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Q. I was reading about your method of trading and you where saying that you use the
abc wave in conjunction with float analysis Is this abc wave your talking about is it the abc correction wave in the Elliott wave pattern.
A. ABC waves are a simplier way of looking at price action than Elliott Wave patterns. The idea is that prices only move in two basic patterns 1) In stocks moving higher that you want to go long, the pattern is Up(A)-Down(B)-Up(C) and 2) in stocks moving lower that you want to go short, the pattern is Down(A)-Up(B)-Down(C). So you either have ABC ups or ABC downs. In both cases the idea is to get on board as close as you can to the beginning of the C wave.
Q. On page 3 of The Precision Profit Float Indicator, you mention how the AMEX and
NYSE differ from the NAZ in their accounting of volume. Can you please clarify for me just
how you adjust the numbers for NAZ stocks so that 100 shares traded between 2 parties is
seen as 100 shares and not as 200. How can I make this adjustment ? Thanks for your
help!
Double Counting is no longer an issue.
With the implementation of the Riskless Principle Rule on
February 1, 2001, the New York, American and NASDAQ stock
exchanges all calculate volume of shares traded in the
same manner. Thus if 100 shares are traded between two investor,
the volume is reported simply 100 shares. Prior to this date, the NASDAQ market practice a 'double counting of
shares. Because my first book (The Precision Profit Float Indicator) was written before the
change, all calculations take this double counting into account. Float Analysis studies the
transfer of stock from one party to another. Thus I preferred the NYSE and AMEX method
and I welcomed the change that NASDAQ finally made. When analyzing stocks on all
markets now, 100 shares traded between two parties is seen as 100 shares and not twice
the amount. When my book "The Precision Profit Float Indicator" was
re-published by Wiley under the new title "Float Analysis",
the footnote on page 3 was changed to inform
readers of the implementation of the Riskless Principle Rule.
Q. I use Metastock end of day (ver 7.01) and get data from Quotes Plus. I would like
to buy the indicator add ons developed by Jan Arps but I do not understand how
the float data works given the limited nature of the download (ie open, high, low,
close,volume). What do I have to do to make these add ons work best within the
Metastock program.? (1/20/04)
I don't recommend my indicators on MetaStock as its platform has several limitations.
The folks at MetaStock were unable to get the float
channel lines to produce alerts and you
have to enter each float number by hand. This means it's great for analysis but lousy for
finding good stocks and slow in operation.
The folks at TradeStation were able to get the channel
lines to produce alerts but you still
have to find and enter the float numbers one stock at a time.
Currently the best charting software is made at www.StockSharePublishing.com. They charge a one time fee and they use free data sources. You type in a symbol and get a float
chart. I use it a lot. But presently they don't have a way to generate breakout and
breakdown alerts.
QCharts also has floatcharts but their float channel
lines are not exactly designed properly.
(They didn't ask my help in producing them, didn't include my name
on them, so I don't endorse them). But they do
have all stocks and you just enter a symbol and charts are
generated quickly. They charge a monthly fee. I actually like their platform as you can
track industry groups easily and generate lists by float turnover rates.
My site (which is hosted by siXer.com) does have
breakout and breakdown alert lists for
1200 stocks But the charts that siXer makes are inferior in that
the channel lines become inaccurate as they
move toward the left of the chart.
My goal is to have a site that generates signals for the entire market and I'm working
toward this.
Q.
How do I tell a 'good chart' from your method?
Regarding how I tell a 'good chart', I'm always looking
for stocks that have made long declines and are
turning around and moving up through their top
float turnover channel line. I want to see them
experiencing heavy volume near the breakout.
(I only trade in stocks
that are trading a couple hundred
thousand shares a day. You
don't want illiquid stocks.)
After their rise on heavy volume is over,
I then watch to see if they pull back on light
volume. I want the pull back to come down to
levels that correspond with the heavy volume
near the breakout. These previous breakout
'Days of Strength' are very important to look for.
Then I want to see them begin to move up again.
It is here that I buy them. Think of the
move as an ABC structure. A is up on strength. B is the
pull back on light volume. C is the
money making move. Buy at the bottom of B just as C is
beginning to occur. The market moves in waves.
Buy the pull backs.
Also
remember to use a stop loss point at
the bottom of the B wave (Don't
actually place
it with your broker though as the
market makers and specialists can
see those orders and
they'll come after them and you'll
end up being the best price at the
bottom of the market.
Ugh!)
Don't
risk more than 1% or 2% of your
money on any one trade but use
position sizing to leverage your
portfolio (I talk about position
sizing in another question
below.) This way
you can take a large position and
really move your portfolio.
Q.
How do you determine where to place stops?
Stops should be set according to the risk involved
and the methodology / system that you're using.
You don't want to risk more than 1% or 2% of your
total capital on any one trade. That way
it will take between 50 to 100 trades to wipe you out. So if
your total capital is $100,000 then your risk would
be $1000 to $2000.
Now let's say you're waiting for a stock to pull back to a
pre-determined entry (support level) point of say
$25.15. You have to also find the point below the
entry level where the stock will prove your analysis
wrong. This is your stop point. So if you predetermine
that if the stock gets to $24.65 your call was
wrong then your have 50 cents difference
between your entry and your exit point. That 50 cents is
your risk... the "R Factor".
Now your divide the 50 cents into the $1000 total
risk and that tells you how many shares
to buy. $1000 divided by 50 cents is 2,000. So you buy
2,000 shares at $25.15. The cost is $50,300 plus
commissions. Sounds like a lot, but
remember your only
risking 1% of your capital.
Now if the stock drops to $24.65 YOU HAVE TO
HAVE THE DISCIPLINE TO GET OUT.
Now if your analysis is right and the stock moves
up, you want to hold for at least 3 R or 3
times the risk you took on. So in our example, if you bought
2,000 shares at $25.15 and your risk is 50 cents,
then you want the stock to get to $26.65 which
would be 3 R or $1.50 past your entry point.
Thus you have a risk reward ratio of 3 to 1.
What you don't want is a lot of little wins and
a few giant losses. It has to be the other way
around to be successful. If you're in a bull market and your stock
reaches your target point and you think it's a
good long term prospect, then only sell that
number of shares that totals the $50,300 you
put in (plus commissions) and leave the profitable
'silk' shares to ride. In a bull market
the Silk Shares will help
your portfolio move up. In addition,
you should have
a predetermined sell point if the silk shares start
to drop...like 25% from their peak or 2 swing
points away from their high. You don't want to
hold on to profitable silk shares that melt away
to nothing.
The best book written on this subject is
Van K. Tharpe's Trade Your Way to Financial
Freedom. It's excellent.
Q.
Are your recommendation always
making money? Do you not have failed
calls? The examples seem to indicate
that there is always winners?
No one ever picks winners every
time! In fact, successful traders have percentages a lot
like top baseball hitters. You see, you can be quite successful even if you have
more losers than winners. Sounds strange but the trick
is in having small losses and big wins.
Float Analysis is a new method of helping traders and
investors in the stock market. It does not guarantee
success. That has to come from within yourself.
More important than methodology are inner psychology
and money management. They are the keys to
success.
Q.
When do you determine to take your
profits?
We advocate a “Silk
Share” method of taking profits.
Simply put it means
“don’t take your profits,
instead leave them.”
By this we mean if you are in
a winning position and want to take
your profits, don’t, just take out
your invested capital plus
commissions and leave your free and
clear ‘silk shares’ to ride.
This has a number of positive
benefits on one’s portfolio that I mention in my book.
Mostly it allows you to stay
in a position and it allows you to
look for other opportunities.
With the silk shares we
recommend placing a stop one or two
intermediate swing points away from
the present price.
This way you give the stock
’room to run’ but limit its
downside risk in the event of a
major drop in value.
Q.
What is your policy regarding using
Stop Loss Orders?
We
advocate STRONGLY the use of stops. Either
Discretionary or Actually Placed
matters not.
Traders must learn to cut
their losses short if they plan to
trade successfully. But we
view stops as an individual or
personal matter.
This is because stops will
vary according to how aggressive a
position a trader is taking.
We feel strongly that a
trader should never risk more than
1% to 2% of his total account value
on any one trade. BUT there is a
wide spectrum of ways to do this ranging from the most
aggressive type of trading to the
least aggressive trading.
Thus the most aggressive
trader would be putting all his
capital into one position and use a
very tight stop to exit at a 2%
loss.
The least aggressive trader
would be putting 2% of his capital
into one position and not have a
stop at all but just let the
position ride.
A middle ground would be
putting some percentage of your
account into a position with a stop
at a nearby swing point.
Because of this spectrum, we
cannot tell our clients where they
should place a stop because we have
no idea where he is in the
spectrum.
Q. How did you decide where to start adding the
float? Is this a running indicator or do you start
over periodically?
A. The numbers are recalculated daily much like
a moving average. Each day you add in the new
volume and continue backwards until you get to the
bar where the cumulative total is equal to or
greater than the float. On the original indicator
a dot is placed above that bar and then two lines
are added that mark the highest and lowest prices
during the backwards count. Thus a rectangle is
created which is called a "float
turnover". The shape of the rectangle is
constantly changing as new volume is added in.
Generally, at bottoms the rectangle is long and
flat and at blow off tops it is tall and narrow.
Q.
On Amazon.com, a reviewer of your
book stated that your ideas are a
‘Scam’ and a ‘Con’!
What is your response to his
comments?
I
must admit that I was rather amazed
by the review.
It seemed that its author
didn’t grasp the basic premise of
the book…that float turnovers
(which are a proxy for a change in a
company’s ownership) occur at
major turning points (accumulation
bottoms and distribution tops) in a
stock’s price history. He obviously didn’t do much investigation into this idea
because if he had he would realize
it is irrefutable.
My indicators simply track
float turnovers as they change from
day to day.
They are what they are,
simply a new way at looking stock
charts.
Calling them a scam is kind
of ridiculous, it’s like saying a
50 day moving average is a con.
I think not.
Q.
On P.17 of your textbook you discuss recalculating the horizontal lines if
the price penetrates either the top or bottom line. Can you please explain.
Simple concepts sometimes have confusing elements
in order to make them work
effectively. By definition, the top
and bottom lines of a float turnover
rectangle are determined by finding the highest and lowest
prices during the backwards count and plotting them at
those levels. The problem arises that if the price breaks
above a current trading range then the top line is re-plotted
at the new high that has just been made and you never
see the price breaking through the top line of the trading
range and therefore you never get an alert. This is because
if an alert is to be given, the line has to have the price moving
through it. So if we want to see the price breaking out
and penetrating above the trading range, the lines have
to be stationary on the day of the breakout. Otherwise
the line moves up with the new higher price and you never
see the price penetrating out of the trading range and you
never get alerted. So the software is programmed to not
move the lines on the day of the breakout but keeps them
at the levels of the trading range that the price broke
above (or below). This then allows us to use the lines to generate 'alert
signals' for the day of the breakout.
So whenever the price breaks through the upper or lower
line the price is shown penetrating above or below the line
for that bar for that day. But if the price just moves between
the top and bottom lines without penetrating through the
lines then the lines stay constant at the highest and lowest
price levels.
Q. Have you tried adding up those for all
stocks in an index with a limited number of
stocks, say DJ or SP100 so as to see where the
ownership of the index went?
A. So far I’ve only done this with some
sector groups. But at some point in the future I
plan to not only study the major indexes but also
industry sector analysis.
Q. As more of a futures trader I am wondering
if this has application to futures contracts. Have
you ever looked at that? Float could be open
interest and daily volume is clear but I wonder
whether you would want to do all the contract
months of a particular commodity or just the lead
month. Probably doesn't matter. Anyway, have you
looked at futures?
A. I don't trade futures. I can't answer
questions about them. Many people have brought up
your question and I just don't know the answer.
But I received an email
from futures trader Yuki Taga and
here is what he says concerning this
question:
"Someone asked
you if Float Analysis is applicable
to futures contracts (on your FAQ
page), and you answered that you did
not know. I know. It is
NOT applicable to futures contracts
for one simple reason: There are an
infinite number of contracts
possible, rather than a (semi-)
fixed supply, as exists in
stock. Quite simply, there is
no 'float' in futures, so there can
be no float analysis. Futures
contracts are created in whatever
amount the market demands.
Futures is a pure 'zero-sum' game,
as well, unlike equities. In
futures, all money lost, every cent,
is won by someone else, and vice
versa. In equities, this is
not true, as money simply 'evaporates'
for the most part when shares
decline in value, and money is
literally 'created' when they rise.
Best,Yuki
Q. What source do you use to find a
company's float number?
A. Float numbers for all
companies are found at a variety of
public sources including Yahoo
Finance, Multex, and ClearStation.
To find a company's float number, go
to Yahoo Finance (http://finance.yahoo.com)
and type in a company symbol and get
a price quote for that stock
(Example: MSFT for Microsoft Corp.)
Then click on the 'Profile' page
option. On the Profile page
you'll find the float number in the lower left
corner.
Q. How do you figure out the real float of a
company? For example if JP Morgan owns 5% of more
of stock, they are not considered part of
management unless they have voting rights? How do
you figure out what can and cannot be included to
figure out the real float? To me, management would
be day to day people operating the company, but if
the institution is restricted from selling and has
voting rights, do they now become part of
management and excluded from float?
A. My research has shown that minor differences
in the float number do not substantially change
the dimensions of the float turnover rectangle.
Finding the "exact" float number for a
particular stock will drive you nuts. It is very
difficult to do. Even when you come up with a
"reliable" number from one source, you
may find a conflicting number from another source.
And then the number may change from one day to the
next. So all I do (if I’m thinking about trading
a stock) is get the current float number and go
with that. This works for me. You have to do what
works for you.
Q. If I purchase the indicators from
Jan Arps, are you able to supply a list of those
companies that you have already calculated the
number of shares that would constitute a stock
turnover for each company that you have so far
calculated the numbers for? And if so what that
cost me?
A. I don't have any lists
of stocks with float numbers. You decide which
stocks to analyze and you find the float numbers
for those stocks. I find that high relative
strength stocks, with small floats and fast
turnovers are the easiest to analyze so here's
what I do.... I read Investor's Business Daily and
go through its "Where the Big Money's
Flowing" stock tables looking for relative
strength stocks of 97 -99. Because my software is
set up with a "boilerplate" indicator
template, finding the float number from Yahoo,
plugging it in and loading the stock takes less
than a minute. Then at the end of the day I use
the scanner in the software to search for
breakouts. Here's one trick that is used by some
traders: when you enter the float number make it a
little less than the actual float number then
you'll get alerts right before the actual breakout
occurs.
Q. You have stated that your indicator can
predict tops with 100% accuracy? Have you found no
examples where after a confirmed top is reached
there is no subsequent rally to a higher level,
regardless of time period involved?
A. A float turnover will ALWAYS be found right
at the top. A float turnover defines a top.
Because the indicators alert us to when the float
turnover at the top has occurred, it is 100%
accurate at the top. BUT it is quite possible for
the stock to come down and form a float turnover
base of support and then rise to new heights. In
that case the first top under study would be
classified as an intermediate top. Once the price
is in new high ground again, eventually a new top
occurs and a float turnover is once again found
right at the top.
Q. Because a float turnover is by definition
imprecise, it seems that using the float number to
define the rectangle is rather arbitrary.
Wouldn’t any size rectangle fit at the top?
A. Yes any size rectangle would fit at the top
(within the limits of the volume being used). BUT
we are looking for changes in ownership thus a
rectangle that is defined by the float number has
natural or intrinsic value and is the "best
available value" to use.
Q. What do
you think is
the most important discovery of your work with
Float Analysis?
A. Beyond a doubt
the most important idea is that single float
turnovers ALWAYS occur at long term bottoms and
tops.
Q. How is it possible that this
hasn't been noticed before? If it really happens
and if it's that simple, wouldn't it have been
noticed some time back, say 200-300 years ago when
stock exchanges began?
A. – The fact that no one has noticed or written
about this phenomenon is rather amazing. Until the
invention of personal computers the task of adding
up daily or even weekly volume numbers was a very
difficult task. It can be done (before I got a
computer that’s how I did it) but just keeping
track of a few stocks that have millions of shares
in their float is very time consuming. I think it
is likely that some professionals have used these
ideas but have kept them as part of their trading
secrets.
Q. It seems rather hard to believe that the
number of shares traded at a bottom or a top would
equal the number of shares in the float! How is
this possible?
A. One way to look at is that the float
turnover is just a simple cumulative total of
shares traded within certain time boundaries; the
number of shares in question has to fit somewhere
at the top or bottom. I like to think of the
floating supply of shares as the missing piece to
the price and volume puzzle. Stocks trade in
relation to the number of shares actually
available for trading. Without the float a price
and volume chart is only two-thirds of the puzzle.
Q. If these indicators are so cool how come
they can’t be found on other sites like
BigCharts.com, AskResearch.com and
StockCharts.com?
And why are they not included in software packages
like TradeStation and MetaStock?
A. The mainstream technical analysis community
is only slowly realizing the power of these
indicators and what they show. Although the Woods
cumulative volume float indicators are basically
very simple common sense concepts, they are not
easy to program. At some point TradeStation
and MetaStock may incoporate them
into their basic package.
Q. Why is it so hard to historically back test
these indicators?
A. An easily accessible historical database of
float numbers doesn’t exist.
Q. Are you willing to share the TradeStation
code with us so we can plot it?
A. I don't know a thing about software code. I
had to hire a systems analyst (Jan Arps at
www.janarps.com) to write the indicator software
for me. He's a certified solution provider for
TradeStation and he and I sell the indicators as
add on software to SuperCharts and TradeStation.
They are availiable at his website. Jan is a
retired commodity trader who loves to write
trading software. He talked me into writing the
article for Stocks and Commodites magazine (Dec.
1996) that is now posted here on the website.
Q. How can you actually measure or calculate
the float if you have 10,000 day traders buying and
selling a certain stock over and over in a two
week period? Yes, volume has added up and gone
sideways, but shares have just been bought and
sold by the same individual. There is actually no
new owner of the shares or "float"
because it has just been day traded to death. What
is your take? Thanks. Dominic Arnold
A. Unfortunately, it’s impossible to say how
much of an impact that daytrading has on float
turnovers. I think it impacts some stocks a lot
more than others. Day traders as a group generally
trade the highly liquid, big daily volume
"Generals". Realize also that float
turnovers by definition are imprecise. We can
never really know for sure what percentage of the
float has traded hands in a float turnover. What
we can say is that the cumulative trading volume
over a period of time equals the float. Thus float
turnovers are a "proxy" for a change in
ownership as they are the "best
possible" way to look for a change in
ownership. Also when you realize that float
turnovers ALWAYS occur at "absolute"
bottoms and "absolute" tops then they
also become a point of reference or a measuring
rod to determine where the stock is, in its
natural price progression.
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