In the academic world, the study of the markets has for years revolved around the idea that markets are inherently efficient and all participants rational. I always found such theories a poor reflection of real-life trading and I consistently tried to integrate models and analysis that would take into consideration the “irrational” and structural inefficiency of the markets.
One such tool is technical analysis: a blend of formulas and relationships based on the observation of price and volume within the context of time. The book by Kirkpatrick and Dahlquist provides a much needed comprehensive manual of most technical analysis indicators; it is organized as a classic textbook, which makes it very user-friendly to the novice and the experienced analyst as well. This comprehensive and well-organized approach makes the book a great entry point for further analytical work; in this manual, one will not find “trading secrets” nor “holy grails,” but an efficient portal to more study in areas of interest or need for the reader.
The book cover indicates this manual as being selected as the official companion to the Market Technicians Association CMT program, a designation which has increased in prestige significantly over the last few years. Readers will also find interesting updates in the new edition in regards to behavioral biases, pattern recognition, and systems management.
Ultimately, technical analysis is a blend of science and art and the successful user of this technique will have to develop not only a specific know-how of the various indicators but a superior sensitivity on how and when to apply them; the authors of the book recognize this discretionary approach to the technique but highlight the consistent value-added information that can be captured by applying this layer of analysis.
Events over the last few years have clearly shown that a traditional approach to the markets can lead to very disastrous results; a modern investor needs to be proactive and more informed than ever on the market machinations. Fundamental analysis should be integrated with technical analysis to reduce risk and uncover more alpha-based opportunities in increasingly uncertain capital markets.