Table of Contents
Chapter 1 The Theory of Trends: Dow, EMH, and RMH in Context 1
Five Assumptions about Short-Term Trends 1
The Beginnings of Trend Analysis: The Dow Theory 4
The Dow Theory Applied 9
Other Price Theories: EMH 12
Types of EMH in Theory 14
The Bubble Effect 15
Other Price Theories: RWH 17
Trend Analysis as a Risk Management Process 19
Chapter 2 Statistically Speaking: Trends by the Numbers 25
Fat Tails and Trends 26
Bollinger Bands 29
Statistical Tendencies 34
Trends and Averages 35
Trends versus Price 36
Strength and Weakness of Trends 37
Pattern Cycles 38
Market Sentiment Expressed in the Trend 40
Momentum Trading 41
Statistical Measurements and Trend Behavior Distinguished 43
Spikes and How to Manage Them 44
After the Spike: Breakouts and Reversals 46
Statistical Analysis of Fundamentals 46
Game Theory Applied to Trend Analysis 47
Magical Thinking and Trends 50
Chapter 3 Resistance and Support: A Trend's Moment of Truth 53
Tests of Breadth 53
The Nature of Resistance and Support 55
The Channeling Trading Range 57
Reaction High and Low Prices 59
The Bouncing Price within a Trend 60
The Flip 62
Wedge-Shaped Trends 63
Triangle-Shaped Trends 65
Support and Resistance Zones 68
Breakouts as Signals of Supply and Demand Adjustment 71
Chapter 4 Trendlines and Channel Lines: The Shape of Things to Come 73
Signal Patterns versus Trends 73
Trendlines and What They Reveal 76
Price Increments on Charts 78
Trend Angles 81
Internal Trendlines 82
Validation of the Trend 83
Retracement versus Reversal 85
Fibonacci Retracement 87
Channel Line Types 89
Expanding with the Mine 93
Chapter 5 Reversal Patterns: End of the Trend 95
The Dilemma: Minor or Major Reversal 96
Reversal versus Consolidation 97
The Time Element: Momentum of Reversal 99
Reversal in Western Patterns 100
Head and Shoulders 100
Gaps 102
Rounding Top and Bottom 104
Rectangle Top and Bottom 106
Double Top and Bottom 108
Diamond Formations 110
Reversal in Eastern Patterns 112
Long Candles 112
Doji Formations 114
Hammer and Hanging Man 115
Engulfing Pattern 117
Harami and Harami Cross 118
Doji Star 119
Piercing and Meeting Lines 120
Three White Soldiers and Three Black Crows 122
Morning and Evening Star 125
Abandoned Baby 126
Squeeze Alert 128
Divergence and its Role in Reversal Trends 130
Breakouts and Proximity to Resistance or Support 132
Conclusion 134
Chapter 6 Continuation Patterns: A Bend in the Trend 135
Continuation and its Relationship to Reversal 137
Western Continuation Signals 138
Head and Shoulders 139
Inverse Head and Shoulders 140
Gaps 140
Rounding Top and Bottom 141
Rectangle Top and Bottom 143
Double Top and Bottom 145
Diamond Formation 147
Flags and Pennants 148
Cup and Handle 150
Eastern Continuation Signals 151
Long Candlesticks 152
Long-Legged Doji and Spinning Top 153
Thrusting and Separating Lines 155
Side-by-Side Lines 157
Tasuki Gap 159
Gap Filled 160
Chapter 7 Confirmation Signals: Turning the Odds in Your Favor 163
The Causes of Price Movement 163
Behavioral Psychology and the Market 165
The Flaw of Overconfidence 166
Resistance and Support as Keys to Confirmation Proximity 168
Strong and Weak Confirmation 169
Momentum and Timing of Preceding Trends 172
Divergence Analysis and Confirmation 175
Fundamental Analysis and Confirmation 177
Confirmation Bias 178
Chapter 8 Consolidation Patterns; The Sideways Pause 183
Consolidation and its Meaning 184
Resistance and Support as Keys to Consolidation Reading 185
The Triangle Breakout 187
Volume Spikes and Gaps 189
Breakout Signals 191
Consolidation Plateaus 193
The Bollinger Squeeze 196
Chapter 9 Volume Signals: Tracking Price Trends 201
How Volume Confirms Trends 201
Confirmation Trends with Volume 202
Trends with Volume-Marked Breakouts 204
Trend Climax and Gap Patterns 208
On Balance Volume 212
Accumulation/Distribution 213
Money Flow Index 215
Chaikin Money Flow 218
Chaikin Oscillator 219
Chapter 10 Mind the Gap: When Price Jumps Signal Change 223
The Nature of Gaps 223
Gaps Filled or Unfilled 225
Gap Up and Gap Down 227
Common Gaps 228
Hidden Gaps 230
Breakaway Gaps 232
Runaway Gaps 233
Exhaustion Gaps 234
Island Cluster 235
Ex-Dividend Gaps 236
Gaps as Part of Other Signals 237
Gap Proximity to Resistance or Support 238
Chapter 11 Moving Averages: Order in the Change 241
Two Moving Averages 242
Bollinger Bands 244
Convergence 246
Divergence 246
Price Crossover 247
MA Double Crossover 250
Resistance and Support 252
Chapter 12 Momentum Oscillators: Duration and Speed of a Trend 257
The Nature of Momentum 257
Relative Strength Index 259
Moving Average Convergence Divergence 263
Stochastic Oscillator 266
Chapter 13 Volatility: Marking Risk within the Trend 271
Calculating Volatility 271
Volatility Indicator 273
Evolving Volatility Levels 274
Average True Range 279
Volatility According to the VIX 282
Chapter 14 Fundamentals: Connecting the Two Sides 285
Value Versus Growth 285
The Concept of Fundamental Volatility 286
Dividend per Share and Increased Dividends 287
P/E Ratio 290
Revenue and Earnings 291
Debt to Total Capitalization Ratio 292
Comparing Fundamental Trends to Technical Trends 294
Chapter 15 Overview: Putting It All Together 305
Moving from Downtrend to Consolidation 306
Secondary Trend Volatility 309
Large Price Move Ending Primary Trend 311
Primary Trend with Secondary Trend 313
Consolidation Primary Trend with Failed Breakouts 315
Conclusion 317
Bibliography 319
Index 323
