Charting and Technical Analysis

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By Emil

To become a successful investor in stocks, options, currencies, and commodities, it requires understanding price and market movements. “Charting and Technical Analysis” by Fred McAllen is a book that delves into this topic and provides a basic introduction to charting and technical analysis.

Author: Fred McAllen

Subjects: (1) Finance, (2) Charting, (3) Technical Analysis

Year: 2012

Number of pages: 275

Language: English

Publisher: CreateSpace Independent Publishing Platform


Summary

“Charting and Technical Analysis” is written by Fred McAllen and is a book primarily aimed at beginners in technical analysis and charting but can also be used by experienced investors who want a refresher on the basic techniques. The book provides good learning on when it is a good time to buy and, more importantly, when to stay away from buying. Additionally, it delves into what trends are and when they provide insight into the direction a financial instrument is heading. The book is highly practical with plenty of examples that make it easy to follow how various technical principles can be implemented.

The book consists of 19 chapters and a conclusion where the key points from the chapters are outlined. The first chapter is based on Dow Theory, which is the foundation of what we now characterize as technical analysis. In combination with the second chapter, the basic assumptions used in Dow Theory are discussed to determine what a market trend is and when a trend is up or down. This serves as a good foundation before introducing more complex techniques and tools within technical analysis. Chapters 3 to 6 introduce different types of charts, such as line charts and candlestick charts, providing a good description of various candlestick formations relevant for identifying potential trend reversals. Chapters 7 to 8 cover support and resistance lines as well as trendlines in general. The explanation of what a trendline is and what validates it is quite relevant, as many people often misunderstand and misinterpret trendlines and potential trend reversals. Chapters 9 to 15 discuss different chart and price patterns, which are essential for determining whether a trend is intact or being challenged. This is where the book excels, as the author effectively combines chart and price patterns with candlestick formations, such as identifying key reversal days when observing candlestick formations (doji, shooting star, bearish engulfing, etc.) at key resistance or support lines. Chapter 16 covers moving averages, one of the most popular trend identification methodologies, often mentioned with regards to the 50, 100, and 200-day moving averages (average price over the past 50, 100, and 200 days). Chapter 17 discusses the most important topic for investing and trading: stop-loss orders and how the techniques from the previous chapters can help define stop-loss levels.

To assist the reader, the book uses Chapter 18 to demonstrate how the principles and techniques from the previous chapters can be practically implemented. Several practical examples are provided using the U.S. technology index over different time periods. This is quite unique and adds value to the book, allowing readers to truly understand and apply the concepts. Chapter 19 covers how to trade in falling markets, but it should be noted that this is more geared towards experienced investors, as it involves the use of short selling and buying put options. Chapter 20 serves as the conclusion, where the author does a good job summarizing the key points from all the chapters. Here, he also provides a simplified checklist that can be used by long-term investors or trend traders to check whether a stock or similar asset is moving in the right direction.

In my assessment, “Charting and Technical Analysis” is a very good fundamental book on charting and technical analysis. The book is written in an easy-to-understand manner, with large font size, good line spacing, and plenty of graphs to aid in understanding the principles and techniques. Although some of the material may appear outdated, it remains relevant today. However, I would like to emphasize three aspects that detract from the overall evaluation of the book. Firstly, the quality of the illustrations and graphs is poor, being in black and white, which makes them incredibly difficult to read. This is a significant problem since graphs are a central premise for understanding and learning charting and technical analysis. Secondly, some topics are briefly covered and could benefit from more thorough explanations. For example, the section on moving averages is quite short and does not delve deeply into the different types of moving averages and how they are used across various time periods. The third aspect that diminishes the overall rating of the book is the structure, which could be improved. The chapter on moving averages, for instance, is one of the last chapters but pertains to trend identification. Furthermore, separate chapters are dedicated to certain chart patterns, which can make the structure somewhat cluttered and difficult to comprehend.

Whether one is a beginner or experienced in charting and technical analysis, this book is highly recommended as it is written at a level that everyone can understand. It covers all the key topics in charting and technical analysis, providing a good introduction and refresher on the subject. It is not easy to find a book in this field that is as easily comprehensible, which makes this book particularly valuable.


Rating

We have chosen to give “Charting and Technical Analysis” the following rating:

Overall rating: 3/5

Overall, it is a recommended book that teaches the fundamentals of charting and technical analysis.

Style: 4/5

It is a relatively easy book to understand in terms of language. It is evident that the author wants to cater to new investors.

Structure: 2/5

The structure is sometimes a bit messy, and it seems that the right place for some of the chapters could not be found. Some of the later chapters could have been included earlier to improve the structure.

Level: 5/5

The level is very good and should be readable even for new investors. Investment terms are used, but the author does a good job of explaining them.

Technical: 3/5

Since the book is aimed at new investors, this is reflected in the technical level of the book. It should be relatively manageable even if one does not have a technical background. The challenge is that the book’s illustrations are of poor quality, which can make it more technical for the reader as it can be difficult to understand.

You can order the book from Amazon.com by clicking on the image below:

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