Technical Analysis for Dummies 3rd edition

365 Pages·2016·3.91 MB·English

by  Barbara Rockefeller

Technical Analysis For Dummies®, 3rd Edition
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Library of Congress Control Number: 2013954214
ISBN 978-1-11877961-3 (pbk); ISBN 978-1-118-82911-0 (ePub); ISBN 978-
1-118-82912-7 (PDF)
Manufactured in the United States of America
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Technical Analysis For Dummies®,
3rd Edition
Visit www.dummies.com/cheatsheet/technicalanalysis
to view this book's cheat sheet.
Table of Contents
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part I: Defining Technical Analysis
Chapter 1: Opening the Technical Analysis Toolbox
Introducing Technical Analysis
Who are you?
Choosing a trading style
Setting new rules
The truth about buy-and-hold
The Trend Is Your Friend
De-cluttering your mind
Charting your path
Trendedness
Picturing trendedness
Picking a time frame
Viewing the Scope of Technical Analysis
Charting
Market timing
Trend-following
Technical analysis
Why Technical Analysis Gets a Bad Rap
Beating the market is hard, hard work
The truly random — one-time Shocks
Public information is hard to get
Finding Order
What You Need to Get Started
Chapter 2: Uncovering the Essence of Market Movement
The eBay Model of Supply and Demand
Securities aren't socks: The demand effect
Creating demand from scratch
Identifying Crowd Behavior
The individual versus the crowd
Playing games with traders’ heads
What's Normal, Anyway?
Reverting to the mean
Trading mean reversion
Understanding Crowd Extremes
Technical lingo: Overbought and oversold
Going against the grain: Retracements
Catch a falling knife: Estimating where and when a retracement will stop
Chapter 3: Going with the Flow: Market Sentiment
Where Market Sentiment Comes From and What It's Good For
Thinking Outside the Chart
Sampling information about sentiment
Getting the Low-Down on Volume
Leading the way with spikes
Tracking on-balance volume
Refining volume indicators
Blindsiding the Crowd
Considering historic key reversals
Enduring spikes
Remembering the last price
Thinking Scientifically
Conditions and contingencies
Sample size
Part II: Preparing Your Mind for Technical Analysis
Chapter 4: The Art of Trading
Noise — The Market Monster
Where does noise come from?
Noise from inside the market
Indicators are “The Edge”
Classifying indicators
Understanding what indicators identify
Choosing your trading style
Examining How Indicators Work
Finding relevant time frames
Heeding indicator signals
Establishing Benchmark Levels
Choosing Indicators
Examining Indicators in Detail
Constructing a backtest optimization
Too many factors
Fixing the indicator
Evaluating the risks of backtesting
Skill vs. Art
Chapter 5: Managing the Trade
Building Trading Rules
Your trading plan outline
Combining indicators with trading rules
Trading styles
How much is enough?
Controlling Losses
Using the First Line of Defense: Stop-Loss Orders
Mental stops are hogwash
Sorting out the types of stops
Adjusting Positions
Reducing positions
Adding to positions
Applying stops to adjusted positions
Chapter 6: Reading Basic Bars: How to Pounce on Opportunities
Building Basic Bars
Reality in a nutshell
Setting the tone: The opening price
Summarizing sentiment: The closing price
Going up: The high
Getting to the bottom of it: The low
Putting It All Together: Using Bars to Identify Trends
Identifying an uptrend
Pinpointing a downtrend
Wading through Murky Bar Waters
Paying heed to bar series
Understanding relativity
Avoiding misinterpretation
Knowing when bar reading doesn't work
Framing Your Bars
Using daily data
Zooming out to a higher time frame
Zooming in to a shorter time frame
Applying Bar Reading in Real Time
Part III: Observing Market Behavior
Chapter 7: Reading Special Bar Combinations: Small Patterns
Finding Clues to Trader Sentiment
Tick and bar placement
Types of configurations
Trading range
Identifying Common Special Bars
Closing on a high note
Spending the day inside
Getting outside for the day
Finding the close at the open
Decoding Spikes
Getting Gaps
Pinpointing a gap
Using gaps to your advantage
Filling That Gap
Using the Trading Range as a Tool
Paying attention to a changing range
Determining the meaning of a range change
Looking at the average trading range
Chapter 8: Redrawing the Price Bar: Japanese Candlesticks
Appreciating the Candlestick Advantage
Dissecting the Anatomy of a Candlestick
Drawing the real body
Doing without a real body: The doji
Catching the shadow
Sizing Up Emotions
Identifying Special “Emotional Extreme” Candlestick Patterns
Interpreting candlestick patterns
Turning to reversal patterns
Continuation patterns
Combining Candlesticks with Other Indicators
Trading on Candlesticks Alone
Part IV: Finding Patterns
Chapter 9: Seeing Patterns
Introducing Patterns
Got imagination?
Coloring inside the lines
Cozying Up to Continuation Patterns
Ascending and descending triangles
Dead-cat bounce
Recognizing Classic Reversal Patterns
Double bottom
Double tops
The ultimate triple top: Head-and-shoulders
Evaluating the Measured Move
Taking dictation from the pattern
Resuming the trend after retracement
Measuring from the gap
Chapter 10: Drawing Trendlines
Looking Closely at a Price Chart
Following the Rules with Rule-Based Trendlines
Drawing support and resistance lines
Using the support line to enter and exit
Breakouts and false breakouts
Using resistance to enter and exit
Fine-tuning support and resistance
Playing games with support and resistance lines
Drawing Internal Trendlines
Rules for drawing a linear regression
Identifying trendedness
How to use the linear regression
Chapter 11: Transforming Channels into Forecasts
Diving into Channel-Drawing Basics
The swing bar problem
Drawing channels by hand
Considering the benefits of channels
Delving into the drawbacks of channels
Channeling to make gains and avoid losses
Dealing with Breakouts
Distinguishing between false breakouts and the real thing
Putting breakouts into context
Riding the Regression Range
Introducing the standard error
Drawing a linear regression channel
Confirming hand-drawn channels
Sizing up the special features of the linear regression channel
Discovering the drawbacks of linear regression channels
Pivot Point Support and Resistance Channel
Calculating the first zone of support and resistance
Using pivot support and resistance
Part V: Dynamic Analysis
Chapter 12: Using Dynamic Lines
Introducing the Simple Moving Average
Starting with the crossover rule
Using the moving average level rule
Dealing with limitations
Moving average rules vs. Donchian rules
Magic moving average numbers
Adjusting the Moving Average
Weighted and exponential moving averages
Adaptive moving averages
Wild and woolly moving averages
Choosing a moving average type
Using Multiple Moving Averages
Putting two moving averages into play
Trying the three-way approach
Delving into Moving Average Convergence and Divergence
Calculating convergence and divergence
Creating a decision tool
Interpreting the MACD
Chapter 13: Measuring Momentum
Doing the Math: Calculating Momentum
Simple momentum