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TECHNICAL ANALYSIS FOR IDIOTS

  
  Education
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The outline of the book is very simple and well designed, consisting of four parts: Introduction to Technical Analysis, Tools For Technical Analysis, Time to Trade, and Trading Mechanics.  There is a wealth of information here so let’s look at a few nuggets.

INTRODUCTION TO TECHNICAL ANALYSIS

Arps does a good job of explaining the purpose of technical analysis as a way to “help you anticipate potential changes in the direction of market prices resulting from crowd behavior driven by the emotions of greed and fear” and not as a “business of absolute predictions.”  All too often the new trader considers technical analysis to be the answer to predicting future price action; Arps tempers this expectation with a good analogy:  “Like weather forecasting, technical analysis doesn’t result in absolute predictions about the future.  Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time.”  After laying the foundation Arps begins to build a firm structure by covering topics that include market structure, charting, and various swing patterns.

TOOLS FOR TECHNICAL ANALYSIS

Part 2 covers the technical of technical analysis.  Here Arps dissects just about every tool available to traders from trendlines to moving averages; oscillators to point and figure charts; and price to support and resistance.  These tools help the trader better  anticipate future price direction by considering recent price support/resistance areas, overbought/oversold areas, trending/consolidation conditions, divergence, etc.  “Answers to these questions can alert you in advance as to when prices are likely to change direction and thus provide you with powerful information that can significantly improve your trading profits.”  Much of what is covered here is your traditional meat and potatoes but there is a little extra gravy, such as Arps’ own Fear-Greed Index, a chapter on Volume Float analysis, made popular by Steve Woods, and the Jackson Probability Zones, a method named after J.T. Jackson.

TIME TO TRADE

Understanding the basics of technical analysis is one thing: applying it to current market conditions is quite another.  In part 3, Arps discusses how to use technical analysis for building the skills necessary to become a successful trader.  What is of particular interest to me is Arps discussion of developing a trading plan, which, he says, consist of four parts:  rules for entry, rules for exit, money management rules, and the selection of a strategy.  Anyone who has traded for any length of time will quickly point out that the trader may have more degrees in technical analysis than a thermostat but if he does not have a plan for using that knowledge it will be worthless.  In fact, it could be dangerous.  Arps does a great job of cautioning the would be trader who believes that technical analysis knowledge is key when it is not.  “There are several reasons to have a trading plan, but probably the biggest is the way it simplifies things.  Decision making becomes very clear cut.  The trading plan defines what is supposed to be done, when, and how.  Just follow the plan.  The plan serves as a roadmap to entering and holding, profit taking, or cutting losses.  Writing down your plan gives you an immediate edge over most traders and investors.”  Bottom line: the trader’s edge is following a plan; not the plan itself.

TRADING MECHANICS

In part 4, Arps takes the trader through the (more…)

Advantages of Technical Analysis

  
  Education
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  • Technical analysis is a bit of a misnomer since it is really not that technical. A better name for the use of charts to make investment decisions might be risk/reward analysis or even market psychology. Sure, there are some complex mathematical concepts involved with some of its more esoteric indicators. But at its core, technical analysis is simply a method of determining if a stock or the market as a whole is worth buying or selling. Once we identify this we are way ahead of the game with regard to assembling a winning portfolio.
  • Simply stated, technical analysis is the study of data generated from the market and from the actions of people in the market. Such data includes price levels that have served as turning points in the past, the amounts of stock being bought and sold each day (volume), and the rate of change of price movements (momentum) over a given span of time. (more…)

Vision

  
  Education
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Vision – Although an expectation of total clairvoyance as to future price movement is unrealistic, it is my goal as a trader to assimilate as much information as possible with the goal of playing out scenarios that tie in with each other.

This is not always easy to do. Yet, understanding trading does not occur in a vacuum, and markets do exhibit oddities. You can get yourself mentally prepared to deal with these outlier events. Those who can think for themselves and need not rely on templatized news releases for their ideas usually put themselves in a position to benefit from their forward thinking.

We have heard many times about leaders who saw an industry trend before it happened. This was no accident. It came as a result of their understanding of their field and what could change it for the better. Traders who gain an understanding of how things can potentially play out and factor that into their trading strategy go a long way toward keeping their objectivity when things unfold in a fast and volatile market.

7 Major Candlestick Reversal Pattern Pairs

  
  Education
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Candlestick reversal patterns can be a boon to any trader’s repertoire. Combining them with support/resistance lines and other indicators can increase a trader’s edge substantially. Each set below contains both the bearish and bullish counterparts. These are ideal setups that require directional movement (i.e. nothing range bound). The more volume at the given point, the more strength each of these patterns portend.

Realize that a candlestick pattern is simply a means of reading data on the chart. Whether you trade forex, stocks, options or futures it is a superior tool for technical analysis.
Once you become familliar with the basic candlestick patterns you will quickly assimilate their meaning and easily interpret them.
The patterns are basically intuitive and the learning curve is small.
There comes a point where you will recognize market sentiment without even identifying a specific candlestick pattern.
No matter what system style or technique you may implement the fact is you will be that much more effective by making candlestick charts your tool of choice.
The alternatives or archaic to say the least, and downright ugly once you get used to using Japanese candlesticks.
Candlestick charts are the most widely used for of charting for good reason. With a little practice and help, it is actually the most intuitive process for understanding current and future price action.
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 Bearish and Bullish Harami –
Identified by a long bar followed by a very short one. Harami signal a loss of momentum and a possible reversal.

darkpiercing6
Dark Cloud Cover and Bullish Piercing Pattern – The dark cloud cover and bullish piercing patterns reveal weakness in the current trend and emerging strength in the opposition. (more…)

Vision

  
  Education
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While total clairvoyance as to future price movement is unrealistic. It is my goal as a trader to assimilate as much information as possible with the goal of playing out scenarios that tie in together. It’s not always easy to do, yet understanding trading does not occur in a vacuum and markets do exhibit funny things get you mentally prepared to deal with these outlier events. Those that can think for themselves and need not rely on templatized news releases for their ideas usually put themselves in a position to benefit from their forward thinking.

We have heard many times about leaders who saw an industry trend before it happened. This was no accident. It came as a result of their understanding of their field and what could change it for the better. Traders who gain an understanding of how things can potentially play out and factor that into their trading strategy go a long way to keeping their objectivity when things unfold in a fast and volatile market. 

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