From the September 2013 issue of Futures Magazine • Subscribe!

The Art and Science of Technical Analysis

The Art and Science of Technical Analysis: Market Structure, Price Action & Trading
By Adam Grimes
John Wiley & Sons, Inc.
$95.00; 480 pages

Go into any bookstore, and you’ll find countless books stacked flush in the Investment section on the subject of technical analysis, but most add very little beyond using it to trade the market for consistent gains.  This is such a common experience, it’s almost a rite of passage for the aspiring trader and even joked about among veteran traders who have experienced it firsthand.

However, “The Art and Science of Technical Analysis,” by Adam Grimes, is something of an anomaly in a sea of mediocrity on the subject.  Possibly the most impressive aspect of Grimes’ work is the opening where it is stressed that having a “trader’s edge” is fundamental to successful trading.  It goes on to explain that without the existence of a defined edge in your trading, success just isn’t possible,  and Grimes deserves deep praise for stressing that aspect of trading upfront to the reader.  

The rest of the book expands on that subject while moving into key factors that are essential to long-term success as a trader, such as expectancy, price action, price swings, the use of indicators, a breakdown on the use of moving averages, studied use of technical analysis in the pursuit of successful trading and more.  Using these key factors, Grimes helps you understand how to approach the market with a clearly defined set of criteria to locate points of imbalance in the market where you gain a significant edge to exploit profitably, while identifying the periods of price action you should avoid.

He goes on to make the case that there are two competing forces in the market — mean reversion and range expansion.  These forces express themselves through alternating trends and trading ranges while giving you the tools to formulate strategies to trade each market type.

Armed with these tools, Grimes conveys to the reader that success is possible because smaller traders are not playing the same game as the big institutional traders or mutual funds.  Grimes lays out the case that most professionally managed funds are so large that they often are the market, and lack the agility of a skilled trader who understands price action and market structure.

The subject of price action is a complex and imperfectly defined subject in and of itself, and Grimes’ work is a big contribution. His stated goal is to help the trader identify the market’s own structure and movement so that he can use those dynamics to profit over and over again.

This is a massive work in scope and breadth on the subject, which depending on your own point of view is not necessarily good or bad, but it will take you some time to get through it to apply it.  In total, the book succeeds in adding something meaningful to a difficult subject while helping traders gain the understanding and skill-set to profit in the market.

Billy Williams is a 20-year veteran trader and publisher of www.StockOptionSystem.com, where you can read his commentary and a report on the fundamental keys for the aspiring trader.

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