A breakthrough trading book that provides powerful insights on profitable technical patterns and strategies The Art and Science of Technical Analysis is a groundbreaking work that bridges the gaps between the academic view of markets, technical analysis, and profitable trading. The book explores why randomness prevails in markets most, but not all, of the time and how technical analysis can be used to capture statistically validated patterns in certain types of market conditions. The belief of the book is that buying and selling pressure causes patterns in prices, but that these technical patterns are only effective in the presence of true buying/selling imbalance.
The Art and Science of Technical Analysis is supported by extensive statistical analysis of the markets, which will debunk some tools and patterns such as Fibonacci analysis, and endorse other tools and trade setups. In addition, this reliable resource discusses trader psychology and trader learning curves based on the author's extensive experience as a trader and trainer of traders.
- Offers serious traders a way to think about market problems, understand their own performance, and help find a more productive path forward
- Includes extensive research to validate specific money-making patterns and strategies
- Written by an experienced market practitioner who has trained and worked with many top traders
Filled with in-depth insights and practical advice, The Art and Science of Technical Analysis will give you a realistic sense of how markets behave, when and how technical analysis works, and what it really takes to trade successfully.
Table of Contents:
Preface xi
Acknowledgments xv
Part I The Foundation of Technical Analysis
Chapter 1 The Trader’s Edge 3
Defining a Trading Edge 4
Finding and Developing Your Edge 7
General Principles of Chart Reading 8
Indicators 12
The Two Forces: Toward a New Understanding of Market Action 13
Price Action and Market Structure on Charts 15
Charting by Hand 28
Chapter 2 The Market Cycle and the Four Trades 31
Wyckoff’s Market Cycle 32
The Four Trades 40
Summary 45
Part II Market Structure
Chapter 3 On Trends 49
The Fundamental Pattern 49
Trend Structure 51
A Deeper Look at Pullbacks: The Quintessential Trend Trading Pattern 65
Trend Analysis 77
Summary 95
Chapter 4 On Trading Ranges 97
Support and Resistance 97
Trading Ranges as Functional Structures 113
Summary 120
Chapter 5 Interfaces between Trends and Ranges 121
Breakout Trade: Trading Range to Trend 122
Trend to Trading Range 134
Trend to Opposite Trend (Trend Reversal) 137
Trend to Same Trend (Failure of Trend Reversal) 143
Summary 145
Part III Trading Strategies
Chapter 6 Practical Trading Templates 149
Failure Test 150
Pullback, Buying Support or Shorting Resistance 154
Pullback, Entering Lower Time Frame Breakout 162
Trading Complex Pullbacks 165
The Anti 170
Breakouts, Entering in the Preceding Base 174
Breakouts, Entering on First Pullback Following 181
Failed Breakouts 183
Summary 186
Chapter 7 Tools for Confirmation 189
The Moving Average—The Still Center 190
Channels: Emotional Extremes 195
Indicators: MACD 202
Multiple Time Frame Analysis 213
Chapter 8 Trade Management 231
Placing the Initial Stop 232
Setting Price Targets 235
Active Management 240
Portfolio Considerations 251
Practical Issues 253
Chapter 9 Risk Management 263
Risk and Position Sizing 263
Theoretical Perspectives on Risk 279
Misunderstood Risk 282
Practical Risks in Trading 283
Summary 290
Chapter 10 Trade Examples 291
Trend Continuation 293
Trend Termination 313
Failure Test Failures 319
Trading Parabolic Climaxes 323
The Anti 327
Trading at Support and Resistance 336
Summary 343
Part IV The Individual, Self-Directed Trader
Chapter 11 The Trader’s Mind 347
Psychological Challenges of the Marketplace 348
Evolutionary Adaptations 349
Cognitive Biases 353
The Random Reinforcement Problem 356
Emotions: The Enemy Within 357
Intuition 360
Flow 364
Practical Psychology 367
Summary 372
Chapter 12 Becoming a Trader 375
The Process 376
Record Keeping 385
Statistical Analysis of Trading Results 388
Summary 397
Appendix A Trading Primer 399
Appendix B A Deeper Look at Moving Averages and the MACD 409
Appendix C Sample Trade Data 425
Glossary 427
Bibliography 443
About the Author 447
Index 449
About the Author :
ADAM GRIMES is the CIO of Waverly Advisors, an asset management and risk advisory firm headquartered in New York. He began his career as an independent trader focused on agricultural and currency futures, and moved on to manage a successful private investment partnership. Grimes's experience as a trader covers futures, equities, currencies, and derivatives, in time frames ranging from intraday to multi-month swings. Though he is primarily a discretionary swing trader, his methodology rests on a firm foundation of statistical and quantitative research. Grimes holds an MBA with an emphasis in finance and market microstructure, and has worked for a number of private investment firms, as well as having spent several years at the New York Mercantile Exchange.
