Technical Analysis: The Complete Resource for Financial Market Technicians, Second Edition

Contents......Page 10
Acknowledgments......Page 25
About the Authors......Page 27
Part I: Introduction......Page 30
1 INTRODUCTION TO TECHNICAL ANALYSIS......Page 32
2 THE BASIC PRINCIPLE OF TECHNICAL ANALYSIS—THE TREND......Page 38
How Does the Technical Analyst Make Money?......Page 39
What Is a Trend?......Page 40
How Are Trends Identified?......Page 41
Trends Develop from Supply and Demand......Page 43
What Trends Are There?......Page 44
What Other Assumptions Do Technical Analysts Make?......Page 46
Conclusion......Page 48
Review Questions......Page 49
Early Financial Markets and Exchanges......Page 52
Modern Technical Analysis......Page 55
Current Advances in Technical Analysis......Page 59
4 THE TECHNICAL ANALYSIS CONTROVERSY......Page 62
Do Markets Follow a RandomWalk?......Page 64
Can Past Patterns Be Used to Predict the Future?......Page 69
What About Market Efficiency?......Page 70
Behavioral Finance and Technical Analysis......Page 78
Pragmatic Criticisms of Technical Analysis......Page 79
Conclusion......Page 81
Review Questions......Page 82
Part II: Markets and Market Indicators......Page 84
5 AN OVERVIEW OF MARKETS......Page 86
In What Types of Markets Can Technical Analysis Be Used?......Page 87
Types of Contracts......Page 88
How Does a MarketWork?......Page 95
Who Are the Market Players?......Page 97
How Is the Market Measured?......Page 98
Review Questions......Page 102
6 DOW THEORY......Page 104
Dow Theory Theorems......Page 107
Criticisms of the Dow Theory......Page 114
Review Questions......Page 115
7 SENTIMENT......Page 118
What Is Sentiment?......Page 119
Market Players and Sentiment......Page 120
How Does Human Bias Affect Decision Making?......Page 121
Crowd Behavior and the Concept of Contrary Opinion......Page 124
How Is Sentiment of Uninformed Players Measured?......Page 125
How Is the Sentiment of Informed Players Measured?......Page 147
Sentiment in Other Markets......Page 153
Conclusion......Page 157
Review Questions......Page 158
8 MEASURING MARKET STRENGTH......Page 160
Market Breadth......Page 162
Up and Down Volume Indicators......Page 178
Net New Highs and Net New Lows......Page 183
Using Moving Averages......Page 186
Very Short-Term Indicators......Page 188
Conclusion......Page 190
Review Questions......Page 191
9 TEMPORAL PATTERNS AND CYCLES......Page 192
Periods Longer than Four Years......Page 193
Periods of Four Years or Less......Page 198
January Signals......Page 203
Conclusion......Page 204
Review Questions......Page 205
10 FLOW OF FUNDS......Page 206
Funds in the Marketplace......Page 207
Funds Outside the Security Market......Page 210
The Cost of Funds......Page 214
Fed Policy......Page 219
Conclusion......Page 224
Review Questions......Page 225
Part III: Trend Analysis......Page 226
11 HISTORY AND CONSTRUCTION OF CHARTS......Page 228
History of Charting......Page 230
What Data Is Needed to Construct a Chart?......Page 233
What Types of Charts Do Analysts Use?......Page 235
What Type of Scale Should Be Used?......Page 242
Point-and-Figure Charts......Page 244
Conclusion......Page 249
Review Questions......Page 250
12 TRENDS—THE BASICS......Page 252
Trend—The Key to Profits......Page 253
Basis of Trend Analysis—Dow Theory......Page 254
How Does Investor Psychology Impact Trends?......Page 255
How Is the Trend Determined?......Page 256
Determining a Trading Range......Page 259
Directional Trends (Up and Down)......Page 266
Other Types of Trend Lines......Page 276
Review Questions......Page 280
Breakouts......Page 284
Stops......Page 292
Conclusion......Page 302
Review Questions......Page 303
14 MOVING AVERAGES......Page 304
How Is a Simple Moving Average Calculated?......Page 305
What Other Types of Moving Averages Are Used?......Page 310
Strategies for Using Moving Averages......Page 314
What Is Directional Movement?......Page 317
What Are Envelopes, Channels, and Bands?......Page 320
Conclusion......Page 325
Review Questions......Page 326
Part IV: Chart Pattern Analysis......Page 328
15 BAR CHART PATTERNS......Page 330
What Is a Pattern?......Page 331
Do Patterns Exist?......Page 332
Computers and Pattern Recognition......Page 334
Market Structure and Pattern Recognition......Page 335
Bar Charts and Patterns......Page 336
How Profitable Are Patterns?......Page 337
Classic Bar Chart Patterns......Page 338
Patterns with Rounded Edges—Rounding and Head-and-Shoulders......Page 354
Conclusion......Page 361
Review Questions......Page 362
16 POINT-AND-FIGURE CHART PATTERNS......Page 364
What Is Different About a Point-and-Figure Chart?......Page 365
History of Point-and-Figure Charting......Page 366
One-Box Reversal Point-and-Figure Charts......Page 368
Three-Point (or Box) Reversal Point-and-Figure Charts......Page 374
Review Questions......Page 386
17 SHORT-TERM PATTERNS......Page 388
Traditional Short-Term Patterns......Page 391
Summary of Short-Term Patterns......Page 418
Candlestick Patterns......Page 419
Review Questions......Page 431
PartV: Trend Confirmation......Page 434
18 CONFIRMATION......Page 436
Analysis Methods......Page 437
Volume Confirmation......Page 440
Open Interest......Page 456
Price Confirmation......Page 458
Conclusion......Page 473
Review Questions......Page 474
PartVI: Other Technical Methods and Rules......Page 476
19 CYCLES......Page 478
What Are Cycles?......Page 481
Translation......Page 486
How Can Cycles Be Found in Market Data?......Page 487
Projections......Page 496
Review Questions......Page 504
ElliottWave Theory (EWT)......Page 506
The Fibonacci Sequence......Page 521
Conclusion......Page 527
Review Questions......Page 528
PartVII: Selection......Page 530
Which Issues Should I Select for Trading?......Page 532
Which Issues Should I Select for Investing?......Page 535
Top-Down Analysis......Page 536
Bottom Up—Specific Stock Selection and Relative Strength......Page 545
Examples of How Selected Professionals Screen for Favorable Stocks......Page 549
Review Questions......Page 554
PartVIII: System Testing and Management......Page 556
22 SYSTEM DESIGN AND TESTING......Page 558
Why Are Systems Necessary?......Page 559
How Do I Design a System?......Page 561
How Do I Test a System?......Page 567
Optimization......Page 575
Conclusion......Page 585
Review Questions......Page 586
23 MONEY AND RISK MANAGEMENT......Page 588
Risk and Money Management......Page 589
Testing Money-Management Strategies......Page 590
Money-Management Risks......Page 591
Money-Management Risk Strategies......Page 601
Conclusion......Page 606
Review Questions......Page 607
Part IX: Appendices......Page 608
Returns......Page 610
Probability and Statistics......Page 611
Descriptive Statistics......Page 612
Inferential Statistics......Page 620
Modern Portfolio Theory......Page 623
Performance Measurement......Page 629
Advanced Statistical Methods......Page 631
Artificial Intelligence......Page 632
Review Questions......Page 633
B TYPES OF ORDERS AND OTHER TRADER TERMINOLOGY......Page 636
An Order Ticket......Page 638
BIBLIOGRAPHY......Page 640
A......Page 666
B......Page 667
C......Page 668
D......Page 671
E......Page 673
F......Page 674
G......Page 675
I......Page 676
L......Page 678
M......Page 679
N......Page 683
O......Page 684
P......Page 685
R......Page 689
S......Page 691
T......Page 695
U......Page 698
V......Page 699
X-Y-Z......Page 700