Nov

24

Practical forecaster's almanacEdward Renshaw's "The practical forecasters almanac" (Business One Irwin, 1992), is filled with different ideas and relationships in economics and the stock market.

Ok, I cannot agree with the conclusion of one reviewer on Amazon: "You'll eliminate the need for complicated statistics and computer programming". Ha! Ha!, I want to ask him: "ever heard about changing cycles?"… I guess not. But one does get very many ideas, for follow up on how the pattern has done lately, or just inspiration to tweaks, or for combining with our favourite concepts, and other things we always wanna do when we see a study. It is an especially interesting book if you have a longer term perspective, or want to get the bigger picture for your short term trading.

An example: Residual Volatility and the S&P (this also reminds me of a study Chair did and showed in Active Trader Magazine once, but Chair used the spread in individual stock returns if I remember correctly).Renshaw writes: "Volatility is not necessarily bad for investors if the stock market has been declining or going nowhere. In table 3.31 we calculate a residual volatility measure for the S&P index by subtracting the absolute value of the current year's financial return for the index from its annual high-low ratio expressed as a percentage point range. When the residual volatility has exceeded 16 percentage points, the financial returns for the S&P index in the following year have always been positive since the beginning of World War Two."

The "residual volatility" is currently close to Renshaw's figure, but you can of course run a regression to get a better grip. But the main point with the book is this: You will find many ideas for testing, and thus I recommend the book for the researching speculator.


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