61 of 63 people found the following review helpful
Top Notch Book on Determining Market's Direction,
This review is from: Big Trends In Trading: Strategies to Master Major Market Moves (Hardcover)
Price Headley, the founder of BigTrends.com, has shared many of his best market indicators with readers. I've seen Headley speak at a few Investor Expos and he not only knows his stuff, but he presents it clearly without going over the heads of the audience. He has taken the same approach with his book. I found the indicators that he reviews to be very useful in providing insight into them market direction. I have personally used a number of them myself over the years.
Not only does Headley provide the indicators, but he also includes the EasyLanguage Code for Tradestation platform users so that they can easily input his indicators on their PCs. Headley could have kept the settings of his indicators proprietary, but he chooses the high rode and shared them with his readers.
Now to the review of this book. Chapter 1 focuses on Headley's favorite contrary sentiment indicator -- CBOE Equity Put/Call Ratio. Readings below 0.4 are considered bullish and above 0.8 bearish. He also draws standard Bollinger Bands (BB) on the ratio to add another dimension to determining extreme ratio readings. He also covers the weekly ratio, as well as intra-day readings. Moreover, he explains the Total Put/Call ratio (Equity and Index Options) and how to use it to determine fear or greed in the market. Throughout the chapter Headley shows the performance statistics of each indicator over specific timeframes with complete profit and loss statistics. He uses this approach throughout the book so you can see for yourself, which of the strategies have the most bang for the buck.
Chapter 2 covers the fund flows in and out of three Rydex Funds -- Nova, OTC and Ursa. Nova provides 1.5 times the performance of the S&P 500 Index. OTC mirrors the performance of the NASDAQ 100, and URSA is inverse the S&P 500
(short fund). Headley obtains the daily funds flow data for each fund directly from Rydex and then plugs the data into a formula : (Nova+OTC)/URSA. He found that the lower this ratio the lower was investor confidence in the market. This is a contrary indicator and a buy signal. The reverse is a sell signal.
Chapter 3 introduces the CBOE Volatility Index known as VIX. It is a measure of the expected volatility of stocks based on pricing of the S&P 100 (or OEX) options. VIX is also used as a contrary indicator with high readings bullish (40) and low readings (18) bearish.
Chapter 4 focuses on volume indicators. He uses the daily QQQ, NASDAQ Composite and Spyders with their respective volumes. He graphs the prices of these items with BBs on the data to identify overbought and oversold conditions.
Chapter 5 covers surveys used to gauge fear and greed in the markets. Headley recommends taking a contrary position to the survey results when they reach extreme readings. Surveys he reviews include the Investors Intelligence Bull and Bear Index, Consensus, Inc., AAII weekly poll, and Market Vane. Performance data using these surveys is also provided.
Chapter 6 reviews Headley's favorite classic trend indicators. These include weekly and daily moving averages, MACD, support and resistance, average true range, and ADX. He briefly mentions candlestick charts using one example, and covers a few points on system testing.
Chapter 7 introduces the "acceleration band" indicator developed by Headley. He provides an explanation of the logic behind it, the EasyLanguage Code and numerous chart examples. Headley is basically taking the directional movement each day (high-low) and dividing it by the average stock price (high+low divided by 2) to obtain the directional movement of the stock or index. Also included is a discussion of moving average envelopes (similar to BBs) and illustrations of their use.
Chapter 8 covers the concept of momentum divergences. Headley uses the MACD indicator to determine his key entry and exit points, then he introduces his unique Momentum Divergence Indicator with chart examples and TradeStation code. He then combines the momentum divergence with moving average envelopes to provide his buy and sell signals. He provides charts of 10 popular stocks and their performance using these indicators.
Chapter 9 focuses on the relative strength of stocks to its comparative market index. This has nothing to do with the RSI indicator although they have similar names. Headley recommends using an RS line with 5, 10, 20 and 50-day moving averages. He provides 6 chart examples with this data and a detailed explanation.
Chapter 10 and 11 cover the basic principles of trading options. Headley provides four simple option-trading rules. He then explains option strategies in different market conditions.
The book's last chapter (40 pages) reviews the key tenets of trading psychology and money management. Topics include: building a customized trading plan, psychological issues to be aware of, and effective money management rules. Headley provides not only 10 key questions to consider about your trading plan, but also reviews the answers to each question. To help the reader, Headley provides his only personal trading rules and suggestion and his daily trading process.
The bibliography contains about reference books on all aspects of investing and trading. There is a 9-page glossary of terms, and a list of 15 websites.
In conclusion, Headley does a masterful job of providing traders with time-tested indicators, including two self-developed ones that he shares with readers. Readers of this book should be able to incorporate Headley's indicators into their trading strategies and come out way ahead of the crowd.