Chapter 17 (Market Profile) covers market profile charting. There is detailed treatment of the value area calculation, determination of the Point of Control via Time Price Opportunity (TPO) count and volume, as well as coverage of the various popular TPO distributions.
Chapter 18 (Basic Elliott Wave Analysis) introduces Elliott wave analysis with special focus on wave construction, alternation, truncations, impulsive and corrective wave formations, as well as the application of Fibonacci ratio and number analysis to the Elliott wave structure. The significance of pattern, time, and ratio is also discussed.
Chapter 19 (Basics of Gann Analysis) covers some of the most popular Gann techniques for forecasting potential price reversals, which includes the squaring of price and range, squaring of the high and low, the square of nine time and price projections, Gann lines, Gann retracements, and Gann grids.
Chapter 20 (Cycle Analysis) covers the basic elements of cycle analysis. The principle of summation, harmonicity, proportional commonality, nominality, variation, and synchronicity are covered in detail. Cycle inversions, translations, and the tuning of oscillators to the dominant cycle are illustrated clearly on various charts. The practitioner is also presented with five basic approaches to identifying cycles.
Chapter 21 (Volatility Analysis) discusses the five measures of market and price volatility. There is also coverage of the concept of normal and standard deviation, mean deviation, skewness, kurtosis, average true range, and stock beta. Plus there is discussion of the volatility indices and their application.
Chapter 22 (Market Breadth) covers the elements and factors that affect the reliability and consistency of market breadth analysis. Market fields and components such as its nine breadth data fields and eleven data operations are discussed in detail. Various popular market breadth indicators and their applications are then illustrated via numerous equity and commodity charts.
Chapter 23 (Sentiment Indicators and Contrary Opinion) introduces the topic of sentiment analysis and analyzes the behavior and psychology of the market participants. The chapter covers contrary opinion, irrationality, and necessary conditions for the reliability of sentiment indicators. Various popular sentiment indicators are examined with the appropriate charts.
Chapter 24 (Relative Strength Analysis) is about measuring the relative strength of one market against another. The directional implications and definitions such underperformance and outperformance are explained with various examples. The application of technical analysis to RS lines is examined and illustrated via numerous charts.
Chapter 25 (Investor Psychology) covers the basic elements of investor psychology. The chapter discusses how trends, consolidations, and market reversals develop with respect to various psychological and emotional biases. It also describes the underlying forces that create chart patterns in terms of the biases of investors and traders. Topics relating to cognitive dissonance and positive feedback loops are covered in detail.
Chapter 26 (Trader Risk Profiling and Position Analysis) introduces the practitioner to trader profiling. The practitioner is exposed to the concept of risk capacity and is shown that most market participants are usually both risk averse and risk seeking at the same time, with respect to price, time, and risk size. Trade orders based on behavioral profile are also discussed in detail. The collection of bullish and bearish indications across multiple timeframes is discussed in terms of the long, medium, and shorter term trader and investor.
Chapter 27 (Integrated Technical Analysis) introduces the concept of integrated technical analysis. It shows the practitioner how to effectively combine various technical tools to achieve better forecasts and trade decisions. It stresses the importance of identifying significant bullish and bearish clustering and oscillator signal agreements in order to locate high probability trades. Multiple timeframe analysis and multicollinearity are also discussed in detail.
Chapter 28 (Money Management) covers the elements of money management for traders. It classifies money management into passive and dynamic exposures. The four stochastic exit mechanisms are introduced and explained in detail. The concept of linear and geometric expectancy, asymmetric leverage, minimum winning percentage, and win-loss distribution are discussed from the perspective of improving trade performance. Familiarity with the concepts and disciplined application of passive and dynamic components of money management are essential skills for the long-term survivability as a trader.
Chapter 29 (Technical Trading Systems) introduces the practitioner to the basic elements of constructing, testing, and optimizing technical trading systems. It covers system conceptualization, system components, and performance measurement specifications.
Appendix A (Basic Investment Decision Making Based on Chart Analysis) illustrates how charts are employed to make trading and investment decisions. The practitioner is shown how to describe both the stock and the climate or environment in which the stock is trading in bullish and bearish terms and how to identify various participatory options available in the stock with respect to the client risk capacity and expectation.
Appendix B (Official IFTA CFTe, STA Diploma (UK), and MTA CMT Exam Reading Lists) provides a list the official IFTA CFTe, STA Diploma (UK), and MTA CMT exam reading requirements.
This book also includes an overview of the companion website and test bank.
ONLINE MATERIALS
This book also includes access to a companion website (www.wiley.com/go/limta) that includes:
• An online test bank based on the topics outlined in the official syllabuses for both the MTA and IFTA professional examinations
• Answers to the end-of-chapter questions in the book
• Excel spreadsheets that help illustrate the mathematics underlying various technical and money management concepts within the handbook
• Updated charts
• Additional content on new topics added to the exams
For instructions on accessing the test bank, please refer to the About the Test Bank and Website at the end of this book.
Acknowledgments
I would like to express my deepest appreciation and gratitude to Nick Wallwork, Emilie Herman, Chris Gage, and everyone at Wiley for their amazing work and inspiration, without which the creation of this book would not be at all possible.
I am especially indebted to Emilie Herman for her phenomenal contribution and expertise in helping me put this book together. I thank Emilie for her constant encouragement and guidance and for putting up with all the delays during the difficult and very challenging writing process. I would also like to convey my heartfelt appreciation to Chris Gage for his amazing work on the manuscripts.
Finally, I truly thank all my past and current graduates for their amazing participation, patience, and dedication. It is through their constant feedback, criticisms, and fervent participation that much of the technical analysis in this book have been refined and crystallized into its current form. A special word of thanks also goes out to Mr. Eric Lee at MetaQuotes (Singapore) for his very kind assistance.
The charts in this book are sourced, with kind permission, from Stockcharts.com and MetaQuotes Software Corp. Note that MetaTrader is a trademark of MetaQuotes Software Corp.
About the Author
Mark Lim graduated from King’s College London in Special Physics. He was awarded the Bronwen Wood Memorial Prize in financial technical analysis by the Society of Technical Analysis (UK) in 2007. He holds both the MSTA (UK) and the International Federation of Technical Analysts CFTe designations and is a full member of the Society of Technical Analysis (UK). Mark’s expertise includes stock, CFDs, commodity futures, and options trading. He is currently involved with mathematics and physics at the postgraduate level.
Mark is the author of The