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  • James Chen

    ofESSENTIALS

    TechnicalAnalysis forFinancialMarketsDiscover how technical analysis can dramatically improve your potential for success in trading and investing

    Understand the essential tools and methods of technical analysis to trade in any major financial market, including stocks, bonds, futures, and forex

    Explore the specific strategies technical traders use to make trading decisions and stack the odds in their own favor

    Investments & Securities

    $39.95 USA /$47.95 CAN

    ChenESSENTIALS of Technical A

    nalysis for Financial Markets

    PMS 2766C PMS 123C GLOSSY

    Praise for ESSENTIALS OF TECHNICAL ANALYSIS FOR FINANCIAL MARKETSA serious, workmanlike book, a terrific introduction to technical analysis. Chen offers begin-ners a clear sample of methods and techniques from which a reader may choose in what to specialize. Dr. Alexander Elder, www.SpikeTrade.com, author of Trading for a Living

    Wileys Essentials Series promises need-to-have fundamentals for professionals. With James Chens new book, it now delivers some need-to-have technicals as well.

    Robert Prechter, Jr., founder/President of Elliott Wave International, Publisher of The Elliott Wave Theorist

    Trend trading technical analysis is the most important lesson for all investors and Essentials of Technical Analysis for Financial Markets is a great start. If you choose to ignore technical analysis, I guarantee a lifetime of very difficult money-making.

    Michael Covel, author of Trend Following and The Complete TurtleTrader

    Think of this as financial market technical analysis 101

    A valuable resource for traders at all skill levels, Essentials of Technical Analysis for Financial Markets equips you with the knowledge you need to analyze any major financial market. This accessible guide to the art and science of technical analysis points you to a wealth of essential methods for identifying potentially high-probability trading opportunities. Focusing on the key information youll need as a trader or investor, author and leading technical strategist James Chen helps you take on any financial market effectively, manage risk, and target profitability.

    Take a look inside this indispensable book for world-class guidance on:

    How you can pursue profit in the financial markets using technical analysis Principles of price action analysis and trading Chartsincluding bars, candlesticks, and point and figure The key concept of trend Support and resistance Making the most of financial drawing tools, chart patterns, indicators, and other essential elements of technical analysis

    Top technical trading strategies, risk control techniques, and money management concepts

    Need the ultimate quick-start guide to technical analysis in the financial markets? Essentials of Technical Analysis for Financial Markets explains it all in a way that helps you hit the ground running and take your financial destiny into your own hands.

    JAMES CHEN, CTA, CMT, is Chief Technical Strategist at FX Solutions, a global leader in foreign exchange trading. An expert on technical analysis and financial market trading, he is also a regis-tered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT). Mr. Chen contributes daily and intraday technical analysis to key financial media, is a frequent speaker at trading seminars, and has authored numerous articles on trading strategies and technical analysis in major financial publications. His previous book, Essentials of Foreign Exchange Trading (Wiley), has become an industry-standard guide for currency traders.

    ISBN: 978-0-470-53729-9

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  • E1FFIRS 02/20/2010 12:40:6 Page 1

    ESSENTIALSof TechnicalAnalysis forFinancial Markets

  • E1FFIRS 02/20/2010 12:40:6 Page 2

    ESSENTIALS SERIESThe Essentials Series was created for busy business advisory and corporate professio-

    nals. The books in this series were designed so that these busy professionals can

    quickly acquire knowledge and skills in core business areas.

    Each book provides need-to-have fundamentals for those professionals who

    must:

    Get up to speed quickly, because they have been promoted to a new position orhave broadened their responsibility scope

    Manage a new functional area Brush up on new developments in their area of responsibility Add more value to their company or clients

    Other books in this series include:

    Essentials of Accounts Payable, Mary S. Schaeffer

    Essentials of Balanced Scorecard, Mohan Nair

    Essentials of Business Ethics, Denis Collins

    Essentials of Business Process Outsourcing, Thomas N. Duening and Rick L. Click

    Essentials of Capacity Management, Reginald Tomas Yu-Lee

    Essentials of Cash Flow, H.A. Schaeffer, Jr.

    Essentials of Corporate Fraud, Tracy L. Coenen

    Essentials of Corporate Governance, Sanjay Anand

    Essentials of Corporate Performance Measurement, George T. Friedlob, Lydia L.F. Schleifer,

    and Franklin J. Plewa, Jr.

    Essentials of Cost Management, Joe and Catherine Stenzel

    Essentials of Credit, Collections, and Accounts Receivable, Mary S. Schaeffer

    Essentials of CRM: A Guide to Customer Relationship Management, Bryan Bergeron

    Essentials of Enterprise Compliance, Susan D. Conway and Mara E. Conway

    Essentials of Financial Analysis, George T. Friedlob and Lydia L. F. Schleifer

    Essentials of Financial Risk Management, Karen A. Horcher

    Essentials of Foreign Exchange Trading, James Chen

    Essentials of Licensing Intellectual Property, Paul J. Lerner and Alexander I. Poltorak

    Essentials of Knowledge Management, Bryan Bergeron

    Essentials of Managing Corporate Cash, Michele Allman-Ward and James Sagner

    Essentials of Managing Treasury, Karen A. Horcher

    Essentials of Patents, Andy Gibbs and Bob DeMatteis

    Essentials of Payroll Management and Accounting, Steven M. Bragg

    Essentials of Sarbanes-Oxley, Sanjay Anand

    Essentials of Shared Services, Bryan Bergeron

    Essentials of Supply Chain Management, Michael Hugos

    Essentials of Trademarks and Unfair Competition, Dana Shilling

    Essentials of XBRL, Bryan Bergeron

    For more information on any of the above titles, please visit www.wiley.com.

    www.wiley.com

  • E1FFIRS 02/20/2010 12:40:7 Page 3

    ESSENTIALSof TechnicalAnalysis forFinancial Markets

    James Chen

    John Wiley & Sons, Inc.

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    Copyright # 2010 by James Chen. All rights reserved.

    Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

    No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 ofthe 1976 United States Copyright Act, without either the prior written permissionof the Publisher, or authorization through payment of the appropriate per-copy feeto the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com.Requests to the Publisher for permission should be addressed to the PermissionsDepartment, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201)748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

    Limit of Liability/Disclaimer of Warranty: While the publisher and author haveused their best efforts in preparing this book, they make no representations orwarranties with respect to the accuracy or completeness of the contents of thisbook and specifically disclaim any implied warranties of merchantability or fitnessfor a particular purpose. No warranty may be created or extended by salesrepresentatives or written sales materials. The advice and strategies containedherein may not be suitable for your situation. You should consult with aprofessional where appropriate. Neither the publisher nor author shall be liable forany loss of profit or any other commercial damages, including but not limited tospecial, incidental, consequential, or other damages.

    For general information on our other products and services or for technical support,please contact our Customer Care Department within the United States at (800)762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

    Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more informationabout Wiley products, visit our web site at www.wiley.com.

    Library of Congress Cataloging-in-Publication Data:Chen, James, 1971-Essentials of technical analysis for financial markets / James Chen.p. cm.(Essentials series)

    Includes index.ISBN 978-0-470-53729-9 (pbk.)

    1. Investment analysis. I. Title.HG4529.C456 2010332.63 02042dc22 2009051054

    ISBN-13 978-0-470-53729-9

    Printed in the United States of America

    10 9 8 7 6 5 4 3 2 1

    www.wiley.com/go/permissionswww.copyright.comwww.wiley.com

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    To my parents, my wife,my children, and technicalanalysts everywhere

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    Contents

    Preface xiii

    Acknowledgments xvii

    1 Introduction to Technical Analysis:

    Pursuing Profit in the Financial Markets 1

    What Is Technical Analysis? 2

    Technical versus Fundamental 2

    Methods 5

    What to Expect 5

    Summary 9

    2 The Story of Technical Analysis:

    From the Japanese Rice Markets to

    Dow Theory to Automated Tr