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Last week, I promised to provide a template that illustrated what I think is
valuable about Alexander Elder's multi-period perspective and why I've been
making such a fuss about it. The attached graphic fulfills my promise.
I've attached a small .gif that contains a chart of the S&P500 for most of
1997 through Friday 1/16/98.
Three indicator windows are included below the price chart.
- The first indicator window contains three indicators calculated from
daily S&P500 data.
- The second indicator window contains the same three indicators calculated
from actual weekly (not synthetic daily) data.
- The third indicator window contains the same three indicators calculated
from actual monthly (not synthetic weekly or daily) data.
The three indicators are:
1 Default parm stochastic (5,3,3) ==>> Heavy red line with light blue ma
and 20/80 lines light red.
2 MACD based on an exponential ma (9,18,4) ==>> Heavy green with zero line
light green.
3 A Smoothed Rate of Change (5,3) as described in Elder's book "Trading for
a Living" ==>> Dark Blue with zero line light dark blue.
I like using these three indicators because they mostly move together and
can be used as confirmations of one another. In the text below, I'm going
to reference the stochastic indicator only but in fact I mean below all
three indicators taken together.
Examine the price chart and the indicator windows together. Assess the
quality of a daily stochastic breakout or breakdown above 20 or below 80
with relationship to price in view of what the weekly stochastic is doing.
Question 1: Isn't what the weekly stochastic is doing a better confirming
indicator for the eventual quality of a daily stochastic breakout or
breakdown than daily price itself? I think the answer is yes.
Question 2: Would you like to create a Metastock exploration that provides
you with the list of issues for which there has been a breakout (breakdown)
of the daily stochastic and the weekly stochastic is above 20 (below 80) and
sloping up (down)? The reason for my initiating the "San Francisco Dinner
Challenge" is that I think this would be a valuable thing to be able to do
and it currently cannot be done without going through the kinds of
shenanigans
that Paul and Rick have gone through.
You may remember that I said I thought that Elder's contribution was unique
and valuable.
Please note also that, at this writing, as far as I know, only Alexander
Elder has a
clear description of what this graphic illustrates. Rick has mentioned that
others
discuss it. Do you have specific references for us Rick?
More on Paul and Rick's work on the synthetic weekly stochastic from the
daily data later...
Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx
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