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Technical Analysis For
Short-Term TradersBy Martin J. Pring
Martin will give you his unique perspective on contrary opinion analysis developed during his 30 year career in the financial markets. He will
explain how to determine when contrary opinion should be used as part of your trading plan and when it should be ignored. You will also learnwhy most traders look at contrary opinion in the wrong way.
Bio
Martin Pring entered the financial markets in 1969 and has evolved into a leader in the US investment community. In 1981, he founded the International
Institute for Economic Research, Inc. A world-traveled lecturer on technical analysis, Martin is the author of several outstanding books including, Technical
Analysis Explained, now in its third edition. It is regarded as a standard for other works in the f ield.
Described by Barron's as a "technician's technician," Martin's articles have been featured in Barron's, Futures Magazine, and Technical Analysis of Stocks and
Commodities. Over the past 30 years, his extensive research has led to the development of reliable financial and economic indicators for timely and effective
forecasting.
In 1987, Martin pioneered the introduction of videos as an education tool for technical analysis and was the first to introduce educational, interactive CD's in thisfield. The latest releases include Technician's Guide to Day Tradingand. He has just released a two course CD-ROM version of the book Market Momentum,
which is referred to by many as THE source for information on this subject. New releases for the year 2,000 include a CD-ROM tutorial on how to select stocks
using technical analysis.
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Definition of technical Analysis:
The art of identifying a price trend reversal at a relatively earlystage and riding on that trend until the weight of the
evidence shows or proves that the trend has revered.
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Prices in any freely traded market are determined by theattitude of all market participants to the underlying
fundamentals.
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Momentum is a generic term, much like fruit
FRUIT MOMENTUM
Peaches Grapes
Apples Oranges
Stochastics RSI
Rate of Change MACD
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Momentum indicators share common
characteristics, much like fruit
FRUIT MOMENTUM1. Fruit is sweet
2. Fruit is almost
always grown in thewarmest season
1. Divergences apply to all
momentum indicators
2. Overbought/oversold linescan be drawn on all
momentum indicators
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There are two broad momentum categories:
Characteristics dealing with overbought,
oversold conditions, divergences etc.
1. Momentum characteristics
2. The identification of trend reversals in the
momentum indicator itself
You can apply trendline violations, moving average crossovers,
price pattern completions etc. to momentum
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Actual buy and sell signals can only come from
a reversal in the trend of the price
Notthe momentum series.
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Just because oscillators
change direction
doesnt mean that
prices will also!
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Momentums valuable contribution is to tell us when theunderlying technical structure is weakening or strengthening.
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1 Overbought/oversold
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Take partial profits
Oversold
Overbought
Equillibrium
The news is so
good, I am
certain to make
money if I buy
now!!
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The news is
so bad only afool would
buy now !!!
Oversold
Overbought
Equillibrium
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Cover at least part the of short position
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2. Momentum character istics change with
bul l and bear market environments.
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Bull trend
Often reaches overbought and stays there a long time
Rarely oversold, but when it is,it is usually a great buying opportunity.
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Bear trend
Few, if any, overbought readings
Often reaches oversold and stays there a long time
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3. Divergences
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A
BC
AB
C
Negative divergence
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In one respect, markets are like houses,they take longer to build than tear down.
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The lead characteristics of momentum indicators are usuallymore pronounced at market peaksthan at market troughs.
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Divergences also appear at market bottoms, where theyare called positivedivergences, because momentumhits bottom before the price.
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Positive divergence
A
A
B
B
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5. Signi f icant divergences
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Virtually no
upsidemomentum at
final peak
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Virtually no
upsidemomentum at
final peak
Sharp decline
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Virtually no downside
momentum at final low
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Followed by a sharp rally
Virtually no downside
momentum at final low
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CRB Spot Raw Industrials
13-week ROC
Confirmation
Virtually no upside
momentum at final peak
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CRB Spot Raw Industrials
13-week ROCVirtually no downsidemomentum at final low
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Trend Determining
Techniques
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6.Trendlines
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Momentum mustbe
confirmed by price
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Momentum mustbe
confirmed by price
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DJ Transports
14-day RSI
RSI and Trendlines
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Motorola
14-day RSI
30-day RSI
65-day RSI
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65 ROC
130 ROC
32 ROC
Eastman Kodak (5-min bar)
Confirmation
No downside momentum
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7.Price Patterns
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Rectangle
Confirmation
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Confirmation
Head and Shoulders
SSH
Head and Shoulders
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Warning: Breakout
is coming from
overbought level
SH S
Confirmation
SH
S
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SH S
SH
S
Whipsaw
ROC T dli d P i P tt
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ROC Trendlines and Price Patterns
S
H
S
Virtually no
downside
momentum
Bangkok Set Index
R t f Ch T dli d P i P tt
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Yen
39-week ROC
Rate of Change Trendlines and Price Patterns
False breakout
X
Extremely weak
momentum at X
ROC d F il d P tt
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Cocoa
50-week ROC
SH
S
ROC and a Failed Pattern
SH
S
This pattern
failed
S
H
S
This one succeeded
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8. Moving Averages
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Good signals Whipsaws
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Moving average of
the moving average
Moving average
of raw data
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Directional change triggers momentum signals
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A Confirmation
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Dow Jones Utilities
Long-term KSTWhipsaw
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Market Cycle Model
Primary trend
9-months-2-years
Short-term trend2-6-weeks
Intermediate trend
6-weeks9-months
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The importance of trading and investing in thedirection of the primary trend
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Red & green highlights show
signals triggered by RSI 50crossover
Bull
market
Hartford Steam B
Bear
market
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Divides one security to another andplots the result as a continuous line.
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Not
the
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Possibilities include..
Gold divided by silver
Commodity spreads
One currency by anotherMost often used by dividing a stock by a
measure of the market e.g. the S&P
Composite
Price continues to rise but.
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Price
Relative Strength
Rising RS means stock out
performing the market.
Declining RS means
stock under performing
the market.
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Price
Relative Strength
Price declining
RS improving
Positive Divergence
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Price
Relative Strength
Price rising
RS deteriorating
Negative Divergence
i
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Price
Relative Strength
Moving average
Moving averageThe Theory
P i
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Price
Relative Strength
Too many whipsaws
Especially with the RS
The Reality
P i
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Price
Relative Strength
Confirmation
P i
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Price
Relative Strength
Confirmation
P i
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Price
Relative StrengthConfirmation
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
S&P vs Bank RS
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S&P vs Bank RS
S&P Composite
S&P Banks
S&P Banks RS
Alberto Culver
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Alberto Culver
Alberto Culver
RS Line
Whipsaw
Boise Cascade
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Boise Cascade
RS Line
Divergence
Boise Cascade
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Boise Cascade
RS Line
Boise Cascade
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Boise Cascade
RS Line
Boise Cascade
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Boise Cascade
RS Line
Boise Cascade
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Boise Cascade
RS Line
Boise Cascade
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Boise Cascade
RS Line
Boise Cascade
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Boise Cascade
RS Line
Sell point
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Abbots Labs
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Abbots Labs
RS Line
False sense of strengthReality break
Whipsaw
Composite Economic Indicators (KST)
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Leading Index
Lagging Index
Coincident Index
Leading Index
Coincident Index
Lagging Index
Idealized Business Cycle
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Equilibrium
Economy Growing
Idealized Business Cycle
Economy Contracting
B
S
C
BS
C
Idealized Business Cycle
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y
InflationaryInflationary
Deflationary
Idealized Business Cycle
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BUtilities bottom
Financials bottom
Consumer non durables bottom
Idealized Business Cycle
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C
Basic industry and
resource based stocks
out perform
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S&P Composite
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S&P Composite
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S&P Composite
S&P Composite
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S&P Composite
LT KST of Bank/Ali Ratio
Remember
for later
Semi Conductors
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Semi Conductors
KST
RS Line
RS KST
Breakouts
Semi Conductors
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Semi Conductors
KST
RS Line
RS KST
KST buy
signals
Semi Conductors
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Semi Conductors
KST
RS Line
RS KST
Texas Instruments
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Texas Instruments
KST
RS Line
RS KST
Breakouts
and buysignals
Texas Instruments
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Texas Instruments
KST
RS Line
RS KST
Intel
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Intel
KST
RS Line
RS KST
Breakouts
and buy
signals
Intel
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Intel
KST
RS Line
RS KST
Advanced Micro
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Advanced MicroKST
RS Line
RS KST
Breakout
No breakout
Marginal buysignals
Advanced Micro
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Advanced MicroKST
RS Line
RS KST
Advanced Micro
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Advanced MicroKST
RS Line
RS KST
Advanced Micro
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Advanced MicroKST
RS Line
RS KST
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Good luck and good charting !!
From your friends at Pring.com
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