Starting with Technical Analysis

#1
As far as technical analysis is concerned, I think best choice for beginners is:

Technical Analysis of Stock Trends by Robert D. Edwards , John Magee.
I have just started with this book.

Few questions

1) The Dow Jones Theory part - signalling of bull market, bear market etc? Does it work in India? What index average does it work for? Is it Sensex/Nifty or something else? Also some things like "Both averages must confirm" - what are the 2 averages for India?

2) I read around 5-6 chapters quickly (I do a first quick reading & then go back for a slower 2nd reading) - but it seems to be a lot of theory but not much of examples - I mean actual graphs & charts to identify trends.

I don't intend to ever day trade or do short term stuff. I am really more interested in identifying stuff like is this near bottom of bear market, near top of the bull market, near bottom of a stock price, near top of a stock price etc. Is this the right book for me or are there other better books?
 
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Alchemist

Administrator
Staff member
#2
I have just started with this book.

Few questions

1) The Dow Jones Theory part - signalling of bull market, bear market etc? Does it work in India? What index average does it work for? Is it Sensex/Nifty or something else? Also some things like "Both averages must confirm" - what are the 2 averages for India?

2) I read around 5-6 chapters quickly (I do a first quick reading & then go back for a slower 2nd reading) - but it seems to be a lot of theory but not much of examples - I mean actual graphs & charts to identify trends.

I don't intend to ever day trade or do short term stuff. I am really more interested in identifying stuff like is this near bottom of bear market, near top of the bull market, near bottom of a stock price, near top of a stock price etc. Is this the right book for me or are there other better books?
It is difficult to identify a top or a bottom immediately when it is reached. Tops and bottoms become evident only after prices reverse substantially.

You can use a small cap or mid cap index as the second index.

Nifty MidSmallCap 400 can be a good choice but it is relatively new and thus not much data is available for it.

Dow theory works everywhere but many charts are complex. Top and bottoms are not always formed in a systematic manner.

Also, a lot of automated trading happens in stocks nowadays and charts exhibit sharp movements in both directions, resulting in frequent false signals.

Edwards and Magee is one of the best books to start with. Once you start seeing the trends and patterns in charts, you can move on to other books for more advanced analysis.
 
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#3
You can use a small cap or mid cap index as the second index.
But that's not the logic behind the "Both averages must confirm rule", right? DJIA is the industries index & the other is the Transportation index. The logic behind the rule is that if industries are doing well, then the transportation companies which transport industrial goods will also be doing well. Likewise for a bear market.

Edwards and Magee is one of the best books to start with.
Not sure I agree. I started with Edwards & Magee but left it after a few chapters. Then read a 5-6 chapters of Martin Pring's Technical Analysis explained. Now I have gone back to Edwards & Magee & it seems to be easier to understand now.

Another question is - what do you use to plot charts? Are there any free software? I am first interested in only the index.
 
#4
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#5
@Alchemist, I have spent a lot of time trying to read to read Edwards & Magee. It's a book with a lot of info but I still consider it a terrible book because it's very ambiguous, poorly described stuff etc. I can write another book about all the problems of this.

However, Magee's Basing Points Procedure interests me a lot. The 3rd author of the Edwards & Magee book, named Bassetti has written another book called "Stair Stops" about the Basing Points which is available free on their site - http://www.edwards-magee.com/ggu/2stairstopsk.pdf

This again is a terrible book with all the problems of the original book. Poorly described, ambiguous stuff etc etc.

There is also another book by Bassetti called "Sacred Chickens, The Holy Grail and Dow Theory" which is supposed to be more detailed. Unfortunately, there is no Indian edition of the book, so it's quite expensive (3000 Rs).

So I was wondering if you know any other book on Basing Points. Also are there any software which does Basing Points?

BTW, do you understand the basing points procedure well? It doesn't seem to be something which is popularly used. It's supposed to be Magee's extension of the Dow Theory.
 
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