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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…)

A great quote

  
  Education
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I’m sure every trader has run into some kind of negativity from know-it-all chodes who just don’t get what this subject is about – it goes something along the lines of “What good does it actually do? You are just stealing other peoples money?” blah blah *yawn* blah….

Here’s a great quote from a book I’m reading “Hedge Fund Edge” that demolishes their complaints:

“Principle 7: Develop a Love and Respect for Trading, Free Markets, and Individual Liberty and Initiative.

Profits are just the gravy. When they test a group of traders, one of the traits that almost all successful traders and investors share is a deep understanding of how trading and investing is part of the process that allows humankind to progress. Even day-traders provide critical liquidity that allows others to hedge, companies to raise capital, and investors to invest with limited risk. Stock selection allows investors to become second-level venture capital firms, with their demand helping provide access to financing in areas where the people need capital most. The more you understand the remarkable way in which freedom and free association work to produce economic gain and real progress for humankind from new innovations and technologies, the more likely you are to feel a strong sense of purpose at being a part of such an incredible system. And the stronger your sense that your efforts are creating something good that is bigger than yourself, the more committed, enriched, excited, and innovative you will become.”

… so put that in your pipe and smoke it.

A great quote

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

I’m sure every trader has run into some kind of negativity from know-it-all chodes who just don’t get what this subject is about – it goes something along the lines of “What good does it actually do? You are just stealing other peoples money?” blah blah *yawn* blah….

Here’s a great quote from a book I’m reading “Hedge Fund Edge” that demolishes their complaints:

“Principle 7: Develop a Love and Respect for Trading, Free Markets, and Individual Liberty and Initiative.

Profits are just the gravy. When they test a group of traders, one of the traits that almost all successful traders and investors share is a deep understanding of how trading and investing is part of the process that allows humankind to progress. Even day-traders provide critical liquidity that allows others to hedge, companies to raise capital, and investors to invest with limited risk. Stock selection allows investors to become second-level venture capital firms, with their demand helping provide access to financing in areas where the people need capital most. The more you understand the remarkable way in which freedom and free association work to produce economic gain and real progress for humankind from new innovations and technologies, the more likely you are to feel a strong sense of purpose at being a part of such an incredible system. And the stronger your sense that your efforts are creating something good that is bigger than yourself, the more committed, enriched, excited, and innovative you will become.”

… so put that in your pipe and smoke it.

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