Technical Analysis and Chart Interpretations: A Comprehensive Guide to Understanding Established Trading Tactics for Ultimate Profit

448 Pages·2016·12.75 MB·English

by  Ed Ponsi

Table of Contents
Title Page
Copyright
Dedication
Introduction: The Journey
About the Author
Part I: The Foundation of Technical Analysis
Chapter 1: Why Technical Analysis?
Technical and Fundamental Divergence
The Collapse of Lehman Brothers
Price Is Truth
Which Technical Analysis Method Will Work Best for You?
Chapter 2: The Language of Trading
Final Thoughts on the Language of Trading
Chapter 3: The Cornerstone
Dow Jones & Company
The Dow Jones Industrial Average
The Dow Jones Transportation Average
Final Thoughts on the Cornerstone
Chapter 4: The Dow Theory
Trends Are Persistent
Confirmation
Volume Confirmation
Other Types of Confirmation
Random Walk Theory
The Middle Ground
Final Thoughts on Dow Theory
Part II: Key Concepts of Technical Analysis
Chapter 5: Common Types of Charts
Price Data
Time Frames
Line Charts
Bar Charts
Candlestick Charts
Point and Figure Charts
The Use of Scale in Charts
Final Thoughts on Common Types of Charts
Chapter 6: Support and Resistance
Support Becomes Resistance, and Vice Versa
The Concept of Anchoring
All Levels Are Not Created Equal
Pullbacks and Throwbacks
Using Breaks in Support
Using Breaks in Resistance
Trading Between Support and Resistance
Final Thoughts on Support and Resistance
Chapter 7: Trends and Trend Lines
Uptrends
Downtrends
Breaking the Trend Line
Consolidation
Degree or Angle of the Trend
Sustainable Trends
Multiple Trend Lines
Channel Lines
Using Channel Lines
Support Becomes Resistance
Final Thoughts on Trends and Trend Lines
Chapter 8: Volume
Institutional vs. Individual Volume
Buyers vs. Sellers
Volume Represents Commitment
High-Volume Breakouts
Volume and Trend
Bearish Trend Volume
Support, Resistance, and Volume
Climactic Volume and Capitulation
Short-Covering Rallies
Final Thoughts on Volume
Chapter 9: Gaps
Full Gaps and Partial Gaps
Gaps in Illiquid Investments
Intraday Gaps
Opening Gaps
Breakaway Gaps
Runaway Gaps
Exhaustion Gaps
Island Reversals
Gap Fills
Currency Market Gaps
Final Thoughts on Gaps
Part III: Price Patterns
Chapter 10: Reversal Chart Patterns
Patterns Are Imperfect
Reversal vs. Continuation Patterns
The Head and Shoulders Reversal Pattern
Inverse Head and Shoulders Pattern
Head and Shoulders Continuation Pattern
Double Top Pattern
Double Bottom Pattern
Triple Top Pattern
Triple Bottom Pattern
Diamond Reversal Patterns
Final Thoughts on Reversal Chart Patterns
Chapter 11: Continuation Patterns
Triangles
Bearish Descending Triangle Pattern
Flags and Pennants
Wedges
Final Thoughts on Continuation Patterns
Chapter 12: Additional Chart Patterns
The Cup with Handle Formation
Fractal Cup with Handle
Respect Both Technical and Fundamental Analysis
The Broadening Formation
Final Thoughts on Additional Chart Patterns
Part IV: Candlestick Patterns
Chapter 13: Candlestick Charting Patterns
Candlestick Reversal Patterns
Complex Candlestick Reversal Patterns
Final Thoughts on Reversal Candles
Chapter 14: Continuation and Indecision Candlestick Patterns
Continuation Candlestick Patterns
Indecision Candlestick Patterns
Final Thoughts on Candlesticks
Part V: Fibonacci
Chapter 15: Fibonacci Trading Techniques
Leonardo Bonacci and Liber Abaci
The Golden Ratio and Fibonacci Rabbits
Significance in Trading
Fibonacci Retracement Levels
Fibonacci Extensions
Fibonacci Retracements of Greater Than 100%
Fibonacci Time Applications
Fibonacci Cycles
Fibonacci Time Extension Lines
Final Thoughts on Fibonacci
Part VI: Technical Indicators
Chapter 16: Moving Averages
Order of Moving Averages
Moving Average Support and Resistance
Moving Average Trading Signals—Single Crossover System
Average Returns of the Golden Cross and Death Cross
Moving Average Trading Signals—Multiple Crossover Systems
Other Types of Moving Averages
Final Thoughts on Moving Averages
Chapter 17: Moving Average Envelopes and Bollinger Bands
Reversion to the Mean
Moving Average Envelopes
Bollinger Bands
Standard Deviation
Bollinger Band Breakouts
Cycle of Volatility
Bollinger Bandwidth
Final Thoughts on Moving Average Envelopes and Bollinger Bands
Chapter 18: Oscillators
Types of Oscillators
Centered Oscillators
Banded Oscillators
The Stochastic Indicator
Final Thoughts on Oscillators
Chapter 19: Average True Range (ATR)
The Market and the Sea
Creation and Development of ATR
Final Thoughts on ATR
Chapter 20: Complex Indicators
Average Directional Index
Parabolic Stop and Reverse
Always Tighten, Never Loosen
Final Thoughts on Complex Indicators
Part VII: Oscillators
Chapter 21: Point and Figure Charting
Point and Figure Basics
Increment or Box Size
Point and Figure Index Charts
Point and Figure Patterns
Point and Figure Catapult
Point and Figure Triangles
Point and Figure Price Targets
One-Box Reversal Targets
Final Thoughts on Point and Figure Charting
Part VIII: ATR, ADX, and PSAR
Chapter 22: Cycles and Tendencies
The Presidential Election Cycle
The Decennial Cycle
The “Sell in May” Cycle
The Santa Claus Rally
The January Barometer
Seasonal Cycles
Currencies—A Special Situation
Longer-Term Cycles
The Kondratieff Wave
Sector Rotation
Early Stage of Economic Growth
Middle Stage of Economic Growth
Late Stage of Economic Growth
Final Thoughts on Cycles
Part IX: Cycles
Chapter 23: Sentiment Indicators
A Bullish Bias
The AAII Sentiment Survey
The VIX
Commitments of Traders Report
Large Speculators versus Small Speculators
Final Thoughts on Sentiment Indicators
Part X: Point and Figure Charting
Chapter 24: Psychological Aspects of Technical Analysis
Behavioral Traps
Ten Trading Biases
Fallacies, Herding, and More
Final Thoughts on Traps, Biases, and Fallacies
Chapter 25: Understanding Bubbles
The Five Stages of a Credit Cycle
China Stock Bubble 2007
NASDAQ Stock Bubble 1999
China Stock Bubble 2015
Final Thoughts on Bubbles
Chapter 26: Trading versus Reality
Real World versus Trading World
Anchoring and Trends
When Profits Hurt
Instant Gratification
The Humble Trader
The Adversary
Hard Work
Final Thoughts on Trading versus Reality
Part XI: Odds and Ends
Chapter 27: Unconventional Patterns
The Hindenburg Omen
Three Peaks and a Domed House Formation
Final Thoughts on Unconventional Patterns
Chapter 28: Combining Technical and Fundamental Analysis
Bull Market Fundamental Screen
Bear Market Fundamental Screen
Technical Screens
Screens for Other Asset Classes
Final Thoughts on Combining Technical and Fundamental Analysis
Part XII: Behavioral Aspects of Technical Analysis
Chapter 29: Final Thoughts on Technical Analysis
Index
End User License Agreement
List of Illustrations
Chapter 1: Why Technical Analysis?
Figure 1.1 The Rise and Fall of Enron
Figure 1.2 The Rise and Fall of Lehman Brothers
Chapter 2: The Language of Trading
Figure 2.1 A Series of Higher Highs and Higher Lows in USDJPY
Figure 2.2 A Series of Lower Highs and Lower Lows in Shares of
Herbalife (HLF)
Chapter 4: The Dow Theory
Figure 4.1 The Dow Jones Industrial Average (black) and the Dow Jones
Transportation Average Reach Simultaneous New Highs, Resulting in a
Dow Theory Buy Signal
Figure 4.2 A Divergence Between the Dow Jones Industrial (black) and
Transportation (gray) Averages
Figure 4.3 As the S&P 500 Rallies, Volume Begins to Decrease
Chapter 5: Common Types of Charts
Figure 5.1 A Daily Line Chart for Amazon.com (AMZN)
Figure 5.2 A Five-Minute Line Chart of Amazon.com
Figure 5.3 A Line Chart Comparison of the Dow Jones Industrial
Average ($DJIA, black) and the Dow Jones Transportation Average
($DJT, gray)
Figure 5.4 A Daily Bar Chart of Apple (AAPL)
Figure 5.5 A Daily Candlestick Chart of Apple (AAPL)
Figure 5.6 A Point and Figure Chart of Google Inc. Class A Shares
(GOOGL)
Figure 5.7 An Apple Daily Chart, Using a Linear Scale
Figure 5.8 An Apple Daily Chart Using a Semi-Logarithmic Scale
Chapter 6: Support and Resistance
Figure 6.1 Support and Resistance
Figure 6.2 Support Becomes Resistance
Figure 6.3 Caterpillar Inc. (CAT) Forms a Major Support Level at $78
Figure 6.4 Minor Support in Starbucks Corp. (SBUX)
Figure 6.5 American International Group (AIG) Forms and Then Breaks
a Significant Resistance Level
Figure 6.6 Minor Resistance in the Guggenheim CurrencyShares
Japanese Yen ETF (FXY)
Figure 6.7 A Break Above Resistance Leads to a Subsequent Throwback