The Art and Science of Technical Analysis: Market Structure, Price Action, and

Description: 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. 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. 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

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