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Trend Qualification and Trading: Techniques To Identify the Best Trends to Trade Hardcover – May 3, 2011
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From the Author
Having traded for three decades now and having an engineering background, naturally my desire over the years has been to develop a systematic approach to trading the markets. In this book, I lay out that approach in great detail, first looking at how trend was defined in the past and how I have defined it for now and the future. Part II takes that definition and applies it to the trading world showing you how to implement the methodology.
All successful trading systems have trend at their core. Up until now, all trends have been treated equal. No more. I propose a methodology of how to measure the goodness of a trend and to use that to your advantage.
From the Inside Flap
Significant money can be made by following the right trends, and now, in Trend Qualification and Trading, market technician L.A. Little explains how to identify and qualify these trends to determine the likelihood that they will continue and produce better trading results.
By combining price, volume, time frames, and the relationship between the general market, sectors, and individual stocks, Little shows how to measure the strength of trends. Most importantly, he demonstrates how to determine if a trend has what it takes to develop into a major move with greater profit potential.
Divided into two comprehensive parts, this reliable resource focuses on a redefinition of trend through qualification, explores the implications of trend qualification, and examines the practical applications that flow from it. Page by page, it examines the classical trend model as well as a proposed neoclassical model—which provides the theoretical foundation for both the identification and qualification of trends—and then takes that theory and shows you how it relates to the technical decisions of successfully entering and exiting trades.
With qualified trends, a new age of technical analysis has been ushered into the trading consciousness. These trends are apparent in every stock, commodity, and financial trading instrument and have the potential to lead traders down a more profitable path. With this book as your guide, you'll gain a firm understanding of this innovative idea and discover how to incorporate it into your everyday trading endeavors.
So, throw out all those derivative indicators! With trend qualification, swing points, and anchored support and resistance, you can become aconsistently profitable trader.
Top Customer Reviews
In Trend Qualification and Trading: Techniques to Identify the Best Trends to Trade L. A. Little offers what he calls a neoclassical model of trends that relies in large measure on defining and qualifying swing points. The classical model, developed and popularized by Charles Dow and his followers, has of late morphed into what one might call the reductionist classical model: "A trend is evident when two consecutive sets of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend) occur within any given time frame." (p. 23) This reductionist model, Little argues, doesn't work: for one thing, it triggers premature exits.
In its stead Little offers a neoclassical model of trend. "The neoclassical trend model no longer consists of black and white--up or down and nothing in between. It displays varying shades of trend. It qualifies trend on a more granular level; a level that allows the trader to make intelligent decisions based more on probability than supposed absolutes." (p. 26)
For Little, trends should be qualified as suspect and confirmed. The two inputs necessary to differentiate between a suspect trend and a confirmed trend are swing point price and volume. In its most basic terms, "When the current price trades lower (downtrend) or higher (uptrend) than the previous swing point price and volume contracts, the trend is suspect." "When the current price trades lower (downtrend) or higher (uptrend) than the previous swing point price and volume expands, the trend is confirmed." (p. 28)
Of course, nothing is ever so simple in trading. First of all, it's important to identify swing points, both potential and actualized. Any current bar whose high is higher than that of the preceding bar has the potential to be a swing point high. It does not become an actualized swing high, according to Little, until it has remained the highest high for six successive bars. "The time element," Little writes, "can be optimized for differing markets and equities, but my research has shown that six bars tends to represent the optimal `wait time' across most equities, sectors, and general market indexes." (p. 31) This can be six days, six weeks, or six months.
Little offers numerous chart illustrations of potential and actualized swing points and of suspect and confirmed trends in a variety of market regimens.
Little admits that "although trend theory is a necessary condition to trading trends profitably, in itself it isn't sufficient. It is necessary to take the theory and integrate it into a workable and profitable trading system...." (p. 109) The second part of the book therefore deals with preparing to trade, entering and exiting trades, reversals and price projections, time frames, the trading cube, and trading qualified trends. Among the key concepts are anchor bars, which "identify chart price areas where significance exists" (p. 156) (as opposed to swing points, which normally define areas where a price boundary exists), and price zones (not lines).
Naturally, some of the material in the second part of the book is familiar. We encounter, for instance, support and resistance (though viewed as zones, not lines), measured moves (AB = CD), and the usual catalogue of gaps. But Little integrates the familiar with his own contributions and illustrates his points with marked-up charts.
Trend Qualification and Trading is an intermediate-level book for chartists. The only things on Little's charts are price bars, volume, and labeled lines and zones that go far beyond the standard trend lines. For those who like to mark up charts, this book will be a satisfying read.
My view of the trading space has been deepened greatly by this book. I used the techniques to make some successful ETF trades recently, as well as recognizing I had made a bad trade (before I had read this book), which I closed out right before the price tanked. I did that because I spotted a suspect bear was turning into a confirmed bear (suspect and confirmed are further extended ways to categorize trends Little introduces you too in the book). The book isnt just about trends. Little shares his deep knowledge of the practice of trading, and it is that that makes this book extra special.
In my career I have come to realize there are a thousand and one authors and many more books on the subjects of my craft, but I only have a small shelf to house the books that I really need. That handful of books embody the master crasftman at work; they embody the essence of the profession. With the right mentors, thats all you need. Others will stand on their shoulders, others will reformulate or regurgitate, and none will have a place on my bookshelf. On the originals deserve that right. Littles concepts, approach and techniques, as well as his depth of trading experience and knowledge, is openly shared with his reader. He shares everything, from the words within the text to the words between the text. Thats why this book is on my shelf. Buy it.