Technical Trading

A reader, citing a technical indicator recommended in Mastering the Trade by John Carter, inquired about the usefulness of watching for times when certain Bollinger Bands (upper and lower bounds two standard deviations from a 20-day simple moving average) converge within a certain Keltner Channel (upper and lower bounds 1.5 times the 20-day average range from a 20-day average typical price). Breakouts from this condition are supposedly reliable for both indexes and individual securities, meaning that price continues in same direction for a while without material reversal, because the condition represents true “consolidation.” There is no specification for trend duration after these “reliable” breakouts. Using daily high, low and unadjusted closing prices for S&P Depository Receipts (SPY) for band/channel calculations, and adjusted closing prices for return calculations, over the period 1/29/93 through 1/8/10 (nearly 17 years), we find that: Keep Reading

A reader requested a review of the TimingCube market timing advisory service, which relies “on the Trend Timing Model to detect major trend changes in the broad market and to issue clear, definitive Buy and Sell signals, on average three to five times per year.” The offeror provides a history of “all ‘live’ TimingCube signals since June 18, 2001.” Using this record of 36 signals, daily S&P Depository Receipts (SPY) closes adjusted for dividends over the period 6/17/01 through 12/16/09 and daily closes of the S&P 500 Index over the period 8/30/00 through 12/16/09, we find that: Keep Reading

A reader asked: “Could you review the track record of MarketTrak? Their timing is based on neural network technology and looks at first glance reasonable. Is there any evidence that a neural network provides an edge in market timing?” Keep Reading

A reader requested a review of the trading advisory service offered at StocksandBulls.com. The FAQs there state that the site “contains the information that is required to successfully trade the stock market on a regular basis with our ‘home growned’ robust trading system. From recommended buy and sell signals, all generated one day in advance to showing the end results, all is posted in total transparency.” The FAQs further state that the methodology used is “capable of detecting logical and profitable buy and sell signals quite accurately on stocks, without any guesswork left for users to do.” Using the trading record on site from inception on 2/13/06 through 12/14/09, we find that: Keep Reading

A reader asked: “Can you elaborate on high frequency trading order executions and possibly on corresponding techniques?” Keep Reading

What fundamental and technical factors are optimum for stock selection, and how well do they work? In the October 2008 draft of their paper entitled “Case Closed”, flagged by a reader, Robert Haugen and Nardin Baker present a model of future stock returns based on multiple regressions of 12 factors they find most significant in predicting monthly returns. Using monthly data for a sample of U.S. stocks over the 45-year period 1963-2007, they conclude that: Keep Reading

A reader asked: “This paper tests 5,000 technical trading rules and comes up empty on all of them. Not even say 200 were good. Has this paper been vetted by anyone? Is it iron-clad? The authors write: ‘We find that many technical trading rules produce statistically significant profits before consideration is given to data snooping bias, but this profitability disappears after data snooping bias is taken into account.’ How are they doing ‘data snooping’ detection?” Keep Reading

A reader asked: “I am curious how reliable some of the factors referenced in the Stock Trader’s Almanac are, but I see no reference to it on your site. Could you review the book and/or the primary strategies in the book? I would be curious to have your perspective on how rigorous its analysis is.” Keep Reading

A reader asked: “I’ve always wondered about these computer stock trading programs you see on infomercials, such as this one (there are many others). They seem to promise ‘easy’ profits–all you have to do is buy when the program tells you to buy, and sell when it tells you to sell. Of course, if it was that simple, we’d all be rich. But how effective are they?” Keep Reading

A reader asked: “Please do an analysis of the IBD Market Pulse column. Do their ‘Market in Confirmed Uptrend’ calls really work?” Keep Reading