March 2001

Every so often some trader engages in a discussion with me regarding the virtues of plotting 45 degree lines on their chart.  Invariably their infatuation with this idea is based on a shallow understanding of what a 45 degree line really means, or is supposed to indicate.  Their introduction to 45 degree lines is usually from reading something about the works of W. D. Gann and how he plotted 45 degree lines on his charts.

Tip:  Plotting a line on your computer generated charts physically at a 45 degree angle is worthless.   The truth of this statement will be illustrated in this article.

To illustrate the problem with a 45 degree line, compare these two charts.

The blue line is plotted at a downward 45 degree angle in both charts, but as can be seen, the line passes through the chart bars in different places.  The line which looks very useful as an indicator of a trend in the left-hand chart suddenly looks useless in the right-hand chart.  So what happened?   The vertical spacing of the chart scale changed!

Computer generated charts typically use a scale range that covers the highest high and the lowest low of the data set that is being plotted.  This scale is mapped to the physical size of the chart window, which might be a couple inches like my examples, or it might be the full size of your monitor display.   Not only can the range be dynamic, but the bar spacing is also dynamic.  The following example uses the same range as the 1st chart, but with a narrower spacing between the bars.  The position of the 45 degree line appears quite different now.

Since 45 degree lines are so arbitrary in their relationship to the bars, what then was W. D. Gann doing in plotting 45 degree lines on his charts?  Gann referred to the 45 degree lines as 1x1 lines (one by one lines).  The line was being plotted on his charts with a mathematical slope of one unit of price per one unit of time.  Gann would manually construct his charts using graph paper with a square grid.  The vertical price grid would be labeled with a price interval such as 2 cents.   Thus, the price unit is the grid interval of 2 cents.   The bars would be plotted on the horizontal grid, such as a daily bar on every grid interval.   Thus, the time unit would be one day.

A graph constructed in this manner would give his 1x1 line the following slope definition:   2 cents per day.   A line with this slope could be easily drawn using a 45 degree triangle because of the way the graph paper was laid out.  So, a 45 degree line and a 1x1 line would be one and the same thing only when a specific graph paper grid is used.

Tip:  When you use computer charts with dynamic scale ranges and dynamic bar spacing, you must draw 1x1 lines according to a slope definition.  The plotted location of the 1x1 line may or may not (usually not) be at a 45 degree angle.

Tip:   When you see a reference to a 45 degree line, always observe the price grid interval, and the time interval so you know the 1x1 definition for the slope.  The slope will be one unit of price for one unit of time.  Once the slope is known, the same line can be drawn on your computer generated charts.

In Ensign Windows, the slope of a trend line is shown as one of the parameters for the line.   If you want a line to be drawn with a specific slope, you can edit the slope parameter.  The slope of the line in the following chart is -250 points per bar.   The line will plot in the same position through the bars regardless of changes in the scale range or bar spacing.  As changes are made to the chart grid, the angle the line is plotted at will change.  The line's slope will remain constant.

Howard's remarks:

The ASI has the characteristic that the scale range can shift as new lows or new highs are put in, and as oldest bars are dropped from the chart when new ones are being added.   This is a characteristic I pointed out to Don Hall some months ago.

The ASI is plotted on a percent scale, and when the ASI is on the panel bottom one mistakenly thinks that it cannot go lower, but it can.  The scale range will shift to include the new lower lows.  Of course, the lowest low will always plot at 0 percent and the highest high will always plot at 100 percent.   What used to be the lowest low and plotting at 0 will now shift higher in the panel when a new lower low is put in.

That is a characteristic Don Hall does not point out in the charts shown in his book.  He always shows a downward sloping ASI line to a bounce on the bottom of the ASI panel.   What he failed to point out was that as the downward sloping ASI line was being made, its image behind the current low point was ascending, and that every new low would plot on the bottom of the panel.

So, I suspect the vertical shift in the ASI plot location one sees is just the result of the shift in the range from the highest high to the lowest low, which is particularly evident when the ASI is putting in new highs or new lows.

Don's remarks:

We all learn from each others' experience---Howard was gracious to explain the inside formulae of ASI---most of us use barometers without exact knowledge as to how they are algebraically put together.  However, Howard is an exception.  He is further advanced than most of us in this field.  So I learn as well---so long as I am willing to have an open mind to the problems, and I have tried to learn as well as we share info.

I discussed this with Howard after he pointed out that I would need an adaptable scale for different commodities---he was right, of course, as we both have come to expect.  I tried to utilize this after I realized that this function of 0 to 100 exists for any major move (not necessarily THE TOTAL move).  I found that the changing of scale was difficult to use inasmuch as the scale would be hard to learn (let alone teach) since the need exists (I feel) for arbitrary changes in the scale with high volatility changes, as well as different commodities---unless we did use it as Wilder originally presented--this way.

So here is the answer that I have found to this query:  Since barometers nearly always "lag", and since Pyrapoint is designed to give a look at the "expected future", you will note that the book will always show ASI "down under" on any bottom, and vice versa---however, keep in mind that we are looking at barometers which characteristically have a "lag" to their disposition.  This is the reason in the book that our references to ASI is a CONFIRMATION UTILIZATION to the base indicator --- the Pythagorean Diagonal or Square Position.  Refer to our earlier discussions per the P.D.---IT is the Ruler, confirmed only by ASI.  Let me suggest a clue of assistance here:  use as your guide the price/relationship to the P.D.---then check to see if this particular wave that you wish to trade (the only one that can make us $, right?)  is indeed in any conflict with ASI or other barometers.  I fear that using any of the lagging barometers will lead us down a path of dependence which needs to be carefully scrutinized.  Am I saying: "don't worry about the ASI?"---not at all---just use it as explained, and it will serve you in this capacity well. 

Don't let this one throw you off the good track that you are accomplishing!  Best to you---and I do hope that this helps.   -Don Hall

The Nasdaq Exchange is scheduled to transmit 15 issues in decimals on March 12, 2001.  Another 180 symbols will be converted to decimals on March 26 with the remaining symbols on April 9th.  The NYSE exchange completed its transition to decimals on January 29th, 2001.

Tip:  In Ensign Windows, click menu SetUp | Computer and change the Stock Quote Format selection from Fraction to Decimal.   The prices are correct regardless of which display format is used, except that a price may be rounded to the nearest 64th when fractions are used.

"In January 2000 the Securities and Exchange Commission (SEC) ordered that the U.S. equity and options exchanges implement decimal pricing in the equities and options markets beginning no later than July 3, 2000.  Subsequently the order was suspended and the SEC requested that a plan be put together by the exchanges where the exchanges would begin phasing in the implementation of decimal pricing in equity securities and options on or before September 5, 2000."

"The exchanges recommended that decimalization be phased-in following a plan that consisted of four phases, the last phase being full implementation.  This plan also included a provision defining the minimum price variation (MPVs) for equity and options securities:"

1 cent (0.01) for equity issues
5 cents (0.05) for options issues quoted under $3 per contract, and
10 cents (0.10) for options issues quoted at $3 a contract or greater

"(MPV is the smallest possible price movement of a security).  The implementation period began on August 28, 2000 and will end with full implementation of decimal pricing for all equities and options on or before April 9, 2001."

"This change is significant because the minimum price variation (MPV) is being decreased from 16ths and 32nds to nickels and pennies.  This decrease in MPV is expected to result in dramatic increases in market data traffic as the number of tradable price points are increased.  This increase will also result in more quotation traffic to move a price, and the potential for narrower bid/ask spreads."

"At the same time that decimalization is being introduced, there are other developments in the market that are resulting in increased market data traffic.  These include: startup of the new International Securities Exchange (forecast to increase equity market data traffic by 30%), the multiple listing of heavily traded options classes, increased quoting due to changes in rules for Alternative Trading Systems (forecasted to increase traffic by 11%), and market maker agency quotes in the Nasdaq market (forecast to increase traffic by 8%)."

Over the past month I looked at new computers at Sam's Club and at Circuit City, but ended up buying another computer on the Internet from uBid.com.  I say another computer because over the past few years I have bought more than 30 computers from Internet auction sites such as uBid for my business, family, friends and for resale.

For the most part, these computers from the Internet auctions have been trouble free and like new.  I have stayed with name brand computers like Hewlett Packard (HP).  Many have been the HP Pavilion series, which I have been very pleased with.  Of the two that I have had problems with, they were being sold on the auction as a single unit as opposed to a group quantity of 5 or more.  The quantity might be a good clue to indicate whether the computer is coming from a dissatisfied owner or from the manufacturer.  Still, both problem computers came with a 30 or 90 day warranty from HP, and the local HP service representative repaired the computers by replacing parts until the computers were reliable.  In one case the motherboard had to be replaced and in the other case, the CPU had to be replaced.  Neither repair cost anything because of the warranty from HP.

The computer I bought February 24th from uBid was offered in a group of 6, and several identical groups of 6 were offered throughout the day and on other days.  I think this is an indication of a production overrun from Hewlett Packard that is being disposed of through the auction site.  They are listed as being 'refurbished'.  However, my experience in the past is that HP's 'refurbished' computers have been brand new with everything in virgin packaging and condition, except for the two mentioned in the previous paragraph which were sold as singles and apparently came from individuals instead of from Hewlett Packard.  The box the HP computers come in has a 'Refurbished' label on the side.  But it is still my personal opinion that the computers are brand new and are production overruns being liquidated through the auction.

The computer I bought is an HP 8765C Athlon 900MHz, 128 Meg RAM, 45 Gig HD, 12x DVD player, CD-RW, 56K modem, 200 MHz front-side bus, 10/100 Base-T network card, 4 USB ports, 1 parallel, 1 game port, 2 serial ports, 3 available PCI slots, 1.44 Meg floppy, 16 Meg video Vanta 3D AGP graphics card, mini-tower case, keyboard, mouse and Polk speakers.  The computer has a 90-day warranty from HP.  An extended warranty was available, but I did not elect to purchase it.  The computer came with the following software:  Windows ME, MS-Works, MS-Money, Quicken Basic 2000, QuickLink fax, MusicMatch Jukebox, Trellix Web creation, Adaptec Easy CD Creator, and Adaptec DirectCD.  My winning bid was $809 plus $54.55 for shipping by UPS ground.  

The auction was on Saturday, February 24th, and I received the computer the following Friday, March 2nd.  As expected, everything was in virgin sealed packaging reaffirming the impression it is a brand new computer, in spite of the 'Refurbished' label on the side of the box.   I installed a 2nd PCI Ethernet card, and then powered the computer up.   It took just a few minutes to change the display configuration to select the Mag Innovision monitor I am using with the computer.  It took only a few more minutes to set the Ethernet port address as illustrated in this newsletter and have an Ethernet connection to the DTN receiver box up and running with Ensign Windows.   It took a couple hours to figure out the proper configuration to get the computer to connect to my office local network using the other Ethernet port.   Now that the computer is configured and on-line, I am super pleased and impressed with what I bought for $853.55.

I see Sam's Club sells a CTX 19-inch monitor for $269 with a $50 rebate, making the monitor price $219 plus sales tax.  I hope this information is helpful if you are in the market for a better computer.  I am not necessarily recommending that you shop at Sam's Club or at uBid on the Internet.  You should only do what you feel comfortable with.  Buy what you want to own with the features and performance you need.