Most blog authors on StockCharts.com are writing about the current markets and do an exceptional job. I do not write about the current markets as I wanted to share my experiences after 40+ years as a technical analyst. Not only experiences with trading and investing, but model building and money management. I also share the details of all the Master’s degrees I have – those expensive learning experiences that hopefully I learned something from. Since I rarely go back into the archives of other’s blogs that I read, I wondered if that is common or not. Hence, after talking with Chip, a summary of my past articles might encourage new readers to take a look as most of the material is timeless. That’s timeless, not worthless! This is the fifth of the 'article summary' series and starts in December, 2015 and ends in March, 2016. I’ll try to do future summaries whenever I have a dozen or so articles to include. You can click on the article name for a link directly to the article.
Well this was about the launch of the 2nd Edition to my “The Complete Guide to Market Breadth Indicators.” It is now published in Kindle format, which through Amazon’s Kindle app makes it available on almost all electronic media, including your computer. All the charts were updated using StockCharts.com’s SharpCharts. Coincidentally, I also launched a ChartPack on StockCharts.com that includes EVERY chart in the book PLUS the same charts for not only the book’s NYSE Exchange, but also for the Nasdaq Exchange, and the Toronto Exchange. Close to 500 breadth charts continuously up-to-date for a one-time $49.95. The book on Amazon sells for $19.99.
It seems that modern finance has the whole world tied to a benchmark. However, they also think that you should always be invested, and they do not think about defensive strategies which can actually use cash as an asset class. There is no benchmark for that type of strategy. I also discuss turnover and taxes, with the simple reminder that taxes are the consequence of successful investing.
This is the article that follows the format of this article you are now reading. About every 10-12 articles I write a summary of past articles. Since my ramblings are not tied to the action of the market, I would like to think they are timeless. Hence a periodic article called Article Summaries.
This is the last article in this series about the chapters in my new second edition of The Complete Guide to Market Breadth Indicators. Chapter 11 is an entire new chapter from the first edition as it covers all of the non-internal breadth indicators, which I did not include earlier. These breadth indicators are Percent Above a Moving Average, Bullish Percent Index, Participation Index, and similar ones. Tom McClellan completely rewrote a chapter dedicated to the McClellan indicators.
Modern finance is totally wrapped up in some things that never get reviewed or changed. One is the ubiquitous use of a 60/40 mix of stocks and bonds as a benchmark. Sadly, they use data that encompasses 60 years. I take that data and break it down into 6 individual decades to show how bad their concept is. Many times a 60/40 mix just is not appropriate for the market environment.
I guess I got behind and included two Article Summaries close together – sorry about that. Again, these are articles that summarize past articles.
Hundreds of millions of dollars are spent on experts and analysts showing clients ratios and multiples in the hope that the client will sell a holding and buy a supposedly better holding – all based on fundamentals. I write extensively about this foolish marketing game that the large wire houses play and why a technical approach is always going to be a better approach.
I’ve written about all the noise that Wall Street generates before, but never dedicated an entire article to it. The parade of experts and TV analysts is almost 24/7, and depending on the channel, even on weekends. No one is ever held accountable. I am convinced there is NEVER anything of value to an investor from the financial media. I think people like to hear opinions because they do not have one of their own, or certainly do not have the confidence to make a trade on it. Remember, Cramer is what CNBC thinks of you.
I am launching a large series of articles on Japanese Candlestick Analysis. Since I wrote a book called Candlestick Charting Explained almost 25 years ago and it is in its 3rd Edition, some of the research I did back then would be good for articles. My outline shows that this will be about 10 articles. There will be others interspersed in the series so that you do not get over candlesticked.
Previously I wrote an article on Secular Bears, which are probably more important to understand than Secular Bulls. However, this completes the circle and hopefully you can see how the secular cycle works. It is based upon the affect of inflation on earnings over long periods of time and is not at all like cyclical measurements that many use in technical analysis.
One of the main points I wanted to make here is that often technical analysts will look at candle patterns in isolation. This is completely wrong! A reversal pattern is reversing something, isn’t it? Then what is it reversing? It is reversing the trend of the market. This trend is what is needed to identify the pattern in the first place. There are a host of ways to measure the market’s short-term trend. Originally, I selected a 10-day exponential average; if the closing price of the pattern was above the average you were in an uptrend, if not, you were in a downtrend. Currently I used an adaptive trend measure.
In this article I delved into the thought process of how to program a computer to identify candle patterns. The Japanese literature is quite vague in this area so I used a lot of “gut” to accomplish this. The article talks about the many different considerations necessary to automatically identify candle patterns.
A somewhat deep approach to assessing the reliability of patterns and an appropriate follow up article to the pattern identification article published previously. There has to be a way to measure the success of a candle pattern and many considerations that need to be dealt with. Two approaches were used; one where the trend was known and one where it wasn’t known. I get into quite a bit of detail here so might require reading a second time (in my dreams).
Mutual Fund tracking companies generally accomplish all their analysis of risk and performance of funds on a monthly basis. This article is quite critical of that. I show a chart of daily mutual fund prices in a semi-log chart to show the volatility. Then after much editing and manipulation of the data I show the same prices but only using the month end price and it comes out to be a straight line. The point being that monthly hides much of the price action and should not be used by technical analysts.
This first article on candle pattern statistics shows the frequency of 87 candle patterns on a daily basis over a thirteen-year period. From the huge table provided you can see that some patterns occur with great frequency and many others are quite rare. This is nice to know as the rare ones and the ones that occur often should probably be either ignored or used only along with other technical measures.
The focus here is on the candle patterns that were winners and those that were losers. Remember that the performance is based upon the short term from one to seven days into the future. The ranking percentages are based upon relative performance with the other patterns. At the end of this article I introduce the focus to each individual candle pattern and all the statistics, including its frequency, the need for a trend, and showing its performance and a ratio of New Profit / Net Loss. Bottom Line: some patterns are quite good and some just plain stink.
Dance with the Trend,