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The Complete Idiot's Guide To Technical Analysis

06/08/10 01:16:00 PM PST
by Bruce Faber

Proven techniques to help you identify the right times to buy and sell.

Author: Jan Arps
Alpha Books Published by the Penguin Group
Alpha Books
800 East 96th Street
Indianapolis, IN 46240
To Order:
199 Pages and a CD, $21.95, 4/6/10
ISBN: 978-1-59257-901-3

Sometimes a book comes along whose title leaves us no choice but to do a review in more depth than the short mention given in the 'Books For Traders' section of our flagship product Technical Analysis of STOCKS & COMMODITIES. In our business, if ever a book fit precisely into that niche, this one is it. There's no way we could overlook a book with a title like The Complete Idiot's Guide To Technical Analysis. Though it contains a lot of information that long term technical analysis traders might not be entirely familiar with, and on other indicators they might want to take a refresher course on, its main purpose is to initiate the novice. For that purpose it does a great job. The book's four parts break down the challenge of becoming a technical analysis trader/investor into well managed compartments.

Even before getting into the first official chapter, Information Is Power, the Forward and Introduction contain a fairly good look at both the foundations of technical analysis, and the objectives of the book. The explanations that are then presented for each aspect of technical analysis are detailed enough to give a good look into each facet of the business. It is especially appreciated that in the beginning of the book there are enough references to fundamental analysis to contrast the differences between fundamental and technical analysis trading and investing styles. There is also a clear and helpful differential made between traders and investors.

In fact, defining the differences in the many looks of technical analysis is a large part of the work done in the first few chapters. Reasons are given for when one might use a simple line chart over the more informational candlestick chart. The distinction is made in enough detail to make the differences between them clear. Point and figure charting, and the thinking behind its use, is explained, along with the same kind of information for tick, volume and "float" charts. Visual patterns are an important part of technical analysis, and before getting into the tools of the trade many of the most widely used and accepted price patterns are defined. The wave and swing charts are discussed to the point that the reader will at least know the ideas behind their use. The student gets a good understanding of double tops and bottoms, head and shoulders, and all of the explanations are well illustrated so that in following the text it is easy to visualize what is being discussed. The same is true with the presentation of trading gaps and the various kinds of cups, triangles, flags and pennants.

This is where the tools of trading are discussed in more detail. The many technical analysis oscillators, lines, trends and numbers are described and illustrated. As this guide is aimed at the beginner, many of the more complicated and formulated tools are not included, but that is a good thing. At this point in a novice's experience there is no need to make them feel like they will never be able to understand technical analysis. That is a conclusion that they will come to soon enough once they delve further into in their learning of technical analysis.

This tools section takes up a little over a third of the book and covers all that someone just getting started would need to know. The explanations of point and figure charts are quite thorough. The space given the P&F charts provides a basis for understanding some of the other non-price charts. These charts that do not even include price -- volume and float indicators, for instance -- are also given ample explanation.

These are the 55 pages I wish were available to me when I first started investing and trading in the markets. If part 2 was about the technical tools of this business, part 3 is the structure, the nuts and bolts and the instruction book for putting it all together. After the reader discovers what technical analysis is all about, what it looks like and what one needs to make trading decisions, this section is the "How to do it" part of the book. When it is time to actually start trading, you need capital, computers, software, data and a place to work. This part of the guide makes these important elements of a beginning trader's work a straightforward set of tasks to accomplish, instead of just a list of "things to do," and it gives helpful ideas on each step.

A trader then needs to decide what they are going to trade: futures, forex, bonds, stocks or ETFs, or a combination of trading vehicles. They need to focus on the trading technique they wish to employ, how they are going to get in and out of their trades, become aware of the many ways to place orders, what each is, and when and how to use them.

After all of that there remains probably the biggest single hurdle an investor or trader needs to become a winner in the trading game and that is a trading plan. This guide makes it clear how important a plan is and gives the reader a framework to build around. Then it explains what needs to be in that plan and how to manage the capital that you come up with for your trading.

The cartoon on the cover page of part 4 includes a snake and the caption indicates that it knows when to strike. That is what technical analysis is all about: Knowing when to strike, pull the trigger, or whatever other jargon there is, all of which refer to actually placing the orders to get in and get out of one's trades. There are several pages devoted to the various ways you can enter your orders. In addition, profitability is discussed in detail. Concepts like maximum drawdown, percentage of winning and losing trades, number of trades to make, taking into account commissions versus the amount of profit per trade, are all at least mentioned so the beginner knows that this is an integral part of trading and needs to be planned for.

One of the things that seemed to be especially helpful to the people who are most likely to use this guide is a review at the end of every chapter called "The Least You Need To Know." However, at the end of the book proper there are even more very helpful aids. The glossary and the index are very complete. Finding what you need, in order to understand and review what you are trying to learn, is pretty straight forward.

Last, but far from least, is the included CD that has short movies that present visual presentation of the lesson materials covered. The demos are mostly about the various indicators, but there are some videos on charts, patterns, support and resistance, and some other information as well. If there was one thing less than positive about this book, it may be the thoroughness with which the demo movies explain each subject discussed, but then the book is called The Complete Idiot's Guide to Technical Analysis. All in all, this is a very good book for anyone who is just starting into the world of technical analysis, and well worth both the money spent to buy it and the time spent to read it.

Bruce Faber

Title: Staff Writer
E-mail address:

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