9780131345973

Updated edition of a popular, easy-to-understand guide for any investor new to using technical analysis to profit from the stock market. bull; Does a better job of applying the analysis to actual stock buying and selling decisions in today's volatile market conditions than any of the competitors. bull; Presents material in short, easy to understand lessons rather than long chapters like most books. bull; Author is well known and is a regular contributor to Barrons, one of the most influential financial newspapers in the world.

Acknowledgments

xix

About the Author

xxi

Preface

xxiii

About This Book

xxvii

How to Get the Most From This Book

xxxiii

Part I A FEW THINGS YOU'LL NEED TO KNOW BEFORE YOU BEGIN

1

(32)

1 REQUIRED BACKGROUND

3

(10)

The Past

3

(3)

Technical Market Theory

6

(4)

The Pillars of Technical Analysis

10

(1)

For Fundamentalists

10

(3)

2 WHAT IS TECHNICAL ANALYSIS?

13

(6)

Components

14

(2)

What Is the Market?

16

(3)

3 WHAT IS A CHART?

19

(6)

A Picture Is Worth a Thousand Words

19

(1)

What Good Is That?

20

(1)

Tea Leaves? Crystal Ball?

21

(1)

What About Earnings?

22

(1)

Conclusion

23

(2)

4 JARGON YOU CANNOT AVOID

25

(8)

Bar Chart

25

(1)

Support and Resistance

26

(1)

Trends

27

(2)

Consolidation, Congestion, Correction

29

(1)

Breakout

29

(1)

Continuation Patterns

30

(1)

Reversal Patterns

31

(1)

Moving Averages

31

(1)

Momentum

31

(1)

Divergence

32

(1)

Part II THE CORE OF CHART ANALYSIS

33

(62)

5 CONCEPTS

35

(6)

What Is Really Going on to Form the Charts?

35

(1)

Indecision and Alignment of Needs

36

(1)

Taking the Easy Way Out

37

(1)

The Herding Effect

37

(3)

Markets Are Scalable

40

(1)

6 WHAT ARE SUPPLY AND DEMAND IN THE MARKETS?

41

(6)

What Causes Support and Resistance Levels to Be Penetrated?

42

(1)

Perceptions Are Reality

43

(4)

7 THE TREND IS YOUR FRIEND AND SO ARE TRENDLINES

47

(8)

Trendlines

47

(5)

Fan Lines

52

(3)

8 SEE THE FOREST AND THE TREES

55

(8)

Less Is More

55

(2)

Multiple Time Frames

57

(1)

Moving Averages

58

(5)

9 CHART PATTERNS WHEN THE MARKET NEEDS A REST

63

(10)

Rectangles

64

(1)

Triangles

65

(1)

Flags

66

(1)

Cup with Handle

67

(6)

10 CHART PATTERNS—WHEN THE MARKET IS CHANGING ITS MIND

73

(10)

Head and Shoulders

73

(3)

Double Tops and Bottoms

76

(2)

One-Day Reversals

78

(1)

Triangles and Rectangles

79

(1)

Rounded Tops and Bottoms

79

(1)

Spikes

80

(3)

11 CHART PATTERNS-EXPLOSIONS

83

(6)

Breakaway Gaps

83

(2)

Continuation Gaps

85

(1)

Exhaustion Gaps

85

(2)

Other Gaps

87

(2)

12 CORRECTIONS IN PERSPECTIVE

89

(6)

The Right Way

89

(2)

The Wrong Way

91

(4)

Part III TECHNICAL ANALYSIS IN THE REAL WORLD

95

(78)

13 WHAT IS THERE OTHER THAN PRICE?

97

(12)

The Big Picture

98

(1)

Does the Market Have Bad Breadth?

98

(4)

Sectors and Industry Groups

102

(1)

Momentum

103

(1)

Divergence

104

(5)

14 VOLUME

109

(8)

Accumulation and Distribution

110

(1)

Cumulative Volume

111

(6)

15 TIME

117

(4)

Proportion

117

(2)

Cycles

119

(2)

16 SENTIMENT

121

(8)

Sentiment Indicators

121

(2)

Measuring Expectations That Drive Markets

123

(3)

Subjective

126

(1)

Social Mood

127

(2)

17 FUNDAMENTAL ANALYSIS REALLY IS TECHNICAL ANALYSIS

129

(6)

Intermarket Analysis

130

(1)

The Major Markets

130

(3)

Intramarket Relationships

133

(1)

Prove It!

133

(2)

18 JUST WHAT MAKES A STOCK (BOND, COMMODITY) LOOK GOOD?

135

(12)

Trend and Momentum

136

(3)

Volume

139

(1)

Relative Strength (the Market, Sectors, and Individual Stocks)

140

(5)

Basing and Breakouts

145

(2)

19 RISK VERSUS REWARD-IS THIS STOCK REALLY WORTH IT?

147

(12)

How Can Potential Profit Be Measured?

147

(4)

Is That a Good Trade?

151

(4)

Sometimes the Best Trade Is the One You Don't Make

155

(4)

20 THIS ISN'T BRAIN SURGERY

159

(14)

Technician's License

159

(3)

Let the Market Talk

162

(3)

Theme and Variation

165

(4)

In the Real World, Nothing Is Textbook so Stay Flexible

169

(4)

Part IV THE ACTUAL PROCESS OF INVESTING

173

(34)

21 OK, NOW DO IT!

175

(6)

The Questions

175

(1)

No Fear

176

(5)

22 HOW TO KNOW IF YOU ARE WRONG

181

(4)

Invalidating a Trendline

181

(4)

23 SOMETIMES BEING WRONG IS GOOD

185

(4)

Failure That Forewarns

185

(2)

Failure That Cuts Losses

187

(1)

Summary

188

(1)

24 WHEN TO SELL

189

(12)

The Trend Is at Its End

189

(9)

Price Objective Is Reached

198

(1)

Stop Is Hit

199

(1)

Would You Buy It Right Now, at Its Current Price?

200

(1)

25 BEAR MARKETS

201

(4)

What Happens in a Bear Market?

202

(3)

26 A WORD ABOUT YOUR EGO

205

(2)

Remember Why You Are Investing

205

(2)

Part V TOOLS AND CASE STUDIES

207

(44)

27 WHAT DO I REALLY NEED TO GET STARTED?

209

(6)

Real-Time Data

209

(1)

Charting Software

210

(3)

Internet

213

(1)

Your Child's Geometry Tools

213

(2)

28 BUILDING YOUR TECHNICAL TOOLBOX

215

(6)

Technical Tasks

215

(2)

Tools for Each Technical Task

217

(2)

Combination Tools

219

(2)

29 FINAL ADVICE

221

(2)

30 CASE STUDY—THE PERFECT WORLD

223

(8)

Are Conditions Favorable for Equity Assets?

224

(3)

What Sectors of the Market Are Good?

227

(1)

What Stocks Within the Good Sectors Are the Best to Buy?

227

(1)

Risk Assessment

228

(1)

Pull the Trigger

229

(2)

31 CASE STUDY—THE REAL WORLD

231

(14)

Summary

244

(1)

32 HOW GOOD IS YOUR BROKER'S STOCK?

245

(6)

When Your Broker's Recommendation Looks Like Nothing Special

245

(2)

Breakout Warning

247

(1)

Confirmation Required

247

(1)

What Makes a Stock Look Good?

248

(1)

Compare It to the Market

249

(1)

Compare Them to Each Other

249

(2)

Part VI FURTHER ON DOWN THE ROAD

251

(42)

33 INTRODUCTION TO CANDLESTICKS

253

(10)

Reading Candlesticks

254

(1)

Basic Candlestick Shapes

255

(1)

Reversal Indicators

256

(2)

Continuation Indicators

258

(1)

Dojis

259

(1)

Trading with Candlesticks

259

(4)

34 CYCLES

263

(4)

What Is a Cycle?

263

(3)

Summary

266

(1)

35 ELLIOTT WAVES

267

(4)

Introduction

267

(4)

36 TECHNICAL TERMS YOU MAY HAVE HEARD

271

(18)

37 DEBUNKING THE TV ANALYST

289

(4)

Summary

292

(1)

FUN WITH JARGON

293

(8)

CLOSING THOUGHTS

301

(2)

INDEX

303

What is included with this book?

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.

Preface Preface Technical analysis is one of the oldest market disciplines, yet the majority of the investment and academic communities consider it, at best, a minor supplement to their own work. At worst, it is disparaged as tea-leaf reading or simply a self-fulfilling prophecy. Look at these two phrases. They suggest that the technical analyst divines the market from some mystical process. This could not be further from the truth. Consider the fundamental analyst. This person relies on company reports, conversations with company insiders, and macro-economic research in relevant business sectors. All of this is indispensable when determining if a company is viable and predicting how its business will fare in the future. Now consider the source of all the raw data. Much of it is projection and conjecture. How can you rely solely on such raw data when earnings reports and other industry-wide data will be subject to revisions? Technical analysis looks at actual trades where bulls and bears have put their money where their collective mouths are. There is no revision of data. There is no ambiguity. There is no mystical divining of the future. All market and stock selection is based on current, not past, price performance, the predictable behavior of market participants, and the dynamics between markets over time. Trends exist. Information is slowly disseminated to the public in an imperfect manner, and as the public acts on the information, the markets move. They continue to move until either the last group has acted or an outside influence, such as news, ends the trend. Sounds a lot like physics, does it not? A body in motion tends to remain in motion. Look at another aspect of the analysis. Behavior is a key component of the analysis. When similar market conditions occur, market participants react in similar ways. This is how the patterns and measurements within technical analysis are created. For example, the market holds fairly steady as buyers and sellers adjust their portfolios to meet their specific investment criteria. A stock might trade from 50 to 52 for weeks in this way. Is the stock good? Is the company good? You do not know. All you know is that bulls and bears consider the stock to be fairly valued within a small range. A body at rest tends to stay at rest--physics again. Now, somebody comes into the market to buy a large block of stock. Why? Technical analysis does not know but more importantly, it does not care. All it needs to know is that money has flowed into the market and increased demand for the stock. Demand? That is straight from basic economics. If demand rises, the price must rise to induce sufficient supply (sellers) to come into the market and restore equilibrium. This does not sound very mystical, does it? So, now that demand has increased, market activity picks up to provide supply. It also changes in character as people try to decipher what is happening. Here are the familiar concepts of fear and greed, both key determinants of human behavior. Some participants will think that something has changed and that the stock is now undervalued. It could be a new product or simply a decrease in the company's raw material inputs. Perhaps it is foreign capital coming into the stock. Or a shortage of stock itself. Whatever the reason, some market participants know something, or think they know something, about improved prospects for the company and they buy. The market breaks out of the trading range and as it does, more market participants act. The size and scope of their actions is most often similar to the size and scope of their actions at other occasions when the market has broken out of similar ranges. It can be measured and projected. Technical analysis has an unfortunate name. Perhaps "price action analysis" or "supply, demand, and reaction analysis"

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Technical Analysis Plain and Simple : Charting the Markets in Your Language

Technical Analysis Plain and Simple : Charting the Markets in Your Language

0131345974

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