Customer Reviews

Technical Market Indicators: Analysis & Performance

5 star:		(2)
4 star:		(1)
3 star:		(1)
2 star:		(1)
1 star:		(5)

 

 

The authors are both academics, and it shows. This book seems to be just another one trying to answer the age-old (and, at this point, boring) question as to whether or not technical analysis really works. I was attracted to this book for 2 reasons: 1) The authors present an incredible depth of analytical results, at least on the surface, and, 2) they cover a wide range of indicators and show how most of them are calculated. Their basic thesis, however, is quite flawed. They seem to want to compare the results of trading each technical indicator individually (as an island unto itself) with the results of a buy-and-hold strategy. In my mind, the power of each technical indicator is in its ability to filter out the "dead wood" and help you focus on the stocks that have the most current short-term potential. However, anyone who trades for a living knows that it would be foolish to rely on one indicator to determine when to make a trade. The power of indicators lies in their intelligent combination. The authors hardly go anywhere at all with this concept. Furthermore, anyone who makes a living trading will also tell you that it's your entry and exit strategy, as well as sound money management, that makes or breaks you. This book is not for traders - it's for academics who like to keep asking themselves the same boring question about whether or not technical analysis works. There are also better books out there that will teach you about technical indicators and how to use them correctly.

There are several problems with this book. First, it is clear that the authors know next to nothing about trading. One of the purposes of using technical analysis avoid the volatility of a buy and hold strategy, so unless you are comparing on a risk adjusted basis, the conclusion is meaningless. Secondly, the authors don't reveal the values they plugged into the indicators. Did they test a 5 and 10 day moving averages, or was it some other value? How did they arrive at the values they used? And the way they constructed their database was totally biased.

What a monumental waste of paper! The writers are academics, and it shows. Their analysis has fatal flaws from a practical standpoint, and their conlusions are irrelevant. An example - they say that all short sale indicator are losers (they looked at a bull market). They dont even look at how the indicator did relative to the market. What's the point? Steer clear.

As a very experienced trader, my opinion about this book, in a word, is "awful".

1. The tables of results are not really of any particular use to traders...nor to anyone else, as far as I can determine.

2. They used 12 years for testing 60 indicators for 878 equities - 1985 through 1996 period. I don't know what the criteria are those particular symbols, that is not explained. The years used skews the results toward long trades, which shows up in their results.

3. Rather than benchmarking against the S&P, DOW or Nasdaq 100 or some similar benchmark, as is usually done, they strangely used a quarter hold strategy - without really defining the entries and exits for the holds.

4. For most of the testing they assumed apparently immediate fills. For most of the results they ignored commission costs and slippage considerations.

5. They used no money/risk management techniques. Appears that they were either fully invested or fully in cash whenever they assumed a position. This is an assumption on my part because the authors do not explain, other than suggesting near the end that portfolio management may improve the results.

6. Their entries and exits were without any confirmations, on the day period immediately following the signals. No experienced trader whom I know, does that.

7. Only day periods were tested. Not clear to me exactly how they assumed entry and exit - at open, at a specific price, or whatever. Did not find any adequate explanation. One could argue that neither author understands order executions, order routings, order types, intraday fills, stop losses, trailing stops, stop entries or profit targets - because, incredibly, they leave all of that out!

8. From their explanations of how they used each indicator, it does not seem to me that they understood many of the indicators, not really how to correctly use many of them. I think they simply read a little something about each indicator, but whatever they did, too often their inexperience, lack of knowledge, shows through.

Above, plus other things in the book, lead me to believe that neither author, both full time academics, has much actual trading experience.

If they had, they would have measured the tests differently; chosen a more representatively valid selection of years; explained their entries and exits far more explicitly; chosen different indicators in many instances; etc.

They could have sought and heeded the advice of real traders, before beginning their academic exercise - but apparently did not.

Lastly, I strongly suspect that both authors were, their claims to the contrary notwithstanding, biased towards a buy and hold strategy - which 2000 through 2002 pretty much has trashed. Both authors are professors in finance, and that may have predisposed them towards their selection and methods of measures, selection of years to test, and other matters.

The concept of testing indicators is a great idea. Maybe someday someone with adequate research and trading skills will do that well. These two authors did not.

This book was a dissapointment.

The book smacks of the theme "Golly, we just learned how to use the Omnitrader software, lets write a book about it". The authors use the Omnitrader's buy and sell signals but fail to state what the entry or exit conditions are. It simply relies on the Omnitrader "black box". About 90% of the book is fluff associated with printing out pages and pages of meaningless quarterly gains and losses tables. Instead, the authors should have used clear graphs and illustrated differences in gains, including effects of compounding. The authors assumed that when trading, you use a single inicator, and when the inicator is not flashing a signal you stay put in a cash position. By staying in a cash position, obviously that part of their portfolio wasn't making any gains for a majority of the time. Thus they arrived at very erroneous conclusions. The least they could have done is to chose the S&P500 index (SPY) in lieu of the cash position to arrive at more realistic final results.

Bottom line is that this is a very amateurish effort and an insult to the intelligence of the average trader.

This is a very good reference book. It covers 60 commonly used indicators. The testing time frame covered 12 years, 48 quarters. The time frame is long enough to get objective results. This is the only book on the market to do this kind of research. I was planning to do the same thing with my own money and time in order to pick the best performing indicator combination. Accidentally and luckily I read this book. I was surprised to know how good (or how bad, truthfully) these indicators are. The best one was a little bit more than 61% accuracy. Some indicators are even worse than tossing a coin.

Theoretically, these indicators should work because they have sound theories behind them. Practically, they don't work well in the markets. Trading well is never an easy job. Maybe it is the most difficult job in the world.

If you want to learn trading from this book, you surely will be disappointed. If you want to know how well ( or how bad ) these indicators perform in the markets, this is the right and the only book for you.

There is a very good trading psychology book that I think every serious trader should read---What I Learned Losing a Million Dollars . It is still in print. The author, Brendan Moynihan, is a registered seller @ Amazon.com. Buy from him through Amazon. The book will be signed with a personal message inscribed to you by Brendan. You will love this book. After reading this book, you will move one big step ahead toward success. What I Learned Losing a Million Dollars

If you are wondering why the efficient market theory/technical analysis debate can't be put to rest by empirical data, you need wonder no longer. Bauer and Dahlquist establish beyond question (at least to those with open minds) that technical analysis does work. Real TA fans will be disappointed, though, that the edge TA gives is shown to be minuscule. One of the most interesting conclusions from this book is the fact that purely mechanical systems, based on one or two indicators, and applied with no real preselection of stocks, probably will not make you any money. What is missing from this book is a study of the use of chart formations (other than candlesticks) in conjunction with indicators.

A computerized analysis of a fistful of technical indicators, each treated as a system unto itself. Analysis done only on stocks. See Van Tharp's book, Trade your way to financial freedom. (That's at least close - my copy has been borrowed.)

If you have ever wanted to know how bollinger bands are constructed, this is the book for you. It explains how every conceivable indicator is constructed and the theory behind the construction. I am not a trader so I will not comment on the authors' testing methodology. I only used the book for work, for research and anylatical purposes.

Book is useless for someone trying to make money in the stock market. Its purpose is to pad these guy's resumes.