The Legacy of Charles Fort

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David Icke on Nature of Money

William Paley

"There is a principle which is a bar against all information, which is proof against all arguments and which cannot fail to keep a man in everlasting ignorance — that principle is contempt prior to investigation."

William Paley

Six Insider Trading Steps Every Trader Must Know

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William P Hamilton on Dow Theory

"Study of the averages is based on 'Dow's theory', propounded by the late Charles H. Dow, the founder of this newspaper. The books which published that theory seem to be out of print; but briefly it was this: Simultaneously in any broad stock market there are -- acting, reacting, and interacting -- three definite movements. That on the surface is the daily fluctuation; the second is a briefer movement typified by the reaction in a bull market or the sharp recovery in a bear market which has been oversold; the third and main movement is that which decides the trend over a period of many months, or the main true movement of the market.

"It is with these facts well in mind that the student approaches analysis of the averages, premising that broad conclusions are valueless on the daily fluctuation and deceptive on the secondary movement, but possible and helpful on the main movement of the market, and of real barometrical value to general business. It may be said as a matter of record that studies in the price movement, with these facts well in view, published in these columns from time to time and especially in the years before the war, were far oftener right than wrong, and were wrong for the most part when theyt departed from Dow's sound and scientific rule."

William Peter Hamilton, Aug. 1919 Wall Street Journal Editorial

Techinical Analysis Defined

The idea that market trends can be anticipated by analysing the actual activity of investors is the central tenet of the trading discipline known as 'technical analysis.'

Tony Plummer, Forecasting Financial Markets

John Murphy on Elliott Wave Theory

There are three important aspects of wave theory -- pattern, ratio, and time -- in that order of importance. Pattern refers to the wave patterns or formations that comprise the most important element of the theory. Ratio analysis is useful in determining retracement points and price objectives by measuring the relationships between the different waves. Finally, time relationships also exist and can be used to confirm the wave patterns and ratios, but are considered by some Elliotticians to be less reliable in market forecasting.

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The numbers shown so far 1,2,3,5,8,13,21,34,55,89,144 -- are not just random numbers. They are part of the Fibonacci number sequence, which forms the mathematical basis for the Elliott Wave Theory.

John Murphy, Technical Analysis of the Financial Markets

Bassetti on the Broad Market Trend

Numerous averages and indexes have come online since the 5th edition: S&P 100, S&P 500, Russell 200, and so on. It would be an exercise in daily journalism to attempt to list all the indexes now available. New ones spring up like wees after the spring rain. This is because the invention of a widely adopted index can be very lucrative for its creator. S&P and Dow Jones collect licensing fees from the "use" of their indexes by the exchanges. The constant addition of new trading instruments requires that current lists be kept in Resources, and the reader may also consult The Wall Street Journal, Barron's, and The Investor's Business Daily where prices of indexes and averages are reported. Online brokerages and financial news sites also offer up to the minute lists and quotes on virtually all trading instruments. A list and links to these sites may also be found in Resources (Appendix D) and at edwards-magee.com. As of the turn of the century, the most important of these indexes, joining Dow, are probably the S&P 500, and the NASDAQ. In fact these are probably sufficient for economic analysis and forecasting purposes, and certainly good trading vehicles by means of surrogate instruments, options, and futures. Some would include the Russell 2000 in this list. These indexes and averages have been created to fill needs not filled adequately by the Dow Jones Averages.

With this proliferation of measures of the market and various parts of it, a different question arises. That is, the value of the Dow alone in indicating the Broad Market Trend is now questionable. Limited research has been done on this question. It is, however, my opinion that the Broad Market Trend must now be determined by examining the Dow Industrials, the S&P 500, and the NASDAQ.

Bassetti, Technical Analysis of Stock Trends

Robert Fischer on RN Elliot

For 50 years, RN Elliot has remained a legend for legions of analysts. Without his ideas, this book could never have been written. His brilliant deductions include:

• Market swings are a reflection of human behavior.
• Human behavior can be related to a phenomenon of nature.
• Nature's law can be measured by using the Fibonacci summation series.

From his findings, published in The Wave Principle, Elliot claims that he can forecast price movements.

Robert Fischer, Fibonacci Applications and Strategies for Traders

Edwards and Magee on the Primacy of the Trend

One of our basic tenets in this system of technical stock chart analysis -- indeed, a fact which any neophyte can quickly verify for himself by inspection of the market records for whatever period he chooses -- is that prices move in trends. The market in general, and the many stocks which compose it, do not jump up and down in an altogether random fashion; on the contrary, they show definite organization and pattern in their charted course.

Prices move in trends.

Edwards and Magee, Technical Analysis of Stock Trends

William Peter Hamilton, October 25, 1929

There are people in Wall Street, and many all over the country, who have never seen a real bear market .... What is more material is that the stock market does forecast the general business of the country. The big bull market was confirmed by six years of prosperity and if the stock market takes the other direction there will be a contraction in business later ....

William Peter Hamilton, October 25, 1929

Tony Plummer, Forecasting Financial Markets

The recognition that people do not always act rationally, and do not always make decisions independently of one another, necessitated a shift in the way I approached the markets. However, it was quite clear that there was no central body of literature to which I could turn. So, within a few weeks, I began my own process of collecting ideas and related information, and in 1989 ... the resulting understandings found expression in the first edition of this book. Since then, there has been an explosion of literature from authors such as Howard Bloom (The Lucifer Principle, 1995, and Global Brain, 2000) that substantially validates my conclusions about the pervasive influence of crowd psychology. Economic man, who makes decisions on the basis of 'rational expectations' is not only a travesty of a human being, but an impossible construct. For good and for ill, human beings are literally programmed to coexist, cooperate and correlate with one another. Such relationships validate us and stimulate our emotional life.

This, in itself, is very important for our understanding of financial and economic behavior. By definition, once people start to group together, behaviour within the context of the group becomes non-random. This is why -- despite what some statisticians may say -- financial market price action has a non-random dimension. But this is not all. Somewhat startlingly to someone who recognizes it for the first time, market price action persistently expresses itself in a three wave pattern that mirrors the processes of learning, and of energy absorption in living organisms. The crowd, in other words, is not different to other parts of Nature. As such, it is intrinsically predictable.

Tony Plummer, Forecasting Financial Markets

Euclid's Triangle Definitions

[I was struck yesterday, perhaps the day before, while reading from Robert Rhea's "The Dow Theory" how useful the "axiom-theorem" organization of knowledge in any field can be -- and not necessarily in mathematics alone. I looked at Euclid's Elements in a new light -- it represents the first successful attempt at such an organization. Although it might be ridiculous, I've decided to enter a few simple but powerful axioms and theorems from The Elements. In this case, simply a few definitions.]

Of trilateral figures, an equilateral triangle is that which has its three sides equal, an isosceles triangle that which has two of its sides alone equal, and a scalene triangle that which has its three sides unequal.

Further, of trilateral figures, a right-angled triangle is that which has a right angle, an obtuse-angled triangle that which has an obtuse angle, and an acute-angled triangle that which has its three sides acute.

Brian Millard on Fundamental vs. Technical Analysis

There are two schools of thought on price movement and how to predict it. The fundamentalists believe the way to make a successful investment is to concentrate on methods of determining the value of a company. This is done by studying the way that it is managed, the various financial statements emanating from the company, the markets in which its products are being sold, comparisons with other companies operating in the same field, and so on. On the other hand, technical analysts base their predictions on historic price movement, although most of them would agree that there is some value in the fundamental approach. The technical analysts are of the opinion that the positive and negative aspects of a company are reflected in the stock price, and that a lot of unnecessary effort in studying the fundamentals can be avoided if you carry out the correct price analysis.

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The difficulty with the fundamental approach is that the investor might have to wait a long time before realizing a profit. Although you discover that a company is undervalued, and that its stock price ought to be much higher, and until other investors come to the same conclusion, the price cannot expect to move down in the required direction. This composite view of investors towards the company is not being measured by an analysis of the fundamentals. However, technical analysis correctly applied will give a reasonable indication that the weight of outside opinion about the company is either optimistic, pessimistic or neutral. From that knowledge the investor can determine wither to buy, sell, or do nothing. Of course, opinions about a stock, sector, or market can change rapidly, leaving the investor to base his decision on outdated materials. By giving the investor an early warning sign technical analysis is subjected to the severest test.

Some technical analysis methods are far too simplistic. In their most trivial form they come down to a set of rules that should be obeyed without any understanding of the meaning behind them. Typical of such rules are those of the form 'buy when the stock price rises above the x-day moving average' or 'sell when the y-day average falls below the x-day average,' where x and y depend upon which technician you are speaking to. The difficulty with rules such as these is that they may have been formulated for a market quite different from that in which tey are being applied. It is only when the investor starts to ask what lies behind these rules that an understanding begins to develop. This understanding is invaluable in deciding whether or not the current market is the type in which these rules should be applied.

Brian Millard, Channels and Cycles, A Tribute to JM Hurst

Brian Millard on JM Hurst

If I had any criticism of the book at all [The Profit Magic of Stock Transaction Timing by JM Hurst], it was simply that the average investor, picking it up and quickly scanning through its pages, would perhaps feel that it was too mathematically orientated, and replace it on the shelf, because it contained terms such as Fourier Analysis and modulated side-bands, etc. The investor would then be missing an important contribution to the subject of technical analysis. However, a reader who took the trouble to study the book in depth would grasp that Hurst's work was based on five main concepts. These were:

1. Maximum profits are obtained from shorter trades
2. Some 23% of price motion is based on cyclic movements in nature
3. These cycles are additive
4. The cycles can be seen clearly if envelopes are constructed around the price movement
5. The ideal buying point is when several such cyclic components are reaching their low points

Brian Millard, Channels and Cycles: A Tribute to JM Hurst

Hugh Bancroft on Dow Theory

It is hard to realize that little over thirty years ago, Dow was presenting a radically novel idea, when he showed that beneath the fluctuations in individual stocks there was present at all times a trend of the market as a whole. Until then people who thought about such matters at all generally assumed that fluctuations in the prices of stocks were individual and unrelated, dependent entirely on the circumstances of the particular company and the current attitutde of those speculators who chose to trade in each particular stock.

Hugh Bancroft (May 21, 1932)

Frost and Prechter on Dow Theory

According to Charles H. Dow, the primary trend of the market is the broad, all-engulfing 'tide,' which is interrupted by 'waves,' or secondary reactions and rallies. Movements of smaller size are the 'ripples' on the waves. The latter are generally unimportant unless a line (defined as a sideways structure lasting at least three weeks and occurring within a price range of five percent) is formed. The main tools of the theory are the Transportation Average (formerly the Rail Average) and the Industrial Average. The leading exponents of Dow's theory, William Peter Hamilton, Robert Rhea, Richard Russell, and E. George Schaefer, rounded out Dow's theory but never altered its basic tenets.

Frost and Prechter, Elliot Wave Principle

Bill Poulos from Profits Run

Sound Advice!

I'm a bit leery about Bill Poulos' "Market Mastery Program" and, no doubt, the above article is a marketing ploy on the part of him and my beloved MarketClub. Nevertheless, the article represents the first mention I've heard that there may be a demand, rather than a lack thereof, for technical traders as markets continue to consolidate/decline in the coming years. I thought it was worth listing on my blog, for that very reason.

Le Beau and Lucas

Here's another book I've been contemplating -- outside of the general curriculum I'm following.

Bruce Babcock, Worth the Investment?

I'm wondering whether I should invest in Babcock's book:






















Hewison seems to endorse him re: his method of using the ADX indicator, and I was struck by this review by an amazom.com reader.

Hewison on Point and Figure Charting

There are a few good pointers here -- in one of Hewison's email lessons on trading.

Point and Figure Charts

KC Zieg on Point and Figure Buy and Sell Signals

There are eight basic buy and eight basic sell signals used in point and figure charting. The first two buy signals, referred to as the Simple Buy Signals and comprised of three or four columns, play a dual role of determining the price level at which shorts must be covered as well as signaling the opportunity for the establishment of new long positions. The more complex buy signals, all comprised of five or more columns and all containing one or more of the simple signals within their structure, permit the establishment of long positions but are not used to close out shorts for short positions are always covered on simple signals.

The Simple Sell Signals covering three or four columns always signal the need for liquidation of long positions as well as suggest the possibility of a short sale.

The more complex sell signals, more correctly termed short-sale signals, contain more columns of reversals and one or more of the simple sell formations. These complex formations are not used to close longs, for the simple signals accomplish this but are strong indicators that the short side is the correct side of the market to trade.

Statistics are provided [in the chapter] to show the frequency of signal occurrences, the duration of commitments, and the profitability in stock trading when fifteen of the sixteen simple and complex formations are used as entry criteria.

In answer to the question, "Which signal is best?" the trading media is important. Commodity traders have little or no choice of formations because only B-1, B-2, S-1, and S-2 signals occur with any frequency. But security traders have all sixteen formations available.

The one or more formations best suited for a security trader is dependent on the amount of investable funds available and the desired holding period of the open trade. Only through a careful analysis of these two personal requirements coupled with a searching analysis of the statistics cited can the most appropriate formations be discovered.

KC Zieg, Point and Figure Commodity and Stock Trading Techniques (Chapter 3 Summary and Conclusion)