Technical Analysis of the Future's Markets: A Comprehensive Guide to Trading Methods and Applications

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Designed to meet the need for a logical, sequential reference on the subject, this book describes--for beginners and ore experienced traders alike--the concepts of technical analysis and their applications. In a down-to-earth style, John J. Murphy interprets the role of technical forecasters and explains how they apply their techniques to the futures markets

The book starts with a discussion of the rationale for and premises of technical ...
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Designed to meet the need for a logical, sequential reference on the subject, this book describes--for beginners and ore experienced traders alike--the concepts of technical analysis and their applications. In a down-to-earth style, John J. Murphy interprets the role of technical forecasters and explains how they apply their techniques to the futures markets

The book starts with a discussion of the rationale for and premises of technical analysis. In demonstrating how to track market behavior, it illustrates the full gamut of methodologies--from the Dow Theory's first application, almost a century ago, to the latest computer technology.

Building on the basic concepts of charting theory, the book shows how o construct daily bar and point-and-figure charts and demonstrates the uses of longer-range continuation charts in revealing trend and price patterns. You will gain an understanding of support and resistance, key reversal days, head-and-shoulder patterns, flag and pennant patterns, Elliott Wave theory, and the analysis of volume and open interest as indicators of trend changes. Moving averages and oscillators also are explained and illustrated.

Cyclic theory, the chartist's valuable tool for factoring in the dimension of time in analyzing trends and patterns, permits the analyst to predict how the market is moving, how far it is likely to go, and when a move is likely to end. Extensive chart examples (the book incorporates some 400 illustrations, most of them real-life examples) show you how time cycles enhance the effectiveness of the various technical tools.

The book concludes with an especially useful discussion of the respective roles, in the trading process, of analysis, timing, and money management. It also cites relevant bibliographies--both at the end of each chapter and at the book's end. Appendices include concise introductions to spread trading and relative strength, the trading of options, and the theory of W.D. Gann.

"If one could read only one book on technical analysis, this should be the one."
(Edward Dobson, President, Trader's Press, Inc. in Knight-Ridder Financial Products and News, October/November 1995)
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Editorial Reviews

Ed Dobson
If one could read only one book on technical analysis, this should be the one.
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Product Details

  • ISBN-13: 9780138980085
  • Publisher: Prentice Hall Press
  • Publication date: 3/1/1986
  • Edition number: 1
  • Pages: 570
  • Product dimensions: 7.46 (w) x 9.48 (h) x 1.71 (d)

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Why another book on the use of technical analysis in the commodity futures markets? The answer to that question goes back to the introduction of a course on that subject at the New York Institute of Finance several years ago.

In spring of 1981, I was asked to introduce a course on commodity technical analysis at the Institute. I had been a practicing technical analyst in the futures markets for over a dozen years and had done some lecturing on the subject. But the task of structuring a 15-week course was a challenge. At first, I wasn't sure there was enough material to fill an entire 15 weeks. In the process of outlining the subject matter I considered important, however, I began to realize that 15 weeks wasn't nearly enough time to do justice to such a complex subject.
Technical analysis is more than just a tight little body of specialized material. It is a combination of several different approaches and areas of specialization that combine to form the whole body of technical theory. To adequately cover the subject would require touching on at least a dozen different approaches in such a way that all would fit together into one coherent theory.

Having determined what should be included in the course, I set out to find a book that could be used as a suitable text. What I discovered in reviewing the available literature was that no such book existed. Certainly, there were enough good books around. However, those books that dealt adequately with the basics of charting were written for the stock market. I didn't want to use a stock market book in a commodity futures course.

Those books dealing with the futures markets fell into several categories. Virtually all began with the assumption that readers were already familiar with the basics of charting before proceeding to present some advanced theories or original work developed by the author. Such books weren't much use to people just beginning to learn the subject. Other books specialized in one area of technical analysis, such as bar or point and figure charting, Elliott Wave Theory, or cycles, which were too narrow for my purpose. Some dealt with the use of computers and the development of sophisticated systems and indicators. All good books, but too advanced or too specialized for a course on technical analysis.

It finally dawned on me that the book I needed for my course, a good solid text that began at the beginning and took the reader through most of the important areas of technical analysis as they applied to the futures markets in a logical, step-by-step fashion, simply did not exist. It became clear to me that a gap existed in the existing literature. Because all good technicians know that gaps should be filled, I concluded that, if I wanted such a book, I would have to write it myself.

Technical Analysis of the Futures Markets is not meant to be a definitive, all-encompassing book on technical analysis. No such book exists or ever will. Technical analysis is just too broad a topic, with so many subtleties and refinements, that any attempt to write the "definitive" book is not only presumptuous, but doomed to failure. Entire books have been written on just about every subject touched on in this book.

Neither is it meant as just a basic primer on the subject. It begins at the beginning and spends a fair amount of time on the basics of charting theory. This is partly because of my own strong conviction that most good technical analysis is nothing more than a sound application of those basics. Most of the more sophisticated indicators and systems in use today are just refinements of basic concepts. The book then moves in logical fashion into some of the more advanced areas. The subject matter is presented in such a way that a relative newcomer should be able to follow along. However, it is hoped that the intermediate technician, with a few years of experience, also finds much of the material helpful. The advanced chartist can use the book as a good review.

This last point is particularly significant. After all, aren't we all just students of technical analysis? One of the great masters, W. D. Gann, once said: "I have studied and improved my methods every year for the past forty years. I am still learning. I hope to make greater discoveries in the future." (How to Make Profits in Commodities, Pomeroy, WA: Lambert-Gann, 1976, p. 2).

The need for constant study and review cannot be overemphasized. One of the major benefits I have received from teaching technical theory has been the need to constantly go back and reread much of the literature I had read several years before. Each rereading has produced new insights, new subtleties that had escaped me previously. Even the most hardened veteran trader can benefit from a periodic review of the subject matter. On the shorter side of the experience spectrum, I can't help but feel amused when someone who has been in the business six months or a year informs me that he or she has already mastered the basics and is ready for the really "good stuff." Maybe I'm just jealous. After 15 years, I'm still trying to master them.

Chapter 1 covers much of the philosophy and rationale behind the technical analysis of futures. The subject is defined along with its basic premises. I have always felt that much of the confusion about technical analysis arises from a lack of understanding of what technical theory really is and the rationale or philosophy upon which it is based. The question of technical versus fundamental forecasting is discussed along with some of the advantages of charting. Since the question of how technical analysis of stocks compares with that of the futures markets is often raised, some of those similarities and differences are touched on. Two criticisms of technical analysis are treated briefly-Random Walk Theory and the self-fulfilling prophecy.

Chapter 2 covers the venerable Dow Theory from which most charting theory has developed. Many futures chartists seem unaware of how much of what they do can be traced back to the writings of Charles Dow around the turn of the century.

Chapter 3 explains how to construct the daily bar chart, the most commonly used type of chart, and introduces the concept of volume and open interest. The construction of weekly and monthly charts is also covered as a supplement to the daily charts.

Chapter 4 goes into the basic concepts of trend, or the building blocks of chart analysis. Subjects like trend, support and resistance, trendlines and channels, percentage retracements, gaps, and key reversal days are included.

Chapters 5 and 6 build on the previous concepts for a study of price patterns. Major reversal patterns, like the head and shoulders pattern and the double top or bottom, are explained in Chapter 5. Continuation patterns, such as the flag and pennant patterns and triangles, are treated in Chapter 6. The patterns are explained and illustrated. Measuring techniques are covered along with the role of volume in the formation and resolution of the price patterns.

Chapter 7 goes into volume and open interest in more depth. The discussion shows how both figures are used to confirm price action or to warn of impending trend changes. Some indicators that utilize volume, such as on-balance volume (OBV), are discussed. The usefulness of open interest figures in the Commitments of Traders Reports is also addressed.

Chapter 8 covers an important, but often overlooked area of charting--the use of weekly and monthly continuation charts. These longer-range charts provide a perspective on market trend that is impossible to achieve by using daily charts alone. The value of following general commodity indices, such as the Commodity Research Bureau Futures Price Index and the various group indices, is also stressed.

Chapter 9 deals with moving averages, one of the most widely used technical tools and the mainstay of most computerized technical trend-following systems.

That chapter also presents an alternative trend following approach-the weekly price channel, or the four-week rule.

Chapter I0 talks about oscillators and how they are used to determine overbought and oversold market conditions. Various types of oscillators are covered along with the important subject of how to spot divergences. Contrary Opinion is included as another method of determining market extremes.

Chapter 11 leaves bar charting for awhile and delves into the world of point and figure charting. While not as well-known, point and figure charts provide more precision and can be used as a valuable supplement to the bar chart.

Chapter 12 shows how some of the benefits of point and figure charting can be had without access to intra-day price data. The threebox reversal method is discussed along with optimized point and figure charts. With the increased use of computers and more sophisticated price reporting systems, point and figure charting appears to be staging a comeback in the futures arena.

Chapter 13 moves on to the Elliott Wave Theory and Fibonacci numbers. This theory was originally applied to the stock market averages, but has gained increased attention in the futures markets. If used properly, Elliott's principles provide a unique perspective on market movement that enables the analyst to anticipate market turns with greater insight and confidence.

Chapter 14 adds the dimension of time to the forecasting puzzle by the study of cycles. Annual seasonal patterns are also discussed here. Besides providing an overview of cycle theory, the chapter addresses the question of how other technical tools, such as the moving average and oscillator, can be improved if synchronized with underlying market cycles.

Chapter 15 pays tribute to the increased role of the computer in technical analysis and trading Some of the advantages and disadvantages of using mechanical computer trading systems are treated. We'll take a look at some of the technical analysis routines available through the Compu Trac software. It is stressed, however, that computers are only a tool and not meant to be a substitute for good sound analysis. If the user does not understand the trading tools covered in Chapters 1 through 14, the computer won't be much help. A computer can make a good technician better. It won't make a bad technician better, and may even make him or her worse.

Chapter 16 discusses another much overlooked aspect of successful futures trading---money management. This chapter discusses what money management is and why it is so important to survival in the futures markets. Many traders consider money management to be the most important aspect of futures trading. The three stages of trading also are coordinated--forecasting, timing and money management. Forecasting helps the trader decide which side of the market to be trading from--the long or the short side. Market timing covers the specifics of entry and exit points--how and when to act. Money management helps determine how much to buy or sell. Different types of trading orders are discussed as well as the controversial subject of whether or not to use protective stops as part of a trading strategy.

Pulling It All Together pulls the preceding material together into one coherent theory, much like fitting together pieces in a giant jigsaw puzzle. It emphasizes the need to be familiar with all of the different approaches to technical analysis and how to blend them together. Many technicians specialize in one area of analysis, believing that area holds the key to successful trading. My own philosophy is that no one area holds all of the answers, but that they each hold part of the answer. In other words, each technical theory holds a piece of the puzzle. The more pieces the trader has under his or her command, the better the odds in solving the puzzle. A checklist is offered to aid the reader in that process.

Although the book deals primarily with the outright trading of commodity futures contracts, technical analysis has much application in the area of spread and options trading. These two important areas will be treated briefly in Appendices 1 and 2. Finally, no technical book would be complete without some mention of the legendary W. D. Gann. While an in-depth discussion of Gann's techniques isn't possible here, we'll touch on a couple of his simpler and, some believe, more useful trading tools in Appendix 3.

It is hoped that this book does indeed fill the gap perceived by the author, and that it contributes to a better understanding and appreciation of what technical analysis is all about. Technical analysis is certainly not for everyone. In fact, it would probably lose much of its value if everyone started to apply its principles. It is not the intention of this book to sell the technical approach to anyone. It is simply an attempt by one technical analyst to share his interpretation of this sometimes complex and intimidating subject with those wishing to learn more about it.

Technical analysis is much more than "tea leaf reading" or "crystal ball gazing," descriptions sometimes used by those who simply don't know any better. But neither is it the "Holy Grail," promising instant riches to its practitioners. Technical analysis is simply one approach to market forecasting based on a study of the past, human psychology, and the law of probabilities. It is certainly not infallible. But it is a technique that works more often than not, has stood the test of time in the real world of trading, and is worthy of study by any serious student of market behavior.
The overriding theme of this work is simplicity. There are those who insist on taking relatively simple concepts and making them more complicated. I prefer it the other way around. After experimenting with most of the technical tools available, from the very simple to the very sophisticated, I have come to the conclusion that, in most cases, the simpler techniques seem to work best. So, my advice throughout the book is to "keep it simple."


Ch. 1

Philosophy of
Technical Analysis


Before beginning a study of the actual techniques and tools used in commodity technical analysis, it is necessary first to define what technical analysis is, to discuss the philosophical premises on which it is based, to draw some clear distinctions between technical and fundamental analysis and, finally, to address a couple of criticisms frequently raised against the technical approach.

The author's strong belief is that a full appreciation of the technical approach must begin with a clear understanding of what technical analysis claims to be able to do and, maybe even more importantly, the philosophy or rationale on which it bases those claims.

First, let's define the subject. Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. The term "market action" includes the three principal sources of information available to the technician; price, volume, and open interest. The term "price action," which is often used, seems too narrow because most commodity technicians include volume and open interest as an integral part of their market analysis. With this distinction made, the terms "price action" and "market action" are used interchangeably throughout the remainder of this discussion.


There are three premises on which the technical approach is based: 1. Market action discounts everything.

2. Prices move in trends.

3. History repeats itself.

Market Action Discounts Everything

The statement "market action discounts everything" forms what is probably the cornerstone of technical analysis. Unless the full significance of this first premise is fully understood and accepted, nothing else that follows makes much sense. The technician believes that anything that can possibly affect the market price of a commodity futures contract--fundamental, political, psychological, or otherwise--is actually reflected in the price of that commodity. It follows, therefore, that a study of price action is all that is required. While this claim may seem presumptuous, it is hard to disagree with if one takes the time to consider its true meaning.

All the technician is really claiming is that price action should reflect shifts in supply and demand. If demand exceeds supply, prices should rise. If supply exceeds demand, prices should fall. This action is the basis of all economic and fundamental forecasting. The technician then turns this statement around to arrive at the conclusion that if prices are rising, for whatever the specific reasons, demand must exceed supply and the fundamentals must be bullish. If prices fall, the fundamentals must be bearish. If this last comment about fundamentals seems surprising in the context of a discussion of technical analysis, it shouldn't. After all, the technician is indirectly studying fundamentals. Most technicians would probably agree that it is the underlying forces of supply and demand, the economic fundamentals of a commodity, that cause bull and bear markets. The charts do not in themselves cause markets to move up or down. They simply reflect the bullish or bearish psychology of the marketplace.

As a rule, chartists do not concern themselves with the reasons why prices rise or fall. Very often, in the early stages of a price trend or at critical turning points, no one seems to know exactly why a market is performing a certain way. While the technical approach may sometimes seem overly simplistic in its claims, the logic behind this first premise--that markets discount everything--becomes more compelling the more market experience one gains.

It follows then that if everything that affects market price is ultimately reflected in market price, then the study of that market price is all that is necessary. By studying price charts and a host of supporting technical indicators, the chartist in effect lets the market tell him or her which way it is most likely to go. The chartist does not necessarily try to outsmart or outguess the market. All of the technical tools discussed later on are simply techniques used to aid the chartist in the process of studying market action. The chartist knows there are reasons why markets go up or down. He or she just doesn't believe that knowing what those reasons are is necessary in the forecasting process.

Technical versus Fundamental Forecasting

While technical analysis concentrates on the study of market action, fundamental analysis focuses on the economic forces of supply and demand that cause prices to move higher, lower, or stay the same. The fundamental approach examines all of the relevant factors affecting the price of a commodity in order to determine the intrinsic value of that commodity. The intrinsic value is what the fundamentals indicate a commodity is actually worth based on the law of supply and demand. If this intrinsic value is under the current market price, then the commodity is overpriced and should be sold. If market price is below the intrinsic value, then the market is undervalued and should be bought.

Both of these approaches to market forecasting attempt to solve the same problem, that is, to determine the direction prices are likely to move. They just approach the problem from different directions. The fundamentalist studies the cause of market movement, while the technician studies the effect. The technician, of course, believes that the effect is all that he or she wants or needs to know and that the reasons, or the causes, are unnecessary. The fundamentalist always has to know why.

Most futures traders classify themselves as either technicians or fundamentalists. In reality, there is a lot of overlap. Most fundamentalists have a working knowledge of the basic tenets of chart analysis. At the same time, most technicians have at least a passing awareness of the fundamentals. (Then, of course, there are those technicians, regarded as purists, who go to great lengths not to be contaminated with fundamental data). The problem is that the charts and fundamentals are often in conflict with each other. Usually at the beginning of important market moves, the fundamentals do not explain or support what the market seems to be doing. It is at these critical times in the trend that these two approaches seem to differ the most. Usually they come back into sync at some point, but often too late for the trader to act.

One explanation for these seeming discrepancies is that market price tends to lead the known fundamentals. Stated another way, market price acts as a leading indicator of the fundamentals or the conventional wisdom of the moment. While the known fundamentals have already been discounted and are already "in the market," prices are now reacting to the unknown fundamentals. Some of the most dramatic bull and bear markets in history have begun with little or no perceived change in the fundamentals. By the time those changes became known, the new trend was well underway.

After a while, the technician develops increased confidence in his or her ability to read the charts. The technician learns to be comfortable in a situation where market movement disagrees with the so-called conventional wisdom. A technician begins to like being in the minority. He or she knows that eventually the reasons for market action will become common knowledge. It is just that the technician isn't willing to wait for that added confirmation.

In accepting the premises of technical analysis, one can see why technicians believe their approach is superior to the fundamental. If a trader had to choose only one of the two approaches to use, the choice would logically have to be the technical. Because, by definition, the technical approach includes the fundamental. If the fundamentals are reflected in market price, then the study of those fundamentals becomes unnecessary. Chart reading becomes a short-cut form of fundamental analysis. The reverse, however, is not true. Fundamental analysis does not include a study of price action. It is possible to trade commodity futures markets using just the technical approach. It is doubtful that anyone could trade off the fundamentals alone with no consideration of the technical side of the market.


One of the great strengths of technical analysis is its adaptability to virtually any trading medium and time dimension. There is no area of trading in either stocks or commodities where these principles do not apply.

In commodities, the chartist can easily follow as many markets as desired, which is generally not true of his or her fundamental counterpart. Because of the tremendous amount of data the latter must deal with, most fundamentalists tend to specialize in one commodity market or group of commodities, such as grains or metals. The advantages here should not be overlooked.

For one thing, markets go through active and dormant periods, trending and nontrending stages. The technician can concentrate his or her attention and resources in those markets that display strong trending tendencies and choose to ignore the rest. As a result, the chartist can rotate his or her attention and capital to take advantage of the rotational nature of the markets. At different times, certain markets become "hot" and experience important trends. Usually, those trending periods are followed by quiet and relatively trendless market conditions, while another market or group takes over. The technical trader is free to pick and choose. The fundamentalist, however, who tends to specialize in only one group, doesn't have that kind of flexibility. Even if he or she were free to switch groups, the fundamentalist would have a much more difficult time doing so than would the chartist.

Another advantage the technician has is the "big picture." By following all of the markets, he or she gets an excellent feel for what commodity markets are doing in general, and avoids the "tunnel vision" that can result from following only one group of markets. Also, because so many of the futures markets have built-in economic relationships and react to similar economic factors, price action in one market or group may give valuable clues to the future direction of another market or group of markets.

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Table of Contents

Introduction, xiii
Acknowledgments, xix
1. Philosophy of Technical Analysis, 1
Introduction, 1
Philosophy or rationale, 2
Technical versus fundamental forecasting, 5
Analysis versus timing, 6
Flexibility and adaptability of technical analysis, 7
Technical analysis applied to different trading mediums, 8
Technical analysis applied to different time dimensions, 8
Economic forecasting, 10
Technician or chartist, 12
A brief comparison of technical analysis in stocks and futures, 13
Some criticisms of the technical approach, 17
Random walk theory, 20
Conclusion, 23
2. Dow theory, 24
Introduction, 24
Basic tenets, 26
The use of closing prices and the presence of lines, 32
Some criticisms of dow theory, 32
Summary, 33
Conclusion, 33
3. Chart construction, 35
Introduction, 35
Types of charts available, 36
Arithmetic versus logarithmic scale, 40
Construction of the daily bar chart: Price, volume, and open interest, 41
Volume and open interest, 43
How to plot volume and open interest in grain markets, 47
Personal charts versus a chart service, 48
Weekly and monthly bar charts, 48
Conclusion, 49
4. Basic concepts of trend, 53
Definition of trend, 53
Trend has three directions, 55
Trend has three classifications, 56
Support and resistance, 58
Trendlines, 68
The fan principle, 77
The importance of the number three, 79
The relative steepness of the trendline, 79
The channel line, 83
Percentage retracements, 88
Speed resistance lines, 91
Reversal days, 94
Price gaps, 97
Summary, 102
5. Major reversal patterns, 103
Introduction, 103
Price patterns, 104
Two types of patterns: Reversal and continuation, 104
The head and shoulders reversal pattern, 107
The importance of volume, 111
Finding a price objective, 111
The inverse head and shoulders, 113
Complex head and shoulders patterns, 116
Tactics, 116
The failed head and shoulders patterns, 117
The head and shoulders as a consolidation pattern, 118
Triple tops and bottoms, 118
Double tops and bottoms, 121
Variations from the ideal pattern, 125
Saucers or rounding tops and bottoms, 128
V-Formations or spikes, 130
Conclusion, 135
6. Continuation Patterns, 136
Introduction, 136
Triangles, 137
The symmetrical triangle, 139
The ascending triangle, 144
The ascending triangle as a bottom, 147
The descending triangle, 148
The broadening formation, 150
The diamond formation, 153
Conclusion, 155
Flags and pennants, 156
The wedge formation, 160
The rectangle formation, 163
The measured move, 167
The continuation head and shoulders pattern, 168
The principle of characterization, 172
Confirmation and divergence, 174
7. Volume and open interest, 176
Introduction, 176
Volume and open interest as secondary indicators, 177
Interpretation of volume, 181
Interpretation of open interest, 193
Summary of volume and open interest rules, 199
Blowoffs and selling climaxes, 199
Commitments of traders report, 200
Seasonal considerations, 203
Conclusion, 206
8. Long-term charts and commodity Indices, 207
Introduction, 207
The importance of longer range perspective, 208
Construction of continuation charts, 208
The perpetual contract, 210
The perpetual index, 211
Charting techniques can be applied to long-term charts, 211
Summary of technical principles, 212
Terminology of technical analysis, 213
Patterns on charts, 214
Long-term to short-term charts, 215
Commodity indices: A starting point, 215
Should long-range charts be adjusted for inflation?, 217
Long-term charts not intended for trading purposes, 218
Conclusion, 218
Examples of weekly and monthly charts, 219
Technical indicators, 233
9. Moving averages, 234
Introduction, 234
The moving average: A smoothing device with a time lag, 235
Moving Average combinations that work best, 251
Placement of the averages, 257
Moving averages tied to cycles, 258
Fibonacci numbers used as moving averages, 260
Moving averages applied to any time dimension, 262
Conclusion, 263
The weekly rule, 267
Additional reference material, 274
10. Oscillators and contrary opinion, 275
Introduction, 275
Oscillator usage in conjunction with trend, 276
Measuring momentum, 277
Measuring rate of change (ROC), 284
Constructing an oscillator using two moving averages, 286
Oscillator interpretation, 289
The relative strength index (RSI), 295
Using the 70 and 30 lines to generate signals, 302
Stochastics (K%D), 304
Larry Williams %R, 309
The importance of trend, 311
When oscillators are most useful, 312
Moving average convergence/Divergence treading method (MACDTM), 312
Volume accumulation used as an oscillator, 314
Compu Trac Software for oscillator analysis, 316
The principle of contrary opinion, 316
11. Intra-Day point and figure charting, 322
Introduction, 322
The point and figure vs. the Bar chart, 324
Construction of the intra-day point and figure chart, 328
Congestion area analysis, 336
The horizontal count, 337
Price patterns, 339
Conclusion, 342
Where to obtain point and figure charts and data, 343
12. Three-Box reversal and optimized point and figure charting, 350
Introduction, 350
Construction of the three-point reversal chart, 351
The drawing of trendlines, 356
Measuring techniques, 360
Trading tactics, 362
Advantages of point and figure charting, 364
Optimized point and figure charts, 364
Sources of information, 366
Conclusion, 370
13. Elliott wave theory, 371
Historical background, 371
Introduction to the theory, 373
Basic tenets of the Elliott Wave principle, 373
Connections between elliot wave and dow theory, 377
Extensions, 379
Corrective waves, 383
The rule of alternation, 391
Channeling, 392
Wave four as a support area, 393
Fobonacci numbers as the basis of the wave principle, 394
The logarithmic spiral, 395
Fobonacci ratios and retracements, 396
Fibonacci time targets, 397
Combining all three aspects of wave theory, 398
Fibonacci numbers in the study of cycles, 398
Elliott wave applied to stocks versus commodities, 399
Summary and conclusions, 399
Reference material, 401
Examples of Elliott waves in action, 402
14. Time cycles, 414
Introduction, 414
Cycles, 415
How cyclic concepts help explain charting techniques, 427
Dominant cycles, 430
Combining cycle lengths, 433
The importance of trend, 433
Left and right translation, 436
How to isolate cycles--Detrending, 440
Seasonal cycles, 447
Combining cycles with other technical timing tools, 450
Combining cycles and oscillators, 451
Summary and conclusion, 454
15. Computers and trading systems, 456
Introduction, 456
Some computer basics, 458
Analysis tools, 459
Welles Wilder's parabolic and directional movement, 465
Grouping tools and indicators, 472
Using tools and indicators, 473
Automation, optimization, and profitability testing, 476
Pros and cons of mechanical computerized systems, 477
Incorporating mechanical signals into analysis, 479
Artificial intelligence pattern recognition, 483
Summary and conclusions, 485
Sources of information, 486
16. Money Management and Trading Techniques, 487
Introduction, 487
The three elements of successful commodity futures trading, 488
Money management, 488
Reward-to-risk ratios, 491
Trading multiple positions: Trending versus trading units, 493
Money management: Conservative vs. aggressive trading, 493
What to do after periods of success and adversity, 494
Money management is a tricky but crucial area, 495
The money management industry, 495
Trading tactics, 496
Combining technical factors and money management, 499
Types of trading orders, 500
From daily charts to intra-day charts, 501
Dunnigan's thrust technique, 507
The use of intra-day pivot points, 510
Summary of money management and trading guidelines, 511
Pulling it all together-A checklist, 512
Technical checklist, 513
How to coordinate technical and fundamental analysis, 514
What's a technician anyway?, 515
The global reach of technical analysis, 516
Technical analysis: The link between stocks and futures, 517
Conclusion, 518
Appendix 1: Spread and Relative Strength, 519
The application of technical analysis to spread charts, 520
Relative strength between nearby and distant contracts, 524
Relative strength between different markets, 525
Ratio analysis, 526
Relative strength between commodity indices, 526
Stock index futures versus the cash index: A measure of short-tern market sentiment, 527
Reference sources, 527
Appendix 2: The Trading of Options, 529
What is an option?, 529
Why purchase an option instead of a futures contract?, 530
How options and futures can be used together, 531
What determines premium value, 532
Technical analysis and option trading, 533
Technical analysis applied to the underlying futures market, 533
Recommended reading, 534
Put/Call ratios as a measure of market sentiment, 534
Appendix 3: W.D. Gann: Geometric Angles and Percentages, 536
Introduction, 536
Geometric angles and percentages, 538
The importance of the 45-degree line, 540
Combining geometric angle lines and percentage retracements, 542
Reference sources, 547
Bibliography, 548
Index, 552
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Customer Reviews

Average Rating 4.5
( 4 )
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Sort by: Showing all of 4 Customer Reviews
  • Anonymous

    Posted May 19, 2000

    Excellent comprehensive introduction to the subject

    Big book but fast read. Succeeds in making hundreds of pages of information easily digestable. You'll come away with good idea of what TA is about. Has been the TA bible of a great many technicians for more than a decade. Haven't read Murphy's latest edition of this book, but one should probably check that out first.

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  • Anonymous

    Posted April 17, 2000

    good but old

    Good book! But the graphs are old and sometimes hard to read. Best read the new one in Financial Market.

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  • Anonymous

    Posted April 10, 2000

    Text Book of the Futures market


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  • Anonymous

    Posted March 22, 2000


    This book is awesome! made simple.

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