Wednesday, March 5, 2014

Logan, Profiting from Market Trends

When the market accommodates, trend trading can be highly lucrative. The trick, of course, is to divine the market’s often fickle moods. Tina Logan sets out to help the trader identify and exploit the “good times” in Profiting from Market Trends: Simple Tools and Techniques for Mastering Trend Analysis (Wiley, 2014).

The book is divided into two parts. The first, trend development, has chapters on trend direction, trend duration, trend interruptions, early trend reversal warnings, and later trend reversal warnings. The second part, putting trend analysis to work, deals with the broad market, bull markets, bear markets, and monitoring the market trends; it also includes a case study of the current bull market. Throughout, the text is illustrated with TC2000 (Worden Brothers) charts.

Let’s look at the chapter on early trend reversal warnings to get a sense of the book as a whole. Logan summarizes the warnings in a table. In an uptrend they are: a bearish climax move such as a key reversal or an exhaustion gap, bearish divergence, failure to break a prior peak, change of slope—rising trendline, break of tight rising trendline, approaching a strong ceiling, and bearish candlestick reversal pattern. The warnings in a downtrend are the reverse.

Since these warnings may occur at the end of an intermediate trend, Logan watches for them on a daily chart and regularly “takes a glance” at the weekly chart as well. By the way, something I did not know, a weekly chart on the TC2000 platform is actually a rolling five-day chart.

Although no single warning is a guarantee that a significant trend reversal will occur, each should put traders on alert. Multiple technical warnings (“more than one early warning, or more than one later sign, or a combination of multiple early and later warnings”) suggest “a higher likelihood of a change in trend direction” (p. 132) and may prompt traders to take defensive action. Such action includes closing the position, taking partial profits, tightening the protective stop, and (less frequently) stop and reverse.

If all this sounds familiar, you probably have read your fair share of technical analysis books and won’t profit much from Logan’s “simple tools and techniques.” Profiting from Market Trends is a meat and potatoes book—nothing fancy, nothing “nouvelle.” But generations thrived on meat and potatoes, and the relatively new trader/investor may similarly thrive on Logan’s analysis.

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