sto the quote dilemma. While you can record data in Excel, I will not coverit in this book. Just remember that if you are using a live quote vendor,your pair will show live data, but will not display historical intraday chartsor movements.The actual spreadsheet for tracking multiple pairs is located in the CDROM; thus, we will not actually build one from scratch, but it is important tounderstand what is going on in this sheet.Figure 29.1 shows the sheet with only one line of data for KLAC/NVLS.However, the sheet in the CD-ROM has all of the actual data in it andincludes just under 100 pairs. Figure 29.1 displays the left side of the Monitorsheet, with 48 pairs. The goal of the sheet is to enable the tracking of multiple pairs all at one time, without having to look at all of the individual sheets.When you open the Monitor sheet, it should then give you the option to openall of the corresponding sheets, and/or update itself automatically. It isimportant to note that this will take up sufficient memory and could slow
O
233
234
TRADING PAIRS
FIGURE 29.1 Monitor Sheet
your computer down considerably. Thus, if you are using a slower machine,you may wish to not open all of the sheets all of the time. However, you willhave to open all of the sheets from time to time to update them.The way the sheet is set up allows you to quickly scan the stocks to findone or two pairs that have either diverged or are in the process of. You willnotice that on KLAC/NVLS that the differential and ratio are highlighted inpink and red. This is an automatic function of the sheet to notify you whenever the pair ascends or declines above/below ⫹/– two standard deviations.This is a “heads up” function so you can then update the information for thatparticular pair on a daily basis. By doing this, you will improve your chancesof finding a tradable pair that has diverged. What’s more, the sheet alsoshows the correlation and mean, which will assist you in understanding the
The Monitor Sheet
235
FIGURE 29.2 Downloader XL
reliability of the pair and where it has been trading. For fundamental traders,you may want to watch stocks trading close to the mean, and then using thefundamental analysis described earlier in the book, you may be able tounearth a prosperous divergence situation.The sheet also contains the moving averages so that you may have a betteridea of where the pair is trading. If you will remember from Chapter 16, themoving averages help us to identify entry points on a trade by making sure thatall three moving averages are either on the upper or lower end of the respectiveranges. In short, the Monitor sheet encompasses almost all of the data in yourregular sheets to make finding your pairs much more easy. The only problem isthat you do have to update all of the individual sheets manually, which can bean incredible pain in the derriere. If you do not wish to spend countless hoursupdating your sheets each day, I would recommend two things. First, I personally only open my sheets once every two weeks or so. Then I make a list of allthe pairs that are nearing a possible entry signal. I then update those particularsheets daily but do not waste my time updating all of the sheets that are noteven remotely within a possible trading point. You can also purchase softwarelike Downloader XL (see Figure 29.2), which will help ease the process a bit.
CHAPTER 30
ConclusionThe Market BubbleWords of CautionLast Words of Advice
THE MARKET BUBBLEBottom line, there’s always a bubble, and we have to constantly check tomake sure we’re not in it. While pairs trading is meant to hedge risk frompossible extraneous circumstances, it is critically important to rememberthat even when you are hedged, your portfolio could still be devastated.Thus, when you hear of a “bubble,” think more about your own money management skills than the actual market circumstances. If you have preparedyourself well, understand your stocks, and have tight stops, then any—andall—bubbles will simply be trading events that you either win big in, or getstopped out for small losers. As investors, we live in glass houses, and trading is like heaving huge stones of emotions. The true bubble is that of fearand greed, even if you are market neutral. Thus, pairs traders strive to breakdown the inevitable bubble paradigm by engaging in hedged trades. However, as previously mentioned, our risk increases with additional capitalexposure, and more transaction fees. Our bubble is not one of market direction, but one of efficient trading action within our own account. So, the nexttime you hear someone speak of a bubble, ask them what they mean. Afterall, skydivers without parachutes are generally more fearful than those whodo have them.
WORDS OF CAUTIONIn my final words of caution, I would like to reiterate that the informationpresented in this book does not make up a “system” in which buy and sell237
238
TRADING PAIRS
points are automatically produced. Rather, we have come up with a tradingstyle, based on hedging risk. While we do use descriptive statistics to assistin our decision-making process, we do not isolate ourselves to this one pathof trading indicators. Instead, we cross-reference our decisions with fundamental and technical analysis to make sure that the statistics alone will notprovide false indicators. I would also like to add that trading on the densitycurve alone can be incredibly dangerous. On volatile pairs, the density curvecan peg out at 0 or 1 for extended periods, while the pair continues to openup. If you do not have a tight stop loss for your trade, you can rest assuredthat you will lose money. What’s more, density curve entry signals vary fromstock to stock, so it is vitally important to make sure that you adjust theentry signal for every pair. Look through the historical data and see whatworks. Amazingly, a little common sense can save you countless hours offrustration, and may just be the savior of your entire account.
LAST WORDS OF ADVICEPlease remember that all of the information contained in this book is merelya basic guide to the pairs strategy. However, with a good understanding ofpairs trading and a little research, you can become a very successfulinvestor. All of the information in this book is meant to help you find a newmarket paradigm, with which to reshape the entire way you see investing.Lastly, please remember that the entry signals are the easy part of trading.Exiting trades successfully is what separates the novices from the pros. Ifyou cannot emotionally distance yourself from your positions, you arealmost guaranteed to hold on to losers when they move away from you. Thebest traders in the entire world are not stock pickers, but rather are moneymanagers who always make sure that they have a trading plan in effectbefore a trade is ever entered. With this in mind, good luck in your tradingventures, and remember, please take life in strides. After all, it’s only money—and family and friends are much, much more important.Godspeed.
APPENDIX I
EconomicIndicatorSummary
his appendix is in place because as a pairs trader it is crucial that youunderstand the events surrounding your positions, including economic news. I cannot enforce strongly enough how vitally importantit is to have a good understanding of the broader market. Thus, when aneconomic report is released, please reference this appendix to understandhow the news will affect your position(s).
T
ABC NEWS/Money Magazine ConsumerConfidence Index: WeeklyImportance: 4Data lag factor: Several daysA rolling average with roughly 1,000 telephone interviews from Americanadults. The Index can range anywhere from ⫺100 to ⫹100, with participantsrating the national economy, personal finances, and buying climate.
Bankruptcy Filings: MonthlyImportance: 4Data lag factor: Two monthsMeasures chapter 7, 11, 12, and 13 bankruptcy filings for each quarter:• Chapter 7: Business or personal liquidation, excluding some exemptproperty. Proceeds are given to creditors.239
240
APPENDIX I
• Chapter 11: Businesses or individuals continue operations, but aretemporarily protected from creditors while reforming finances.• Chapter 12: Aids financially stressed or defunct farmers.• Chapter 13: Creates three- to five-year payment plan for the repaymentof creditors.http://www.uscourts.gov/Press_Releases/index.html
Beige Book: Published eight times per yearImportance: 7Data lag factor: Several daysSummarizes current economic conditions contributed by each FederalReserve Bank, the data is then summarized by district. Analysts look forcomments on construction and real estate, banking and finance, agriculture, energy and natural resources, regional labor market conditions, retailsales, consumer spending, and manufacturing activity. Does not includeany hard data; thus, investors are left to sift through the Fed’s chatter.http://www.federalreserve.gov/policy.htm
Business Inventories: MonthlyImportance: 4Data lag factor: Two monthsMeasures business inventories in terms of retail, wholesale, and manufacturingdata. Analysts look at dollar value of merchant sales, along with end-of-monthinventories. In addition, the inventory-to-sales ratio measures time versusinventory depletion or replenishment. A low ratio indicates that manufacturersmust build more inventory.http://www.census.gov/mtis/www/current.html
Chain Store Sales Snapshot: MonthlyImportance: 6Data lag factor: One month
241
Appendix I
This index tracks consumer spending at larger chain stores, focusing onDepartment of General Merchandise locations. The index records data onlyfrom stores that have been in business for more than one year. Thus, inphases of rapid growth, the data may not accurately reflect actual marketconditions. Reported as a percentage change, analysts like to see stablegrowth with stronger numbers during the holiday season.http://www.btmny.com/reports/research/comment/Chain_Store_Sales.htm
Challenger Report: MonthlyImportance: 5Data lag factor: Roughly one weekThe private firm Challenger, Grey, and Christmas collects and compilesinformation about layoffs from press releases. This information is then categorized and summed in a report that attempts to give an accurate snapshotof labor market cutbacks, including layoffs from smaller firms. Reportbecomes much more important during bear markets.
Chicago Fed National Activity Index: MonthlyImportance: 3Data lag factor: One monthReleased by the Chicago Reserve Board, the Index is meant to uncoverbroader economic conditions and to forecast inflation. The Index fluctuatesaround zero, with a positive number indicating that the economy is expandingabove its capability. Conversely, a number below zero potentially designatesthat the economy is not producing to its fullest potential.http://www.chicagofed.org/economicresearchanddata/national/index.cfm
Chicago PMI: MonthlyImportance: 5Data lag factor: Not much, end-of-month dataSurvey compiles information from purchasing managers about the manufacturing industry. Any number above 50 indicates expansion, while a
242
APPENDIX I
number below 50 alludes to manufacturing contraction. The Index can beseasonally weighted at different times.
Construction Spending: MonthlyImportance: 4Data lag factor: One monthAttempts to report the total month-to-month amount of gains or losses (indollar values) in construction spending. Report is broken down into public,residential, and nonresidential construction expenditures. Because of largerevisions from month to month, analysts do not observe this report closely.http://www.census.gov/const/www/c30index.html
Consumer Credit: MonthlyImportance: 3Data lag factor: Five weeksMeasures household (consumers) loans (credit) used for purchasing goodsand services, or refinancing other debt. Examines two categories, revolvingand nonrevolving debt, but does not include any loans secured with realestate. The report is subject to huge revisions and, thus, does not have muchmarket impact.http://www.federalreserve.gov/releases/G19/
Consumer Price Index: MonthlyImportance: 8Data lag factor: Two weeksRegarded as one of the most closely watched indicators of inflation, the CPImeasures changes of a fixed basket of goods and services. Most analysts onlylook at the “core rate” of inflation from the CPI, as food and energy can playhavoc with the results. Thus, excluding food and energy gives economistsmore reliable results and helps to understand long-term inflation trends.http://www.bls.gov/news.release/cpi.toc.htm
243
Appendix I
Durable Goods Orders: MonthlyImportance: 7Data lag factor: Three weeksMeasures the total dollar volume of orders and shipments. The report is saidto be a leading indicator of the factory orders report, which is usuallyreleased the following week. Durable goods are products with a life spanof more than three years. Moreover, an increase in durable goods ordersmay allude to improving sentiment and demand from consumers who arewilling to purchase larger-ticket items. Analysts recommend removingdefense and aircraft orders to get a more accurate snapshot of durablegoods’ true picture.http://www.census.gov/indicator/www/m3/adv/index.htm
ECRI Future Inflation Gauge: MonthlyImportance: 4Data lag factor: One monthMeasured by the future inflation gauge (FIG), which is a weighted averageof eight separate sets of economic data. A rise in the FIG can precede aninflation increase.http://www.businesscycle.com
ECRI Weekly Leading Index: WeeklyImportance: 5Data lag factor: One weekThe Index is theoretically intended to predict near-term economic conditionsby weighting stock prices, bond yields, jobless claims, money supply, mortgage applications, and bond spreads. Much of the data is already known bythe time this report is published; thus, it is not truly “leading.” Perhaps itshould be called “summary of leading indicators already published.”http://www.businesscycle.com/freedata.php
244
APPENDIX I
Employment Cost Index: MonthlyImportance: 7Data lag factor: One monthThis index is designed to record and measure the change in employers’costs for labor. Employment cost measures payrolls for the third month ofthe quarter and attempts to find changes in labor costs that potentiallyallude to growth in the broader economy. Gauged in quarter-over-quarterand year-over-year percentages.http://www.bls.gov/news.release/eci.toc.htm
Employment Situation: MonthlyImportance: 6Data lag factor: One monthThis report is a breakdown of total payrolls by sector, average workweek,and average earnings. Report is summarized as total change in nonfarmemployment for the month and year. This report is important to the Fedwhen gathering data for their decision on interest rates.http://www.bls.gov/news.release/empsit.toc.htm
Existing Home Sales: MonthlyImportance: 5Data lag factor: One monthExisting home sales measured in actual unit numbers for single-familyhomes. Report can vary from time to time with volatile weather conditions.Can precede retail sector moves, as consumers need either more or feweritems for new homes. For example, a massive rise in home sales can pavethe way for a profitable quarter in home furnishing stocks.http://realtor.org/Research.nsf/Pages/EHSPage?OpenDocument
Factory Orders: MonthlyImportance: 5Data lag factor: One month
245
Appendix I
Simply, a more detailed release of monthly durable goods, which usually contains the same information. The durable goods report leads factory orders.http://www.census.gov/indicator/www/m3/prel/index.htm
FOMC Meeting: Meets eight times per yearImportance: 10Data lag factor: N/AAt FOMC meetings, the Fed makes decisions on monetary policy/interestrates and establishes its bias toward the economy. Minutes are released thefollowing day.http://www.federalreserve.gov/fomc/
GDP: MonthlyImportance: 7Data lag factor: N/AGross domestic product (GDP) is a measurement of economic activitythrough the production and consumption of U.S. goods. The GDP is measured by income and expenditures for both production and consumption.The deflator is then used to define the cycles of GDP. GDP growth is expectedto stay in the 2.0 to 2.5 range. Ideally, unemployment is not to exceed 6.0 percent. Growth above 2.7 percent indicates inflationary pressure.http://www.bea.doc.gov/bea/dn1.htm.
Import and Export Prices: MonthlyImportance: 6Data lag factor: One monthA large change in import prices can affect the way analysts view foreignmanufacturers. In a nutshell, a weaker dollar means more exporting and lessimporting.http://www.bls.gov/news.release/ximpim.toc.htm
246
APPENDIX I
Industrial Production: MonthlyImportance: 6Data lag factor: One monthWeighted measurement of the output of mines, factories, and utilities. Inaddition, industrial production gives analysts insight into capacity utilization. Measured month-over-month on a percentage basis, economists like tosee stable growth in capacity utilization.http://www.federalreserve.gov/releases/G17/Current/default.htm
Internet Sales: QuarterlyImportance: 5Data lag factor: One quarterThis report covers sales of goods and services over the Internet. Bullishanalysts prefer to observe continued sales growth, thus supporting the continued expansion of e-commerce.http://www.census.gov/mrts/www/current.html
ISM Index: MonthlyImportance: 8Data lag factor: Several daysThe ISM Index is comprised of data collected from purchasing managersabout production, new orders, employment, deliveries, and inventories. TheISM usually precedes the employment report and is said to indicate economic expansion above 44 percent. The overall average break-even level forthe broader report is 50 percent; however, production and employmentbreak even at lower levels.http://www.ism.ws/ISMReport/index.cfm
ISM Non-Manufacturing Index: MonthlyImportance: 8Data lag factor: Several days
247
Appendix I
The ISM encompasses data collected from purchasing managers about business activity, new orders, inventories, and employment. All together, thedata reflects 10 separate indexes, though we have listed only four here. Anumber above 50 percent indicates manufacturing expansion, while a number below 50 percent shows contraction.http://www.ism.ws/ISMReport/index.cfm#nonmanufacturing
Jobless Claims: WeeklyImportance: 6.5 in bear market, 3 in bull marketData lag factor: Several daysSelf-explanatory, though analysts like to see both initial claims and the fourweek moving average stay beneath 400,000.http://www.dol.gov/opa/media/press/eta/ui/current.htm
Kansas City Fed Manufacturing: MonthlyImportance: 5Data lag factor: Two weeksThis report surveys several facets of manufacturing plants to indicate expansion or contraction. A number above 100 is said to indicate growth, while anumber below signals a reduction. Can help to affirm results form the ISMreport.http://www.kc.frb.org/mfgsurv/mfgmain.htm
MBA Mortgage Applications Survey: WeeklyImportance: 5Data lag factor: One weekCounts mortgage and refinancing applications for personal real estate transactions. However, the survey is a leading indicator of conditions becauseapplications are a proposed event to occur in the future.http://www.mbaa.org/news/weekly_app.html
248
APPENDIX I
Monthly Mass Layoffs: MonthlyImportance: 4, with the exception of bear marketsData lag factor: One monthThis report consists of unemployment information collected from individualstates. Increasing layoffs during tough times will not bode well for bulls.http://www.bls.gov/news.release/mmls.toc.htm
NAHB Housing Market Index: MonthlyImportance: 4Data lag factor: Very littleThe NAHB Index is a builders’ sentiment survey designed to rate current andfuture sales. However, current conditions and mood do not always accurately predict future trends.http://www.nahb.org/
NAPM–NY Report: MonthlyImportance: 4Data lag factor: Very littleNational Association of Purchasing Managers, surveys purchasingmanagers to gain insight into the manufacturing sector. A reading above50 is said to indicate expansion, while a reading below 50 alludes tocontraction.
New Home Sales: MonthlyImportance: 5Data lag factor: Very littleNew Home Sales measures private homes that have either sold or are forsale. The report’s inventory reading is an indicator into future trends of thehousing markets.http://www.census.gov/const/www/newressalesindex.html
249
Appendix I
New Residential Construction: MonthlyImportance: 6Data lag factor: One monthMeasures the number of houses planned, in process, authorized, started, andcompleted. All statistics are for private residential real estate. Measured interms of total units, New Residential Construction is a looking glass intobuilders’ inventories.http://www.census.gov/const/www/newresconstindex.html
Oil and Gas Inventories: WeeklyImportance: 5Data lag factor: One weekMeasurements by the Energy Information Agency (EIA) and the AmericanPetroleum Institute (API) are complied to get accurate readings on inventory levels of crude, distillates, and gasoline. Market mostly pays attentionto whether the weekly numbers exceed or fail predictions.http://www.eia.doe.gov/http://api-ec.api.org/newsplashpage/index.cfm
Personal Income: MonthlyImportance: 5Data lag factor: One weekPersonal Income measures household income from all sources. Analysts seekconstant growth to keep up with inflation and indicate healthy labor markets.http://www.bea.doc.gov/bea/rels.htm
Philadelphia Fed Survey: MonthlyImportance: 7Data lag factor: Very little
250
APPENDIX I
The Survey polls manufacturers on general business conditions. The outlookgenerated usually shows up in the NAPM report, but only behind theChicago Fed Survey, which has slightly more weight.http://www.phil.frb.org/econ/bos/index.html
PPI: MonthlyImportance: 7Data lag factor: Very littleBasically, the PPI measures wholesale prices. Wholesale goods are lumpedinto three groups: crude, intermediate, and finished. Results are based onmonth-over-month and year-over-year results.http://www.bls.gov/news.release/ppi.toc.htm
Productivity and Costs: QuarterlyImportance: 5Data lag factor: One monthMeasures productivity and costs associated with the production of nonfarmgoods. GDP released before this report can foreshadow the expected resultsfrom productivity.http://www.bls.gov/news.release/prod.toc.htm
Retail Sales (MARTS): MonthlyImportance: 5Data lag factor: One monthMeasures retail sales by total receipts of established companies in theUnited States. Many analysts take auto sales (ex-auto) out of the report inorder to get a more accurate picture of consumers’ spending habits.http://www.census.gov/svsd/www/fullpub.html
251
Appendix I
Richmond Fed Manufacturing Survey: MonthlyImportance: 4.Data lag factor: One weekSurvey by the Richmond Fed, which polls manufacturers’ purchasing managers, plant managers, and controllers about current conditions. The surveyhas a range of ⫺100 to ⫹100, with a value above 0 expressing expansion anda value below 0 indicating contraction.http://www.rich.frb.org/research/surveys/mfg.html
SEMI Book-to-Bill Ratio: MonthlyImportance: 6.Data lag factor: Two to three weeksThis survey compiles data on orders and shipments and then calculates thethree-month moving average and the book-to-bill ratio. Basically, a ratio above1.0 means expansion, while a value below 1.0 points toward contraction.http://www.semi.org/web/wpress.nsf/url/booktobill
Semiconductor Billings: MonthlyImportance: 7 for semiconductorsData lag factor: Six weeksReport is a regional breakdown of circuit sales including almost all facets ofchips. The report then creates a three-month moving average for the following regions: the Americas, Europe, Japan, and Asia-Pacific.http://www.semichips.org/pressroom.cfm
The Conference Board Consumer Confidence: MonthlyImportance: 5Data lag factor: One week
252
APPENDIX I
Measures consumer confidence by the direct mailing of 5,000 households.The survey initially began at 100 in 1985; thus, investors can use the 100benchmark to gauge consumer trends.http://www.conference-board.org/
The Conference Board Leading Indicators: MonthlyImportance: 5Data lag factor: Three weeksTakes 10 leading indicators and creates a weighted average that is supposedto lead turns in the economy. Look for trends of gains or losses lasting threeor more months to indicate a potential economic reversal.http://www.conference-board.org/
Treasury Budget: MonthlyImportance: 3Data lag factor: Two weeksTreasury budget data that attempts to unveil budget trends by uncoveringmonthly fluctuations in the national deficit. Watch analysts’ estimates formarket reaction.http://www.fms.treas.gov/mts/
UBS Index of Investor Optimism: MonthlyImportance: 4Data lag factor: One monthTelephone survey attempting to gauge consumer confidence, with data commencing in 1996. Has little market impact, but may be used to affirm otherconsumer confidence reports.
University of Michigan Consumer Sentiment Survey: MonthlyImportance: 7Data lag factor: Not much
253
Appendix I
Telephone survey of 500 consumers. The Survey had a low of 70 in 1992 anda high of just over 110 in 2000.http://www.sca.isr.umich.edu/
Vehicle Sales: MonthlyImportance: 4Data lag factor: Two daysIn a nutshell, this report measures vehicle sales broken down by types ofautomobiles. Simply look for ascending or descending trends that surpriseor disappoint analysts.
Weekly Natural Gas Storage Report: WeeklyImportance: 4Data lag factor: One weekReport gives total natural gas storage in the United States by Bcf (billioncubic feet). Analysts look for inventory fluctuations, along with where storage levels are relative to their five-year moving averages. Report is brokendown into regional sections of the United States Producing (Alabama,Arkansas, Kansas, Louisiana, Mississippi, New Mexico, Oklahoma, andTexas), East, and West.http://tonto.eia.doe.gov/oog/info/ngs/ngs.html
Wholesale Trade: MonthlyImportance: 4Data lag factor: Two monthsMeasures the second stage of manufacturing by collecting information onsales and inventory. Most analysts look only at the inventory/sales ratio,which indicates whether manufactures will need to increase/decreaseproduction.http://www.census.gov/svsd/www/mwts.html
APPENDIX II
Websites, Books,and Software
Website ReferencesCorrelations—pay sitehttp://www.market-topology.com/Hedge funds—general informationhttp://www.hedgeworld.com/Hedge Fund Indexhttp://www.hedgefund-index.com/News: Bloomberg.comhttp://www.bloomberg.com/News: CBS Marketwatch.comhttp://cbs.marketwatch.com/news/default.asp?siteid⫽&avatar⫽seenNews and resources: Yahoo.comhttp://finance.yahoo.com/?uNews and resources: Smartmoney.comhttp://www.smartmoney.com/News and resources—pay site: Briefing.comhttp://www.briefing.com/SEC link on hedge fundshttp://www.sec.gov/answers/hedge.htmSectors: Barchart.comhttp://www2.barchart.com/sectors.asp?base⫽industry
255
256
APPENDIX II
Books and ArticlesBook: The Complete Arbitrage Deskbook by Stephane ReverreDefinitions: Investorwords.comhttp://www.investorwords.com/cgi-bin/getword.cgi?5803Paper: Pairs Trading: Performance of a Relative Value Arbitrage Rulehttp://econpapers.hhs.se/paper/nbrnberwo/7032.htmStocks and commodities—article costs $3.95Pairs Trading by Stephane Reverrehttp://store.traders.com/traderscom/v19319pairtr.htmlTime article on Hedge Fundshttp://www.time.com/time/globalbusiness/article/0,9171,1101020701265448,00.htmlUSA Today article on Hedge Fundshttp://www.usatoday.com/money/perfi/funds/2003-02-10-hedge x.htm
SoftwareACME Trader—pairs softwarehttp://www.acmetrader.com/pages/576123/Happy Trader—pairs softwarehttp://www.happytrader.com/products/pairs.htmITG Pairs Softwarehttp://www.itginc.com/products/quantex/qtx99-pairs.htmlLinnsoft—pairs softwarehttp://www.linnsoft.com/tutorials/pairsTrading.htmTechnical Analysis softwarehttp://www.analyzerxl.com/Tricom—pairs softwarehttp://www.tricom.com.au/equities/articles/pairs.asp
EndnotesGlossary
Chapter 11.1. Source: http://www.investopedia.com/terms/a/arbitrage.asp.1.2. Source: http://www.investopedia.com/terms/s/statisticalarbitrage.asp\\ .
Chapter 22.1. Source: Tom Jacobs, “30-Baggers, Anyone?”, The Motley Fool,http://biz.yahoo.com/fool/030730/1059581940_3.html.
Chapter 33.1. At the time this was written, there was legislation pending meant torecognize preferred stock as debt instead of equity. The result of this legislation would be that many companies will see their debt-to-equity ratios surgehigher overnight, once they actually have to recognize the preferred stock ontheir books. Initially, the new laws will affect only trust preferred companiessuch as real estate investment trusts (REITs) and mortgage corporations.
Chapter 44.1. Slippage denotes the price received versus the price intended. If youenter a market order to buy XYZ at $20 and the stock is rapidly ascending,without a limit order, your actual fill price may be higher than the priceyou have anticipated. To best protect against slippage, it is a good idea toenter “limit orders” with all trades. An order to buy Stock XYZ at $20 witha limit of $20.25 ensures that investors will not receive a price higher than$20.25. The resulting downside is that if the stock is rapidly ascendingand the price of the stock moves above $20.25, you may not get filled atall! However, perhaps it is better to miss a trade entirely than to get filledway above the desired level.257
258
ENDNOTES
4.2. Steve Nison, Beyond Candlesticks: New Japanese Charting Techniques.New York: John Wiley & Sons, Inc., 1994.
Chapter 1111.1. As previously mentioned, a Gaussian curve is also known as a normaldistribution, where the mean, median, and mode are all in the center of theupside down U, also known as a “bell curve.” When