Technical Analysis from A to Z, 2nd Edition Views 18MB Size Report. DOWNLOAD PDF Epilepsy A to Z: A Concise Encyclopedia 2nd Edition · Read more. All the books are available for free soundofheaven.info Every experienced Forex trader will tell you that technical analysis is crucial for trading. This books (Technical Analysis from A to Z, 2nd Edition [PDF]) Made by Steven B. Achelis About Books Title: Technical Analysis from A to Z.
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Technical Analysis from A to Z. Pages · · MB Forex: The Ultimate Guide To Price Action Trading √PDF Sex in the Ancient World from A to Z. Technical Analysis from A to Z by Steven B. Achelis. CHARTS. Charts. The foundation of technical analysis is the chart. In this case, a picture. soundofheaven.info - Ebook download as PDF File .pdf), Text File .txt) or read book online.
Yet many investors buy securities without attempting to control the odds. As with Equivolume charting. Inspired by the Dow Theory and by observations found throughout nature. You can use correlation analysis in two basic ways: Zweig also points out that most bull markets begin with a Breadth Thrust. Because these commodities are highly volatile.
Upcoming SlideShare. Like this presentation? Thinking From A to Z. Peptides from A to Z. Matrix Analysis 2nd edition. Environmental Sociology: From Analysis to Action, 2nd Edition. Postmodern Analysis, 2nd Edition. Introduction to Network Analysis, 2nd Edition. Technical analysis. An Introduction to Numerical Analysis 2nd Edition. Introduction to Real Analysis 2nd Edition. Nucleic Acids from A to Z. The Simple Flute: It occurs when a line with a small body falls within the area of a larger body.
Bullish white lines occurred at points "1. New Highs Shares outstanding Leading industry Institutional sponsorship Market direction Although not strictly a technical analysis tool. O'Neil developed a set of common characteristics that each of these stocks possessed. Current quarterly earnings per share Annual earnings growth New products. New Management. Bearish engulfing lines occurred at points "A" and "B" and prices subsequently moved lower.
Drawing from his study of the greatest money-making stocks from to He also heads an investment research organization. You can see that advancing prices are usually accompanied with empty lines prices opened low and closed higher and that declines are accompanied with filled-in lines prices opened high and closed lower.
O'Neil is the founder and chairman of Investor's Business Daily. O'Neil found that you could significantly increase your chances of a profitable investment if you purchase a leading stock in a leading industry. Once a stock has become "institutionalized" it may be too late.
O'Neil looks for stocks that have at least 3 to 10 institutional sponsors with better-thanaverage performance records. If 70 to 80 percent of a stock's outstanding shares are owned by institutions.
He also found that winning stocks are usually outperforming the majority of stocks in the overall market as well. New Products. One of O'Neil's most surprising conclusions from his research is contrary to what many investors feel to be prudent.
A stock does not require a large number of institutional sponsors. Instead of adhering to the old stock market maxim The result of excessive institutional ownership can translate into excessive selling if bad news strikes. Institutional Sponsorship The biggest source of supply and demand comes from institutional buyers e. New Highs A dramatic increase in a stock's price typically coincides with something "new.
Some of the most dramatic increases follow such a breakout. As a rule of thumb.. Leader Although there is never a "satisfaction guaranteed" label attached to a stock. A huge amount of buying i. Using the simple principles of supply and demand. O'Neil feels the ideal time to purchase a stock is when it has just become discovered by several quality institutional sponsors. O'Neil says. The Granville OBV concept which views the total volume on an up day as accumulation and the total volume on a down day as distribution is a decent one.
Granville compared the closing price to the previous close. The reason is that there are too many important tops and bottoms. If you do. In order to determine whether there was accumulation or distribution in the market or an individual stock on a given day. While volume has always been mentioned by technicians as important. He [Williams] created a cumulative line by adding a Approximately seventyfive percent of all stocks move with the general market.
Market Direction This is the most important element in the formula. Very often. Technical analysis of both market averages and individual stocks must include volume studies in order to give the technician a true picture of the internal dynamics of a given market. This means that you can pick stocks that meet all the other criteria perfectly. Even the best stocks can lose money if the general market goes into a slump. Larry Williams took the OBV concept and improved on it.
You really won't need much else unless you want to argue with the trend of the market. For many years it had been accepted that volume and price normally rose and fell together. Market indicators are designed to help you determine the conditions of the overall market. Marc Chaikin developed a new volume indicator. Volume analysis helps in identifying internal strengths and weaknesses that exist under the cover of price action.
I created the Chaikin Oscillator substituting the average price of the day for Williams' opening and took the approach one step further by applying the oscillator to stocks and commodities.
Because of this void. I suggest using the oscillator along with other technical indicators to avoid problems. Since volume is the fuel that powers rallies. In the early s.
Comparing this flow to price action can help identify tops and bottoms. The third premise is that by using the Chaikin Oscillator. The Chaikin Oscillator is an excellent tool for generating buy and sell signals when its action is compared to price movement.
The premise behind my oscillator is three-fold. The second premise is that a healthy advance is accompanied by rising volume and a strong volume accumulation. I view that as a non-event. I believe it is a significant improvement over the work that preceded it.
Since no technical approach works all the time. The most important signal generated by the Chaikin Oscillator occurs when prices reach a new high or new low for a swing. A confirmed high or low does not imply any further price action in that direction. The closer a stock closes to its low. The closer a stock or average closes to its high. This classic divergence is usually followed by a correction in the security's A second way to use the Chaikin Oscillator is to view a change of direction in the oscillator as a buy or sell signal.
High values show that prices are unusually high compared to average prices whereas low values indicate that prices are unusually low. Interpretation There are two basic methods of interpreting the CCI: A downturn of the oscillator while in positive territory above zero would be a sell signal if the stock were below its day moving average of closing prices. Bearish divergences where prices increased to new highs while the Oscillator was falling occurred at points "A" and "B.
Contrary to its name. Calculate an n-period simple moving average of the absolute values of each of the results in Step 3. Divide the value in Step 6 by the value in Step 5.
Add each period's high. Multiply the value in Step 4 by 0. A bullish divergence occurred at point "A" prices were declining as the CCI was advancing. Calculate an n-period simple moving average of the typical prices computed in Step 1. The following are basic steps involved in the calculation: For each of the prior n-periods. Calculation A complete explanation of the CCI calculation is beyond the scope of this book.
Subtract the value from Step 2 from the value in Step 1. Prices subsequently rallied. Further details on the contents and interpretation of the CCI can be found in an article by Donald Lambert that appeared in the October issue of Commodities now known as Futures Magazine.
This is the typical price. Prices corrected.. A bearish divergence occurred at point "B" prices were advancing while the CCI was declining.
That is. The resulting value called the The trending characteristics are brought out by the Directional Movement factor in the calculation--the volatility characteristic by the Average True Range factor. Interpretation A high CSI rating indicates that the commodity has strong trending and volatility characteristics.
The Commodity Selection Index is designed for short-term traders who can handle the risks associated with highly volatile markets. Because these commodities are highly volatile. The name of the index reflects its primary purpose.
Wilder's approach is to trade commodities with high CSI values relative to other commodities. Interpretation When comparing the correlation between two items. You can use correlation analysis in two basic ways: This means that an increase in the dollar usually predicts a decrease in the price of gold.
Correlation analysis is also valuable in gauging the relationship between two securities. A high correlation coefficient i If the coefficient is a positive number.
A coefficient of A high negative correlation e. A coefficient of zero means there is no relationship between the two items and that a change in the independent item will have no effect in the dependent item. A low correlation coefficient e. This information helps you understand an indicator's predictive abilities.
The correlation coefficient can range between 1. The goal is to see if a change in the independent item which is usually an indicator will result in a change in the dependent item usually a security's price.
Example The following chart shows the relationship between corn and live hogs. The high correlation values show that. When comparing the correlation between an indicator and a security's price. The direction of the dependent variable's change depends on the sign of the coefficient. Since breaking down through its rising trend line. The trend line on the chart below shows that up-volume exceeded downvolume on average for all of If so.
It is calculated by subtracting the volume of declining stocks from the volume of advancing stocks. The CVI does not have to make this large assumption. When this rising trend was broken in February of For additional information on interpreting the CVI. While the market has been down. The CVI shows whether there has been more up-volume or down-volume and how long the current volume trend has been in place. One useful method of interpreting the CVI is to look at its overall trend. OBV assumes that all volume is up-volume when the stock closes higher and that all volume is down-volume when the stock closes lower.
See Advancing. Calculation The Cumulative Volume Index is calculated by subtracting the volume of declining stocks from the volume of advancing stocks. Shortly after the above commentary was written. There are two different ways to interpret this: Some investors feel that because the market has failed to go up even though up-volume has exceeded.
Now that I have the advantage of retrospect. An opposing school of thought is that the CVI shows what the smart money is doing. Table 6 shows the calculation of the CVI. After all. These expectations are always changing. To successfully profit from cycle analysis.
You can also use cycle analysis to predict changes in financial markets. I feel human psychology is responsible. Interpretation An entire book could easily be filled with a discussion of cycles and cycle analysis.
Theories as to why certain securities exhibit cyclical patterns range from weather and sun spots. In the following sections. Keep in mind that. We know that prices are a consensus of human expectations. Many technical analysis indicators and tools were developed in an attempt to profit from the cyclical nature of prices. Due to the agricultural nature of most commodities. The prices of many commodities reflect seasonal cycles.
Fluctuations in prices are a natural process of changing expectations and lead to cyclical patterns. Because the CVI always starts at zero.
The following illustration shows the major components of a cycle. What is important is the slope and pattern of the CVI. I briefly explain some of the more popular cycles. A good starting point to learn more about cycles. The down-wave is characterized by falling prices. Presidential Cycle. Some attribute this to the lunar cycle. The up-wave is characterized by rising prices. The concept is that stock prices will decline following the election as the newly elected president takes unpopular steps to make adjustments to the economy.
In Clemant Juglar found that a cycle lasting approximately 9 years existed in many areas of economic activity. Research in the s found a day cycle in the wheat market.
January Effect. Although individual commodities exhibit their own unique cycles. Wholesale prices. The day cycle is calendar days. The four-year cycle was later found to have an extremely strong presence in the stock market between and Although it is called a "four-year cycle. Joseph Kitchin found that a 40 month cycle existed in a variety of financial items in both Great Britain and the United States between and The plateau is characterized by stable prices. Since the cycle is extremely long-term.
In Subsequent research found this cycle to have had a strong presence during the period of to June 3. Regardless of the cause. Named after a Russian economist. This cycle is based on the presidential election that occurs every four years in the United States.
The stock market has shown an uncanny tendency to end the year higher if prices increase during the month of January. Then mid-term. The saying is. This is approximately 20 trading days. The Demand Index was developed by James Sibbet.
A divergence between the Demand Index and prices suggests an approaching weakness in price. The Demand Index penetrating the level of zero indicates a change in trend the Index is performing as a lagging indicator. A large long-term divergence between prices and the Demand Index indicates a major top or bottom.
Higher prices with a lower Demand Index peak usually coincides with an important top the Index is performing as a coincidental indicator. A longterm bearish divergence occurred in as prices rose while the Demand Index fell.
Sibbet defined six "rules" for the Demand Index: Prices often rally to new highs following an extreme peak in the Demand Index the Index is performing as a leading indicator.
When the Demand Index stays near the level of zero for any length of time. According to Sibbet. The DPO helps you remove these longer-term cycles from prices. You can see that minor peaks in the DPO coincided with minor peaks in Ryder's price.
Most computer software makes a minor modification to the indicator so it can be scaled on a normal scale. To calculate the DPO. Calculation The Demand Index calculations are too complex for this book they require columns of data.
Analyzing these shorter term components of the long-term cycles can be helpful in identifying major turning points in the longer term cycle. This is because the day DPO removes cycles of more than 20 days. Interpretation Long-term cycles are made up of a series of short-term cycles. Cycles longer than this time period are removed from prices.
The extreme point is then used as a trigger point at which you should implement the trade. If the price fails to rise above the extreme point. The result is the DPO. Wilder qualifies these simple trading rules with the "extreme point rule. Calculation To calculate the Detrended Price Oscillator.
When the CSI drops below In Wilder's book.
Wilder's book. As new information arrives. An individual stock's price reflects everything that is known about the security.
I only labeled the significant crossings and did not label the many short-term crossings. The "Industrial Average" included 12 blue-chip stocks and the "Rail Average" was comprised of 20 railroad enterprises. The Dow Theory is the common ancestor to most principles of modern technical analysis. It was not originally intended to forecast stock prices.
Charles Dow developed two broad market averages. The Averages Discount Everything. New Concepts In Technical Trading.
Interpretation The Dow Theory comprises six assumptions: Calculation The calculations of the Directional Movement system are beyond the scope of this book. He says. Secondary trends are typically comprised of a number of Minor trends. Investors will begin to accumulate stock as conditions improve. Minor trends are unimportant and can be misleading. Secondary trends are intermediate. If the market is making successive higher-highs and higher-lows the primary trend is up. The Primary trend usually lasts more than one year and may last for several years.
If the market is making successive lower-highs and lower-lows. The general feeling among most investors during this phase is one of "gloom and doom" and "disgust. The general public having had enough time to forget about their last "scathing" now feels comfortable participating in the stock market--fully convinced that the stock market is headed for the moon. The Dow Theory says that the First phase is made up of aggressive buying by informed investors in anticipation of economic recovery and long-term growth.
The Second phase is characterized by increasing corporate earnings and improved economic conditions. The Dow Theory holds that.
The Primary trend can either be a bullish rising market or a bearish falling market. They now buy even more stock. Secondary trends. These reactions typically last from one to three months and retrace from one-third to two-thirds of the previous Secondary trend. The Third phase is characterized by record corporate earnings and peak economic conditions. Primary Trends Have Three Phases. Minor trends are short-term movements lasting from one day to three weeks.
At any given time in the stock market. It is during this phase Confirmation of the change in trend occurred when both averages rose above their previous secondary peak. The Dow Theory focuses primarily on price action. The following chart of the Dow Industrials illustrates these three phases during the years leading up to the October crash. The Industrials and Transports must confirm each other in order for a valid change of trend to occur. The Volume Confirms the Trend. Both averages must extend beyond their previous secondary peak or trough in order for a change of trend to be confirmed.
A steady stream of improved earnings reports came in during the Second phase box "B". Volume is only used to confirm uncertain situations. In anticipation of a recovery from the recession. Euphoria set in during the Third phase box "C". The following chart shows the Dow Industrials and the Dow Transports at the beginning of the bull market in Volume should expand in the direction of the primary trend.
The following chart shows how the Dow Industrials registered a higher high point "A" and a higher low point "B" which identified a reversal of the down trend line "C". The following chart shows expanding volume during an up trend. If the primary trend is down. If the primary trend is up. In order for an up-trend to reverse. When a reversal in the primary trend is signaled by both the Industrials and Transports.
An up-trend is defined by a series of higher-highs and higher-lows.
As with Equivolume charting. The raw Ease of Movement value is usually smoothed with a moving average. If prices are not moving. The Ease of Movement indicator was developed Richard W. The Ease of Movement indicator produces a buy signal when it crosses above zero.
Low Ease of Movement values occur when prices are moving downward on light volume. Example The following chart shows Compaq and a day Ease of Movement indicator. Calculation To calculate the Ease of Movement indicator. A 9-day moving average was plotted on the Ease of Movement indicator. Interpretation High Ease of Movement values occur when prices are moving upward on light volume. Elliott's ideas received the attention of Wall Street in a series of articles published in Financial World magazine in This was the first significant work since Elliott's passing.
Returns cannot be increased by studying historical data. Elliott believed that all of man's activities. Robert Prechter and A. The underlying pattern remains constant.
Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves.
This move then becomes two subdivisions of the next higher wave. During the s and s after Elliott's passing. The problem with both of these theories is that many investors base their expectations on past prices whether using technical indicators. It says that you cannot consistently outperform the stock market due to the random nature in which information arrives and the fact that prices react and adjust almost immediately to reflect the latest information.
There are five waves in the direction of the main trend followed by three corrective waves a "" move. And since investors expectations control prices. The basic concepts of the Elliott Wave Theory are listed below.
The result. Interpretation The underlying forces behind the Elliott Wave Theory are of building up and tearing down. With the help of C. Inspired by the Dow Theory and by observations found throughout nature.
The Efficient Market Theory says that security prices correctly and almost immediately reflect all information and expectations. It assumes that every piece of information has been collected and processed by thousands of investors and this information both old and new is correctly reflected in the price. A move completes a cycle. Action is followed by reaction.
In fact. The Theory holds that since prices reflect all available information. Frost collaborated to write the book Elliott Wave Principle. Elliott Wave Theory holds that each wave within a wave count contains a complete wave count of a smaller cycle.
Waves a. The following chart shows how waves are comprised of smaller cycles. This process continues into Primary. This chart contains the identical pattern shown in the preceding chart now displayed using dotted lines.
The longest wave count is called the Grand Supercycle. The main trend is established by waves 1 through 5 and can be either up or down.
The basic pattern is made up of eight waves five up and three down which are labeled 1. Grand Supercycle waves are comprised of Supercycles.
Waves 2 and 4 are called corrective waves. Waves 1. Fibonacci numbers provide the mathematical foundation for the Elliott Wave Theory. The strong recovery that has since followed has caused them to reevaluate their wave counts. The optimum percentage shift depends on the volatility of the security--the more volatile. There is general agreement among Elliott Wave practitioners that the most recent Grand Supercycle began in and that the final fifth wave of this cycle began at the market bottom in Interpretation Envelopes define the upper and lower boundaries of a security's normal trading range.
One moving average is shifted upward and the second moving average is shifted downward. The numbers 2. Determining where one wave starts and another wave ends can be extremely subjective. Many heralded the arrival of the October crash as the end of the cycle. Elliott Wave practitioners use their determination of the wave count in combination with the Fibonacci numbers to predict the time span and magnitude of future market moves ranging from minutes and hours to years and decades..
Each of the cycles that Elliott defined are comprised of a total wave count that falls within the Fibonacci number sequence. A sell signal is generated when the security reaches the upper band whereas a buy signal is generated at the lower band. This is similar to the interpretation of Bollinger Bands. The logic behind envelopes is that overzealous buyers and sellers push the price to the extremes i. Equivolume was developed by Richard W.
This suggests that volume. You can see how American Brands' price tended to bounce off the bands rather than penetrate them. Calculation Envelopes are calculated by shifted moving averages. Candle volume charts possess the shadows and body characteristics Equivolume combines price and volume in a two-dimensional box.
To quote Mr. The top line of the box is the high for the period and the bottom line is the low for the period.
Instead of displaying volume as an "afterthought" on the lower margin of a chart. Figure 46 shows the components of an Equivolume box: Figure 46 The bottom scale on an Equivolume chart is based on volume. The width of the box is the unique feature of Equivolume-it represents the volume for the period.. This combination gives you the unique ability to study candlestick patterns in combination with their volume related movements. Interpretation The shape of each Equivolume box provides a picture of the supply and demand for the security during a specific trading period.
Short and wide boxes heavy volume accompanied with small changes in price tend to occur at turning points, while tall and narrow boxes light volume accompanied with large changes in price are more likely to occur in established trends.
Especially important are boxes which penetrate support or resistance levels, since volume confirms penetrations. A "power box" is one in which both height and width increase substantially.