The first edition of Jeff Greenblatt’s Breakthrough Strategies for Predicting Any Market: Charting Elliott Wave, Lucas, Fibonacci, Gann, and Time for Profit appeared in 2007. Since that time Greenblatt came to embrace the work of W. D. Gann. He also found that Alan Andrews’ median lines served as “an excellent GPS system in order to understand how trends evolve.” The second edition (Wiley, 2013) thus includes new chapters on Gann, Andrews, and median channels. It also addresses market sentiment/psychology.
Greenblatt is the director of Lucas Wave International and editor ofThe Fibonacci Forecaster. And who was Lucas, you might ask. (Well, at least I did.) Edouard Lucas (1842-1891) was a French mathematician who invented the famous (some might say infamous) Tower of Hanoi puzzle. He also studied number sequences, most notably the Fibonacci sequence. The closely related number sequence (2, 1, 3, 4, 7, 11, 18, 29, …) is named after Lucas.
But back to the book. (more…)
Archives of “Technical Analysis” tag
rssTechnical Analysis Fact and Fiction
“Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo…
“There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.
“For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.
“Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behaviors. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.”
– Bruce Kovner, Market Wizards
Bruce Kovner pulled billions out of the markets, over multiple decades, before handing the reins of his fund, Caxton Associates, to the next generation of traders.
As an academic in a past life, Kovner was known for his deep dive fundamental analysis — but he also used charts extensively, as the Market Wizards excerpt shows. (more…)
Lessons for traders
- Price goes up or down, from point A to point B, due to fundamental conditions. Hence we must understand fundamentals. However, the path price takes is not direct; it is driven by the news and emotions of the day. That’s where technical analysis shines.
- Don’t bet big on any trade.
- Use money management, nothing is more important to survival.
- Fade the advisors and public; they are most often wrong while the commercials [the big guys] are most often correct.
- Don’t let emotions run your trading game.
- Trade what you see, not what someone tells you that you should be seeing. Forget the news; trade what you see.
Everything you ever wanted to know about technical analysis
And you even paid attention!
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THE BEST TRADERS ARE HUMBLE
When an ordinary man attains knowledge, he is a sage; when a sage attains understanding, he is an ordinary man.
– Anonymous
With some technical trading knowledge and experience, you become a trader.
But when you become consistent and profitable, you feel ordinary again. This is because you’ve grown aware of the great uncertainty you face in the markets.
You’ve gained a strong appreciation of risk. In fact, your respect for risk is so deep that you would feel humble. And in that sense, you will feel ordinary.
Trading Errors When Trend Following
Who really wants to define a loss? Only smart trend followers. Most people think they can postpone a loss. They become investors instead of traders. Many refuse to define a loss. I have seen traders not close a losing trade, after they realized that the trade’s potential is greatly diminished and has gone against them. They want to right. All the way to the poor house. This is a typical trading error when trend following. You need an exact plan when you are trend following. You can not make it up as you are going. This is what losers do. Besides having the exact plan you must believe in it and follow it. Do not think of the money. Think in terms of percentages. Follow your rules and stay in the marathon of trend following. Successful trend following is not about tips or magic indicators. It is about you and how you approach the markets. You must be willing to take losses once it is clear the trade is not working.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
6 Points For Traders
1. Consistently profitable trading is not about discovering some magic way to find profitable trades.
2. Consistently successful trading is founded on solid risk management.
3. Successful trading is a process of doing certain things over and over again with discipline and patience.
4. The human element of trading is enormously important and has been ignored by other authors for years. Recognizing and managing the emotions of fear and greed are central to consistently successful speculation.
5. It is possible to be profitable over time even though the majority of trading events will be losers. “Process” will trump the results of any given trade or series of trades.
6. Charting principles are not magic, but simply provide a structure for a trading process.
10 Rules If You USE Charts
Rule 1 – If you cannot see trends and patterns almost instantly when you look at a chart then they are not there. The longer you stare, the more your brain will try to apply order where there is none.
If you have to justify exceptions, stray data points and conflicting evidence then it is safe to say the market is not showing you what you think it is.
Rule 2 – You can torture a chart to say anything you want. Don’t do it.
This is very similar to Rule 2 but it there is an important point to drive home. You can cherry pick indicators to justify whatever biases you bring to the table and that attempts to impose your will on the market. You cannot tell the market what to do – ever.
Rule 3 – Be sure you check out one time frame larger than the one in which you are operating (a weekly chart for a swing trader, a monthly chart for a position trader).
It is very easy to get caught up in your own world and miss the bigger picture getting ready to smack you. It can mean the difference between buying the dip in a rising trend and selling a breakdown in a falling trend.
Rule 4 – Look at both bars (or candles) and close-only line charts to see if they agree. And look at both linear and semi-logarithmic scaled charts when price movements are large.
Short-term traders can ignore the latter since prices are not usually moving 30% in a day. But position traders must compare movements at different price levels.
As for bars and lines, sometimes important highs and lows are set by intraday or intra-week movements. And sometimes intrday or intra-week highs and lows are anomalies that can safely be ignored. Why not look at both?
Rule 5 – Patterns must be in proportion to the trends they are attempting to correct or reverse. I like the trend to be at least three times as long as the pattern. (more…)
9 Rules For Traders
1. Don’t Fight the Tape – the trend is your friend, go with Mo (Momentum that is)
2. Don’t Fight the Fed – Fed policy influences interest rates and liquidity – money moves markets.
3. Beware of the Crowd at Extremes – psychology and liquidity are linked, relative relationships revert, valuation = long-term extremes in psychology, general crowd psychology impacts the markets
4. Rely on Objective Indicators – indicators are not perfect but objectively give you consistency, use observable evidence not theoretical
5. Be Disciplined – anchor exposure to facts not gut reaction
6. Practice Risk Management – being right is very difficult…thus, making money needs risk management
7. Remain Flexible – adapt to changes in data, the environment, and the markets
8. Money Management Rules – be humble and flexible – be able to turn emotions upside down, let profits run and cut losses short, think in terms of risk including opportunity risk of missing a bull market, buy the rumor and sell the news
9. Those Who Do Not Study History Are Condemned to Repeat Its Mistakes
10 Trading Truth
An entry does not determine profitability it only determines potential profit the exit is where the win or lost occurs, focus on that.
- A robust trading system means nothing unless you can follow it with discipline and self control.
- Charts don’t care about any one persons opinions why should you?
- Good trading will make you some money but only good risk management will allow you to keep the money.
- Good traders search for the right entries, great traders search for the right systems.
- Bad traders have an opinion, good traders have a plan. (more…)
