Letter from the Editor

In this months issue of Technically Speaking, we proceed from the theoretical side of technical analysis to the practical application of technical analysis. The theory is important to understand, ideally before you start putting real money into trading ideas. Perhaps that last idea is what separates the professionals in our audience from the many failed traders that find technical analysis doesnt work. Its not that technical analysis doesnt work its more likely that the default settings of an indicator they saw on a web site dont work.

Several prominent technicians offer examples of what they have read over the years. Combined with the CMT reading list, which can be downloaded here. there is a lot to learn. If you havent reviewed that list in a few years, its worth taking a look at the changes that have been made over the past couple of years. The MTA library has many, if not all the technical analysis books that are worth reading.

We also include two articles showing how to turn theory into actionable analysis as we attempt to continue offering something for everyone in each issue of the newsletter. Larry Bermans analysis is long, but our electronic format allows us to reproduce it in its entirety. It can serve as a valuable example of quality analysis to those new to the profession.

Finally, Im looking forward to seeing many of you in New York City for the Annual Symposium. Im not sure what the official numbers say, but the early registration seems to be much higher than last year and the attendees and speakers Ive had a chance to speak with are enthusiastically looking forward to the event. If you havent decided to join us yet, please think about it. You wont be disappointed and youll learn a lot, no matter how much you already know. While youre in New York, you can also stop by the MTA library and see the physical enormity of the literature in our field.

Sincerely,

Mike Carr, CMT

The MTA Library: An Overlooked Benefit?

By Mike Carr, CMT

Learning technical analysis is different than mastering many other disciplines. Until recently, there has been little in the way of formal education. The introduction of the CMT Institute and proliferation of college classes in technical analysis has changed that. The MTA Educational Foundation has worked for years to increase the availability of classes at the college level. College students at the undergrad and graduate level are now benefitting from these efforts. Among the recent successes of the MTAEF, they:

Developed a complete course in technical analysis, comprised of 12 lectures, including all necessary charts and exhibits. These lectures are available for use by academic institutions.

Partnered with University of Maine at Fort Kent to offer an affordable and accessible course online. The course is given three times a year.

With the focus on education, I recently asked members of the Foundations Board of Directors what books had a strong influence on their careers. After all many experienced technicians have spent countless hours reading the work of pioneers in the field and these technicians include some of the best in the field.

Charlie Kirkpatrick told me, The first book I ever read on technical analysis was Abe Cohen’s The Chartcraft Method of Point and Figure Trading. It was on my father’s desk when he worked at Fidelity in the 1950’s, and I was only a teenager. After that I immersed myself in the Boston Public Library and later in the New York Public Library, reading everything I could find on TA. As I recall Elliott’s work was there, as was Granville, Edwards & Magee, Wyckoff, Jiler, and many others. From all that reading then I think the most influential authors on me were: Edwards & Magee, Jiler, Cohen, Granville, Dines, Whelan, Appel, Arms, Wilder, Dewey, Lowry, Fosback, Weinstein, Gartley, Hamilton, Rhea, Hurst, Levy, Mitchell (Wesley), Nelson (S.), Schabacker, Schultz (Harry), Sobel (Robert), Wilder, & Zweig. Since then some of the best books are those written by members of our board and advisory committee.

Its interesting to note that some years after he was a teenager, Charlies work was recognized with the Charles H. Dow Award. In his second award-winning paper, Stock Selection: A Test of Relative Stock Values Reported over 17 Years (published in 2001), Charlie showed the results of a stock selection strategy that incorporated ideas he would have read about in Cohens book. It is interesting to see that the book really did influence his work, and the ideas in an old book are still useful in modern markets.

Board President Bruce Kamich agrees with Charlie that some good very good books are still being written today. He told me, over the years I have taken great interest in reading galley proofs of books by friends — Charlie and Julie’s book for instance. Bruce is referring to the must-read Technical Analysis: The Complete Resource for Financial Market Technicians by Charles Kirkpatrick and Julie Dahlquist, a required cornerstone of the CMT reading list. For those unfamiliar with this book, it includes an overview of nearly every important concept in technical analysis. There is also an Appendix Basic Statistics which offers an introduction to the what is likely to be the next frontier in technical analysis. Written by Dr. Richard J. Bauer, Jr. a professor of finance at St. Marys University, this short section explains the basic premises and statistics related to modern portfolio theory in an easy to understand writing style.

Turning back to his initial days of study, Bruce remembered, The first two books I read on technical analysis was the classic by Edwards and Magee and How Charts can Help You in the Stock Market by Bill Jiler which was required reading for Ralph Acampora’s course at the New York Institute of Finance. I also remember reading the Jessie Livermore book with great interest. Many of the writings of Livermore, who was immortalized in Edwin Lefevres Reminiscences of a Stock Operator. are available through the MTA library.

Well known technical analyst John Bollinger also began his studies with a classic text. The two books that got me started were Edwards and Magee’s Technical Analysis of Stock Trends. the fifth edition, 1966, and Martin Pring’s Technical Analysis Explained. the first edition, 1980. However, even more important were several pamphlets, Practical Relative Strength

Charting and the newsletters of of E.S.C. Coppock. Equally important were the monthly letters of Steve Leuthold. (I have contributed quite a bit of Coppock and Leuthold material to the library.)

Johns insight is that some of the obscure works may have the most impact on you personally. Coppock and Leuthold are not especially well known, although Coppock has been recognized as an MTA Annual Award winner and Leuthold received a Charles H. Dow Award (1999). What John didnt say is that he is unusually well read, and has probably read the majority of the books in the library. While many werent important to the shaping of his investing philosophy, some were and he had to read a great deal to find what would work for him.

J. Cody Tafel, CMT, is an Equity Trader with Thompson, Siegel & Walmsley LLC. Cody reminded us that not all the classic books were written a long time. He said, The Market Wizards Series by Jack Schwager would have to be at the top of my list. I also thought Michael Covels recent updated version of Trend Following was great. Codys idea to study the lives and work of great practitioners is a time tested path to success in many fields. It should be noted that many have tried to follow Schwagers example and create great interviews. Most of those efforts failed to reach the teaching level of the Market Wizards books. A notable exception is The Heretics of Finance written by Andrew Lo and Board member Jasmina Hasanhodzic. Published in 2009, this work is a true heir to the Wizards books and we can only hope we see more from these authors.

By the way, for those wondering what to read next, the list of authors provided by Charlie Kirkpatrick is an excellent resource. Many of those works are available through the MTA Library, and it is even possible that borrowing one of those books could start you on the way towards your own project that will culminate in a Dow Award.

Bull market? Bear market? Nu? Mu? Lessons in Semantics