Option Investor
Trader's Corner

From Sticking Points to Stikky Charts

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It caught my eye immediately, this inexpensive little book titled STIKKY STOCK CHARTS. Long ago, Jane Fox, a commentator on the live portion of the website, and I used to talk about "sticking points," places where prices tended to stick whenever they approached them. Turns out, the book didn't have anything to do with those sticking points, but the book still might have much to teach newbies in technical analysis and much to remind experienced chartists.

The book has been around a while, as you'll realize immediately if you should decide to buy the book. The pages dealing with placing orders provide readers with explicit instructions on how to talk to a broker but none on how to place an online order.

That doesn't render the book antiquated or useless. Neither does the simplicity of the ideas presented nor the workbook format in which they're presented. You're going to be asked to pick up ruler and pencil and draw some trendlines. In fact, the publisher insists that readers draw trendlines on the pages, in the best approximation of an interactive technical analysis text that can be found in a printed text.

If you're an experienced technical analyst, you might think this little book has nothing to teach you, but you'd be wrong. How many times have you been stopped repeatedly, trying to catch the turning point of a trending move? Perhaps this little ditty from STIKKY would have saved you from some of those stopped plays: "Hint: the rule is 'when a chart approaches a trendline the most likely outcome is a bounce.'" (61) This "bounce" refers to a bounce down, away from a descending trendline, as well as a bounce up, away from an ascending one.

STIKKY is a simple book, and the concepts it presents are simple, but those concepts bring technical analysis back to its most powerful roots: determining the short-term, medium-term and long-term trends and expecting those trends to continue . . . until they don't. "Trendlines are so powerful that some successful traders use them and nothing else to decide when to buy or sell," the book notes. (68)

Note: Remember that my articles are prepared in advance and do not feature up-to-date charts and prices.

Annotated Weekly Chart of the OIX:

This chart and many similar ones might resonate for some of those traders who have been trying to anticipate a reversal in other indices over the last weeks. It points out the wisdom of determining the trend and trading it, keeping your stops moved along just under the rising trendline you're trading and just above a descending trendline you might be trading. It's a concept that would have helped many a trader not only preserve trading capital but add to it while also setting appropriate exit levels.

Of course, many of us watching recent market action worry about some signs we're seeing in the markets lately, including some troubling breadth measurements. Is such a simplistic little book going to help when the trend does change?

The book certainly intends to do so, and some experienced traders have raved about the book. Those comments in STIKKY about how trendlines are so powerful that some traders just buy or sell bounces from ascending or descending trendlines? The book goes on to comment that they'd be missing some other important opportunities and information.

The publisher divides the book into sections, with trend-determination tips, practice and comments included in the first section. Next week's Trader's Corner will delve into the other patterns that STIKKY considers the most important ones for traders to recognize, the ones that help traders employ techniques in addition to the simple but powerful trend-following ones.
 

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