The New Science of Technical Analysis

Chapter 10

Rate of Change

On numerous occasions, I've been approached by college students who wanted to know what courses would best prepare them for a career in the stock market or the futures market. Recalling my own educational experience—liberal arts, study abroad, graduate school of business, and law school—I invariably respond not to follow in my footsteps. In the trading profession, what is most obvious is often most obviously wrong. I grant that fundamentals or the perception of them dictate the long-term trend in markets; however, over shorter time periods, the recognition of these fundamental developments might be ignored or overlooked. As a result, the price of a security may either remain dormant or contradict reason and logic. Effective market timing techniques help alert the user to the appropriate times when the price may be disposed to respond favorably or unfavorably. The identification of these precise points in time is accomplished by measuring both supply/demand and market sentiment.

My techniques concentrate on basic economics and mass psychology. Consequently, I believe an understanding of these two areas of knowledge is vital to success—the former for purpose of measuring supply and demand and the latter for evaluating the emotionalism of the market.

Of the highly educated professors you know, how many have been successful traders? I would venture to guess: not very many. Their lack of success is no reflection on their intelligence; over the long run, their ...