Stocks & Commodities V. 24:1 (54): Futures For You by Dan O誰eil

Stocks & Commodities V. 24:1 (54): Futures For You by Dan O誰eil
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Stocks & Commodities V. 24:1 (54): Futures For You by Dan O誰eil

INSIDE THE FUTURES WORLD

Want to learn how the futures markets really work? Dan O誰eil, a principal at online futures and forex broker XPRESSTRADE (www.xpresstrade.com), responds to your questions about today痴 futures markets. To submit a question, post your question to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.

Jeffrey Owen Katz is a professional trader and consultant specializing in predictive modeling and forecasting. He is president and founder of Scientific Consultant Services, a company focused on the development of sophisticated artificial intelligence (neural networks and genetic algorithms) software, primarily for application in the financial markets. He was first to develop a commercial neural network forecasting package for the Standard & Poor痴 500 (NexTurn, released in 1989). He introduced the first 32-bit neural network development tool (N-Train). He was the first to make artificial intelligence technology accessible to TradeStation users through such products as TradeNet and TS-Evolve. He was also the first to publish a paper on genetically evolving rule-based trading systems. He has published a number of articles in a diverse selection of professional journals, trade publications, anthologies, and also coauthored (with Donna L. McCormick) several books. STOCKS & COMMODITIES Editor Jayanthi Gopalakrishnan interviewed Katz via telephone on November 10, 2005.

Q: How did you get interested in the financial markets?

A: Back in the 1970s, I used to dabble in stocks, and at that time, William O誰eil was publishing Daily Charts. I would go over those charts and visually backtest different kinds of systems. I found one pattern where there would be a very low-volume, low-liquidity stock usually an oil stock and you壇 see a spike in volume and prices would start going up slightly instead of just staying flat. That would be a good breakout-type signal for buying. In those days, breakout systems worked well. I was hooked! I was only sporadically involved in the markets until about 1986, when the personal computer came along and I got more involved. CompuServe got started about then, and using it you could download actual data, so I started putting together databases and trying to implement in Fortran the same kind of system I used with Daily Charts. By then, though, the breakout system had stopped working as well in stocks. Stock prices moved too suddenly; by the time there was a breakout, it was already too late to get into a profitable trade.

Q: What was the difference?

A: In the early days, before the advent of low-cost, high-speed computers, breakouts would occur and people would see them and jump in, but slowly. Or the rumor mill and tip sheets would pick up on a stock, triggering a slow inflow in the following weeks. Markets were slower and less efficient in those days, which gave you time to jump on a trend. By the time I started playing with the markets using computers in 1986, things had sped up, with information being disseminated faster than ever. When a stock moved, it moved fast, with no tradable follow-through.




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