The Heretics of Finance: Conversations with the Leading Practitioners of Technical Analysis

by Andrew W Lo
Edition: Hardcover, 2009

Lot of Insights into the Craft, February 19, 2009

As a practicing technical analyst for the last 18 years, I can relate to and understand the intent behind the set questionnaire used by the authors to bring out insights from the current masters; the answers to the same question by all the leading practitioners do offer remarkable insights for a practicing technical analyst like me. The commonality of answers for some set questions like in what kind of market when you make most mistakes tell you that those would be areas where you are also likely to make mistakes if you try to force things...

Briefly put, I have got lot of insights and also an understanding of how personal biases affect even seasoned and celebrated technical analysts featured in the book especially in their views on Elliott and Gann. While I completely disagree with most of the experts featured here especially on Gann's theory and methodology, I would still highly recommend the book.

I would also like to thank the authors for taking a scientific approach to bring the insights into art and craft of technical analysis to a wider reading public. You have to get beyond the dismissive attitude to get a proper understanding of a valuable tool for market analysis.

Investing for Profit with Torque Analysis of Stock Market Cycles

by William C. Garrett
Edition: Paperback,1998

Secular study of Stock Market Cycles, December 7, 2008

This book by Bill Garrett does not deal with planetary cycles or cycle studies based on planetary movements. It sure discusses Fibonacci ratios and its application in cycle studies though.

It emphasizes the role of volume in cycle studies. In the Torque analysis of stock market cycles, it uses the following equation:

Torque = Force * Radius

Here torque represents price, volume for force and cycle for radius. In his schema of things, "price is a result of the pressures of cycle and volume,... volume is the force which moves price cycles and we also know that cycle and radius are identical. Our equation now reads Price/Volume = Cycle---or, the net movement of price divided by the net amount of volume equals the cyclical strength factor. Since we can easily establish price movement in the market and since we can calculate the net upward or downward pressure of volume, we can then arrive at a factor for cyclical strength. This method of analyzing cycles, we have labelled TORQUE analysis.

"The TORQUE analysis of cycles measures underlying forces, not prices. TORQUE analysis differs from other methods of measuring cycles because the TORQUE method recognizes that price in the market is not genuine unless it is the result of underlying forces. The first of these forces is volume, which is the force principally involved in the movement of price, and second, is the cyclical influence which determines when price will move and how long price will rise before it begins to decline. That is, a cycle in the market is a power which causes price to undulate in rhythmic fashion. It is an inclination toward price movement which arises because the relationship between buying and selling volume alternates at regular intervals of time. In other words, cycles are a rhythmic influence in the movement of stock prices--a power which can be seen and measured--when price and volume are coupled mathematically."

The foregoing passages sum up his basic idea of looking at cycles using his TORQUE method. He also incorporates advance-decline data and he believes that you can't fight the swings that are aligned with the long-cycle trends. The image of the next cycle can be anticipated or constructed from the foregoing cycle peak.

His cycle forecasting methodology is based on the following seven assumptions:

1. "Forecasting implies that a change in the present situation lies in the future.
2. The alternation in dominance of the opposing forces is the result of the limiting factors which prevent the complete dominance of one force by its opposite number.
3. Tomorrow's visible event is the result of a change or movement today of unseen or unheeded forces.
4. The images of previous events, which we can see gathering form in the incipient stages of a new cycle, allow us to envision the future.
5. Foresight into the future derives from the linked relationship of values moving through time.
6. Cycles adjust quickly to change.
7. The force of a short cycle can alter both the amplitude and frequency of a long cycle."

He also noted that price cycles have two axes, and, hence follow a parabolic path; the time progression of the trailing axis causes a Fibonacci grid to form. In his view each mature cycle is a closed system of influence.

This book is one of the titles suggested by Jerome Baumring in his reading list.

I highly recommend reading this book to anyone interested in the study of stock market cycles.