Since the stock market devastation of 2000-2002, technical analysis has gained a much broader acceptance among individual and professional investors and traders. Rather than being a staid discipline, technical analysis continues to evolve based on ground-breaking approaches introduced by creative analysts.
David Keller, a CMT and editor of this book, has provided an exceptional window into the methodologies used by ten of the world’s leading technical analysts. He provides a biography of each analyst and each has authored a 20-page chapter on a method that they use to make money in the markets. Specifically, each contributor describes his/her approach to using a specific technical analysis tool starting with the basics. This is followed by a description of a specific tool or technique, accompanied by charts, tables and commentary on a section on how to use it effectively.
Two chapters are devoted to candlesticks, since that technique has become much more popular due to the proliferation of seminars and books by Steve Nison, Greg Morris and others. The chapter written by Yosuke Shimizu reviews the basics of candlesticks including the various types of candles, how to read them, the different patterns – bullish, bearish and indecisive - and keen insight into special tactics and patterns.
Nicole Elliott wrote the other candlestick chapter, which focuses on charting candle patterns with nine- and 20-day moving averages of the mean of prices (high minus low). She then presents a technique called Ichimoku Kinko Hyo to measure the strength of the trend illustrated with “cloud charting” and complete with the formulas for all the charting elements.
Another popular charting technique that has grown in acceptance is point-and-figure charts, promulgated by Dorsey Wright & Associates and Investors Intelligence among others. Jeremy du Plessis, the author of “The Definitive Guide to Point and Figure,” a comprehensive book on the subject, presents a primer on the basic patterns coupled with commentary on the importance of the internal 45 degree line. He also touches on the plotting of common indicators, determining price targets, obtaining risk-reward ratios, and the advantages of using logarithmic scaling rather than arithmetic. His use of large charts clearly illustrates his points.
Robbin Griffiths, a well-known UK analyst, penned an astute chapter on his ten commandments for traders. The advice is practical as he integrates fundamental and technical analysis and focuses on market trends and economic cycles, and global market performance rankings. At the end of his chapter he provides specific trading rules.
Tom DeMark, well-known in the United States, also focuses on trends using his TDCombo indicator in a conservative manner to help investors’ pinpoint low-risk trading opportunities. He also includes a number of aggressive indicator settings for the TDCombo and TD Sequential.
Drummond Geometry is a complex subject reviewed by Ted Hearne who applies it to foreign exchange trading. He uses the critical day’s price data to identify support and resistance and identifies potential reversal points. He recommends using different timeframes to determine the best time to make a trade and to predict the state of the market going forward.
Constance Brown believes that price and time are critical elements in identifying price targets. In her chapter she discusses price confluence, W.D. Gann projections, Fibonacci price targets, key buy and sell points and a composite index to detect RSI divergence failures. David Bowden follows up with a chapter devoted to Gann analysis. He explains how he constructed his forecast for the Australian market in 1989, one year in advance. Bowden has incorporated Gann’s rules over a twenty-year period. He believes that “hindsight becomes foresight, if you use it often enough.”
The two remaining chapters are on options trading, market profiling using the bell curve, contributed by Bernie Schaeffer and Robin Mesch, respectively.
Readers will appreciate the diverse nature of the material presented and they should be able to incorporate key elements into their trading methodologies to enhance their returns.
Leslie N. Masonson is president of Cash Management Resources. He is the author of “All about Market Timing” and “Day Trading on the Edge.” E-mail: lesmasonson@yahoo.com.