The Technical Analysis Course, Fourth Edition: Learn How to Forecast and Time the Market - Brossura

Meyers, Thomas

Brossura

ISBN 10: 0071749020 ISBN 13: 9780071749022

Casa editrice: McGraw-Hill Education, 2011

Riassunto

The Classic Introduction to Technical Analysis--Fully Updated and Revised!

The most reliable method for forecasting trends and timing market turns, technical analysis is as close to a "scientific" trading approach as you can get—and it is particularly valuable in today's volatile markets. The Technical Analysis Course, Fourth Edition, provides the know-how you need to make this powerful tool part of your overall investing strategy.

Through a series of lessons and exams, you'll master the techniques used by the most successful technical analysts in the market today. Updated with hundreds of real market examples, The Technical Analysis Course provides the essential foundation for using time-tested technical analysis techniques to profit from the markets. You'll learn how to:

• Identify profitable chart patterns, including reversals, consolidation formations, and gaps
• Utilize key analytical tools, including trendlines and channels, support and resistance, relative strength analysis, and volume and open interest
• Perform advanced analysis using moving averages, trading bands, Bollinger Bands, oscillators, the Relative Strength Index, stochastics, and moving average convergence-divergence
• Purchase stocks, bonds, futures, and options when prices are near their bottoms and sell when prices are close to their highs

Critical Acclaim for THE TECHNICAL ANALYSIS COURSE

"If you are a neophyte in the markets, this may be the book for you. It won't turn you into an overnight market wizard. You will, however, acquire an excellent grasp of market terminology and be a step ahead toward trading success and fortune."
--Technical Analysis of Stocks & Commodities

Su questo libro

Informazioni sull?autore

McGraw-Hill authors represent the leading experts in their fields and are dedicated to improving the lives, careers, and interests of readers worldwide

Estratto. © Ristampato con autorizzazione. Tutti i diritti riservati.

THE TECHNICAL ANALYSIS COURSE

LEARN HOW TO FORECAST AND TIME THE MARKET

By THOMAS A. MEYERS

The McGraw-Hill Companies, Inc.

Copyright © 2011 Thomas A. Meyers
All rights reserved.

ISBN: 978-0-07-174902-2

Contents

FINAL EXAM
HOW TO TAKE THIS COURSE
INTRODUCTION
LESSON 1 The Philosophy of Technical Analysis
CONSTRUCTING CHARTS
LESSON 2 Basic Chart Construction
PROFITABLE CHART PATTERNS
LESSON 3 Major Reversal Chart Patterns
LESSON 4 Consolidation Formations
LESSON 5 Gaps
EXAM 1 KEY ANALYTICAL TOOLS
LESSON 6 Trendlines and Channels
LESSON 7 Support and Resistance
LESSON 8 The True Value of Failed Signals
LESSON 9 Relative Strength Analysis
LESSON 10 Volume and Open Interest
EXAM 2 ADVANCED ANALYSIS
LESSON 11 Using Moving Averages
LESSON 12 Trading Bands and Bollinger Bands
LESSON 13 Confirmation and Divergence
LESSON 14 Oscillators
LESSON 15 Relative Strength Index
LESSON 16 Stochastics
LESSON 17 Moving Average Convergence-Divergence
EXAM 3 PUTTING IT ALL TOGETHER
LESSON 18 A Structured Approach to Technical Analysis
LESSON 19 A Case Study
APPENDIX A Alternative Charting Methods
APPENDIX B Recommended Technical Analysis Books
APPENDIX C Glossary
APPENDIX D Answers to Exams
INDEX

Excerpt

CHAPTER 1

LESSON 1The Philosophy of Technical Analysis

Those in the know on Wall Street have increasingly turned to technical analysisin recent years. They realize that security prices do not move randomly; ratherthey move in repeating and identifiable patterns. They use this information togain an edge on other investors and make money in the stock market. This coursewill enable others to do the same by making profitable investment decisionsbased on proven technical analysis techniques.

THE BASIC PRINCIPLES

Before learning about the specific tools and techniques the technician (onewho employs technical analysis) uses to analyze various investmentopportunities, it is essential that one understand the principles upon whichtechnical analysis is based. The three key principles are:

1. Everything is discounted and reflected in market prices.

2. Prices move in trends, and trends persist.

3. Market action is repetitive.

Let's examine each principle in detail. The first and most important principleis that everything is discounted and reflected in market prices. The technicianbelieves that all knowledge, regardless of type (fundamental, economic,political, psychological, or other), is already reflected and discounted inmarket prices. Technicians, unlike fundamental analysts, feel that it is futileto study company financial statements, earnings and dividend reports, industrydevelopments, and other data in an attempt to determine the "intrinsic value" ofa stock or other market instrument since it is common to have a wide divergencebetween the intrinsic value and the actual market price. For example, it is notunusual for a company's stock to be trading at a price well above or below itsbook value per share. Technicians believe that the real value of a share ofstock or other market instrument at any point is determined solely by supply anddemand as reflected in trading activity.

Price movements are simply the reflection of changes in supply and demand. Thetechnician does not care what the underlying forces of a shift in supply anddemand are. Rather he or she is interested in what occurs. If demand is greaterthan supply, prices will increase. On the other hand, if supply is greater thandemand, prices will decline. The study of market prices is all that isnecessary.

The second principle on which technical analysis is based is that prices move intrends, and trends persist. The supply and demand balance sets a trend inmotion. Once in motion, a trend remains intact until it ends. For example, if astock's price is moving up, it will continue its rise until there is a clearreversal. Likewise, if a stock is moving down, it will decline until a reversal.

An analogy will further clarify the second principle. When a car is parked in agarage, it is, in essence, trendless because it is not moving in a givendirection. Assume that a car is driven on to a street moving northbound. Whenthe driver first turns onto that street, he or she is moving slowly butgradually picks up speed until a speed of 50 miles per hour is reached. Thedirection or trend is northbound. In order to change direction (or trend) tosouthbound, the driver would first have to slow down from 50 miles per hour, toperhaps 5 miles per hour, and turn around (or, perhaps, stop and drive inreverse). The driver could not instantly change direction (or trend), and, ifsomeone was following, this following motorist would be signaled by the slowingdown before the first driver reversed direction (or trend).

Market prices move in a similar manner. First, they begin in one direction, upor down, creating a trend. That trend persists until the price movement slowsand gives warning before finally reversing and moving in the opposite direction.At that point a new trend is initiated. As illustrated in Figure 1-1,trends can be easily spotted on charts. The chart patterns show the balance ofsupply and demand for a particular stock or other market instrument.

The final key principle on which technical analysis is based is that marketaction is repetitive. Certain patterns appear time after time on charts. Thesepatterns have meanings that can be interpreted in terms of probable future pricemovement. Although not infallible, the odds are in their favor.

Human nature is such that it tends to react to similar situations in consistentways. As a rule, people will act the same way they have in the past. Since thestock market is a reflection of the actions of people, technicians study it todetermine how people will react under certain conditions and, thus, how securityprices will move. Technicians analyze the recurrence of similar characteristicsin an attempt to identify major market tops and bottoms.

TECHNICAL ANALYSIS DEFINED

Giving consideration to the principles discussed above, technical analysis canbe defined as simply the study of individual securities and the overallmarket based on supply and demand. Technicians record, usually in chartform, historical price and volume activity and deduce from that pictured historythe probable future trend of prices.

ADAPTABILITY TO DIFFERENT MARKETS AND INVESTMENT TIME HORIZONS

The beauty of technical analysis is that it can be applied effectively tovirtually any trading medium and investment time horizon. A technician cananalyze stocks, bonds, options, mutual funds, commodities, and many other formsof investments for buy and sell opportunities. And one can do so by examiningtic-by-tic, intraday, daily, weekly, monthly, or some other interval of time touse technical analysis for a wide range of time horizons—from very short-term to very long-term perspectives.

The best way to use technical analysis depends on one's approach to the market.Keep in mind that everyone invests differently. We all have different levels ofstress, different temperaments, and different amounts of capital. It isimportant to apply technical analysis in a manner that complements one's ownpersonality and individual investment philosophy. Obviously, those whose time,nerves, and capital are limited will want to pass up very short-term tradingopportunities (such as intraday trading of stock index futures) and, perhaps,use longer-term technical analysis–derived buy and sell signals forstocks, exchange traded funds (ETFs), or mutual funds. By recognizing one'sindividual investment strengths and weaknesses, users of technical analysis canfind the trading medium and time horizons that are best for their individualinvestment situations.

CONSTRUCTING CHARTS

CHAPTER 2

LESSON 2Basic Chart Construction

As shown in Lesson 1, technicians do not believe that the price ofsecurities and the overall stock market move randomly. Rather, they contend thata direct relationship exists between price movements in the past and those thatwill occur in the future. The technicians' objective is to determine what thisrelationship is so that they will be able to predict accurately whether thestock market or a particular security's price will go up or down.

The primary tool that a technician uses is a "picture" or chart of a security'sprice movement.

TYPES OF CHARTS

Technicians use four types of charts as illustrated in Figure 2-1. Theyare:

1. Bar chart.

2. Line (or close-only) chart.

3. Point and figure chart.

4. Japanese candlestick chart.

Bar charts are, by far, the most commonly used type of price chart. In abar chart, a vertical line that ranges from the period's lowest price to itshighest price represents each time period. A horizontal protrusion to the rightmarks the period's closing price.

Some technicians believe that the closing price is the most important price ofthe trading day and, therefore, they plot only closing prices in a linechart.

The third type of chart, the point and figure chart, is examined inAppendix A. For now, note that it shows the same price information as the barand line charts, but in a more compressed way. A rising price change isrepresented by an X and a declining movement by an O. Each X or O occupies a boxon the chart and represents a price change of a certain magnitude.

The final type of chart, the Japanese candlestick chart, carries thisname because the lines resemble candles and wicks. (Candlestick charting is atechnique that was originated by the Japanese. The technique has been used forgenerations in the Far East and it has only recently—during the past 10 to20 years—become more commonly used throughout the rest of the world.) Foreach period, the opening, high, low, and closing prices are plotted in a mannerthat is explained fully in Appendix A.

Regardless of the type of chart used, the length of the time period examinedwill vary depending on whether one is oriented to short-term, intermediate-term,or long-term investments. Although there is no generally accepted definition ofthese three terms, short term roughly refers to the next three months;intermediate term is about three to six months from the present time;and long term is considered to be approximately six months to one yearfrom the current period. Technicians often use hourly and daily charts todetermine the short-term trend of security price movements. They use weeklycharts for gaining an intermediate-term perspective. And, monthly and yearlycharts help technicians examine the long term.

As noted earlier, bar charts are the most common type of chart used bytechnicians. Let's examine the bar chart in more detail.

THE BAR CHART

Constructing a bar chart is easy, as shown in Figure 2-2. A price scaleis assigned to the vertical axis; a time scale (hourly, daily, weekly, etc.) ismarked off on the horizontal axis. For each period, the high, low, and closingprices are plotted. The opening price is also plotted for commodities but notalways for stocks. A vertical line, or bar, connects the high and low prices.Horizontal tics to the left and right of the bar represent the opening andclosing prices, respectively. For example:

A: The high price for the day, $25.80.

B: The low price for the day, $25.20.

C: The opening price (not always on the bar chart), $25.30.

D: The closing price, $25.70

Let's look at a more comprehensive example. Assume a stock traded at the pricesshown in Table 2-1 over a period of five weeks (25 trading days). Adaily bar chart of these prices is provided in Figure 2-3. A weekly barchart (see Figure 2-4) of the same prices is simply a condensed versionof the daily chart with each bar representing five days of price activity.

ARITHMETIC VERSUS LOGARITHMIC SCALE

The vertical price scale on a bar chart can be arithmetic or logarithmic. Eachtype has advantages and disadvantages. However, no consensus exists amongtechnicians as to which is better.

First, let's examine how the two scales differ. On an arithmetic scale, an equaldistance for each price unit of change is shown on the vertical scale. Thus thedistance between 10 and 20 on the vertical scale equals the distance between 20and 30, 30 and 40, and so on. On a logarithmic scale, the distance between eachprice unit of change represents an equal percentage of change. For example, thedifference between 10 and 20 and 40 and 80 is the same because each represents a100 percent increase.

Figure 2-5 shows a comparison of arithmetic and logarithmic scales.Since chart patterns appear much the same on both scales, the type of verticalscale you use is a matter of personal preference. For consistency, thearithmetic scale is used on charts throughout the remainder of this course.

VOLUME

The volume of trading activity for each time period is normally shown at thebottom of a standard bar chart. Each period's (day's, week's, etc.) volume isrecorded by a vertical bar directly below that period's price bar.

The higher the bar, the higher the volume for that time period as illustrated inFigure 2-6. A vertical scale can be used at the bottom of the chart tohelp plot the data.

The significance of rising and declining volume relative to various pricemovements is discussed in detail throughout this course.

OPEN INTEREST

Open interest represents the total number of outstanding contracts for aparticular commodity or futures contract. It is not applicable to stocks. Openinterest is frequently plotted as a solid line along the bottom of the barchart, usually just above the volume.

CHART PREPARATION

Preparing charts by hand is very time-consuming, especially if one is followingmany securities and calculating moving averages and other indicators for eachsecurity. One can easily spend half an hour each week updating just one chart.Fortunately, virtually all the time-consuming tasks of preparing charts can beeliminated by using technical analysis software or by accessing Internet sitesthat provide interactive charting capabilities.

The vast majority of charts used as illustrations in this course have beenprepared using the technical analysis software package MetaStock from EquisInternational. It is an excellent and relatively inexpensive charting packagewith extensive technical analysis capabilities. Readers of The TechnicalAnalysis Course can purchase the software at a discounted price atwww.metastock.com/meyers.

Various Internet sites (such as www.bigcharts.com) have impressiveinteractive technical analysis features that will only improve with time. Theyare another practical alternative to preparing charts by hand.

PROFITABLE CHART PATTERNS

CHAPTER 3

LESSON 3Major Reversal Chart Patterns

Market prices move in trends of varying duration and definition. While the trendis changing, identifiable chart patterns frequently develop. These patterns,known as reversal chart patterns, help identify when the market ischanging direction, either from up to down or down to up. The primary importanceof reversal patterns is that they help one sell securities before substantialprice declines and cover short sales ahead of considerable advances.

Technicians have discovered many reversal chart patterns. Some occur frequently;others are rarely seen. Some are very reliable; others don't result in the pricemovements one would expect. This lesson presents a select group of reversalchart patterns, ones that have proven to have considerable validity over manyyears.

Before examining the characteristics of numerous reversal chart patterns, let'stry to understand the forces behind a trend reversal. The forming of a markettop and subsequent price reversal to the downside occurs as a result of supplyovercoming demand (known as distribution). The opposite occurs at marketbottoms when demand overcomes supply (known as accumulation). In bothcases, this overcoming activity typically occurs gradually. A reversal chartpattern develops as prices move in a sideways fashion of some sort until acomplete reversal is accomplished.

Keep in mind that the more time it takes for a reversal chart pattern to form,the more reliable the signal generated is, as well as the time horizon (short,intermediate, or long term) forecasted by the signal. Over the years,technicians have found the following reversal chart patterns to be worth lookingfor:

1. Key reversals.

2. Head-and-shoulders tops and bottoms.

3. Rounding tops and bottoms (saucers).

4. Ascending and descending triangles.

5. Rectangles.

6. Double and triple tops and bottoms.

7. Diamond.

8. Rising and falling wedges.

9. V formations (spikes).

Let's examine each pattern in detail.

KEY REVERSALS

Figure 3-1 illustrates a key reversal top. A key reversal bottom isshown in Figure 3-2.

Typical Price Action Key reversals occur during one period (usually oneday) of market activity. A key reversal top is the result of prices quicklymoving higher (to a new high in an uptrend) than the previous period's high, butclosing near the lows of the day (and, at times, even lower than the previousperiod's low). Key reversal tops appear regularly in thinly traded stocks afteran active advance.

The opposite occurs for a key reversal bottom. Prices first move sharply lower(to a new low in a downtrend) than the previous period's low and then move tothe upside closing near the high for the day (and often higher than the previousperiod's high). A key reversal bottom is frequently called a sellingclimax as it often occurs at the end of a panic decline.

Typical Volume Action Key reversals normally are accompanied byunusually high volume.

Frequency of Occurrence Key reversals appear often. They can developindependently or as a part of a larger chart pattern (such as the top of thehead in a head-and-shoulders top formation).

Technical Significance A key reversal has only short-term (minor trend)significance. Its significance is, however, greatly enhanced if one or more ofthe following occurs:

1. The period's high penetrates the previous period's high significantlyfor a key reversal top, or the period's low penetrates the previous period's lowsignificantly for a key reversal bottom.

2. The key reversal period was preceded by a long, unbroken trend.

3. The period's closing price was below (for a key reversal top) orabove (for a key reversal bottom) one or more immediately prior period ranges.

4. The period volume was particularly high.

(Continues...)

(Continues...)

Excerpted from THE TECHNICAL ANALYSIS COURSE by THOMAS A. MEYERS. Copyright © 2011 by Thomas A. Meyers. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Dettagli dell?edizione

• Editore: McGraw-Hill Education
• Data di pubblicazione: 2011
• Lingua: Inglese
• ISBN 10: 0071749020
• ISBN 13: 9780071749022
• Rilegatura: Copertina flessibile
• Numero edizione: 4
• Numero di pagine: 416
• Contatto del produttore: non disponibile
• Persona responsabile: Ufficio Anagrafiche Messaggerie; 0039 0245774342; ufficio.anagrafiche@meli.it; ; Via Verdi, 8.; Assago Milano; 20090; Italia