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Technical Analysis For Dummies, 3rd Edition

Book Description

A simple, straightforward guide to the fundamentals of technical analysis

Technical analysis is a collection of techniques designed to help you make trading decisions in securities markets. Technical Analysis For Dummies helps you take a hard-headed look at what securities prices are actually doing rather than what economists or analysts say they should be doing, giving you the know-how to use that data to decide whether to buy or sell individual securities.

Since the publication of the first edition, readers have been faced with many changes, such as new interest rates, looming bank crises, and adjusting market climates. This new edition provides an updated look at unique formulas and key indicators, as well as refreshed and practical examples that reflect today today's financial atmosphere.

  • Determine how markets are performing and make decisions using real data

  • Spot investment trends and turning points

  • Improve your profits and your portfolio performance

  • With straightforward coverage of concepts and execution, Technical Analysis For Dummies shows you how to make better trading decisions in no time.

    Table of Contents

      1. Introduction
        1. About This Book
        2. Foolish Assumptions
        3. Icons Used in This Book
        4. Beyond the Book
        5. Where to Go from Here
      2. Part I: Defining Technical Analysis
        1. Chapter 1: Opening the Technical Analysis Toolbox
          1. Introducing Technical Analysis
            1. Who are you?
            2. Choosing a trading style
            3. Setting new rules
            4. The truth about buy-and-hold
          2. The Trend Is Your Friend
            1. De-cluttering your mind
            2. Charting your path
            3. Trendedness
            4. Picturing trendedness
            5. Picking a time frame
          3. Viewing the Scope of Technical Analysis
            1. Charting
            2. Market timing
            3. Trend-following
            4. Technical analysis
          4. Why Technical Analysis Gets a Bad Rap
            1. Beating the market is hard, hard work
            2. The truly random — one-time Shocks
            3. Public information is hard to get
          5. Finding Order
          6. What You Need to Get Started
        2. Chapter 2: Uncovering the Essence of Market Movement
          1. The eBay Model of Supply and Demand
            1. Securities aren't socks: The demand effect
            2. Creating demand from scratch
          2. Identifying Crowd Behavior
            1. The individual versus the crowd
            2. Playing games with traders’ heads
          3. What's Normal, Anyway?
            1. Reverting to the mean
            2. Trading mean reversion
          4. Understanding Crowd Extremes
            1. Technical lingo: Overbought and oversold
            2. Going against the grain: Retracements
            3. Catch a falling knife: Estimating where and when a retracement will stop
        3. Chapter 3: Going with the Flow: Market Sentiment
          1. Where Market Sentiment Comes From and What It's Good For
          2. Thinking Outside the Chart
            1. Sampling information about sentiment
          3. Getting the Low-Down on Volume
            1. Leading the way with spikes
            2. Tracking on-balance volume
            3. Refining volume indicators
          4. Blindsiding the Crowd
            1. Considering historic key reversals
            2. Enduring spikes
            3. Remembering the last price
          5. Thinking Scientifically
            1. Conditions and contingencies
            2. Sample size
      3. Part II: Preparing Your Mind for Technical Analysis
        1. Chapter 4: The Art of Trading
          1. Noise — The Market Monster
            1. Where does noise come from?
            2. Noise from inside the market
          2. Indicators are “The Edge”
            1. Classifying indicators
            2. Understanding what indicators identify
            3. Choosing your trading style
          3. Examining How Indicators Work
            1. Finding relevant time frames
            2. Heeding indicator signals
          4. Establishing Benchmark Levels
          5. Choosing Indicators
          6. Examining Indicators in Detail
            1. Constructing a backtest optimization
            2. Too many factors
            3. Fixing the indicator
            4. Evaluating the risks of backtesting
          7. Skill vs. Art
        2. Chapter 5: Managing the Trade
          1. Building Trading Rules
            1. Your trading plan outline
            2. Combining indicators with trading rules
            3. Trading styles
          2. How much is enough?
          3. Controlling Losses
          4. Using the First Line of Defense: Stop-Loss Orders
            1. Mental stops are hogwash
            2. Sorting out the types of stops
          5. Adjusting Positions
            1. Reducing positions
            2. Adding to positions
            3. Applying stops to adjusted positions
        3. Chapter 6: Reading Basic Bars: How to Pounce on Opportunities
          1. Building Basic Bars
            1. Reality in a nutshell
            2. Setting the tone: The opening price
            3. Summarizing sentiment: The closing price
            4. Going up: The high
            5. Getting to the bottom of it: The low
          2. Putting It All Together: Using Bars to Identify Trends
            1. Identifying an uptrend
            2. Pinpointing a downtrend
          3. Wading through Murky Bar Waters
            1. Paying heed to bar series
            2. Understanding relativity
            3. Avoiding misinterpretation
            4. Knowing when bar reading doesn't work
          4. Framing Your Bars
            1. Using daily data
            2. Zooming out to a higher time frame
            3. Zooming in to a shorter time frame
          5. Applying Bar Reading in Real Time
      4. Part III: Observing Market Behavior
        1. Chapter 7: Reading Special Bar Combinations: Small Patterns
          1. Finding Clues to Trader Sentiment
            1. Tick and bar placement
            2. Types of configurations
            3. Trading range
          2. Identifying Common Special Bars
            1. Closing on a high note
            2. Spending the day inside
            3. Getting outside for the day
            4. Finding the close at the open
          3. Decoding Spikes
          4. Getting Gaps
            1. Pinpointing a gap
            2. Using gaps to your advantage
          5. Filling That Gap
          6. Using the Trading Range as a Tool
            1. Paying attention to a changing range
            2. Determining the meaning of a range change
            3. Looking at the average trading range
        2. Chapter 8: Redrawing the Price Bar: Japanese Candlesticks
          1. Appreciating the Candlestick Advantage
          2. Dissecting the Anatomy of a Candlestick
            1. Drawing the real body
            2. Doing without a real body: The doji
            3. Catching the shadow
          3. Sizing Up Emotions
          4. Identifying Special “Emotional Extreme” Candlestick Patterns
            1. Interpreting candlestick patterns
            2. Turning to reversal patterns
            3. Continuation patterns
          5. Combining Candlesticks with Other Indicators
          6. Trading on Candlesticks Alone
      5. Part IV: Finding Patterns
        1. Chapter 9: Seeing Patterns
          1. Introducing Patterns
            1. Got imagination?
            2. Coloring inside the lines
          2. Cozying Up to Continuation Patterns
            1. Ascending and descending triangles
            2. Dead-cat bounce
          3. Recognizing Classic Reversal Patterns
            1. Double bottom
            2. Double tops
            3. The ultimate triple top: Head-and-shoulders
          4. Evaluating the Measured Move
            1. Taking dictation from the pattern
            2. Resuming the trend after retracement
            3. Measuring from the gap
        2. Chapter 10: Drawing Trendlines
          1. Looking Closely at a Price Chart
          2. Following the Rules with Rule-Based Trendlines
            1. Drawing support and resistance lines
            2. Using the support line to enter and exit
            3. Breakouts and false breakouts
            4. Using resistance to enter and exit
            5. Fine-tuning support and resistance
            6. Playing games with support and resistance lines
          3. Drawing Internal Trendlines
            1. Rules for drawing a linear regression
            2. Identifying trendedness
            3. How to use the linear regression
        3. Chapter 11: Transforming Channels into Forecasts
          1. Diving into Channel-Drawing Basics
            1. The swing bar problem
            2. Drawing channels by hand
            3. Considering the benefits of channels
            4. Delving into the drawbacks of channels
            5. Channeling to make gains and avoid losses
          2. Dealing with Breakouts
            1. Distinguishing between false breakouts and the real thing
            2. Putting breakouts into context
          3. Riding the Regression Range
            1. Introducing the standard error
            2. Drawing a linear regression channel
            3. Confirming hand-drawn channels
            4. Sizing up the special features of the linear regression channel
            5. Discovering the drawbacks of linear regression channels
          4. Pivot Point Support and Resistance Channel
            1. Calculating the first zone of support and resistance
            2. Using pivot support and resistance
      6. Part V: Dynamic Analysis
        1. Chapter 12: Using Dynamic Lines
          1. Introducing the Simple Moving Average
            1. Starting with the crossover rule
            2. Using the moving average level rule
            3. Dealing with limitations
            4. Moving average rules vs. Donchian rules
            5. Magic moving average numbers
          2. Adjusting the Moving Average
            1. Weighted and exponential moving averages
            2. Adaptive moving averages
            3. Wild and woolly moving averages
            4. Choosing a moving average type
          3. Using Multiple Moving Averages
            1. Putting two moving averages into play
            2. Trying the three-way approach
          4. Delving into Moving Average Convergence and Divergence
            1. Calculating convergence and divergence
            2. Creating a decision tool
            3. Interpreting the MACD
        2. Chapter 13: Measuring Momentum
          1. Doing the Math: Calculating Momentum
            1. Simple momentum
            2. Utilizing the rate-of-change method
          2. Pondering the Trickier Aspects of Momentum
            1. Smoothing price changes
            2. Filtering momentum
          3. Applying Momentum
            1. Discovering divergence
            2. Confirming trend indicators
          4. Determining the Relative Strength Index (RSI)
            1. Calculating the RSI
            2. Picturing RSI
            3. Filtering RSI
          5. Using the Rest of the Price Bar: The Stochastic Oscillator
            1. Step 1: Putting a number to the fast stochastic %K
            2. Step 2: Refining %K with %D
            3. Fiddling with the stochastic oscillator on the chart
        3. Chapter 14: Estimating Volatility
          1. Catching a Slippery Concept
            1. How volatility arises
            2. Low volatility with trending
            3. Low volatility without trending
            4. High volatility with trending
            5. High volatility without trending
          2. Measuring Volatility
            1. Tracking the maximum move
            2. Considering the standard deviation
            3. Using the average true range indicator
          3. Applying Volatility Measures: Bollinger Bands
          4. Applying Stops with Average True Range Bands
        4. Chapter 15: Ignoring Time: Point-and-Figure Charting
          1. Visualizing What's Important
            1. Putting each move into a column
            2. Dealing with box size
            3. Drawing the daily chart
          2. Applying Patterns
            1. Support and resistance
            2. Double and triple tops and bottoms
          3. Projecting Prices after a Breakout
            1. Using vertical price projection
            2. Applying horizontal projection
          4. Combining Point-and-Figure Techniques with Other Indicators
          5. Constant Range Bars
        5. Chapter 16: Combining Techniques
          1. Expecting a Positive Result
            1. Defining positive expectancy
            2. Tearing down expectancy
            3. Enhancing positive expectancy by entering gradually and exiting at once
          2. Trading with Limited Expectancy: Semi-System, Set-up, and Guerilla Trading
            1. Semi-system “discretionary” trading
            2. Solving the squaring problem — setups
          3. Adding a New Indicator: Introducing Complexity
            1. Choosing a ruling concept
            2. Studying a case in complexity
          4. Sailing into Outer Space
            1. The Conquistador
            2. Everything but the kitchen sink — Ichimoku with a standard error channel
        6. Chapter 17: Cycles and Waves
          1. Defining a Cycle
            1. Financial cycles
            2. Following the earth's axis: Seasonality and calendar effects
          2. Big-Picture Crowd Theories
            1. The Gann 50 percent retracement
            2. Magic numbers: “The secret of the universe”
            3. Seeing too many retracements
      7. Part VI: Part of Tens
        1. Chapter 18: Ten Secrets of the Top Technical Traders
          1. Learn Your Expectancy
          2. The Edge Lies in the Chart
          3. The Trend is Your Friend
          4. Entries Count as Much as Exits
          5. Use Stops
          6. Treat Trading as a Business
          7. Don't Take It Personally
          8. Eat Your Spinach
          9. Diversify
          10. Learn Some Math
        2. Chapter 19: Ten Rules for Working with Indicators
          1. Don't Jump the Gun
          2. Defeat Your Math Gremlins
          3. Embrace Patterns
          4. Use Support and Resistance
          5. Follow the Breakout Principle
          6. Watch for Convergence and Divergence
          7. Back-test or Practice-Trade Honestly
          8. Accept That Your Indicators Will Fail
          9. Get Over the Idea of Secret Indicators
          10. Open Your Mind
        3. Appendix: Additional Resources
          1. The Bare Minimum
            1. Online resources
            2. Charting software
            3. Additional reading
      8. About the Author
      9. Cheat Sheet
      10. More Dummies Products