* A Look at Year-to-Date Returns - These stats from the Wall St. Journal are for the year through the end of November. What we find is that total returns on short-term taxable bond funds was -6.3%; on intermediate funds was -7.8%; on long-term funds was -11%; and on high-yield funds was -29.5%. Similarly, total returns on short-term munis was -.1%; intermediate munis was -2.2%; long-term munis was -8.9%, and high-yield munis was -19.3%. It's a dramatic illustration of how the recent market has rewarded quality and punished higher risk/reward strategies.
* Good Readings - Difficulty living on credit, buyouts going bust, and other timely readings from The Kirk Report. A moving average crossover system and other market ideas from Abnormal Returns. Some views on economic depression and other updated links from Trader Mike.
* Learning by Video - SSK has posted his daytrading videos for November.
* Rates in South Africa - Ronnel Z. Bird offers background on LIBOR, South Africa, and more.
* Technical Analysis - I've gotten a couple of emails asking about books on technical analysis. Brian Shannon's text immediately comes to mind. If you have other recommendations, please leave them in the comments section for this post. Thanks!
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Wednesday, December 03, 2008
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9 comments:
Brett ~
You've asked folks to recommend books about technical analysis.
There is objective evidence for the limited credibility of technical analysis in the trading of equities. A lucid explanation of this position appears in David Aronson's book, Evidence-Based Technical Analysis.
Appropriately, the sub-title of this valuable study is, "Applying the scientific method and statistical inference to trading signals." True to his word, Aronson walks the reader first through what the scientific method is, what traits constitute valid, unbiased investigational methods, and then turns to the meat of the matter.
In the calm, unhurried language of someone entirely at home in his field, the author decapitates the head and shoulders chart formation without a trace of either hubris or remorse. He moves on to do similar damage to other TA icons.
One of the most valuable sections of the book for traders unschooled in scientific data management techniques is the chapter on how to avoid building unintended biases into backtesting. To be blunt, this chapter has made me money; it could stand alone as a valuable resource for development of trading tools.
Those believing in technical analysis need not fear for their faith (entirely); Aronson's careful investigation does not trash TA in its totality. Subjected to the cold, emotionless gaze of the scientific method, technical analysis does turn out to have some limited credibility in a finite number of market environments.
Belief in anything requires a leap of faith past the rational into the realm of the supernatural. This is a fine and good thing in a house of worship, but markets tend to reward faith with lumps of coal in Christmas stockings. Technical analysis requires belief.
The book's author, David Aronson, is a Chartered Market Technician and teaches a graduate level course in technical analysis. He's used TA as a prop trader, and run a couple research firms deploying those tools. Not only do I love the irony, I also most enthusiastically recommend his book.
Adam.
I know Aronson's book well too. It has probably the best introduction to statistics I have ever seen in print and I have recommended this book to aspiring traders / business school students / etc just for this (substantial) section of the book.
However, the book seems to fall short in understanding how traders really use technical analysis. Aronson is a professor (I know him and some of his students) not a trader, and this book suffers from that academic bias. The end result of the book is a search of several thousand short term S&P patterns, finally finding no edge. No trader who uses statistics and technical analysis would think this approach would find an edge!
I think the big grain of salt caveat for people new to technical analysis is well-placed. The idea that you can buy a book and make money trading head and shoulders patterns is probably not true. Technical analysis doesn't work as advertised in many books and courses, but it is a useful framework for understanding markets. You can trade profitably (I do) based on a technical analysis framework.
I would say the most useful books are Jack Schwager's book (the big one), Chick Goslin's books, the Stan Weinstein book, Trader Vic's books (the last one less useful) and Victor Neiderhoffer's books. I find the old books (Schabacker, the early stuff on Dow Theory, Wyckoff) to be very useful too, but I would not start there. On psychology and the process of learning how to trade Dr Brett's books are the best with Ari Kiev's a distant second place.
I recommend those books to everyone who wants to learn to trade. I refuse to work with / teach people who have not read and absorbed most of those books.
I would also recommend a serious dose of hand charting both intraday and daily timeframes. Nothing connects mind to price like writing it down....
Hello Brett, thanks for the link, one correction though, the link goes to a newer project called "Day Trading Snippets" which is an archive of still charts that are annotated at the end of each trading session (about 6 per day), that show various methodologys using Market Profile, the NYSE tick and volume at price charts. There are two video projects, "A great day trading" and its adjunct "Breif therapy snippets". A bit confusing as the projects seem to increase over time, and have similar names! I wanted to offer some clarification. Enjoy your trip, and thanks you for your hard work. Best, Steve (SSK)
Here is a veritable encyclopedia of TA methods and uses, including (key) how to calculate:
http://rurl.org/17lj
Cheers,
Jeff
What text best covers selling strategies - initial stops, trailing stops, technical selling decisions? These should be the first chapter one in many books right?
Whoops, forgot the title in my last comment:
New Trading Systems and Methods
by - Perry Kaufman
A real encyclopedia with practical uses and actual formulas the indicators are based on.
http://rurl.org/17lj
Best, Jeff
I generally recommend the following books to every newbie in TA,
1. Elder Alexander - Come Into My Trading Room - A Complete Guide To Trading
2. Steve Nison - Japanese Candlestick Charting Techniques
3. John J Murphy - Technical Analysis Of The Financial Markets
4. Michael Covel - Trend Following
5. R.D. Edwards & J.Magee - Technical Analysis Of Stock Trends
6. Jesse Livermore - Reminiscences of a Stock Operator
7. Tharp, Van K - Trade Your Way To Financial Freedom
Book No.5 by Edward and Magee is considered a sort of Bible. This is a mix of Psyhology based (Livermore), Money Management (Tharp) and TA.
Often I feel discomfort reading Chair's ( VICTOR NIEDERHOFFER) dismissal of TA and trying to apply short term methods. How to resolve this apparent paradox . Is there some mid path ?
For general TA, there's a great free resource in the "Chart School" portion of www.Stockcharts.com - there's so much that can be learned there.
TA and trading skills in real life - check out Kevin Haggerty's works, published via books and CD/DVD's. Solid methods on how to spot and trade specific setups.
Fibonacci setups including specific advice about entry, partial and complete exit, and placement of stops - a book by Hobbs called Fibonacci for the Active Trader (can be located on Amazon - the inexpensive book is great, I haven't tried the expensive version yet).
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