From the November 01, 2010 issue of Futures Magazine • Subscribe!

The Complete Idiot’s Guide to Technical Analysis

The Complete Idiot’s Guide to Technical Analysis
By Jan Arps
Alpha Books
$21.95; 327 pages + tutorial CD

Investors seeking to add basic technical analysis to their knowledge base will find that this introductory text fits the bill. For more than four decades, author Jan Arps has developed and used a technical analysis based trading and investing approach. In addition to the book, a CD is included that provides reinforcement of the charting concepts and indicators. Arps points out that technical analysis utilizes the past price behavior of investments, coupled with the understanding of human behavior, to make decisions about future price movements.

Arps divides his book into four digestible parts: subject introduction; technical analysis tools; trading office setup; and trading mechanics. Additional useful materials provided include the 12-page glossary of terms and a practical listing of resource books and websites for charting and technical analysis.

As expected, the largest component of the book covers the standard technical analysis tools including trend lines, moving averages, oscillators, and support and resistance. In this section, Arps explains the critical trend and regression channels, pullbacks, Donchian channels and Andrew’s Pitchfork. Numerous charting examples illustrate his descriptions throughout the text.

The chapter on moving averages explains their basic purpose, the difference between simple and exponential averages, how they are calculated and what moving averages reveal. He explains multiple moving averages and trading with moving averages. Oscillators reviewed include the MACD, RSI, Williams %R and Stochastics. Moreover, he describes how to spot and take advantage of indicator versus price divergences.

The less well-known “point-and-figure” charts are examined in a separate chapter, but surprisingly the more often-used candlestick charts are not given equal coverage. That is unusual as candlesticks have become the chart style of choice for most investors, and especially traders, since they provide much more interpretative information. Perhaps, the author felt that covering candlesticks was too complex to cover in an introductory text. Throughout the remainder of the book, except for the candlesticks used in the float charts and the point-and-figure charts, simple bar charts are used as they present the key charting concepts for technical analysis beginners.

Arps devotes a full chapter to a relatively new and unusual indicator known as Woods Cumulative Volume Float (developed and made public by Steve Woods in 2000), also known as float charts which combines data on volume, time and price. These charts incorporate accumulation and distribution, support and resistance, and tops and bottoms to interpret whether a security should be bought or sold. Interestingly, the website for this service is provided, but the author did not mention that this was a subscription-based service.

The author could have included one or more charts with multiple indicators providing readers with commentary on how they work together to obtain buy and sell signals. Unfortunately, only two charting websites were listed in the appendix. Other well-known free sites that could have been added include: freestockcharts.com, bigcharts.com and finance.yahoo.com, among many others.

The most interesting chapter covered entering and exiting trades, trading strategies, order placement, pyramiding, internal market indicators (TICK, TRIN and VIX) and what you need to know to pull the trigger.

Overall, Arps provides readers with a down-to-earth basic introduction to the key elements of technical analysis and charting. His book is a good starting point for further study. Additional subject knowledge can be obtained by reading a number of the classics.

Leslie N. Masonson is the author of “Buy DON’T Hold” and “All About Market Timing.” Reach him at lesmasonson@yahoo.com.

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