Technical Analysis of the Financial Markets

Author: John J. Murphy
Category: trading
Pages: 494 | Year: 2020
Tags: john_j_murphy, technical_analysis_of_the_financial_market

📖 Book Chapters & Sections

📋 Original Table of Contents

Title Page (p. 3)
Copyright (p. 4)
Dedication (p. 6)
Contents (p. 7)
About the Author (p. 19)
About the Contributors (p. 20)
Introduction (p. 21)
Acknowledgments (p. 23)
1 Philosophy of Technical Analysis (p. 24)
- Introduction (p. 24)
- Philosophy or Rationale (p. 24)
- Technical versus Fundamental Forecasting (p. 27)
- Analysis versus Timing (p. 28)
- Flexibility and Adaptability of Technical Analysis (p. 29)
- Technical Analysis Applied to Different Trading Mediums (p. 30)
- Technical Analysis Applied to Different Time Dimensions (p. 30)
- Economic Forecasting (p. 31)
- Technician or Chartist? (p. 31)
- A Brief Comparison of Technical Analysis in Stocks and Futures (p. 32)
- Less Reliance on Market Averages and Indicators (p. 35)
- Some Criticisms of the Technical Approach (p. 35)
- Random Walk Theory (p. 38)
- Universal Principles (p. 40)
2 Dow Theory (p. 41)
- Introduction (p. 41)
- Basic Tenets (p. 42)
- The Use of Closing Prices and the Presence of Lines (p. 47)
- Some Criticisms of Dow Theory (p. 48)
- Stocks as Economic Indicators (p. 49)
- Dow Theory Applied to Futures Trading (p. 49)
- Conclusion (p. 50)
3 Chart Construction (p. 51)
- Introduction (p. 51)
- Types of Charts Available (p. 51)
- Candlesticks (p. 53)
- Arithmetic versus Logarithmic Scale (p. 54)
- Construction of the Daily Bar Chart (p. 55)
- Volume (p. 56)
- Futures Open Interest (p. 57)
- Weekly and Monthly Bar Charts (p. 59)
- Conclusion (p. 61)
4 Basic Concepts of Trend (p. 62)
- Definition of Trend (p. 62)
- Trend Has Three Directions (p. 64)
- Trend Has Three Classifications (p. 65)
- Support and Resistance (p. 67)
- Trendlines (p. 75)
- The Fan Principle (p. 83)
- The Importance of the Number Three (p. 85)
- The Relative Steepness of the Trendline (p. 85)
- The Channel Line (p. 89)
- Percentage Retracements (p. 94)
- Speed Resistance Lines (p. 96)
- Gann and Fibonacci Fan Lines (p. 98)
- Internal Trendlines (p. 99)
- Reversal Days (p. 99)
- Price Gaps (p. 102)
- Conclusion (p. 105)
5 Major Reversal Patterns (p. 106)
- Introduction (p. 106)
- Price Patterns (p. 106)
- Two Types of Patterns: Reversal and Continuation (p. 107)
- The Head and Shoulders Reversal Pattern (p. 109)
- The Importance of Volume (p. 113)
- Finding a Price Objective (p. 113)
- The Inverse Head and Shoulders (p. 115)
- Complex Head and Shoulders Patterns (p. 117)
- Triple Tops and Bottoms (p. 119)
- Double Tops and Bottoms (p. 121)
- Variations from the Ideal Pattern (p. 124)
- Saucers and Spikes (p. 128)
- Conclusion (p. 129)
6 Continuation Patterns (p. 130)
- Introduction (p. 130)
- Triangles (p. 131)
- The Symmetrical Triangle (p. 132)
- The Ascending Triangle (p. 135)
- The Descending Triangle (p. 137)
- The Broadening Formation (p. 139)
- Flags and Pennants (p. 140)
- The Wedge Formation (p. 144)
- The Rectangle Formation (p. 145)
- The Measured Move (p. 149)
- The Continuation Head and Shoulders Pattern (p. 150)
- Confirmation and Divergence (p. 152)
- Conclusion (p. 153)
7 Volume and Open Interest (p. 154)
- Introduction (p. 154)
- Volume and Open Interest as Secondary Indicators (p. 154)
- Interpretation of Volume for All Markets (p. 158)
- Interpretation of Open Interest in Futures (p. 164)
- Summary of Volume and Open Interest Rules (p. 169)
- Blowoffs and Selling Climaxes (p. 169)
- Commitments of Traders Report (p. 169)
- Watch the Commercials (p. 170)
- Net Trader Positions (p. 171)
- Open Interest In Options (p. 171)
- Put/Call Ratios (p. 172)
- Combine Option Sentiment With Technicals (p. 173)
- Conclusion (p. 173)
8 Long Term Charts (p. 175)
- Introduction (p. 175)
- The Importance of Longer Range Perspective (p. 175)
- Construction of Continuation Charts for Futures (p. 176)
- The Perpetual Contract™ (p. 177)
- Long Term Trends Dispute Randomness (p. 178)
- Patterns on Charts: Weekly and Monthly Reversals (p. 178)
- Long Term to Short Term Charts (p. 178)
- Why Should Long Range Charts Be Adjusted for Inflation? (p. 179)
- Long Term Charts Not Intended for Trading Purposes (p. 180)
- Examples of Long Term Charts (p. 181)
9 Moving Averages (p. 187)
- Introduction (p. 187)
- The Moving Average: A Smoothing Device with a Time Lag (p. 188)
- Moving Average Envelopes (p. 197)
- Bollinger Bands (p. 198)
- Using Bollinger Bands as Targets (p. 200)
- Band Width Measures Volatility (p. 200)
- Moving Averages Tied to Cycles (p. 201)
- Fibonacci Numbers Used as Moving Averages (p. 202)
- Moving Averages Applied to Long Term Charts (p. 202)
- The Weekly Rule (p. 204)
- To Optimize or Not (p. 209)
- Summary (p. 209)
- The Adaptive Moving Average (p. 210)
- Alternatives to the Moving Average (p. 210)
10 Oscillators and Contrary Opinion (p. 212)
- Introduction (p. 212)
- Oscillator Usage in Conjunction with Trend (p. 213)
- Measuring Momentum (p. 214)
- Measuring Rate of Change (ROC) (p. 219)
- Constructing an Oscillator Using Two Moving Averages (p. 219)
- Commodity Channel Index (p. 222)
- The Relative Strength Index (RSI) (p. 224)
- Using the 70 and 30 Lines to Generate Signals (p. 230)
- Stochastics (K%D) (p. 230)
- Larry Williams %R (p. 233)
- The Importance of Trend (p. 234)
- When Oscillators are Most Useful (p. 235)
- Moving Average Convergence/Divergence (MACD) (p. 236)
- MACD Histogram (p. 238)
- Combine Weeklies and Dailies (p. 239)
- The Principle of Contrary Opinion in Futures (p. 240)
- Investor Sentiment Readings (p. 243)
- Investors Intelligence Numbers (p. 244)
11 Point and Figure Charting (p. 246)
- Introduction (p. 246)
- The Point and Figure Versus the Bar Chart (p. 246)
- Construction of the Intraday Point and Figure Chart (p. 250)
- The Horizontal Count (p. 253)
- Price Patterns (p. 254)
- 3 Box Reversal Point and Figure Charting (p. 256)
- Construction of the 3 Point Reversal Chart (p. 257)
- The Drawing of Trendlines (p. 261)
- Measuring Techniques (p. 264)
- Trading Tactics (p. 265)
- Advantages of Point and Figure Charts (p. 266)
- P&F Technical Indicators (p. 270)
- Computerized P&F Charting (p. 270)
- P&F Moving Averages (p. 272)
- Conclusion (p. 273)
12 Japanese Candlesticks (p. 274)
- Introduction (p. 274)
- Candlestick Charting (p. 274)
- Basic Candlesticks (p. 276)
- Candle Pattern Analysis (p. 278)
- Filtered Candle Patterns (p. 283)
- Conclusion (p. 284)
- Candle Patterns (p. 285)
13 Elliott Wave Theory (p. 294)
- Historical Background (p. 294)
- Basic Tenets of the Elliott Wave Principle (p. 294)
- Connection Between Elliott Wave and Dow Theory (p. 298)
- Corrective Waves (p. 299)
- The Rule of Alternation (p. 307)
- Channeling (p. 308)
- Wave 4 as a Support Area (p. 309)
- Fibonacci Numbers as the Basis of the Wave Principle (p. 309)
- Fibonacci Ratios and Retracements (p. 310)
- Fibonacci Time Targets (p. 313)
- Combining All Three Aspects of Wave Theory (p. 313)
- Elliott Wave Applied to Stocks Versus Commodities (p. 315)
- Summary and Conclusions (p. 315)
- Reference Material (p. 317)
14 Time Cycles (p. 318)
- Introduction (p. 318)
- Cycles (p. 319)
- How Cyclic Concepts Help Explain Charting Techniques (p. 328)
- Dominant Cycles (p. 331)
- Combining Cycle Lengths (p. 333)
- The Importance of Trend (p. 334)
- Left and Right Translation (p. 335)
- How to Isolate Cycles (p. 335)
- Seasonal Cycles (p. 340)
- Stock Market Cycles (p. 344)
- The January Barometer (p. 344)
- The Presidential Cycle (p. 345)
- Combining Cycles with Other Technical Tools (p. 345)
- Maximum Entropy Spectral Analysis (p. 345)
- Cycle Reading and Software (p. 346)
15 Computers and Trading Systems (p. 347)
- Introduction (p. 347)
- Some Computer Needs (p. 348)
- Grouping Tools and Indicators (p. 349)
- Using the Tools and Indicators (p. 349)
- Welles Wilder’s Parabolic and Directional Movement Systems (p. 350)
- Pros and Cons of System Trading (p. 356)
- Need Expert Help? (p. 357)
- Test Systems or Create Your Own (p. 358)
- Conclusion (p. 358)
16 Money Management and Trading Tactics (p. 360)
- Introduction (p. 360)
- The Three Elements of Successful Trading (p. 360)
- Money Management (p. 361)
- Reward to Risk Ratios (p. 363)
- Trading Multiple Positions: Trending versus Trading Units (p. 364)
- What to Do After Periods of Success and Adversity (p. 364)
- Trading Tactics (p. 365)
- Combining Technical Factors and Money Management (p. 367)
- Types of Trading Orders (p. 368)
- From Daily Charts to Intraday Price Charts (p. 369)
- The Use of Intraday Pivot Points (p. 371)
- Summary of Money Management and Trading Guidelines (p. 372)
- Application to Stocks (p. 373)
- Asset Allocation (p. 373)
- Managed Accounts and Mutual Funds (p. 373)
- Market Profile (p. 374)
17 The Link Between Stocks and Futures: Intermarket Analysis (p. 375)
- Intermarket Analysis (p. 376)
- Program Trading: The Ultimate Link (p. 376)
- The Link Between Bonds and Stocks (p. 378)
- The Link Between Bonds and Commodities (p. 379)
- The Link Between Commodities and the Dollar (p. 379)
- Stock Sectors and Industry Groups (p. 381)
- The Dollar and Large Caps (p. 382)
- Intermarket Analysis and Mutual Funds (p. 382)
- Relative Strength Analysis (p. 383)
- Relative Strength and Sectors (p. 385)
- Relative Strength and Individual Stocks (p. 386)
- Top-Down Market Approach (p. 386)
- Deflation Scenario (p. 387)
- Intermarket Correlation (p. 388)
- Intermarket Neural Network Software (p. 389)
- Conclusion (p. 389)
18 Stock Market Indicators (p. 391)
- Measuring Market Breadth (p. 391)
- Sample Data (p. 391)
- Comparing Market Averages (p. 392)
- The Advance-Decline Line (p. 393)
- AD Divergence (p. 394)
- Daily Versus Weekly AD Lines (p. 394)
- Variations in AD Line (p. 395)
- McClellan Oscillator (p. 395)
- McClellan Summation Index (p. 396)
- New Highs Versus New Lows (p. 397)
- New High-New Low Index (p. 398)
- Upside Versus Downside Volume (p. 399)
- The Arms Index (p. 400)
- TRIN Versus TICK (p. 401)
- Smoothing the Arms Index (p. 401)
- Open Arms (p. 402)
- Equivolume Charting (p. 402)
- Candlepower (p. 404)
- Comparing Market Averages (p. 405)
- Conclusion (p. 407)
19 Pulling It All Together—A Checklist (p. 408)
- Technical Checklist (p. 408)
- How to Coordinate Technical and Fundamental Analysis (p. 410)
- Chartered Market Technician (CMT) (p. 410)
- Market Technicians Association (MTA) (p. 411)
- The Global Reach of Technical Analysis (p. 411)
- Technical Analysis by Any Name (p. 412)
- Federal Reserve Finally Approves (p. 412)
- Conclusion (p. 413)
A Advanced Technical Indicators (p. 416)
- Demand Index (DI) (p. 416)
- Herrick Payoff Index (HPI) (p. 418)
- Starc Bands and Keltner Channels (p. 420)
- Formula for Demand Index (p. 423)
B Market Profile (p. 425)
- Introduction (p. 425)
- Market Profile Graphic (p. 427)
- Market Structure (p. 428)
- Market Profile Organizing Principles (p. 429)
- Range Development and Profile Patterns (p. 433)
- Tracking Longer Term Market Activity (p. 434)
- Conclusion (p. 438)
C The Essentials of Building a Trading System (p. 440)
- 5-Step Plan (p. 441)
- Step 1: Start with a Concept (an Idea) (p. 441)
- Step 2: Turn Your Idea into a Set of Objective Rules (p. 443)
- Step 3: Visually Check It Out on the Charts (p. 443)
- Step 4: Formally Test It with a Computer (p. 443)
- Step 5: Evaluate Results (p. 446)
- Money Management (p. 446)
- Conclusion (p. 447)
D Continuous Futures Contracts (p. 450)
- Nearest Contract (p. 450)
- Next Contract (p. 451)
- Gann Contract (p. 451)
- Continuous Contracts (p. 452)
- Constant Forward Continuous Contracts (p. 452)
Glossary (p. 454)
Selected Bibliography (p. 462)
Selected Resources (p. 466)
Index (p. 469)

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