In this issue:
Main Article
Up In Arms
Contributed by [censored]Arms
All of the opinions expressed are based entirely on technical considerations, and founded on the unique methods discussed in Mr. Arms' various books. These are trading suggestions, and are often in fast moving and speculative issues. Traders should be aware of the risks involved in such an approach. Illustrations are Equivolume charts. In this charting method volume rather than time is used for the horizontal axis. Each box, therefore, represents one day of trading, with its width representing the relative volume for that day, and its top and bottom representing the high and low for the day. Readers may want to familiarize themselves with this methodology by reading one or more of the books. The charts are shown courtesy of MetaStock. For more information see www.metastock.com/arms.
ABSOLUTE PERCENT CHANGE (APC)
In recent columns I have referred to the Absolute Percent Change, or APC, usually when writing about market indicators but I have not gone into details on its derivation, its interpretation, or its importance. Therefore, instead of my usual column I would like to spend a little time explaining this simple but valuable indicator I recently developed. It is a very basic market measurement that should, one would think, have been developed and studied a century or more ago, but I have been unable to find any reference to this calculation in any of my references. I stumbled across the idea and started to look at it in a basic form, applying it to the Dow Industrials some years ago, but more recently I have become aware that it is applicable to individual stocks and even to other instruments such as commodities.
THE BASIC REASONING
I observed markets (and later stocks and commodities) tend to show less movement as they get near tops. On the way up or down the day-to-day changes tend to be larger; larger in both directions. And, surprisingly, the biggest changes tend to come in on bottoms. Evidently fearful selling at bottoms is a far more powerful emotion than the excessive greed evident as tops are made. Therefore it made sense to try to illustrate this. To do so I merely calculated the day-to-day percentage change, ignoring whether it was up or down, and smoothed the results. The result was amazing.
CALCULATION
One needs only to take the change in price from one day to the next, and divide it by the current price in order to eliminate price bias. The result is expressed as an absolute. In other words, whether the change is up or down is immaterial. I then run a moving average of the data, usually using a ten-day. To make it easier one can apply a simple formula to MetaStock charts as shown in the examples that follow. I prefer to change the vertical scale by inverting it and using a log scale, in order to make the results easily equated to price. The highs in the APC thereby tend to align with highs in the security, and vice versa.
On the chart below we are looking at a daily chart of the Nasdaq Composite, using the Equivolume methodology. Above it is the APC, inverted and on a log scale. Note how well the highs and lows of the APC match the highs and lows of the Nasdaq. It is apparent that extremes in the APC are strong signals of likely future direction. Selling when the APC is low, or buying when it is high could prove unhealthy in most cases. Keep in mind the APC is an oscillator, and does not contain a price level. So, whereas a market can go higher and higher or lower and lower, an oscillator is restricted to a band. The Nasdaq has been in a steady climb, but the APC has gone to plus and minus extremes, alerting us to the swings on the way up.
Now let's look at an individual stock. Here is Microsoft over the last nine months. Again, look at the way in which an erratic series of waves has been defined with an oscillator.
And finally, let's take a look at Crude Oil. It too seems to be giving us good signals.
In future columns I will often be referring to the APC, and including it on many charts. Readers who want to do it themselves might wish to check out the MetaStock charts at www.MetaStock.com/arms. The formula needs to be inserted as it is not yet a part of the MetaStock menu. It is: Mov(Abs((C-Ref(C,-1))/C),10,SIMPLE);
About [censored]Arms
[censored]Arms' Equivolume charting and Arms Index are a part of the MetaStock programs. He is the author of six investment books, and writes a twice weekly column for the Realmoney site on thestreeet.com, as well as a weekly advisory letter for institutions.
Article reprinted by permission from thestreet.com.
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Support Tip
How do I change to the next security without using the mouse?
Contributed by Equis Support
For MetaStock versions 6.52 - 11
First you must have an open chart in MetaStock.
-
ALT + Left arrow will display the previous security
- ALT + Right arrow will display the next security
If you have opened a security in a local folder or a group or sub group of the symbol database (let’s take the NASDAQ 100 for example), when using the above method, you will scroll from one security to the next (in alphabetical order) in the NASDAQ 100 folder.
If you open a security from the root level of data on demand (using the Reuters DataLink or QuoteCenter/eSignal button), it will go to the next security within the entire symbol database alphabetically. For example, if you open Google and scroll to the next security, it would open Golden Opportunities Corp.
There are additional parameters that can be applied to this scroll function. To learn more, please visit the help within MetaStock, searching on “scanning charts”.
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MetaStock Features
Fine Tuning Your Trading with MetaStock
Contributed by Derek Mc[censored]ck
The most successful traders are systematic and methodical. MetaStock has been the industry’s technical analysis standard bearer for decades precisely because it equips traders with the best tools allowing them to make trading decisions based on set criteria and reliable analysis rather than emotion and spur of the moment hunches. There is much wisdom in the “if it ain’t broke, don’t fix it” maxim when it comes to a trader’s system and approach to buying and selling in the markets.
However, MetaStock also provides extraordinarily comprehensive, versatile and customizable features and tools so a trader may adapt to changes in their trading environment. It could be worthwhile to occasionally look for opportunities to expand beyond your current approach to trading.
Just a few MetaStock features for your consideration that may help maximize your trading experience with MetaStock:
- A library of add-ons and plug-ins developed in conjunction with trade experts to bring additional expertise to your desktop.
- The Formula Primer to teach you the process of creating your own customized Indicator, System Test, Exploration and Expert Advisor. There is an impressive database of custom formulas easily accessible from our website. The MetaStock Support team also offers a formula writing service.
- A vast array of live, recorded and written resources that teach the specific features of MetaStock products and trading insights from industry experts.
- Various subscription and purchase options to get the best value for your current or new MetaStock product.
- Learn from and interact with experts at live seminars and at our upcoming annual MetaStock Conference 2010.
- Comprehensive technical support.
- The User Groups and the MetaStock Forum provide the benefits from sharing expertise, experience and knowledge within a community of MetaStock users.
Take a momentary step back from your current trading and if you can identify an opportunity to fine tune your approach; just give our team a call and they will be happy to assist you in finding the best available resources and products for more profitable trading. 1-800-882-3040 or 001-801-265-8886 email: sales@equis.com
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