Art and Science of Technical Analysis

ADAM GRIMES is the CIO of Waverly Advisors, an asset management and risk advisory firm headquartered in New York. He began his career as an independent trader focused on agricultural and currency futures, and moved on to manage a successful private investment partnership. Grimes's experience as a trader covers futures, equities, currencies, and derivatives, in time frames ranging from intraday to multi-month swings. Though he is primarily a discretionary swing trader, his methodology rests on a firm foundation of statistical and quantitative research. Grimes holds an MBA with an emphasis in finance and market microstructure, and has worked for a number of private investment firms, as well as having spent several years at the New York Mercantile Exchange.

• Preface xiAcknowledgments xvPart I The Foundation of Technical AnalysisChapter 1 The Trader’s Edge 3Defining a Trading Edge 4Finding and Developing Your Edge 7General Principles of Chart Reading 8Indicators 12The Two Forces: Toward a New Understanding of Market Action 13Price Action and Market Structure on Charts 15Charting by Hand 28Chapter 2 The Market Cycle and the Four Trades 31Wyckoff’s Market Cycle 32The Four Trades 40Summary 45Part II Market StructureChapter 3 On Trends 49The Fundamental Pattern 49Trend Structure 51A Deeper Look at Pullbacks: The Quintessential Trend Trading Pattern 65Trend Analysis 77Summary 95Chapter 4 On Trading Ranges 97Support and Resistance 97Trading Ranges as Functional Structures 113Summary 120Chapter 5 Interfaces between Trends and Ranges 121Breakout Trade: Trading Range to Trend 122Trend to Trading Range 134Trend to Opposite Trend (Trend Reversal) 137Trend to Same Trend (Failure of Trend Reversal) 143Summary 145Part III Trading StrategiesChapter 6 Practical Trading Templates 149Failure Test 150Pullback, Buying Support or Shorting Resistance 154Pullback, Entering Lower Time Frame Breakout 162Trading Complex Pullbacks 165The Anti 170Breakouts, Entering in the Preceding Base 174Breakouts, Entering on First Pullback Following 181Failed Breakouts 183Summary 186Chapter 7 Tools for Confirmation 189The Moving Average—The Still Center 190Channels: Emotional Extremes 195Indicators: MACD 202Multiple Time Frame Analysis 213Chapter 8 Trade Management 231Placing the Initial Stop 232Setting Price Targets 235Active Management 240Portfolio Considerations 251Practical Issues 253Chapter 9 Risk Management 263Risk and Position Sizing 263Theoretical Perspectives on Risk 279Misunderstood Risk 282Practical Risks in Trading 283Summary 290Chapter 10 Trade Examples 291Trend Continuation 293Trend Termination 313Failure Test Failures 319Trading Parabolic Climaxes 323The Anti 327Trading at Support and Resistance 336Summary 343Part IV The Individual, Self-Directed TraderChapter 11 The Trader’s Mind 347Psychological Challenges of the Marketplace 348Evolutionary Adaptations 349Cognitive Biases 353The Random Reinforcement Problem 356Emotions: The Enemy Within 357Intuition 360Flow 364Practical Psychology 367Summary 372Chapter 12 Becoming a Trader 375The Process 376Record Keeping 385Statistical Analysis of Trading Results 388Summary 397Appendix A Trading Primer 399Appendix B A Deeper Look at Moving Averages and the MACD 409Appendix C Sample Trade Data 425Glossary 427Bibliography 443About the Author 447Index 449

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