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 This is a marvelous book for new investors and traders in stocks. It provides exceptionally well written and easy-to-understand coverage of the theory and practice of technical analysis through charting techniques. Unlike most books on technical analysis, which totally ignore the value of fundamental analysis and its place in investment selection and timing, this book emphasizes and advocates an approach that blends both forms of analysis into a unified system combining the best features of each.
For traders who have formerly relied on fundamental input to arrive at investment decisions, the author explains the difference between the two major analytical approaches, fundamental and technical, and points out the shortcomings of fundamental analysis and the significant benefits to be derived from incorporating technical analysis into the decision-making process. The author, Alexander Paris, is a registered investment advisor and a leading free-market economist.
Paris defines the purpose of the book as, “to convince the reader of the need for technical analysis in short term trading; second, to acquaint him with the most important principles of technical analysis and, finally, to show him how to work this new system smoothly into the fundamental approach he has probably been using, and to ultimately blend both together into a workable system of short term trading which will prepare him for any trading situation.”
Paris does a thorough job of explaining the basics of technical analysis, with primary emphasis on the construction, use and interpretation of price charts and volume. Thorough coverage is given to such areas as short selling and the use of stop and limit orders.
Major emphasis is given to chart analysis, including an explanation of support and resistance, trend lines, gaps and reversal and consolidation patterns. In my opinion, the most valuable feature of the book is that it provides extensive guidance on the practical application of the knowledge he imparts. Instead of merely describing chart patterns, such as triangles, line formations and trend lines, Paris offers very specific guidance on exactly how he feels the reader should time his or her trades.
One section of special interest covers high velocity stocks. These are the ones that are experiencing “line-drive” moves, which include phenomena such as breakaway, measuring and exhaustion gaps in their charts. Considerable guidance is also offered on how to detect such situations early in their development and how to profitably time entry into and exit from these issues.
The final section on trading tactics has extensive coverage on setting price objectives, dealing with breakouts and blending fundamental and technical analysis into a combined, systematic approach to trading and investing. Paris offers no instruction or guidance on the use of fundamental analysis and assumes the reader’s familiarity with this approach.
The portions on technical analysis do not cover such price derivative studies as stochastics, Bollinger Bands, RSI and the like because the book was written prior to their appearance in popular usage. No alternative methods of charting, such as point and figure or candlesticks, are explored. The entire focus is on the construction, usage and interpretation of standard bar charts with volume.
Despite these limitations, I feel that the clarity and thoroughness of the presentation make this book an excellent choice for newer traders and a good lead-in to more difficult and advanced books on the same subject matter, such as Edwards' and Magee’s Technical Analysis of Stock Trends.
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