Book Review: Technical Analysis of the Financial Markets

I want to review John Murphy’s : “Technical Analysis of the Financial Markets”. This book was recommended to me as a bible for technical analysis. John Murphy worked as a technical analyst for CNBC for 40 years.

technical analysis in financial marketsI am not a technical analyst however I believe learning technical analysis improves your decision making in trading. You can apply some analysis to plan where to place your stop loss and take profit. You will become more financial aware and understand some additional terms that technical analyst use.

Book covers the following important subjects:

  • Chart Construction
  • Basic Concepts of Trend
  • Major Reversal Patterns
  • Continuation Patterns
  • Volume and Open Interest
  • Long Term Charts
  • Moving Averages : I posted another review for a book called “Big Money Little Effort” . You need to use Moving Averages to build the strategy.
  • Oscillators and Contrary Opinion
  • Point and Figure Charting : RSI and MACD are explained here
  • Elliott Wave Theory
  • Time Cycles : The Presidential Cycle, Stock Market Cycles, The January Barometer
  • Stock Market Indicators

You will discover some interesting statistics for ex on “The Presidential Cycle”, the author stated;

THE PRESIDENTIAL CYCLE

“Another well known cycle that affects stock market behavior is the 4 year cycle, also called the Presidential Cycle, because it coincides with the elected term of U.S. presidents. Each of the 4 years has a different historical return. The election year (1) is normally strong. The postelection and midyears (2 and 3) are normally weak. The preelection year (4) is normally strong. According to Hirsch’s Trader’s Almanac, election years since 1904 have seen averages gains of 224%; postelection years, gains of 72%; midterm years, gains of 63%; and preelection years, gains of 217%.  ”

So when you make decisions on your investment strategy maybe you should consider these cycles. For example 2020 is the pre-election year. The President Trump would use all his power to be re-elected. The most important factor for any president to be elected is the state of the economy. If people have jobs, live comfortably then they are likely to continue voting for the same president in power.

Of course life is not so simple as technical analysis as there are many factors impacting the Stock Market. Now we are fighting against Coronavirus that started the recession. S&P500 was at all time high around 3500 a month ago, at the time of this post it is at 2500. That is a 40% drop. Warren Buffett has a saying

warren buffett

Now imagine you buying stocks at a 40% discount. Over long term stocks always make new highs. See the monthly graph of S&P500.

SPX Historical

You can also check out reviews on Amazon like;

“Excellent. One of the best Technical Analysis books I’ve ever read. I started my career as a financial advisor by following the work of Alan Shaw and Louise Yamada.”

“This book should be one of the foundations to any trader’s arsenal and I can’t recommend it enough.”

“Its simply the most comprehensive book on the subject of technical analysis you can get.”

I agree with all the statements above and I am keeping this book in my trader’s library. Highly recommended!

Hint: You can click Books category to read other book reviews.

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