Getting Started in Technical Analysis (Getting Started in.....)

  • View
    1.342

  • Download
    76

Embed Size (px)

DESCRIPTION

Forex, Commodities, Trading

Text of Getting Started in Technical Analysis (Getting Started in.....)

cover

next page >

title: author: publisher: isbn10 | asin: print isbn13: ebook isbn13: language: subject publication date: lcc: ddc: subject:

Getting Started in Technical Analysis Getting Started in Series Schwager, Jack D. John Wiley & Sons, Inc. (US) 0471295426 9780471295426 9780585301365 English Stock price forecasting, Investment analysis, Stocks-Charts, diagrams, etc. 1999 HG4637.S37 1999eb 332.63/222 Stock price forecasting, Investment analysis, Stocks-Charts, diagrams, etc.

cover

next page >

< previous page

page_i

next page >Page i

Getting Started in Technical Analysis

< previous page

page_i

next page >

< previous page

page_ii

next page >Page ii

The Getting Started in Series Getting Started in Asset Allocation by Bill Bresnan and Eric P. Gelb Getting Started in Online Investing by David L. Brown and Kassandra Bentley Getting Started in Stocks by Alvin D. Hall Getting Started in Security Analysis by Peter J. Klein Getting Started in Futures by Todd Lofton Getting Started in Technical Analysis by Jack D. Schwager Getting Started in Options by Michael C. Thomsett Getting Started in Real Estate Investing by Michael C. Thomsett and Jean Freestone Thomsett Getting Started in Annuities by Gordon M. Williamson Getting Started in Bonds by Sharon Saltzgiver Wright Coming Soon . . . Getting Started in Mutual Funds by Alvin D. Hall Getting Started in 401(k) Investing by Paul Katzeff Getting Started in Financial Information by Daniel Moreau

< previous page

page_ii

next page >

< previous page

page_iii

next page >Page iii

Getting Started in Technical Analysis Jack D. Schwager

< previous page

page_iii

next page >

< previous page

page_iv

next page >Page iv

This book is printed on acid-free paper. Copyright 1999 by Jack D. Schwager. All rights reserved. Published by John Wiley & Sons, Inc. Published simultaneously in Canada. TradeStation is a registered trademark of Omega Research, Inc. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 101580012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ@WILEY.COM. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Library of Congress Cataloging-in-Publication Data: Schwager, Jack D., 1948 Getting started in technical analysis / Jack D. Schwager p. cm.(Getting started in) Includes index. ISBN 0-471-29542-6 (pbk.:alk. paper) 1. Stock price forecasting. 2. Investment analysis. 3. Stocks Charts, diagrams, etc. I. Title. II. Series. HG4637.S37 1998 332.63'222dc21 98-23565 Printed in the United States of America. 10 9 8 7 6 5 4 3 2

< previous page

page_iv

next page >

< previous page

page_v

next page >Page v

CONTENTS Preface Introduction: The Great Fundamental Versus Technical Analysis Debate Part One: Basic Analysis Tools Chapter 1 Charts: Forecasting Tool or Folklore? Chapter 2 Types of Charts Chapter 3 Trends Chapter 4 Trading Ranges and Support and Resistance Chapter 5 Chart Patterns Chapter 6 Oscillators Chapter 7 Is Chart Analysis Still Valid? Part Two: Trading Issues Chapter 8 Midtrend Entry and Pyramiding vii 1 5 7 17 33 51 73 110 120 127 129

< previous page

page_v

next page >

< previous page

page_vi

next page >Page vi

Chapter 9 Choosing Stop-Loss Points Chapter 10 Setting Objectives and Other Position Exit Criteria Chapter 11 The Most Important Rule in Chart Analysis Chapter 12 Real-World Chart Analysis Part Three: Trading Systems Chapter 13 Charting and Analysis Software Chapter 14 Technical Trading Systems: Structure and Design Chapter 15 Testing and Optimizing Trading Systems Part Four: Practical Trading Guidelines Chapter 16 The Planned Trading Approach Chapter 17 Eighty-Two Trading Rules and Market Observations Chapter 18 Market Wiz(ar)dom Appendix Additional Concepts and Formulas Glossary Index

136 143 152 178 219 221 226 253 275 277 288 299 315 325 333

< previous page

page_vi

next page >

< previous page

page_vii

next page >Page vii

PREFACE Trading success cannot be capsulized in a simple indicator, formula, or systemthe pronouncements of countless books, advertisements, and brochures notwithstanding. This book is written by a trader, from a trader's perspective, rather than being yet another compendium of analytical techniques, indicators, or systems, using idealized illustrations. In explaining various analytical techniques and methods, I have tried to keep in the forefront key questions that are often ignored by writers of books on technical analysis: How can the methods described be applied in actual trading? What works and doesn't work in the real world? What are the implications of a method's failure? How can trading systems be designed and tested to maximize their future performance rather than their past performance? This is a practical book. I have used many of the methods described in this volume to construct a very profitable trading approachyes, with real money. Why then am I willing to share this information? Because, to use a building metaphor, I am supplying the tools, but not the architectural designthat is left to the individual reader. I believe that readers who are serious about using technical analysis to become more successful traders and who understand that this goal requires individual work will find much here that is useful. JACK D. SCHWAGER Unless otherwise indicated, the charts in this book are reproduced courtesy of Prudential Securities, Inc.

< previous page

page_vii

next page >

< previous page

page_1

next page >Page 1

INTRODUCTION THE GREAT FUNDAMENTAL VERSUS TECHNICAL ANALYSIS DEBATE Curiously, however, the broken technician is never apologetic about his method. If anything, he is more enthusiastic than ever. If you commit the social error of asking him why he is broke, he will tell you quite ingeniously that he made the all-too-human error of not believing his own charts. To my great embarrassment, I once choked conspicuously at the dinner table of a chartist friend of mine when he made such a comment. I have since made it a rule never to eat with a chartist. It's bad for digestion. Burton G. Malkiel, A Random Walk Down Wall Street One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. "Why didn't you move your foot?" I exclaimed. "I was waiting for it to come back up," he replied. Ed Seykota (an avowed technician) Most speculators, especially those active primarily in stocks, are accustomed to trading from a fundamental perspective. Fundamental analysis involves the use of economic datafor example, P/E ratios or book values in the case of stocks, or crop reports or import/export figures in the case of commodity futuresto forecast prices, or equivalently, to gauge whether a market is overvalued or undervalued. Technical analysis, by comparison, is the study of price activitymore specifically, price patternsto identify favorable trade opportuni-

< previous page

page_1

next page >

< previous page

page_2

next page >Page 2

ties. The logical basis for this approach has two major elements. First, that the price of a particular stock, commodity, or financial future reflects all the knowable information about that asset at any given time and the opinions of all market participants regarding that information. Second, that the fundamental information and market opinions reflected by price will result in recurring price patterns that provide clues to potential future price movement. Hence, by analyzing historical price patterns, the technical analyst looks for price behavior that suggests the possible initiation, conclusion, or continuation of a trend. Which methodfundamental analysis or technical analysisis better? This question is the subject of great debate. Interestingly, the experts are no less divided on this issue than the novices are. In a pair of books in which I interviewed some of the world's best traders (Market Wizards, New York Institute of Finance, 1988, and The New Market Wizards, HarperBusiness, 1992), I was struck by the sharply divergent views on this issue. Jim Rogers was characteristic of one extreme of the spectrum. During the 1970s, Jim Rogers and George Soros were the two principals of the Quantum Fund, perhaps the most successful Wall Street fund of its day. In 1980, Rogers left the fund to escape managerial responsibilities and to devote himself full-time to managing his own investmentsan endeavor at which he again