Technical Analysis : Power Tools for Active Investors

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ISBN: 9780131479029 | 0131479024
Cover: Hardcover
Copyright: 1/1/2005

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In this book, one of the world's most respected technical analysts offers a complete course in forecasting future market behaviour through cyclical, trend, momentum and volume signals. What's more, unlike most technical analysis books, Gerald Appel's Technical Analysis offers step-by-step instructions virtually any investor can use to achieve breakthrough success in the market. Appel illuminates a wide range of strategies and timing models, demystifying even advanced technical analysis the first time. Among the models he covers: NASDAQ/NYSE Relative Strength, 3-5 Year Treasury Notes, Triple Momentum, Seasonality, Breadth-Thrust Impulse, and models based on the revolutionary MACD techniques he personally invented.

Foreword

(2)

Acknowledgments

(4)

Introduction

(212)

1 The No-Frills Investment Strategy

(16)

Part 1: Picking the Right Investment Vehicles

(1)

Risk: Reward Comparisons Between More Volatile and Less Volatile Equity Mutual Fund Portfolios

(2)

Gain Pain Ratios

(1)

Drawdown: The Measure of Ultimate Risk

(2)

The End Result: Less Is More

(1)

Changing Your Bets While the Race Is Still Underway

(1)

Relative Strength Investing

(4)

Testing the Relative Strength Investment Strategy: A 14-Year Performance Record of Relative Strength Investing

(2)

Results of Quarterly Reranking and Quarterly Rebalancing (1990-2003)

(1)

Buy-and-Hold Results: The Standard & Poor's 500 Benchmark

(1)

Increasing the Risk: Maintaining a Portfolio of Somewhat More Aggressive Mutual Funds

(2)

Observations

(1)

Upping the Ante: The Effects of Applying the Concepts of Relative Strength Selection to a Still More Volatile Portfolio of Mutual Funds

(2)

General Observations

(1)

A Quick Review of Relative Strength Investing

(1)

Summing Up

(1)

2 Two Quick-and-Dirty Stock Market Mood Indicators

(16)

Identifying High- and Low-Risk Investment Climates

(1)

The Nasdaq New York Stock Exchange Index Relative Strength Indicator

(2)

The Maintenance and Interpretation of the Nasdaq NYSE Index Relative Strength Indicator

(5)

Observations

(2)

Measuring the Market Mood with the Intermediate Monetary Filter

(1)

The Monetary Model

(4)

The Ingredients

(1)

The Calculation and Rules of the Intermediate Monetary Filter

(3)

Observations

(1)

Combining the Two Indicators

(2)

Point and Counterpoint

(1)

Observations

(1)

A Final Long-Term Statistic

(1)

Summing Up

(1)

3 Moving Averages and Rates of Change: Tracking Trend and Momentum

(22)

The Purpose of Moving Averages

(5)

The Intermediate-Term Moving Average

(1)

The Long-Term 200-Day Moving Average

(1)

Using Weekly-Based Longer-Term Moving Averages

(1)

Moving Averages and Very Long-Term Moving Averages

(1)

Moving Averages: Myths and Misconceptions

(1)

Using Moving Averages to Identify the Four Stages of the Market Cycle

(3)

Stage 1

(1)

Patterns of Moving Averages During Stage 1

(1)

Stage 2

(1)

Patterns of Moving Averages During Stage 2 Advances

(1)

Stage 3

(1)

Patterns of Moving Averages During Stage 3 Distribution Periods

(1)

Stage 4

(1)

The Rate of Change Indicator: How to Measure and Analyze the Momentum of the Stock Market

(6)

The Concept and Maintenance of the Rate of Change Indicator

(1)

Constructing Rate of Change Measurements

(2)

Bull Market and Bear Market Rate of Change Patterns

(1)

Adjusting Overbought and Oversold Rate of Change Levels for Market Trend

(1)

Looking Deeper into Levels of the Rate of Change Indicator

(1)

The Triple Momentum Nasdaq Index Trading Model

(5)

Maintenance Procedure

(3)

Notes Regarding Research Structure

(1)

Rate of Change Patterns and the Four Stages of the Stock Market Cycle

(2)

4 More Than Just Pretty Pictures: Power Tool Chart Patterns

(24)

The Concept of Synergy

(2)

Powerful Chart Formations

(2)

Example 1

(1)

Example 2

(1)

Example 3

(1)

The Wedge Formation: Times to Accumulate and Times to Distribute Stocks

(2)

The Wedge Formation

(1)

Declining Wedge Formations

(1)

Appropriate Strategies

(1)

Synergy in Chart Patterns

(1)

Head and Shoulder Formations

(5)

Using the Head and Shoulder Formation to Establish Downside Price Objectives

(2)

At Market Bottoms, the Inverse Head and Shoulder Formation

(1)

Confirmation by Measures of Market Momentum

(1)

Volume Spikes Are Very Bullish If the Stock Market Has Been in Decline

(1)

The Selling Climax

(1)

Support and Resistance Levels

(4)

Support Zones

(1)

Support Zones

(1)

Resistance Zones

(1)

Example: The 1999-2003 Stock Market Climate (Chart 4.4)

(1)

Market Downtrends

(1)

Major Trend Synergy in Action

(1)

Tricks with Trendlines

(2)

Inverse Trendline Support and Resistance Zones

(1)

Channel Support and Resistance

(2)

Early Warnings Provided by Channel Patterns

(1)

Extended Channel Support

(1)

Rising Resistance Zones

(1)

False Breakouts and Breakdowns: Key Market Patterns

(4)

A Significant Sell Signal

(1)

A Significant Buy Signal

(1)

The Key

(3)

5 Political, Seasonal, and Time Cycles: Riding the Tides of Market Wave Movements

(28)

Calendar-Based Cycles in the Stock Market

(5)

Days of the Month

(1)

Pre-Holiday Pattern

(1)

The Best and Worst Months of the Year

(2)

The Best Six-Month Period, the Worst Six-Month Period

(1)

Evaluating the Tabulations

(1)

The Presidential Stock Market Cycle

(1)

Comments

(1)

Time Cycles: Four Days to Four Years

(2)

Example of Market Cycles: The 53-Day Market Cycle

(2)

Segments of Market Cycles

(2)

The Significance of Segmentation

(1)

Distinguishing Bullish Cyclical Patterns from Bearish Patterns

(1)

Lest We Forget the Concept of Synergy...

(1)

Lengths of Market Cycles

(3)

The Very Significant and Regular Four-Year Market Cycle

100

(1)

An Intermediate Market Cycle with a Confirming Indicator

101

(1)

How the Confirming Indicator Helps the Cause

102

(2)

The August-September Cycle

102

(1)

The October-November Cycle

103

(1)

The November to Early January Market Cycle

103

(1)

The January-March Cycle

103

(1)

The 18-Month Market Cycle with a Rate of Change Confirming Indicator

104

(3)

Synergy Between Rates of Change and Cyclical Patterns

104

(1)

Enter the Rate of Change Indicator

105

(1)

For Future Readers of This Work

105

(1)

Day Trading with Short-Term Cycles

106

(1)

T-Formation: The Ultimate Cyclical Power Tool?

107

(8)

The Construction of T-Formations

108

(1)

Area 1

108

(1)

Area 2

109

(1)

Area 3

109

(1)

Area 4

110

(1)

Further Examples of T-Formations, Including the Application of Synergy

110

(1)

T-Formations and Mirror Patterns of Stock Movement

111

(2)

T-Formations and Longer-Term Time Periods

113

(1)

Supplemental Indicators

114

(1)

One Final Set of T-Formations

114

(1)

In Summary

115

(2)

Seasonal and Calendar Influences on the Stock Market

115

(1)

Time Cycles

115

(1)

T-Formations

115

(2)

6 Bottom Fishing, Top Spotting, Staying the Course: Power Tools That Combine Momentum Oscillators with Market Breadth Measurements for Improved Market Timing

117

(30)

A Quick Review of Where We Have Been

117

(1)

The "Internal" as Opposed to the "External" Stock Market

118

(1)

Measures of Market Breadth

119

(8)

New Highs and New Lows

119

(8)

New High New Low Confirmations of Price Trends in the Stock Market

120

(1)

Positive and Negative Confirmations, 1995-2004

120

(2)

New Lows at a Developing Stock Market Bottom

122

(1)

Creating a New High New Low Indicator to Keep You in the Stock Market When the Odds Heavily Favor the Stock Market Investor

123

(1)

Method of Interpretation

124

(2)

The Application of the New High (New Highs + New Lows) Indicator to the Nasdaq Composite

126

(1)

Pre-Bear Market Comparisons

127

(1)

The New York Stock Exchange Advance-Decline Line

127

(3)

Relating to Advance-Decline Breadth Data

127

(1)

General Observations

128

(1)

Chart 6.4: The Advance-Decline Line Between 2002 and 2004

129

(1)

The 21-Day Rate of Change of the Advance-Decline Line

130

(1)

Overbought Levels

130

(1)

Oversold Levels

130

(1)

Breadth Patterns at Bull Market Highs

130

(3)

1997-2000: A Period of Breadth Transition

130

(2)

A Change in Tone

132

(1)

A Major Negative Breadth Divergence Followed

132

(1)

Using a Somewhat More Sensitive Rate of Change Measure of the Advance-Decline Line

133

(1)

The Ten-Day Rate of Change Indicator

133

(1)

The Weekly Impulse Continuation Signal

134

(3)

But First, an Introduction to the Exponential Moving Average

134

(1)

The Smoothing Constant of Exponential Averages

134

(1)

Example 1

135

(1)

Example 2

135

(1)

Example 3

135

(1)

Stabilizing the Exponential Average

136

(1)

Some Special Qualities of Exponential Moving Averages

136

(1)

The Weekly Impulse Signal

137

(5)

The Required Items of Data Each Week

137

(2)

Buy and Sell Signals

139

(2)

General Concept of the Weekly Breadth Impulse Signal

141

(1)

Final Comments

142

(1)

The Daily-Based Breadth Impulse Signal

142

(5)

The Construction and Maintenance of the Daily-Based Breadth Impulse Signal

143

(1)

The Performance Record of the Daily Breadth Impulse Signal

144

(1)

The Application of the Daily-Based Breadth Impulse Signal to Trading the Nasdaq Composite Index

145

(1)

Caveat

146

(1)

7 Volume Extremes, Volatility, and VIX: Recognizing Climactic Levels and Buying Opportunities at Market Low Points

147

(18)

Market Tops: Calm Before the Storm; Market Bottoms: Storm Before the Calm

148

(1)

TRIN: An All-Purpose Market Mood Indicator

148

(5)

The Data Required to Compute TRIN

149

(1)

Calculating TRIN

149

(1)

Interpreting TRIN Levels

150

(1)

TRIN as a Bottom Finding Tool

151

(2)

The Volatility Index (VIX) and Significant Stock Market Buying Zones

153

(3)

The Volatility Index

154

(1)

Theoretical Pricing of Options

154

(1)

Implied Volatility

155

(1)

Ranges of VIX

155

(1)

Bullish Vibes from VIX

156

(1)

Summing Up

156

(1)

The Major Reversal Volatility Model

156

(9)

Calculating the Major Reversal Volatility Model

157

(1)

Major Market-Reversal Buy Signals

157

(6)

The 1970-1979 Decade

158

(1)

The 1979-1989 Decade

159

(1)

The 1989-1999 Decade

160

(1)

Post-1999: Mixed Results

161

(2)

The Ideal Scenario

163

(2)

8 Advanced Moving Average Convergence-Divergence (MACD): The Ultimate Market Timing Indicator?

165

(36)

Scope of Discussion

166

(1)

The Basic Construction of the Moving Average Convergence-Divergence Indicator

166

(5)

Basic Concepts

167

(1)

Trend Confirmation

168

(1)

The Signal Line

169

(1)

Very Important Supplementary Buy and Sell Rules

170

(1)

Rationale for Supplementary Rules

170

(1)

Using Divergences to Recognize the Most Reliable Signals

171

(2)

Additional Examples

172

(1)

Improving MACD Signals by Using Different MACD Combinations for Buying and Selling

173

(8)

Two MACD Combinations Are Often Better Than One

174

(1)

MACD During Strong Market Uptrends

175

(1)

MACD During Market Downtrends

176

(1)

Modifying MACD Rules to Secure the Most from Strong Market Advances

177

(3)

Reviewing Chart 8.9

178

(1)

Market Entry Supported by Positive Divergence

178

(1)

Moving Averages, MACD Patterns Confirm Advance

179

(1)

Initial Sell Signal Not Reinforced by Any Negative Divergence

179

(1)

Secondary Sell Signal Confirmed by Negative Divergence

179

(1)

Use Moving Average as Back-Up Stop Signal

179

(1)

The Stop-Loss When Trades Prove Unsuccessful

180

(1)

Synergy: MACD Confirmed by Other Technical Tools

181

(4)

MACD Patterns Confirmed by Cyclical Studies

182

(1)

When the MACD Does Not Provide the Most Timely Signals

183

(1)

Money Management with the MACD (and Other Indicators)

184

(1)

An MACD Configuration That Suggests More Active Selling

185

(1)

MACD Through the Years: Long Term, Short Term, and Intraday

185

(5)

The Start of a Bull Market

186

(1)

An Example of the MACD Stop-Loss Signal in Action

187

(1)

MACD Employed for Day-Trading Purposes

187

(1)

MACD and Major Market Trends

188

(2)

The Amazing Ability of the MACD to Identify Significant Market Low Points Following Severe Stock Market Declines

190

(4)

MACD Patterns and Significant Market Bottoms

191

(2)

Initial Rally at Start of Year

193

(1)

Brief Decline and Well-Timed Market Re-Entry

193

(1)

Rally and Topping Formation

193

(1)

Waterfall Decline, and Then Bottoming Process

193

(1)

Final Shakeout and Recovery

194

(1)

MACD and the Four Stages of the Market Cycle

194

(1)

Reviewing Rules and Procedures Associated with the MACD Indicator

195

(1)

Creating and Maintaining Your MACD Indicator

195

(1)

Buy Signals

195

(1)

Prerequisite

196

(1)

Sell Signals

196

(1)

Converting the Daily Breadth Thrust Model into an Intermediate Entry

196

(5)

Buy Signals

197

(1)

Sell Signals

197

(1)

Providing That...

197

(1)

Summary of Results

198

(1)

MACD Filtered Breadth Thrust Applied to the Nasdaq Composite Index

198

(3)

9 Moving Average Trading Channels: Using Yesterday's Action to Call Tomorrow's Turns

201

(18)

The Basic Ingredients of the Moving Average Trading Channel

202

(2)

Creating the Channel

203

(1)

What Length of Offset Should Be Used?

203

(1)

Moving Average Trading Channels in Operation

204

(5)

Area A: The Chart Opens with a Market Downtrend

205

(1)

Area B: The First Recovery Rally

205

(1)

Area X: The Technical Picture Improves

206

(1)

Area D: The Upper Trading Band Is Reached

206

(1)

Area E: Prices Retrace to the Center Channel

206

(1)

Area F: Improving Market Momentum Confirmed

207

(1)

Bullish Indications

207

(1)

Area G: The Center Line of the Moving Average Trading Channel

207

(1)

Area H: Warning Signs

207

(1)

Area I to J: One Final Attempt That Fails

207

(1)

The Basic Concept

208

(1)

The Evolution of Phases Within the Moving Average Trading Channel

209

(3)

A Classic Topping Formation to End a Major Bull Market

209

(1)

Chart 9.2: The Ingredients

210

(1)

January 2000: The Bull Market in Nasdaq Moves Along Steadily

210

(1)

Area E: The Fun and Games of the Bull Market Come to an End

210

(1)

Area F: Trend Reversal Is Confirmed and Completed

211

(1)

The Development of a Bottom Formation

212

(1)

Moving Average Channels and the Major Trend

212

(4)

1996-1998: Strong Bullish Upthrust

213

(1)

The First Correction Stops at the Center Channel Line

213

(1)

Resurgence of Market Advance

214

(1)

Technical Warnings Develop

214

(1)

The Top Formation Moves Along

214

(1)

Major Downtrend Gets Seriously Underway

214

(1)

Patterns Suggest a Phasing-Out of Long Positions

215

(1)

Significant Downturn Is Confirmed

215

(1)

How to Construct a Price Moving Average Differential Oscillator

216

(1)

A Review of the Key Rules Associated with Moving Average Trading Band Trading

217

(2)

10 Putting It All Together: Organizing Your Market Strategies

219

(10)

The First Step: Define the Major Trend and Major Term Cycles of the Stock Market

219

(1)

The Second Step: Check Out Market Mood Indicators and Seasonal Cycles

220

(1)

The Third Step: Establish the Direction and Strength of the Current Intermediate Trend and Try to Project the Time and Place of the Next Intermediate-Term Reversal Area

221

(1)

The Fourth Step: Fine-Tune Your Intermediate-Term Studies with Studies Based on Shorter-Term Daily-or Even Hourly-Market Readings

222

(1)

Remember Our Favorite Mutual Fund Selection Strategy!

222

(1)

Lessons I Have Learned During 40 Years as a Trader

223

(1)

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Technical Analysis : Power Tools for Active Investors

Summary

Table of Contents

Supplemental Materials