Technical Analysis: Power Tools for Active Investors (Gerald Appel, 2005)

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  • To make up any losses taken in the stock market, you have to achieve greater percentage gains than such losses entail. It does not matter whether the losses or the gains come first.
  • Gain/Pain Ratios: the sum of all monthly returns divided by the absolute value of the sum of all monthly losses.
  • Changing Your Bets While the Race Is Still Underway
  • Relative Strength Investing
    • Identify the leaders. 
    • Buy the leaders. 
    • Hold the leaders for as long as they lead. 
    • When the leaders slow down, sell them and buy new leaders.
  • Moving averages are used to smooth out the "noise" of shorter-term price fluctuations so as to more readily be able to identify and define significant underlying trends.
  • Rising wedge formation
    • The stock market (or other markets or individual investments) rises in price. 
    • Trendlines drawn that reflect support lines rise at a constant angle. 
    • Trendlines that reflect resistance, where prices turn down, can be drawn at a constant angle as well, but the angle of rise is less than the angle of the support trendline. The result is a converging channel. 
    • Trading volume decreases as the formation develops. This is an important condition because declining volume during uptrends suggests a reduction in buying pressures
  • Declining wedge formation
    • The stock market is falling in price. 
    • Trendlines drawn across price highs decline at a constant angle, reflecting uniform selling. 
    • Support trendlines, drawn at price lows, also decline, but a lesser angle than selling trendlines, indicating increasing eagerness on the part of buyers, who are hoping to accumulate stock. Therefore, rising and declining trendlines converge.
    • Trading volume decreases during the formation, indicating diminishing selling pressure. This is an important condition.
  • Head and shoulder top formations that have rising necklines carry less bearisl implications than head and shoulder formations with level necklines that are less bearish than head and shoulder formations with declining necklines. Downsloping necklines imply larger downside objectives than flat or rising necklines.

  • False breakouts
  •  T-formation

  • TRIN, also referred to as the Short-Term Trading Index or the Arms Index
    • Monitor forces associated with accumulation (buying) and distribution (selling) pressures in the stock market.
  • Volatility Index
    • The implied volatility of the stock market as it might be derived from the prices of options of stocks related to the Standard & Poor's 500 Index (SFX).

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