Tài liệu đầu tư phân tích kỹ thuật chuẩn CMT Hoa Kỳ full bản tiếng anh.Technical analysis the complete resource for financial market technicians

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TECHNICAL ANALYSIS
THE COMPLETE RESOURCE
FOR FINANCIAL MARKET TECHNICIANS

Charles D. Kirkpatrick II, CMT
Julie R. Dahlquist, Ph.D.

FT Press
FINANCIAL TIMES


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ISBN 0-13-153113-1
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library of Congress Cataloging-in-Publication Data
Kirkpatrick, Charles D.
Technical analysis: the complete resource for financial market technicians / Charles D. Kirkpatrick and
Julie R. Dahlquist.
p. cm.
Includes bibliographical references and index.
ISBN 0-13-153113-1 (hardback: alk. paper) 1. Investment analysis. I. Dahlquist, Julie R., 1962- II.
Title.
HG4529.K564 2007
332.63'2042—dc22
2006011756


This book is sold with the understanding that neither the authors nor the publisher is engaged in rendering legal, accounting, investment, or other professional services or advice by publishing this book. Each
individual situation is unique.'Thus, if legal or financial advice or other expert assistance is required in a
specific situation, the services of a competent professional should be sought to ensure that the situation
has been evaluated carefully and appropriately. The authors and the publisher disclaim any liability, loss
or risk resulting, directly or indirectly, from the use or application of any of the contents of this book.

CONTENTS

Acknowledgments xxv
About the Authors xxvii

PART I: INTRODUCTION 1
1

INTRODUCTION TO TECHNICAL ANALYSIS 3

2

THE BASIC PRINCIPLE OF TECHNICAL ANALYSIS—
THE TREND 9

How Does the Technical Analyst Make Money? 10
What Is a Trend? 11
How Are Trends Identified? 12
Why Do Markets Trend? 13
What Trends Are There? 15
What Other Assumptions Do Technical Analysts Make? 17
Conclusion 19
Review Questions 19


Contents

3

HISTORY OF TECHNICAL ANALYSIS 21

Early Financial Markets and Exchanges 21
Modern Technical Analysis 23
Current Advances in Technical Analysis 28
4

THE TECHNICAL ANALYSIS CONTROVERSY 31

Do Markets Follow a Random Walk? 33
Fat Tails 33
Drawdowns
35
Proportions of Scale

37

Can Past Patterns Be Used to Predict the Future? 39
What About Market Efficiency? 39
New Information
41
Are Investors Rational?
45
Will Arbitrage Keep Prices in Equilibrium?

46

Behavioral Finance and Technical Analysis 49
Pragmatic Criticisms of Technical Analysis 49
What Is the Empirical Support for Technical Analysis? 50

Conclusion 51
Review Questions 51

PART I I : MARKETS AND MARKET INDICATORS 53
5

AN OVERVIEW OF MARKETS 55

In What Types of Markets Can Technical Analysis Be Used? 56
Types of Contracts 57
Cash Market 58
Futures Markets
60
Options Markets
63

How Does a Market Work? 63


Who Are the Market Players? 66
How Is the Market Measured? 67
Price-Weighted Average
67
Market Capitalization Weighted Average
Equally Weighted (or Geometric) Average

68
69

Conclusion 70

Review Questions 70
6

Dow THEORY

73

Dow Theory Theorems 76
The Primary Trend 78
The Secondary Trend
79
The Minor Trend 79
Concept of Confirmation
80
Importance of Volume
82

Criticisms of the Dow Theory 83
Conclusion 83
Review Questions 84
7

SENTIMENT 85

What Is Sentiment? 86
Market Players and Sentiment 87
How Does Human Bias Affect Decision Making? 88
Crowd Behavior and the Concept of Contrary Opinion 90
How Is Sentiment of Uninformed Players Measured? 92
The Concept of Sentiment Indicators

92
Sentiment Indicators Based on Options and Volatility
Polls 98
Other Measures of Contrary Opinion
103
Unquantifiable Contrary Indicators
112
Historical Indicators
113

92

How Is the Sentiment of Informed Players Measured? 114
Insiders

114


Contents

xii

Sentiment in Other Markets 120
Treasury Bond COT Data
120
Treasury Bond Primary Dealer Positions
Bond Market Fear Index
122

121

T-Bill Rate Expectations by Money Market Fund Managers

122

Conclusion 123
Review Questions 123
8

MEASURING MARKET STRENGTH 1 2 5

Market Breadth 127
The Breadth Line or Advance-Decline Line
128
The Advance-Decline Line Moving Average
132
One-Day Change in the Advance-Decline Line
133
Breadth Differences
135
Breadth Ratios
138
Breadth Thrust
142
Summary of Breadth Indicators
142

Up and Down Volume Indicators 142
The Arms Index
143

Ninety Percent Downside Days

(NPDD)

145

Net New Highs and Net New Lows 146
New Highs Versus New Lows
High Low Logic Index
148
Hindenburg Omen
148

147

Number of Stocks Above Their 30-Week Moving Average 148
Very Short-Term Indicators 150
Breadth and New Highs to New Lows
Arms Index
151
Net Ticks
152

150

Conclusion 152
Review Questions 154

9

TEMPORAL PATTERNS AND CYCLES 1 5 5

Periods Longer than Four Years 156
Kondratieff Waves,

orK-Waves

156


xiii

Contents

34-Year Historical Cycles 159
Decennial Pattern 160
Periods of Four Years or Less 161
Four- Year or Presidential Cycle
Election Year Pattern
163
Seasonal Patterns
164

161

January Signals 165
January Barometer
165
January Effect
165

Events 165
Conclusion 166
Review Questions 166
10

FLOW OF FUNDS 1 6 9

Funds in the Marketplace 170
Money Market Funds
170
Margin Debt
171
Public Offerings
172

Funds Outside the Security Market 173
Household Financial Assets
Money Supply
174
Bank Loans
176

173

The Cost of Funds 177
Short-Term Interest Rates
177
Misery Index
178

Boucher's T-Bill Rate of Change Rule
Zweig's Prime Rate Indicator
180

179

Fed Policy 180
Predicting Federal Reserve Policy Changes
181
Zweig's Fed Indicator
182
Three Steps and a Stumble
183
Two Tumbles and a Jump
183
Long-Term Interest Rates (or Inversely, the Bond Market)
Yield Curve
185

Conclusion 186
Review Questions 186

184


Contends

xiv

PART III: TREND ANALYSIS 1 8 9

11

HISTORY AND CONSTRUCTION OF CHARTS 1 9 1

History of Charting 193
What Data Is Needed to Construct a Chart? 196
What Types of Charts Do Analysts Use? 198
Early Charts 198
Line Charts 198
Bar Charts 201
Candlestick Charts

203

What Type of Scale Should Be Used? 205
Arithmetic Scale
Semi-Logarithmic

205
Scale

206

Point-and-Figure Charts 207
One-Box (Point) Reversal
Box Size 209
Multi-Box Reversal
210
Time 211
Arithmetic Scale

212
Logarithmic Scale
212

208

Conclusion 212
Review Questions 213
12

TRENDS—THE BASICS 2 1 5

Trend—The Key to Profits 216
Trend Terminology 217
Basis of Trend Analysis—Dow Theory 217
How Does Investor Psychology Impact Trends? 219
How Is the Trend Determined? 219
Peaks and Troughs

220

Determining a Trading Range 222
What Is a Trading Range? 222
What Is Support and Resistance ?

222


XV

Contents

Why
What
How
How

Do Support and Resistance Occur?
222
About Round Numbers ?
224
Are Important Reversal Points Determined?
Do Analysts Use Trading Ranges?
229

224

Directional Trends (Up and Down) 230
What Is a Directional Trend?
230
How Is an Uptrend Spotted? 232
Channels
237
Internal Trend Lines
238
Retracements
238
Pullbacks and Throwbacks
240

Other Types of Trend Lines 241
Trend Lines on Point-and-Figure
Speed Lines
242
Andrews Pitchfork
243

Charts

241

Conclusion 244
Review Questions 244
13

BREAKOUTS, STOPS, AND RETRACEMENTS 2 4 7

Breakouts 248
What Is a Breakout? 248
How Is Breakout Confirmed?
248
Techniques
248
Can a Breakout Be Anticipated?
255

Stops 256
What Are Entry and Exit Stops?
256
Changing Stop Orders

257
What Are Protective Stops?
257
What Are Trailing Stops?
258
What Are Time Stops?
262
What Are Money Stops?
262
How Can Stops Be Used with Breakouts? 263
Using Stops When Gaps Occur 263
Waiting for Retracement
264
Calculating a Risk/Return Ratio for Breakout Trading
Placing Stops for a False (or "Specialist") Breakout

Conclusion 267
Review Questions 268

265
265


Contents

xvi
14

MOVING AVERAGES 2 7 1

What Is a Moving Average? 272
How Is a Simple Moving Average Calculated? 272
Length of Moving Average
276
Using Multiple Moving Averages

278

What Other Types of Moving Averages Are Used? 279
The Linearly Weighted Moving Average (LWMA)
279
The Exponentially Smoothed Moving Average (EMA)
280
Wilder Method
282
Geometric Moving Average (GMA)
282
Triangular Moving Average
282
Variable EMAs
283

Strategies for Using Moving Averages 283
Determining Trend
283
Determining Support and Resistance
Determining Price Extremes
284
Giving Specific Signals
286

284

What Is Directional Movement? 286
Constructing Directional Movement Indicators
Using Directional Movement Indicators
287

287

What Are Envelopes, Channels, and Bands? 289
Percentage Envelopes
290
Bands
291
Trading Strategies Using Bands and Envelopes
Channel
295

293

Conclusion 296
Review Questions 297

PART IV: CHART PATTERN ANALYSIS 2 9 9
15

BAR CHART PATTERNS 3 0 1

What Is a Pattern? 302

Common

Pattern

Characteristics

302


xvi!

Contents

Do Patterns Exist? 305
Behavioral Finance

and Pattern

Recognition

306

Computers and Pattern Recognition 307
Market Structure and Pattern Recognition 308
Bar Charts and Patterns 309
How Profitable Are Patterns? 310
Classic Bar Chart Patterns 311
Double Top and Double Bottom
311
Rectangle (Also "Trading Range" or "Box")

313
Triple Top and Triple Bottom 316
Standard Triangles—Descending, Ascending,
and Symmetrical
318
Descending Triangle
319
Ascending Triangle
321
Symmetrical Triangle (Also "Coil" or "Isosceles Triangle")
322
Broadening Patterns
324
Diamond Top
325
Wedge and Climax 327

Patterns with Rounded Edges—Rounding and Head and
Shoulders 331
Rounding Top, Rounding Bottom (Also "Saucer," "Bowl," or "Cup")
331
Head and Shoulders
332
Shorter Continuation Trading Patterns—Flags and Pennants (Also
"Half-Mast Formation")
335

Long-Term Bar Chart Patterns with the Best Performance and the
Lowest Risk of Failure 337
Conclusion 339

Review Questions 339
16

POINT-AND-FIGURE CHART PATTERNS 3 4 1

What Is Different About a Point-and-Figure Chart? 342
Time and Volume Omitted 342
Continuous Price Flow Necessary
"Old" and "New" Methods
343

342

History of Point-and-Figure Charting 343


Contents

xviii

One-Box Reversal Point-and-Figure Charts 345
Consolidation Area on the One-Box Chart (Also
Area")
345
Trend Lines in One-Box Charts 346
The Count in a One-Point Chart 347
Head and Shoulders
349
The Fulcrum
350

Action Points
350

"Congestion

Three-Point (or Box) Reversal Point-and-Figure Charts 351
Trend Lines with Three-Box Charts
352
The Count Using Three-Box Reversal Charts
353
The Eight Standard Patterns for Three-Box Reversal
Other Patterns
360

Conclusion 363
Review Questions 364
17

SHORT-TERM PATTERNS 3 6 5

Pattern Construction and Determination 368
Traditional Short-Term Patterns 368
Gaps 369
Spike (or Wide-Range or Large-Range Bar)
Dead Cat Bounce (DCB)
376
Island Reversal
379
One- and Two-Bar Reversal Patterns
379

Multiple Bar Patterns
387
Volatility Patterns
390
Intraday Patterns
392

Summary of Short-Term Patterns 394
Candlestick Patterns 395
One- and Two-Bar Candlestick Patterns
Multiple Bar Patterns
402

Conclusion 407
Review Questions 407

397

376

Charts

355


xix

Contents

PART V: TREND CONFIRMATION 4 0 9

18

CONFIRMATION 4 1 1

Volume Confirmation 412
What Is Volume? 412
How Is Volume Portrayed?
412
Do Volume Statistics Contain Valuable Information?
How Are Volume Statistics Used?
416
Which Indexes and Oscillators Incorporate Volume?
Volume-Related Oscillators
422
Volume Spikes
428
Examples of Volume Spikes
429

415
417

Open Interest 431
What Is Open Interest?
Open Interest Indicators

431
431

Price Confirmation 433

What Is Momentum?
433
How Successful Are Momentum
Specific Indexes and Oscillators

Indicators?
435

434

Conclusion 448
Review Questions 449

PART V I : OTHER TECHNICAL METHODS AND
RULES 4 5 3
19

CYCLES 4 5 5

What Are Cycles? 458
Other Aspects

of Cycle Analysis

461

How Can Cycles Be Found in Market Data? 464
Fourier Analysis (Spectral Analysis)
Maximum Entropy Spectral Analysis
Simpler (and More Practical) Methods

464
465
466


Contents

XX

Projections 475
Projecting Period
475
Projecting Amplitude
476

Conclusion 483
Review Questions 483
20

ELLIOTT, FIBONACCI, AND GANN 4 8 5

Elliott Wave Theory (EWT) 485
Ralph Nelson Elliott
486
Basic Elliott Wave Theory 486
Impulse Waves 488
Corrective Waves
491
Guidelines and General Characteristics in EWT

Projected Targets and Retracements
496
Alternatives to EWT 498
Using EWT 500

495

The Fibonacci Sequence 501
Fibonacci
501
The Fibonacci Sequence
The Golden Ratio 501
Price and Time Targets
W D. Gann 505

501
503

Conclusion 506
Review Questions 507

PART V I I : SELECTION 5 0 9
21

SELECTION OF MARKETS AND ISSUES: TRADING AND
INVESTING 5 1 1

Which Issues Should I Select for Trading? 511
Choosing Between

Futures Markets and Stock Markets

Which Issues Should I Select for Investing? 514

512


xxi

Contents

Top-Down Analysis 515
Secular Emphasis
515
Cyclical Emphasis
519
Stock Market Industry Sectors

524

Bottom Up—Specific Stock Selection and Relative Strength 526
Relative Strength
527
Academic Studies of Relative
Measuring Relative Strength

Strength
528

527

Examples of How Selected Professionals Screen for Favorable
Stocks 530
The William O'Neil CAN SLIM Method
James P. O'Shaughnessy Method
531
Charles D. Kirkpatrick Method
531
Value Line Method 532
Richard D. Wyckoff Method
532

530

Conclusion 534
Review Questions 534

PART V I I I : SYSTEM TESTING AND
MANAGEMENT 5 3 7
22

SYSTEM DESIGN AND TESTING 5 3 9

Why Are Systems Necessary? 540
Discretionary

Versus

Nondiscretionary

Systems

How Do I Design a System? 542
Requirements for Designing a
Understanding Risk
543
Initial Decisions
544
Types of Technical Systems

System

543

545

How Do I Test a System? 548
Data

548

Optimization 557
Measuring

System Results for Robustness

Conclusion 568
Review Questions 568

560

540


xxii

23

Contents

MONEY AND RISK MANAGEMENT 5 7 1

Risk and Money Management 572
Testing Money Management Strategies 573
Money Management Risks 574
Defining Risk
574
Concepts
575
Reward to Risk 576
Normal Risks
576
Unusual Risks
582

Money Management Risk Strategies 584
Exit Strategies

584

Monitoring Systems and Portfolios 588
If Everything Goes Wrong 589
Conclusion 589
Review Questions 590

PART I X : APPENDICES 5 9 1
A

BASIC STATISTICS 5 9 3

Returns 594
Probability and Statistics 594
Descriptive Statistics 595
Measures of Central Tendency
596
Measures of Dispersion
597
Relationships Between Variables
599

Inferential Statistics 603
Modern Portfolio Theory 607
Performance Measurement 613


Contents

Advanced Statistical Methods 615
Artificial Intelligence 616
Review Questions 618

B

TYPES OF ORDERS AND OTHER TRADER TERMINOLOGY 6 2 1

An Order Ticket 623
BIBLIOGRAPHY 6 2 5

INDEX

645


ACKNOWLEDGMENTS

To Richard D. Kirkpatrick, my father, and ex-portfolio manager for Fidelity beginning in the 1950s.
He introduced me to technical analysis at the age of 14 by asking me to update his charts. In the
year of his retirement, 1968. he managed the best-performing mutual fund in the world.
To the Market Technicians Association, through which I have met many of the best innovators and practitioners of technical analysis, and especially to staff members Cassandra Townes
and Marie Penza for their support and assistance in making available the MTA library.
To Skip Cave, past dean of the Fort Lewis College School of Business Administration, for
allowing me to assist him in teaching a course in technical analysis, for getting this project going
by introducing me to other textbook authors, such as the Assistant Dean Roy Cook, and for providing office space during the initial writing and researching for this book.
To Thomas Harrington, current dean of the Fort Lewis College School of Business Administration, for allowing me to maintain an office at the college, for allowing me special privileges
at the college library, and for asking me to continue teaching a course in technical analysis.
To my students in class BA317 at Fort Lewis College School of Business Administration, for
being my teaching guinea pigs and for keeping me on my toes with questions and observations.
To my friends and colleagues at the Philadelphia Stock Exchange, specifically Vinnie
Casella, past president, who taught me from the inside how markets really work.
To the dedicated people at Pearson Education, specifically Jim Boyd, executive editor,
Susie Abraham, editorial assistant; Christy Hackerd, production editor, Sarah Keams, copy editor; and all the others behind the scenes who I have not known directly.

To Phil Roth and Bruce Kamich, both past presidents of the Market Technicians Association, professional technical analysts, and adjunct professors teaching courses in technical analysis
at universities in the New York area, for editing the material in this book and keeping me in line.
To Julie Dahlquist, my coauthor, and her husband, Richard Bauer, both professors steeped
in the ways of academia, for bringing that perspective to this book.
To my wife, Ellie, who has had to put up with me for over 45 years and has always done so
pleasantly and with love.
To my children, Abby, Andy, Bear, and Bradlee, for their love and support.
And to my grandchildren, India and Mila, who didn't do anything for the book but who
pleaded to be mentioned.
XXV


xxvi

Acknowledgments

I thank you and all the many others from my lifetime of work in technical analysis for your
support, friendship, and willingness to impart your knowledge of trading markets.
Charles Kirkpatrick
Durango, CO
April 11 2006

The assistance and support of many people contributed to turning the dream of this book into a
reality. Fred Meissner was the one who initially introduced me to my coauthor, Charlie, at a Market Technicians Association chapter meeting. After I worked with Charlie on several projects and
we served together on the Market Technicians Association Educational Foundation Board, he
bravely agreed to a partnership in writing this book. Charlie has been the ideal coauthor—
positive, patient, and persistent. It has been an honor to work with someone so knowledgeable
and an incredible experience to work with someone so willing to share his knowledge.
The faculty and staff in the Department of Finance at the University of Texas at San Antonio College of Business have been a pleasure to work with over the past couple of years while
this book has been in process. Keith Fairchild, department chair, and Robert Lengel, associate

dean and director of the Center of Professional Excellence, have been especially supportive. Special thanks go to Nathan Thatcher, Umesh Kumar, and Margot Quijano for reading initial drafts
and searching for references.
The expertise of the dedicated team at Pearson Education has been invaluable in helping
Charlie and me get our ideas into this final format. Thanks to Jim Boyd, Susie Abraham, Christy
Hackerd, Sarah Kearns, and the entire Pearson Education team for their gentle prodding, their
continued encouragement, and their tireless commitment to this project.
My husband, Richard Bauer, assisted in more ways than can ever be counted. He graciously wrote the Basic Statistics appendix for this book. He served as a sounding board for
many of the ideas in this book. He read drafts and made many helpful suggestions to the manuscript. However, his support goes far beyond his professional expertise. Richard untiringly took
care of many household tasks as I spent time working on this project. His help made it easy for
me to travel to meet with Charlie and work on this project. I am blessed to receive his unwavering emotional support and encouragement.
My two children have also been a source of blessing and inspiration. They demonstrated
extreme patience through this entire process. They also reminded me of the need for fun, laughter, and a good hug whenever I was tempted to work too hard. Writing about Fibonacci numbers
was a more interesting task because my seven-year-old son, Sepp, was actually interested in
learning about what I was writing. My nine-year-old daughter, Katherine, who is a budding
author, spent countless hours writing next to me. I can only hope that one day she, too, will be
surrounded with so many family members, friends, and colleagues to assist her in making her
dreams of writing a book come true.
Julie Dahlquist
San Antonio, TX
April 2006


ABOUT THE AUTHORS

Charles D. Kirkpatrick n, C M T , is currently
President, Kirkpatrick & Company, Inc., Durango, Colorado—a private firm specializing in technical research; publisher of the Market Strategist advisory newsletter.
Director, Market Technicians Association, Woodbridge, New Jersey—an association of professional technical analysts; Dow Award Committee, Education Committee, Chairman of the Academic Liaison Committee.
Director, Market Technicians Association Educational Foundation, Cambridge,
Massachusetts—a charitable foundation dedicated to providing courses in technical
analysis at the college and university level.

Editor, Journal of Technical Analysis, Woodbridge, New Jersey—the official journal of technical analysis research.
Instructor in Finance, Fort Lewis College School of Business Adrninistration, Durango,
Colorado—one of only seven colleges (as opposed to universities) in the U.S.
accredited by the Association to Advance Collegiate Schools of Business (AACSB).
Chartered Market Technician (CMT).
In addition to current positions, Mr. Kirkpatrick still publishes a stock market newsletter
that includes his award-winning listing of stocks. In the past, he has been a hedge fund manager,
investment advisor, advisor to desk and floor traders and portfolio managers, researcher in technical analysis, institutional stock broker, options trader, desk and large-block trader, lecturer and
speaker on aspects of technical analysis to professional and academic groups, expert legal witness on the stock market, owner of several small businesses, owner of an institutional brokerage
firm, and part owner of a CBOE options trading firm. His research has been published in
Barron's and elsewhere, and in 1993 and 2001, he won the Charles H. Dow Award for excellence
in technical research. Educated at Phillips Exeter Academy, Harvard College (A.B.), and the
Wharton School of the University of Pennsylvania (M.B.A.), he was also a decorated combat
officer with the First Air Cavalry Division in Vietnam. He currently resides just outside of
Durango, Colorado, with his wife, Ellie, and their various domestic animals.

xxvii


xxvifi

About the Authors

Julie R. Dahlquist, Ph.D., received her B.B.A. in economics from University of Louisiana at
Monroe, her M.A. in Theology from St. Mary's University, and her Ph.D. in economics from
Texas A&M University. Currently, she is a senior lecturer, Department of Finance, at the
University of Texas at San Antonio College of Business. Dr. Dahlquist serves on the UTSA
Executive-MBA faculty and is a frequent presenter at national and international conferences. She
is the coauthor (with Richard Bauer) of Technical Market Indicators: Analysis and Performance
(John Wiley & Sons). Her research has appeared in Financial Analysts Journal, Journal of Technical Analysis, Managerial Finance, Applied Economics, Working Money, Financial Practices

and Education, and in the Journal of Financial Education. She serves on the Board of the Market Technicians Association Educational Foundation, on the editorial board of the Southwestern
Business Administration Journal, and as a reviewer for a number of journals, including the Journal of Technical Analysis. She resides in San Antonio with her husband, Richard Bauer, and their
two children, Katherine and Sepp.


INTRODUCTION

CHAPTER 1

INTRODUCTION TO TECHNICAL ANALYSIS

CHAPTER 2

THE BASIC PRINCIPLE OF TECHNICAL
ANALYSIS—THE TREND

CHAPTER 3

HISTORY OF TECHNICAL ANALYSIS

CHAPTER 4

THE TECHNICAL ANALYSIS CONTROVERSY