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Tony Plummer - Forecasting Financial Markets The Psychology of Successful Investing 5th edition ... PDF

434 Pages·2007·11.13 MB·English
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PLUMMER FORECASTING FINANCIAL MARKETS 11/06 2:56 pm Page 1 “This book will entertain and intrigue keen investors.” Financial Times FORECASTING 5TH EDITION of In Forecas is a FINANCIAL MARKETS Plummer p Bank Ltd into the ps ment PLC. behaviour rket assets instinct can 1999, “This book will entertain and intrigue keen investors.” 5TH EDITION FORECASTING individual i currencies, money in m Financial Times dent an individu d rhythms independe “Tony Plummer… has written a book that is almost breathless such indep in its enthusiasm for his chosen craft.” acquire the wd The Independent FINANCIAL MARKETS alysis in • understa nd the Far “A brilliant, original, insightful work… deserves to be read logical te gree from by all serious technical analysts.” • recogniz The Psychology of Successful Investing terbury The Independent emotiona the fluctuatio s. He is a “Should interest not only practitioners and skeptical economists, but also • design a echnical countless thoughtful managers who are rightly impatient with trading s actitioner expert ‘forecasts’, which are, alas, not always worth objective ing. the paper they are printed on.” The book e Sir Adam Ridley (writing in the Foreword) dimensions This fifth e Financial M updated to author’s lat the implica and rhythm financial m deal with: • the phen • the three • economi • recurren activity; • forecasti £45.00 • finding c US $79.95 Kogan Page Kogan Page US 120 Pentonville Road 525 South 4th Street, #241 London N1 9JN Philadephia PA 19147 United Kingdom USA www.kogan-page.co.uk Investment and securities TONY PLUMMER 70+ DVD’s FOR SALE & EXCHANGE www.traders-software.com www.forex-warez.com www.trading-software-collection.com www.tradestation-download-free.com Contacts i FORECASTING FINANCIAL MARKETS ii This page intentionally left blank iii FORECASTING FINANCIAL MARKETS The Psychology of Successful Investing 5TH EDITION TONY PLUMMER London and Philadelphia iv To Glenys First published in 1989 Revised edition 1990 Second edition 1993 Third edition 1998 Fourth edition 2003 Fifth edition 2006 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction, in accordance with the terms and licences issued by the CLA. Enquiries concerning repro- duction outside those terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road 525 South 4th Street, #241 London N1 9JN Philadelphia PA 19147 United Kingdom USA www.kogan-page.co.uk © Tony Plummer, 1989, 1993, 1998, 2003, 2006 The right of Tony Plummer to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 7494 4749 4 British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Plummer, Tony. Forecasting financial markets : the psychology of successful investing / Tony Plummer. – 5th ed. p. cm. Includes index. ISBN 0-7494-4749-4 1. Stock price forecasting. 2. Investment analysis. 3. Investments. I. Title. HG4637.P57 2006 332.63’2220112–dc22 2006013221 Typeset by Saxon Graphics Ltd, Derby Printed and bound in the United States by Thomson-Shore, Inc v Contents Foreword vii Preface to the fifth edition ix Acknowledgements xiii Introduction 1 Part One: The logic of non-rational behaviour in financial markets 1 Wholly individual or indivisibly whole 9 2 Two’s a crowd 15 3 The individual in the crowd 26 4 The systems approach to crowd behaviour 33 5 Cycles in the crowd 41 6 Approaches to forecasting crowd behaviour 54 Part Two: The dynamics of the bull–bear cycle 7 The stock market crowd 73 8 The shape of the bull–bear cycle 86 9 Energy gaps and pro-trend shocks 107 10 The spiral and the golden ratio 123 11 The mathematical basis of price movements 140 12 The shape of things to come 153 Part Three: Forecasting turning points 13 The phenomenon of cycles 165 14 The threefold nature of cycles 176 15 Economic cycles 201 vi Contents 16 Recurrence in economic and financial activity 217 17 Integrating the cycles 232 18 Forecasting with cycles 245 19 Finding cycles: a case study 256 20 Price patterns in financial markets 270 21 The Elliott wave principle 286 22 Information shocks and corrections 302 23 The confirmation of buy and sell signals 326 Part Four: The trader at work 24 The psychology of fear 351 25 The troubled trader 361 26 The psychology of success 377 27 The mechanics of success 393 28 Summary and conclusions 405 Index 409 vii Foreword The last two decades have witnessed dramatic changes in the behaviour of the free world’s financial markets. The fundamental causes of these changes must embrace both the end of fixed exchange rates in the early 1970s and the progressive removal of controls on international financial flows. However, whatever the precise reasons may be, the symptoms are evident: ᔡ a very marked increase in the volatility of prices and volumes in most markets; ᔡ sharp and growing clashes between short-term developments and long-term trends; ᔡ striking contradictions between market sentiment and economic fundamentals. The practical consequences have sometimes daunting and sometimes humiliating challenges for forecasters but, far more importantly, much greater risk and uncertainty for businesspeople and traders. Despite the vast flow of data and major advances in computing and applied statistics, conventional forecasting and economic analysis are all too often not providing the guidance market operators need. So, it is clear that we should now ponder on why this is and consider, in an open-minded way, what can be done to broaden and strengthen the techniques we rely on. We need to widen our horizons so as to be able to heed the methods and results of technical analysis. The minimum argument for doing so is the cynical or expedient one that many professionals in the financial markets draw heavily on tech- nical analysis in one way or another in their dealing as well as their viii Foreword writing and advising. A stronger argument is that technical analysis involves a serious attempt to reflect phenomena such as peer-group pressure, fashion, crowd psychology and much else, which are ignored or assumed unreliable by conventional theory. Regrettably, there has been little common ground sought between conventional forecasters and technical analysts. Tony Plummer’s book is, in part, a contribution to that debate. However, it is also a serious attempt to state systematically the basis of technical analysis in a way that should interest not only other practitioners and sceptical economists, but also countless thoughtful managers who are rightly impatient with expert ‘forecasts’, which are, alas, not always worth the paper they are printed on. Sir Adam Ridley Director General, London Investment Banking Association Special Adviser to successive Chancellors of the Exchequer 1979–85

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