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Technically Speaking, March 2017

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ALPHANUMERIC FINANCIAL CHARTS

by Richard Brath

Editor’s note: Richard Brath is among the presenters at the Annual Symposium in April. Below is a reprint of his work from his blog at RichardBrath.wordpress.com. Financial charting has long used...

NO TIME FOR SKEPTICISM

by Vincent M. Randazzo, CMT

As stocks remain comfortably near yet another record high, we find it interesting just how suspiciously the market is still viewed by so many.  Their caution and anxiety is based on a variety of...

HOW DO STOP-LOSS ORDERS AFFECT TRADING STRATEGY PERFORMANCE?

by Tucker Balch, Ph.D. & Anderson Trimm, Ph.D.

Editor’s note: Tucker Balch is among the presenters at the Annual Symposium in April. Below is a reprint of his work from his web site at AugmentedTrader.com. “A stop order is an order...

MIFID II SOLUTIONS

by IHS MARKIT

Editor’s note: The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares,...

VISUALIZING THE ANXIETY OF ACTIVE STRATEGIES

by Corey Hoffstein

Editor’s note: Cory Hoffstein is among the presenters at the Annual Symposium in April. This post was originally published at ThinkNewfound.com and is available as a...

WHY MULTIPLY BY SQRT(252) TO COMPUTE THE SHARPE RATIO?

by Tucker Balch, Ph.D.

Editor’s note: this article was originally posted at AugmentedTrader.com. This question comes up every time I teach Computational Investing.  Here’s my attempt to create the best, (final?)...

THE TOP 5 INVESTOR BIASES

Editor’s note: This was originally published at EducatedTrader.com, the website of the Independent Investor Institute, an organization dedicated to providing unbiased education to Canadian...

THE JANUS FACTOR

by Gary Anderson

Editor’s note: Gary Anderson is among the presenters at the Annual Symposium in April. Below is a reprint of his Charles H. Dow Award winning paper. Traders alternate between two modes. At times...

TACTICAL REPORT: EUR/USD: PARITY TARGET, A CLEAR AND PRESENT REALITY

by Ron William, CFTe

Editor’s note: This report was originally published on March 6, 2017. All data and opinions are current as of that date but may have changed since publication. Executive Summary The latest...

ALPHANUMERIC FINANCIAL CHARTS

ALPHANUMERIC FINANCIAL CHARTS

Editor’s note: Richard Brath is among the presenters at the Annual Symposium in April. Below is a reprint of his work from his blog at RichardBrath.wordpress.com. Financial charting has long used alphanumerics as point indicators in charts. One of the oldest I can find is Hoyle’s Figure Chart (from The Game in Wall Street and How to Play it Successfully: 1898) which essentially plots individual security prices in a matrix organized by time (horizontally) and price (vertically). An early figure chart (from Hoyle: 1898). Time is implied horizontally, price vertically. A numeric “figure” is recorded for each price that occurs for each day. This textual representation evolved over the decades. By 1910, Wyckoff (Studies in Tape Reading: 1910) was creating charts where x and y are still time and price, but he was writing down volumes instead of prices, and connecting together subsequent observations with a line. Wyckoff’s figure chart records rising and falling prices in adjacent columns. For each price

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Richard Brath

Richard Brath

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NO TIME FOR SKEPTICISM

NO TIME FOR SKEPTICISM

As stocks remain comfortably near yet another record high, we find it interesting just how suspiciously the market is still viewed by so many.  Their caution and anxiety is based on a variety of reasons including:  company valuations, bullish sentiment readings, political uncertainty and the record high prices themselves.  However, as we’ve explained for some time through a variety of approaches, this is no time for skepticism.  To further strengthen our bullish stance, we’ll review the findings of one of our key market breadth measures and its trends in order to shed perspective and allay some of those investor fears. One of the indicators Lowry Research monitors is the Percent of Operating Company Only (OCO) Stocks 20% or More Below 52-Week Highs.  The concept is to gain a greater understanding of the trends in the percentages of common stocks in their own individual bear markets (traditionally defined as down more 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.

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Vincent M. Randazzo, CMT

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HOW DO STOP-LOSS ORDERS AFFECT TRADING STRATEGY PERFORMANCE?

HOW DO STOP-LOSS ORDERS AFFECT TRADING STRATEGY PERFORMANCE?

Editor’s note: Tucker Balch is among the presenters at the Annual Symposium in April. Below is a reprint of his work from his web site at AugmentedTrader.com. “A stop order is an order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security” —investopedia. In this article, we investigate how the addition of stop-loss orders affect a generic trading strategy. When investors enter a new position in a stock, they often simultaneously put in an order to exit that position if the price dips to a certain level.  The intent being to prevent a substantial loss on that stock if a significant unanticipated negative event occurs. As an example, if we bought a fictitious stock XYZ at $100.00, we might put in a 5% stop-loss order (at $95.00).  If the price of XYZ continues upward as we

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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)

Tucker Balch

Tucker Balch, Ph.D.

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MIFID II SOLUTIONS

MIFID II SOLUTIONS

Editor’s note: The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded. MiFID will result in significant changes for the research community. IHS Markit has prepared a white paper explaining the requirements of MiFID and solutions firms can consider to meet those requirements. MiFID II Solutions can be downloaded from their web site for free. Below are extracts from the paper highlighting the new requirements. A wide-ranging piece of legislation, MiFID II aims to create fairer, safer and more efficient markets through improving investor protection, increasing transparency in OTC markets and changing market structure to encourage more competition. Taken together, the measures of MiFID II affect every part of the securities trading value chain. Investor Protection Under the reforms, new legislation establishes strict rules

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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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VISUALIZING THE ANXIETY OF ACTIVE STRATEGIES

VISUALIZING THE ANXIETY OF ACTIVE STRATEGIES

Editor’s note: Cory Hoffstein is among the presenters at the Annual Symposium in April. This post was originally published at ThinkNewfound.com and is available as a PDF here. Summary­­ Prospect theory states that the pain of losses exceeds the pleasure of equivalent gains. An oft-quoted ratio for this pain-to-pleasure experience is 2-to-1. Evidence suggests a similar emotional experience is true for relative performance when investors compare their performance to common reference benchmarks. The anxiety of underperforming can cause investors to abandon approaches before they benefit from the long-term outperformance opportunity. We plot the “emotional” experience investors might have based upon the active approach they are employing as well as the frequency with which they review results. The more volatile the approach, the greater the emotional drag. Not surprisingly, diversifying across multiple active approaches can help significantly reduce anxiety. Last week, Longboard Asset Management published blog post titled A Watched Portfolio Never Performs. What we particularly enjoyed about this post was

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Corey Hoffstein

Corey Hoffstein

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WHY MULTIPLY BY SQRT(252) TO COMPUTE THE SHARPE RATIO?

WHY MULTIPLY BY SQRT(252) TO COMPUTE THE SHARPE RATIO?

Editor’s note: this article was originally posted at AugmentedTrader.com. This question comes up every time I teach Computational Investing.  Here’s my attempt to create the best, (final?) answer to this question. In my courses I give the students the following equation to use when computing the Sharpe Ratio of a portfolio: Sharpe Ratio = K * (average return – risk free rate) / standard deviation of return Controversy emerges around the value of K. As originally formulated, the Sharpe Ratio is an annual value.  We use K as a scaling factor to adjust for the cases when our data is sampled more frequently than annually.  So, K = SQRT(12) if we sample monthly, or K = SQRT(252) if we sample the portfolio on every trading day. How did we come up with these values for K?  Are they correct?  Let’s start with the original 1994 paper by William Sharpe: Sharpe’s paper.  Here’s how he defines his ratio: For a

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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)

Tucker Balch

Tucker Balch, Ph.D.

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THE TOP 5 INVESTOR BIASES

THE TOP 5 INVESTOR BIASES

Editor’s note: This was originally published at EducatedTrader.com, the website of the Independent Investor Institute, an organization dedicated to providing unbiased education to Canadian investors that Larry M. Berman, CMT, CTA, CFA cofounded. Larry is among the presenters at the Annual Symposium in April. If someone were to pick you up in a helicopter, put blinders over your eyes, then drop you into the middle of a jungle, it’s likely you’d have a tough time lasting for any length of time. Undoubtedly, it’s hard enough surviving in the jungle, let alone with blinders on. The stock market is a lot like the jungle—it’s a dangerous place for those who don’t know what they’re doing, or even those who think they know what they’re doing. It isn’t a far stretch to see how biases (a.k.a. “blinders”) can compound the challenges posed by the wilderness of the markets. When it comes to investing,

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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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THE JANUS FACTOR

THE JANUS FACTOR

Editor’s note: Gary Anderson is among the presenters at the Annual Symposium in April. Below is a reprint of his Charles H. Dow Award winning paper. Traders alternate between two modes. At times traders exhibit trend-following behavior. Relatively strong stocks are favored, while laggards are sold or ignored. At other times, the reverse is true. Traders-in-the-aggregate turn contrarian. Profits are taken in stocks that have been strong, and proceeds are redirected into relative-strength laggards. This paper presents the market as a system of capital flows reducible to the effects of traders’ Janus-like behavior. Arriving at a systematic view of a process may begin with a series of inferences or with one or two analogical leaps. Every model is ultimately the expression of one thing we hope to understand in terms of other things we do understand, and analogies, like pictures, are useful devices that simplify and clarify, particularly early on. 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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Gary Anderson

Gary Anderson

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TACTICAL REPORT: EUR/USD: PARITY TARGET, A CLEAR AND PRESENT REALITY

TACTICAL REPORT: EUR/USD: PARITY TARGET, A CLEAR AND PRESENT REALITY

Editor’s note: This report was originally published on March 6, 2017. All data and opinions are current as of that date but may have changed since publication. Executive Summary The latest up-swing in the USD index reactivated a historic 31-year trend breakout signal. Its final impulsive move offers a paradigm shift for the market’s collective investor psychology, capital flow trends and perception of key events ahead. Such a positive technical backdrop, coupled with a hawkish long-term policy shift, helped amplify price reactions to the Fed’s sequel 0.25% hike in Dec 2016, relative to the prior year. History had a positive market rhyme, but to a much larger extent. USD gains are likely to extend sharply higher, as part of a 5-wave impulsive cycle, coupled with positive speculative flows, which signals further upside scope into 120. Long-term cycles project an average 8-year cycle, extending into 2019. Expect a non-linear move, supported by positive seasonality

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Contributor(s)

Ron William

Ron William, CFTe

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New Educational Content This Month

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