Book SummaryGetting Started in Technical Analysis, by Jack D. Schwager

1-Page Summary1-Page Book Summary of Getting Started in Technical Analysis

Fundamental techniques and strategies for analyzing market trends.

A review of essential graph forms and their applications.

Different chart formats, including bar, close-only, and point-and-figure, provide unique visual representations of market pricing data.

Technical analysis relies heavily on charts to visualize price data and identify patterns that can signal potential trading opportunities. There are multiple forms of charts, each depicting market prices in a unique way.

Bar graphs are commonly preferred for visually representing information. A vertical line illustrates the trading activity for each day. The bar's upper and lower extremities represent the maximum and minimum transaction values within the given timeframe, while a small horizontal line to the right, and at times to the left, marks the closing and occasionally the opening price.

A line is drawn through each period's closing prices to form what are known as close-only charts, which do not take into account the highest and lowest prices within that period. These charts make it easier to grasp the variations in price and focus on the dominant market trend.

The distinctive feature of point-and-figure charts is their disregard for the time dimension. They focus solely on price movements that align with a certain criterion known as the "box size," and on changes that surpass a set minimum threshold moving counter to the original trend, which is termed the "reversal size." Rising prices are represented by X's, while O's signify a decline.

Candlestick charts enhance the visual appeal by using color, distinguishing them from traditional bar charts. The section of the chart that illustrates the variance between the opening and closing prices is termed the "real body," and it is depicted as white or hollow when the closing price is higher than the opening price, while it appears black or filled if the closing price falls below the opening price. The thin lines that protrude from the main body of the chart represent the span between the peak and the trough trading prices, commonly known as "wicks." The unique patterns of candlesticks along with their shadows often signal whether a trend will continue or if it is about to change direction.

Various chart formats provide unique advantages and limitations in the analysis of market movements and patterns.

Different chart types each come with their own set of strengths and constraints. Bar charts offer a detailed representation of market fluctuations, encapsulating the highest, lowest, and closing prices within a given timeframe. However, they can become visually cluttered. Charts focusing solely on closing prices offer a simplified perspective but exclude information about the variations in prices throughout the trading day. Point-and-figure charts are designed to highlight significant changes in market trends while ignoring insignificant fluctuations in price. Interpreting them can pose a challenge for those just starting out. Candlestick charts offer a visually appealing alternative to the conventional bar charts, highlighting unique configurations. However, they require comprehension of a completely distinct set of patterns and interpretations.

Choosing a chart style that aligns best with your individual analytical methods and preferences is the most advantageous decision. Schwager recommends that traders investigate various chart formats to determine which align most effectively with their unique analytical approaches and requirements.

Identifying and interpreting market trends.

Recognizing a trend's direction by noting a sequence of progressively higher peaks and successively deeper troughs.

A fundamental aspect of technical analysis is the identification and comprehension of market movement patterns. Trends represent the overall direction of price movement and offer the greatest profit opportunities for traders. Schwager emphasizes that the key to chart analysis lies in identifying and describing patterns in market price movements, which often give rise to the most profitable opportunities.

A sequence of rising peaks and troughs suggests a market in ascent, while one characterized by falling peaks and troughs denotes a market in descent. During the prevailing trend, temporary pullbacks or stabilization periods are to be expected, as opposed to a continuous succession of highs and lows.

Utilizing a range of techniques, including the creation of trend-indicating lines, channels aligned with the prevailing trend, and lines that outline subsidiary trends, to observe and confirm major price movements.

Schwager describes the process of delineating trends by drawing lines that link a succession of important low points during an uptrend or connect consecutive high points throughout a downtrend. During times of increased market activity, these lines serve as essential supports, while they transform into barriers during market downturns. Constructing a channel involves plotting parallel lines to the trend line, both above and below, to define the limits of price fluctuations.

Schwager introduces techniques for pinpointing particular thresholds that bolster or obstruct trends, referring to these as internal trend lines. Trend lines are drawn to include the majority of significant...

Getting Started in Technical Analysis Summary Approaches and methods suitable for practical trading scenarios.

Approaches to initiate trades once a trend has been confirmed.

Strategies such as using percentage-based retracements, interpreting the indications provided by moving averages for determining the course of trends, and initiating trades at the juncture where price movements emerge from patterns suggesting the trend's continuation are utilized.

Market participants often begin trading after a significant price movement, which can be attributed to various factors such as earlier inattention to the market, waiting for a price change that did not materialize, or initial skepticism about the trend's continuation. Entering an ongoing market trend requires exact synchronization and careful risk control. Schwager details various tactics for initiating trades that capitalize on an emerging trend.

The strategy aims to capitalize on market movements that frequently recapture a segment of their prior fluctuations. An investor might initiate a transaction after the market retraces and regains a certain segment of the preceding movement, typically ranging from 35% to 65%. This method could improve the likelihood of finding more favorable points for market entry, although it's...

Getting Started in Technical Analysis Summary Developing and assessing trading methodologies

These methods are based on detecting strategies and patterns that deviate from or conform to the current market direction.

Distinctive benefits and drawbacks are inherent to every system type.

Trading strategies are composed of definitive rules that generate signals for transactions, based on technical analysis, patterns in charts, or economic indicators. They eliminate subjective influence when executing trades, ensuring consistent implementation of the selected strategy. Schwager categorizes trading methodologies into three primary categories: those that leverage ongoing market movements, those that predict shifts in market directions, and those that discern and analyze configurations.

Systems that follow trends aim to capitalize on existing market movements by starting trades that correspond with the ongoing directional force. They rely on indicators that suggest a possible change in the current market direction, such as when moving averages cross, prices break out from a consolidation phase, or the rate of price movements alters. Their strength lies in capturing large profits on sustained trends but can generate false signals and whipsaw losses in choppy or...

Getting Started in Technical Analysis Summary Strategies and advice for engaging in actual trading scenarios.

Formulating a methodical and organized approach for carrying out trade executions.

Developing a customized strategy for participating in financial markets.

Schwager emphasizes that market success demands more than simply having strong strategies for trading. To achieve success, it is essential for traders to adhere to a systematic and well-organized approach. Formulating a coherent approach to trading starts with selecting markets and developing a philosophy that are in harmony with one another.

The underlying principles guiding your market engagement are shaped by your approach to trading. Are you planning to adopt an approach that capitalizes on extended movements in market values? Do you have a tendency to take advantage of market volatility by buying at dips and selling at peaks, essentially acting contrary to the dominant market direction? Are you inclined towards a strategy that focuses on specific patterns in the configurations of charts to indicate possible trading opportunities? Selecting a trading approach that complements your individual traits, capacity for risk, and available time is crucial.

Selecting an appropriate market is of equal significance....