Wednesday, January 8, 2014

Pring, Technical Analysis Explained, 5th ed.

Here and there a book becomes canonical. It is extolled as a “bible,” the standard work in its field. Such is the case with Martin Pring’s hefty, 800-page Technical Analysis Explained: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points, now in its updated and substantially revised fifth edition (McGraw-Hill, 2014).

Pring’s book is divided into three parts: trend-determining techniques, market structure, and other aspects of market analysis.

Pring spends more than half of the book on techniques for determining trends, including business cycles, support and resistance zones, trendlines, price patterns, and indicators (moving averages, envelopes and Bollinger bands, and momentum). Among the momentum indicators he discusses is his own KST, which stands for “know sure thing”: “most of the time, the indicator is reliable, but you ‘know’ that it’s not a ‘sure thing.’” (p. 317) He also introduces the “Special K,” which combines short-term, intermediate-term, and long-term KST indicators into one summed cyclicality indicator.

In the section on market structure Pring covers price, time, and volume, all with a view to identifying secular trends and cycles. He analyzes such phenomena as sector rotation, seasonal patterns, and market breadth.

The final part of the book begins with a discussion of market sentiment. Among the indicators and relationships that measure investor confidence are the relative action of consumer staples to the S&P, high-yield versus government bonds, brokers as market leaders, and inflation-protected versus regular bonds as a commodity barometer. On the last point, Pring notes that “in recent years there has been a strong relationship between the trend of commodity prices and the ratio between inflation-protected and regular bonds [TIP/TLT].” (p. 609)

The last part also includes chapters on contrary opinion, interest rates, the technical analysis of international stock markets, and automated trading systems. In a very brief appendix Pring introduces Elliott wave theory.
Those seeking to become a chartered market technician (a designation of the Market Technicians Association) are required to read four books on technical analysis for the Level I exam: Edwards, Magee, and Bassetti, Technical Analysis of Stock Trends; Kirkpatrick and Dahlquist, Technical Analysis; du Plessis, The Definitive Guide to Point and Figure, and Pring’s Technical Analysis Explained.

This is a good starting point as well for the individual trader or investor who wants to become proficient in technical analysis.

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