From the May 01, 2011 issue of Futures Magazine • Subscribe!

All About Market Indicators

Book Review

All About Market Indicators
By Michael Sincere
McGraw-Hill Companies, Inc.
$22; 217 pages

This book provides an explanation of 13 well-known and often-used technical indicators. Newer investors and traders who have no prior knowledge of technical indicators will benefit most from this book.

The author explores how three traders anticipate market direction using indicators as well as the implications of price and volume on stock selection. Sincere writes in a clear, easy-to-understand style and all the chapters and facts are presented in logical order.

Sincere explains sentiment indicators including the AAII Sentiment Survey, Investors Intelligence Advisor Sentiment Survey, CBOE Put/Call Ratio, ISE Sentiment Index Call/Put Ratio and the CBOE VIX. He describes each indicator and provides instructions for using them in charts. He explains what signals to look for and provides background on how the indicator works.

In a separate chapter, he focuses on indicators that measure numbers. Here, he includes New Highs minus New Lows (daily), TRIN, advance-decline line and Williams %R with commentary by its developer, Larry Williams. The focus then shifts to the most popular technical indicators, including moving averages, MACD, Bollinger Bands and Stochastics. He includes commentary from some of the designers of these indicators.

The three traders are newsletter writer Fred Hickey, market wizard and author Linda Raschke, and trading psychologist and author Brett Steenbarger.

Dr. Alexander Elder, the creator of the Force Index, provides his insight and perspective on backtesting indicators.

A simple backtest of five indicators was performed for the 2007-2010 period which found that each indicator independently beat buy-and-hold, even without using stop-loss orders. The Bollinger Bands had the best results, most likely because of the volatility of the time period used, and the RSI and moving averages (20- and 50-day) were tied for second place with large profits.

The author did not publish the backtest results, saying, "I didn’t think it was fair to include a first-run test." A valuable addition to the book would have been a longer backtest with results provided. One of the book’s shortcomings is the lack of specificity of taking action on indicator overbought/oversold signals.

A detailed bibliography of appropriate books for investors and traders is provided. Sincere also provides a glossary of common technical analysis terms, a helpful listing and two-line description of 31 key websites, as well as links to online stock discussion groups. Overall, Sincere gives readers a basic understanding of the most common technical indicators. As such, this book is best suited for those looking for introductory basic information on well-known market indicators.

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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