Technical Analysis of the Financial Markets

A Comprehensive Guide to Trading Methods and Applications

By: John J. Murphy

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Hardcover | 1 January 1999 | Edition Number 1

At a Glance

Hardcover
576 Pages

Edition Type
Revised

Age
18+

Dimensions(cm)
23.5 x 18 x 4

Hardcover

$165.40

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John J. Murphy has updated his landmark bestseller Technical Analysis of the Futures Markets, to include all of the financial markets.

This outstanding reference has already taught thousands of traders the concepts of technical analysis and their application in the futures and stock markets. Covering the latest developments in computer technology, technical tools, and indicators, the second edition features new material on candlestick charting, intermarket relationships, stocks and stock rotation, plus state-of-the-art examples and figures. From how to read charts to understanding indicators and the crucial role technical analysis plays in investing, readers gain a thorough and accessible overview of the field of technical analysis, with a special emphasis on futures markets. Revised and expanded for the demands of today's financial world, this book is essential reading for anyone interested in tracking and analyzing market behavior.

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About the Author	p. xxiii
About the Contributors	p. xxv
Introduction	p. xxvii
Acknowledgments	p. xxxi
Philosophy of Technical Analysis	p. 1
Introduction	p. 1
Philosophy or Rationale	p. 2
Technical versus Fundamental Forecasting	p. 5
Analysis versus Timing	p. 6
Flexibility and Adaptability of Technical Analysis	p. 7
Technical Analysis Applied to Different Trading Mediums	p. 8
Technical Analysis Applied to Different Time Dimensions	p. 9
Economic Forecasting	p. 10
Technician or Chartist?	p. 10
A Brief Comparison of Technical Analysis in Stocks and Futures	p. 12
Less Reliance on Market Averages and Indicators	p. 14
Some Criticisms of the Technical Approach	p. 15
Random Walk Theory	p. 19
Universal Principles	p. 21
Dow Theory	p. 23
Introduction	p. 23
Basic Tenets	p. 24
The Use of Closing Prices and the Presence of Lines	p. 30
Some Criticisms of Dow Theory	p. 31
Stocks as Economic Indicators	p. 32
Dow Theory Applied to Futures Trading	p. 32
Conclusion	p. 33
Chart Construction	p. 35
Introduction	p. 35
Types of Charts Available	p. 36
Candlesticks	p. 37
Arithmetic versus Logarithmic Scale	p. 39
Construction of the Daily Bar Chart	p. 40
Volume	p. 41
Futures Open Interest	p. 42
Weekly and Monthly Bar Charts	p. 45
Conclusion	p. 46
Basic Concepts of Trend	p. 49
Definition of Trend	p. 49
Trend Has Three Directions	p. 51
Trend Has Three Classifications	p. 52
Support and Resistance	p. 55
Trendlines	p. 65
The Fan Principle	p. 74
The Importance of the Number Three	p. 76
The Relative Steepness of the Trendline	p. 76
The Channel Line	p. 80
Percentage Retracements	p. 85
Speed Resistance Lines	p. 87
Gann and Fibonacci Fan Lines	p. 90
Internal Trendlines	p. 90
Reversal Days	p. 90
Price Gaps	p. 94
Conclusion	p. 98
Major Reversal Patterns	p. 99
Introduction	p. 99
Price Patterns	p. 100
Two Types of Patterns: Reversal and Continuation	p. 100
The Head and Shoulders Reversal Pattern	p. 103
The Importance of Volume	p. 107
Finding a Price Objective	p. 108
The Inverse Head and Shoulders	p. 110
Complex Head and Shoulders	p. 113
Triple Tops and Bottoms	p. 115
Double Tops and Bottoms	p. 117
Variations from the Ideal Pattern	p. 121
Saucers and Spikes	p. 125
Conclusion	p. 128
Continuation Patterns	p. 129
Introduction	p. 129
Triangles	p. 130
The Symmetrical Triangle	p. 132
The Ascending Triangle	p. 136
The Descending Triangle	p. 138
The Broadening Formation	p. 140
Flags and Pennants	p. 141
The Wedge Formation	p. 146
The Rectangle Formation	p. 147
The Measured Move	p. 151
The Continuation Head and Shoulders Pattern	p. 153
Confirmation and Divergence	p. 155
Conclusion	p. 156
Volume and Open Interest	p. 157
Introduction	p. 157
Volume and Open Interest as Secondary Indicators	p. 158
Interpretation of Volume for All Markets	p. 162
Interpretation of Open Interest in Futures	p. 169
Summary of Volume and Open Interest Rules	p. 174
Blowoffs and Selling Climaxes	p. 175
Commitments of Traders Report	p. 175
Watch the Commercials	p. 176
Net Trader Positions	p. 177
Open Interest In Options	p. 177
Put/Call Ratios	p. 178
Combine Option Sentiment With Technicals	p. 179
Conclusion	p. 179
Long Term Charts	p. 181
Introduction	p. 181
The Importance of Longer Range Perspective	p. 182
Construction of Continuation Charts for Futures	p. 182
The Perpetual Contract	p. 184
Long Term Trends Dispute Randomness	p. 184
Patterns on Charts: Weekly and Monthly Reversals	p. 185
Long Term to Short Term Charts	p. 185
Why Should Long Range Charts Be Adjusted for Inflation?	p. 186
Long Term Charts Not Intended for Trading Purposes	p. 188
Examples of Long Term Charts	p. 188
Moving Averages	p. 195
Introduction	p. 195
The Moving Average: A Smoothing Device with a Time Lag	p. 197
Moving Average Envelopes	p. 207
Bollinger Bands	p. 209
Using Bollinger Bands as Targets	p. 210
Band Width Measures Volatility	p. 211
Moving Averages Tied to Cycles	p. 212
Fibonacci Numbers Used as Moving Averages	p. 212
Moving Averages Applied to Long Term Charts	p. 213
The Weekly Rule	p. 215
To Optimize or Not	p. 220
Summary	p. 221
The Adaptive Moving Average	p. 222
Alternatives to the Moving Average	p. 223
Oscillators and Contrary Opinion	p. 225
Introduction	p. 225
Oscillator Usage in Conjunction with Trend	p. 226
Measuring Momentum	p. 228
Measuring Rate of Change (ROC)	p. 234
Constructing an Oscillator Using Two Moving Averages	p. 234
Commodity Channel Index	p. 237
The Relative Strength Index (RSI)	p. 239
Using the 70 and 30 Lines to Generate Signals	p. 245
Stochastics (K%D)	p. 246
Larry Williams %R	p. 249
The Importance of Trend	p. 251
When Oscillators are Most Useful	p. 251
Moving Average Convergence/Divergence (MACD)	p. 252
MACD Histogram	p. 255
Combine Weeklies and Dailies	p. 256
The Principle of Contrary Opinion in Futures	p. 257
Investor Sentiment Readings	p. 261
Investors Intelligence Numbers	p. 262
Point and Figure Charting	p. 265
Introduction	p. 266
The Point and Figure Versus the Bar Chart	p. 270
Construction of the Intraday Point and Figure Chart	p. 270
The Horizontal Count	p. 274
Price Patterns	p. 275
3 Box Reversal Point and Figure Charting	p. 277
Construction of the 3 Point Reversal Chart	p. 278
The Drawing of Trendlines	p. 282
Measuring Techniques	p. 286
Trading Tactics	p. 286
Advantages of Point and Figure Charts	p. 288
PandF Technical Indicators	p. 292
Computerized PandF Charting	p. 292
PandF Moving Averages	p. 294
Conclusion	p. 296
Japanese Candlesticks	p. 297
Introduction	p. 297
Candlestick Charting	p. 297
Basic Candlesticks	p. 299
Candle Pattern Analysis	p. 301
Filtered Candle Patterns	p. 306
Conclusion	p. 308
Candle Patterns	p. 309
Elliott Wave Theory	p. 319
Historical Background	p. 319
The Basic Tenets of the Elliott Wave Principle	p. 320
Connection Between Elliott Wave and Dow Theory	p. 324
Corrective Waves	p. 324
The Rule of Alternation	p. 331
Channeling	p. 332
Wave 4 as a Support Area	p. 334
Fibonacci Numbers as the Basis of the Wave Principle	p. 334
Fibonacci Ratios and Retracements	p. 335
Fibonacci Time Targets	p. 338
Combining All Three Aspects of Wave Theory	p. 338
Elliott Wave Applied to Stocks Versus Commodities	p. 340
Summary and Conclusions	p. 341
Reference Material	p. 342
Time Cycles	p. 343
Introduction	p. 343
Cycles	p. 344
How Cyclic Concepts Help Explain Charting Techniques	p. 355
Dominant Cycles	p. 358
Combining Cycle Lengths	p. 361
The Importance of Trend	p. 361
Left and Right Translation	p. 362
How to Isolate Cycles	p. 363
Seasonal Cycles	p. 369
Stock Market Cycles	p. 373
The January Barometer	p. 373
The Presidential Cycle	p. 373
Combining Cycles with Other Technical Tools	p. 374
Maximum Entropy Spectral Analysis	p. 374
Cycle Reading and Software	p. 375
Computers and Trading Systems	p. 377
Introduction	p. 377
Some Computer Needs	p. 379
Grouping Tools and Indicators	p. 380
Using the Tools and Indicators	p. 380
Welles Wilder's Parabolic and Directional Movement Systems	p. 381
Pros and Cons of System Trading	p. 387
Need Expert Help?	p. 389
Test Systems or Create Your Own	p. 390
Conclusion	p. 390
Money Management and Trading Tactics	p. 393
Introduction	p. 393
The Three Elements of Successful Trading	p. 393
Money Management	p. 394
Reward to Risk Ratios	p. 397
Trading Multiple Positions: Trending versus Trading Units	p. 398
What to Do After Periods of Success and Adversity	p. 399
Trading Tactics	p. 400
Combining Technical Factors and Money Management	p. 403
Types of Trading Orders	p. 403
From Daily Charts to Intraday Price Charts	p. 405
The Use of Intraday Pivot Points	p. 407
Summary of Money Management and Trading Guidelines	p. 408
Application to Stocks	p. 409
Asset Allocation	p. 409
Managed Accounts and Mutual Funds	p. 410
Market Profile	p. 411
The Link Between Stocks and Futures: Intermarket Analysis	p. 413
Intermarket Analysis	p. 414
Program Trading: The Ultimate Link	p. 415
The Link Between Bonds and Stocks	p. 416
The Link Between Bonds and Commodities	p. 418
The Link Between Commodities and the Dollar	p. 419
Stock Sectors and Industry Groups	p. 420
The Dollar and Large Caps	p. 422
Intermarket Analysis and Mutual Funds	p. 422
Relative Strength Analysis	p. 423
Relative Strength and Sectors	p. 424
Relative Strength and Individual Stocks	p. 426
Top-Down Market Approach	p. 427
Deflation Scenario	p. 427
Intermarket Correlation	p. 428
Intermarket Neural Network Software	p. 429
Conclusion	p. 430
Stock Market Indicators	p. 433
Measuring Market Breadth	p. 433
Sample Data	p. 434
Comparing Market Averages	p. 435
The Advance-Decline Line	p. 436
AD Divergence	p. 437
Daily Versus Weekly AD Lines	p. 437
Variations in AD Line	p. 437
McClellan Oscillator	p. 438
McClellan Summation Index	p. 439
New Highs Versus New Lows	p. 440
New High-New Low Index	p. 441
Upside Versus Downside Volume	p. 443
The Arms Index	p. 444
TRIN Versus TICK	p. 444
Smoothing the Arms Index	p. 445
Open Arms	p. 446
Equivolume Charting	p. 447
Candlepower	p. 448
Comparing Market Averages	p. 449
Conclusion	p. 452
Pulling It All Together--A Checklist	p. 453
Technical Checklist	p. 454
How to Coordinate Technical and Fundamental Analysis	p. 455
Chartered Market Technician (CMT)	p. 456
Market Technicians Association (MTA)	p. 457
The Global Reach of Technical Analysis	p. 458
Technical Analysis by Any Name	p. 458
Federal Reserve Finally Approves	p. 459
Conclusion	p. 460
Advanced Technical Indicators	p. 463
Demand Index (DI)	p. 463
Herrick Payoff Index (HPI)	p. 466
Starc Bands and Keltner Channels	p. 469
Formula for Demand Index	p. 473
Market Profile	p. 475
Introduction	p. 475
Market Profile Graphic	p. 478
Market Structure	p. 479
Market Profile Organizing Principles	p. 480
Range Development and Profile Patterns	p. 484
Tracking Longer Term Market Activity	p. 486
Conclusion	p. 490
The Essentials of Building a Trading System	p. 493
5-Step Plan	p. 494
Start with a Concept (an Idea)	p. 495
Turn Your Idea into a Set of Objective Rules	p. 497
Visually Check It Out on the Charts	p. 497
Formally Test It with a Computer	p. 497
Evaluate Results	p. 500
Money Management	p. 501
Conclusion	p. 501
Continuous Futures Contracts	p. 505
Nearest Contract	p. 506
Next Contract	p. 506
Gann Contract	p. 507
Continuous Contracts	p. 507
Constant Forward Continuous Contracts	p. 508
Glossary	p. 511
Selected Bibliography	p. 523
Selected Resources	p. 527
Index	p. 531
Table of Contents provided by Syndetics. All Rights Reserved.

Technical Analysis of the Financial Markets

A Comprehensive Guide to Trading Methods and Applications

At a Glance

Hardcover

Shipping

How to return your order

Defective items

You Can Find This Book In

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