we were restricted to our paper format. The charts presented are also of a higher quality. We hope you find this to be useful. And as always, please let us know what you think. Sincerely, Mike Carr, CMT

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What's Inside...

The Leverage Space Portfolio Model

by Ralph Vince

Editor’s Note: Ralph Vince was the first to precisely define the importance of money management to trading success. His pioneering work in position sizing created a new area within the Body of...

New Geopolitical, Commodity, and Recurring Cycles

by Harry S. Dent, Jr.

New Geopolitical, Commodity, and Recurring Cycles By Harry S. Dent, Jr. New York Times bestselling author Adapted from The Great Depression Ahead (Free Press, 2009) For those familiar with our work,...

An Insight on Mathematical Expectation

by Ralph Vince

An excerpt from Reconciling Portfolio Management Strategies and Economic Theory The Mathematical Expectation (ME), is simply the sum of the products of the probabilities and payoffs of all the ways...

Harry Dent: Economist and Technician

At his web site, www.hsdent.com, well known commentator Harry S. Dent offers a wealth of information about economics. Since the late 1980s, Dent has provided economic forecasts based in part on...

Ralph Vince

by Yevgen Avramych

Recently I had the pleasure of speaking with Ralph Vince who has taken a rather unorthodox and ingenious approach towards trading. Ralph began his career when he was 20 years old working for a...

MTA Announcements

CMT Exam Registration – All Levels Open! Registration for the Fall 2009 CMT Examination is now open for all levels! The Fall 2009 testing window will be October 22nd – October 31st. It is...

The Leverage Space Portfolio Model

The Leverage Space Portfolio Model

Editor’s Note: Ralph Vince was the first to precisely define the importance of money management to trading success. His pioneering work in position sizing created a new area within the Body of Knowledge of technical analysis. He has continued to build on his original insights and in this article, he expands on the idea of position sizing and extends the concept to portfolio management.

This article attempts to introduce readers to a superior portfolio model, herein referred to as “The Leverage Space Model.” The model has, as its starting point, the Kelly criterion, which is to maximize the expected value of the logarithm of wealth, sometimes stated as ”maximizing expected logarithmic utility”.

We proceed to perform this for multiple, simultaneous components (i.e., maximizing the logarithm of wealth given the synergies of portfolio components). Finally, this growth aspect is juxtaposed to the risk aspect, which in the case of The Leverage Space Model,

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Contributor(s)

Ralph Vince

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New Geopolitical, Commodity, and Recurring Cycles

New Geopolitical, Commodity, and Recurring Cycles

New Geopolitical, Commodity, and Recurring Cycles
By Harry S. Dent, Jr.
New York Times bestselling author
Adapted from The Great Depression Ahead (Free Press, 2009)

For those familiar with our work, this article will be a condensed explanation of many of the recurring economic and market cycles we study. Our primary focus has always been demographic trends – in an economy that is 70% consumer spending, it only makes sense to study how age affects our spending habits. But given the extreme volatility of recent years, it became obvious to us that there were other cyclical factors at work as well, and these will be the focus of this article.

One of the biggest developments of the mid 2000s was the raging bull market oil and commodity prices. We are currently at the tail end of a commodity bubble that has rivaled that of the 1970s even when adjusted for inflation. This

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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)

Harry S. Dent, Jr.

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An Insight on Mathematical Expectation

An Insight on Mathematical Expectation

An excerpt from Reconciling Portfolio Management Strategies and Economic Theory

The Mathematical Expectation (ME), is simply the sum of the products of the probabilities and payoffs of all the ways something might turn out:

For example, assume we toss a coin, winning two units for heads and if it’s tails we lose one unit, leaving two possible outcomes, +2 and –1, each with a probability of 0.5.

An ME of 0 is said to be a “fair” gamble. If ME is positive, it is said to be a favorable gamble, and if negative,  a losing gamble. Note that in a game with a negative ME (most gambling games), the probability of going broke approaches certainty as you continue to play.

Mathematical Expectation is a cornerstone to our story. Not only is it a cornerstone to gambling theory, it is also a cornerstone to principles in Game

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Contributor(s)

Ralph Vince

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Harry Dent: Economist and Technician

Harry Dent: Economist and Technician

At his web site, www.hsdent.com, well known commentator Harry S. Dent offers a wealth of information about economics.

Since the late 1980s, Dent has provided economic forecasts based in part on studies of demographics and spending trends that affect the economy, stock prices, inflation, and interest rates. He has demonstrated that demographics also influence technological innovation cycles, product and industry trends, real estate, immigration and domestic migration, and new business models for management and organization. 

On his web site, he explains that he bases his forecasts on:

  1. Predictable Spending Patterns at Different Ages and Stages of Life. In his words, “The age and stage of life determine spending patterns. As we move through predictable stages of life, which correspond with different ages, we change our spending in very predictable ways. What we buy at each stage is predictable and consistent. This information can be used to forecast how spending will change in the

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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.

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Ralph Vince

Ralph Vince

Recently I had the pleasure of speaking with Ralph Vince who has taken a rather unorthodox and ingenious approach towards trading. Ralph began his career when he was 20 years old working for a software firm that supported securities clearing. That firm was eventually bought by ADP. 

His nonconformist journey began after he met the great trader Larry Williams, who helped him to look at trading differently. Ralph believes that in making our trading decisions there is really only one factor that we have complete control over – the size of a position. He has been able to build on this concept and apply it to a trading system which he created.

Ralph trades without trying to analyze the markets, basing his decisions solely on position size. The success of this approach is proven by the positive returns he has seen in his trading. Although this trading approach might seem a little

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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)

Yevgen Avramych

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MTA Announcements

MTA Announcements

CMT Exam Registration – All Levels Open!

Registration for the Fall 2009 CMT Examination is now open for all levels! The Fall 2009 testing window will be October 22nd – October 31st. It is our experience that those who wait until the end of registration to sign up, encounter difficulty securing their desired time, date and location, as this is available on a first come first serve basis. Sign up today to ensure your preferred time, date and location! Contact Marie Penza, 646-652-3300, for information on the CMT Program and/or to schedule your exam. For detailed instructions on how you can register online, please click here.

CMT Institute (CMTi) – Start Viewing the Archives Today!

The CMTi is an online CMT Exam prep course available to MTA Members and Affiliates only. This is a self paced study program with live review and prep sessions including access to CMTi Faculty

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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.

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New Educational Content This Month

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