The Art and Science of Technical Analysis PDF

The Art and Science of Technical Analysis PDF

The Art and Science of Technical Analysis PDF 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.

Category: Technical Analysis

Author: Adam Grimes

Language: English

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Introduction

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.

_________

The book you are holding in your hands is the product of nearly two decades of my study and experience as a trader, covering the full span of actively traded markets and time frames. I owe much to authors and traders who have come before me, for no one produces anything significant in a vacuum. I would not have been successful without the help and guidance of my mentors, but I learned many of the lessons here from my own mistakes. In some ways, this work represents a radical break from many of the books that have preceded it, and I hope it encourages you to question much of the traditional thinking of technical analysis.

This book does not present a rigid system to be strictly followed, nor a set of setups and patterns that can be assembled at the trader’s whim. Rather, it offers a comprehensive approach to the problems of technically motivated, directional trading. The book is structured to be read from beginning to end, but individual sections and chapters stand on their own. Through the entire work, deliberate repetition of important concepts helps to build a complete perspective on many of the problems traders face. The tools and techniques must be adapted to the trader’s personality and business situation, but most will find a firm foundation between these covers.

There are some underlying themes, perhaps not expressed explicitly, that tie this work together, and they may be surprising to many readers: Trading is hard. Markets are extremely competitive. They are usually very close to efficient, and most observed price movements are random. It is therefore exceedingly difficult to derive a method that makes superior risk-adjusted profits, and it is even more difficult to successfully apply such a method in actual trading. Last, it is essential to have a verifiable edge in the markets—otherwise no consistent profits are possible. This approach sets this work apart from the majority of trading books published, which suggest that simple patterns and proper psychology can lead a trader to impressive profits. Perhaps this is possible,
but I have never seen it work in actual practice.

This book is written for two distinct groups of traders. It is overtly addressed to the individual, self-directed trader, either trading for his or her own account or who has exclusive trading authority over a number of client accounts. The self-directed trader will find many sections specifically addressed to the struggles he or she faces, and to the errors he or she is likely to make along the way. Rather than focusing on arcane concepts and theories, this trader needs to learn to properly read a chart, and most importantly, to understand the emerging story of supply and demand as it plays out through the patterns in the market.

Table of contents- The Art and Science of Technical Analysis PDF

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

About the author

Adam Grimes has nearly two decades of experience in the industry as a trader, analyst, and system developer. He began his trading career with agricultural com- modities, a reflection of his roots in a Midwestern farming community, and traded Chicago Mercantile Exchange (CME) listed currency futures during the Asian financial crisis. Later, he managed a successful private investment partnership focused on shortterm trading of stock index futures, and swing trading of other futures and options products. He spent several years at the NYMEX, and has held positions for a number of firms in roles such as portfolio management, risk management, and quantitative system development.

Adam is the CIO of Waverly Advisors, LLC, an asset management and advisory firm specializing in tactical allocation and risk management in liquid markets. Adam is an expert in applying quantitative tools and methodology to market data, particularly in modeling volatility and complex intra-market relationships. In addition to his ongoing research and trading, Adam is also a prolific writer and educator. His personal website and blog (www.adamhgrimes.com) extends the work of this book with examples and applications to live market data. He has been a contributor on CNBC’s “FastMoney,” and his work and research have been quoted in major media outlets such as the Wall Street Journal, Investor’s Business Daily, TheStreet.com, SmartMoney.com, SFO Magazine, and many others.

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