TITLE : TECHNICAL ANALYSIS OF THE FUTURES MARKETS: A COMPREHENSIVE GUIDE TO TRADING METHODS AND APPLICATIONS.

Contents
 
Introduction xiii
 
Acknowledgments xix
 
1  Philosophy of Technical Analysis 1
 
   INTRODUCTION 1
   PHILOSOPHY OR RATIONALE 2
   TECHNICAL VERSUS FUNDAMENTAL FORECASTING 5
   ANALYSIS VERSUS TIMING 6
   FLEXIBILITY AND ADAPTABILITY OF TECHNICAL ANALYSIS 7
   TECHNICAL ANALYSIS APPLIED TO DIFFERENT TRADING MEDIUMS 8
   TECHNICAL ANALYSIS APPLIED TO DIFFERENT TIME DIMENSIONS 8
   ECONOMIC FORECASTING 10
   TECHNICIAN OR CHARTIST? 12
   A BRIEF COMPARISON OF TECHNICAL ANALYSIS IN STOCKS AND FUTURES 13
   SOME CRITICISMS OF THE TECHNICAL APPROACH 17
   RANDOM WALK THEORY 20
   CONCLUSION 23
 
2  Dow Theory 24
 
   INTRODUCTION 24
   BASIC TENETS. 26
   THE USE OF CLOSING PRICES AND THE PRESENCE OF LINES 32
   SOME CRITICISMS OF DOW THEORY 32
   SUMMARY 33
   CONCLUSION 33
 
3  Chart Construction 35
 
   INTRODUCTION 35
   TYPES OF CHARTS AVAILABLE 36
   ARITHMETIC VERSUS LOGARITHMIC SCALE 40
   CONSTRUCTION OF THE DAILY BAR CHART: PRICE VOLUME AND
   OPEN INTEREST 41
   VOLUME AND OPEN INTEREST 43
   HOW TO PLOT VOLUME AND OPEN INTEREST IN GRAIN MARKETS 47
   PERSONAL CHARTS VERSUS A CHART SERVICE 48
   WEEKLY AND MONTHLY BAR CHARTS 48
   CONCLUSION 49
 
4  Basic Concepts of Trend 53
 
   DEFINITION OF TREND 53
   TREND HAS THREE DIRECTIONS 55
   TREND HAS THREE CLASSIFICATIONS 56
   SUPPORT AND RESISTANCE 58
   TRENDLINES 68
   THE FAN PRINCIPLE 77
   THE IMPORTANCE OF THE NUMBER THREE 79
   THE RELATIVE STEEPNESS OF THE TRENDLINE 79
   THE CHANNEL LINE 83
   PERCENTAGE RETRACEMENTS 88
   SPEED RESISTANCE LINES 91
   REVERSAL DAYS 94
   PRICE GAPS 97
   SUMMARY 102
 
5  Major Reversal Patterns 103
 
   INTRODUCTION 103
   PRICE PATTERNS 104
   TWO TYPES OF PATTERNS: REVERSAL AND CONTINUATION 104
   THE HEAD AND SHOULDERS REVERSAL PATTERN 107
   THE IMPORTANCE OF VOLUME 111
   FINDING A PRICE OBJECTIVE 111
   THE INVERSE HEAD AND SHOULDERS 113
   COMPLEX HEAD AND SHOULDERS PATTERNS 116
   TACTICS 116
   THE FAILED HEAD AND SHOULDERS PATTERN 117
   THE HEAD AND SHOULDERS AS A CONSOLIDATION PATTERN 118
   TRIPLE TOPS AND BOTTOMS 118
   DOUBLE TOPS AND BOTTOMS 121
   VARIATIONS FROM THE IDEAL PATTERN 125
   SAUCERS OR ROUNDING TOPS AND BOTTOMS 128
   V-FORMATIONS OR SPIKES 130
   CONCLUSION 135
 
6  Continuation Patterns 136
 
   INTRODUCTION 136
   TRIANGLES 137
   THE SYMMETRICAL TRIANGLE 139
   THE ASCENDING TRIANGLE 144
   THE ASCENDING TRIANGLE AS A BOTTOM 147
   THE DESCENDING TRIANGLE 148
   THE BROADENING FORMATION 150
   THE DIAMOND FORMATION 153
   CONCLUSION 155
   FLAGS AND PENNANTS 156
   THE WEDGE FORMATION 160
   THE RECTANGLE FORMATION 163
   THE MEASURED MOVE 167
   THE CONTINUATION HEAD AND SHOULDERS PATTERN 168
   THE PRINCIPLE OF CHARACTERIZATION 172
   CONFIRMATION AND DIVERGENCE 174
 
7  Volume and Open Interest 176
 
   INTRODUCTION 176
   VOLUME AND OPEN INTEREST AS SECONDARY INDICATORS 177
   INTERPRETATION OF VOLUME 181
   INTERPRETATION OF OPEN INTEREST 193
   SUMMARY OF VOLUME AND OPEN INTEREST RULES 199
   BLOWOFFS AND SELLING CLIMAXES 199
   COMMITMENTS OF TRADERS REPORT 200
   SEASONAL CONSIDERATIONS 203
   CONCLUSION 206
 
8  Long Term Charts and Commodity Indices 207
 
   INTRODUCTION 207
   THE IMPORTANCE OF LONGER-RANGE PERSPECTIVE 208
   CONSTRUCTION OF CONTINUATION CHARTS 208
   THE PERPETUAL CONTRACTS 210
   THE PERPETUAL INDEX8 211
   CHARTING TECHNIQUES CAN BE APPLIED TO LONG-TERM CHARTS 211
   SUMMARY OF TECHNICAL PRINCIPLES 212
   TERMINOLOGY OF TECHNICAL ANALYSIS 213
   PATTERNS ON CHARTS 214
   LONG-TERM TO SHORT-TERM CHARTS 215
   COMMODITY INDICES: A STARTING POINT 215
   SHOULD LONG-RANGE CHARTS BE AD]USTED FOR INFLATION? 217
   LONG-TERM CHARTS NOT INTENDED FOR TRADING PURPOSES 218
   CONCLUSION 218
   EXAMPLES OF WEEKLY AND MONTHLY CHARTS 219
   TECHNICAL INDICATORS 233
 
9  Moving Averages 234
 
   INTRODUCTION 234
   THE MOVING AVERAGE: A SMOOTHING DEVICE WITH A TIME LAG 235
   MOVING AVERAGE COMBINATIONS THAT WORK BEST 251
   PLACEMENT OF THE AVERAGES 257
   MOVING AVERAGES TIED TO CYCLES 258
   FIBONACCI NUMBERS USED AS MOVING AVERAGES 260
   MOVING AVERAGES APPLIED TO ANY TIME DIMENSION 262
   CONCLUSIONS 263
   THE WEEKLY RULE 267
   ADDITIONAL REFERENCE MATERIAL 274
 
10 Oscillators and Contrary Opinion 275
 
   INTRODUCTION 275
   OSCILLATOR USAGE IN CONJUNCTION WITH TREND 276
   MEASURING MOMENTUM 277
   MEASURING RATE OF CHANGE (ROC) 284
   CONSTRUCTING AN OSCILLATOR USING TWO MOVING AVERAGES 286
   OSCILLATOR INTERPRETATION 289
   THE RELATIVE STRENGTH INDEX (RSI) 295
   USING THE 70 AND 30 LINES TO GENERATE SIGNALS 302
   STOCHASTICS (K%D) 304
   LARRY WILLIAMS %R 309
   THE IMPORTANCE OF TREND 311
   WHEN OSCILLATORS ARE MOST USEFUL 312
   MOVING AVERAGE CONVERGENCE/DIVERGENCE TRADING METHOD (MACDTM) 312
   VOLUME ACCUMULATION USED AS AN OSCILLATOR 314
   COMPU TRAC SOFTWARE FOR OSCILLATOR ANALYSIS 316
   THE PRINCIPLE OF CONTRARY OPINION 316
 
11 Intra Day Point and Figure Charting 322
 
   INTRODUCTION 322
   THE POINT AND FIGURE VS. THE BAR CHART 324
   CONSTRUCTION OF THE INTRA-DAY POINT AND FIGURE CHART 328
   CONGESTION AREA ANALYSIS 336
   THE HORIZONTAL COUNT 337
   PRICE PATTERNS 339
   CONCLUSION 342
   WHERE TO OBTAIN POINT AND FIGURE CHARTS AND DATA 343
 
12 Three Box Reversal and Optimized Point and Figure Charting 350
 
   INTRODUCTION  350
   CONSTRUCTION OF THE THREE-POINT REVERSAL CHART 351
   THE DRAWING OF TRENDLINES 356
   MEASURING TECHNIQUES 360
   TRADING TACTICS 362
   ADVANTAGES OF POINT AND FIGURE CHARTING 364
   OPTIMIZED POINT AND FIGURE CHARTS 364
   SOURCES OF INFORMATION 366
   CONCLUSION 370
 
13 Elliott Wave Theory 371
 
   HISTORICAL BACKGROUND 371
   INTRODUCTION TO THE THEORY 373
   BASIC TENETS OF THE ELLIOTT WAVE PRINCIPLE 373
   CONNECTIONS BETWEEN ELLIOTT WAVE AND DOW THEORY 377
   EXTENSIONS 379
   CORRECTIVE WAVES 383
   THE RULE OF ALTERNATION 391
   CHANNELING 392
   WAVE FOUR AS A SUPPORT AREA 393
   FIBONACCI NUMBERS AS THE BASIS OF THE WAVE PRINCIPLE 394
   THE LOGARITHMIC SPIRAL 395
   FIBONACCI RATIOS AND RETRACEMENTS 396
   FIBONACCI TIME TARGETS 397
   COMBINING ALL THREE ASPECTS OF WAVE THEORY 398
   FIBONACCI NUMBERS IN THE STUDY OF CYCLES 398
   ELLIOTT WAVE APPLIED TO STOCKS VERSUS COMMODITIES 399
   SUMMARY AND CONCLUSIONS 399
   REFERENCE MATERIAL 401
   EXAMPLES OF ELLIOTT WAVES IN ACTION 402
 
14 Time Cycles 414
 
   INTRODUCTION 414
   CYCLES 415
   HOW CYCLIC CONCEPTS HELP EXPLAIN CHARTING TECHNIOUES 427
   DOMINANT CYCLES 430
   COMBINING CYCLE LENGTHS 433
   THE IMPORTANCE OF TREND 433
   LEFT AND RIGHT TRANSLATION 436
   HOW TO ISOLATE CYCLES-DETRENDING 440
   SEASONAL CYCLES 447
   COMBINING CYCLES WITH OTHER TECHNICAL TIMING TOOLS 450
   COMBINING CYCLES AND OSCILLATORS 451
   SUMMARY AND CONCLUSION 454
 
15 Computers and Trading Systems 456
 
   INTRODUCTION 456
   SOME COMPUTER BASICS 458
   ANALYSIS TOOLS 459
   WELLES WILDER'S PARABOLIC AND DIRECTIONAL MOVEMENT SYSTEMS 465
   GROUPING TOOLS AND INDICATORS 472
   USING TOOLS AND INDICATORS 473
   AUTOMATION OPTIMIZATION AND PROFITABILITY TESTING 476
   PROS AND CONS OF MECHANICAL COMPUTERIZED SYSTEMS 477
   INCORPORATING MECHANICAL SIGNALS INTO ANALYSIS 479
   ARTIFICIAL INTELLIGENCE PATTERN RECOGNITION 483
   SUMMARY AND CONCLUSIONS 485
   SOURCES OF INFORMATION 486
 
16 Money Management and Trading Tactics 487
 
   INTRODUCTION 487
   THE THREE ELEMENTS OF SUCCESSFUL COMMODITY FUTURES TRADING 488
   MONEY MANAGEMENT 488
   REWARD-TO-RISK RATIOS 491
   TRADING MULTIPLE POSITIONS: TRENDING VERSUS TRADING UNITS 493
   MONEY MANAGEMENT: CONSERVATIVE VS. AGGRESSIVE TRADING 493
   WHAT TO DO AFTER PERIODS OF SUCCESS AND ADVERSITY 494
   MONEY MANAGEMENT IS A TRICKY BUT CRUCIAL AREA 495
   THE MONEY MANAGEMENT INDUSTRY 495
   TRADING TACTICS 496
   COMBINING TECHNICAL FACTORS AND MONEY MANAGEMENT 499
   TYPES OF TRADING ORDERS 500
   FROM DAILY CHARTS TO INTRA-DAY CHARTS 501
   DUNNIGAN'S THRUST TECHNIOUE 507
   THE USE OF INTRA-DAY PIVOT POINTS 510
   SUMMARY OF MONEY MANAGEMENT AND TRADING GUIDELINES 511
 
Pulling It All Together-A Checklist 512
 
   TECHNICAL CHECKLIST 513
   HOW TO COORDINATE TECHNICAL AND FUNDAMENTAL ANALYSIS 514
   WHAT'S A TECHNICIAN ANYWAY? 515
   THE GLOBAL REACH OF TECHNICAL ANALYSIS 516
   TECHNICAL ANALYSIS: THE LINK BETWEEN STOCKS AND FUTURES 517
   CONCLUSION 518
 
Appendix I
 
    Spread Trading and Relative Strength 519
 
   THE APPLICATION OF TECHNICAL ANALYSIS TO SPREAD CHARTS 520
   RELATIVE STRENGTH BETWEEN NEARBY AND DISTANT CONTRACTS 524
   RELATIVE STRENGTH BETWEEN DIFFERENT MARKETS 525
   RATIO ANALYSIS 526
   RELATIVE STRENGTH BETWEEN COMMODITY INDICES 526
   STOCK INDEX FUTURES VERSUS THE CASH INDEX: A MEASURE OF
   SHORT-TERM MARKET SENTIMENT 527
   REFERENCE SOURCES 527
 
Appendix 2
 
   The Trading of Options 529
 
   WHAT IS AN OPTION? 529
   WHY PURCHASE AN OPTION INSTEAD OF A FUTURES CONTRACT? 530
   HOW OPTIONS AND FUTURES CAN BE USED TOGETHER 531
   WHAT DETERMINES PREMIUM VALUE? 532
   TECHNICAL ANALYSIS AND OPTION TRADING 533
   TECHNICAL ANALYSIS APPLIED TO THE UNDERLYING FUTURES MARKET 533
   RECOMMENDED READING 534
   PUT/CALL RATIOS AS A MEASURE OF MARKET SENTIMENT 534
 
Appendrt 3
 
   W. D. Gann: Geometric Angles and Percentages 536
 
   INTRODUCTION 536
   GEOMETRIC ANGLES AND PERCENTAGES 538
   THE IMPORTANCE OF THE 45-DEGREE LINE 540
   COMBINING GEOMETRIC ANGLE LINES AND PERCENTAGE RETRACEMENTS 542
   REFERENCE SOURCES 547
 
Bibliography 548
 
Index 552