Last weekend I just finished a book from a great instructor on technical analysis. This author has been described as the “Technician’s technician” and I have to say that I agree. Here are some of the reasons why I think that this is the case:

1) He advises that technical signals are not bulletproof and that they are nothing but signals. In order to act on them they must be confirmed by price movement.

2) He advises that common sense must be used. If a signal is telling you something which is contradicted by other factors, you have to aware of those too.
This sets the scene for a greater understanding of price patterns and how to use them. For those who don’t know, technical analysis consists of interpreting price patterns and indicators. And this book deals with price patterns and how to interpret them (for more reading on how to use other indicators, I would recommend his earlier, more famous book: Pring on Momentum Indicators).

In short, when you look at the examples he uses, you will realise that volume is the key. So for instance when you have a reversal pattern like a double top or head-and-shoulders, the reversal (when it happens) must be supported by rising volumes. It’s also important to be able to figure out where you are going to put your stop and what your target price is in order to come up with a risk/reward ratio, and then only enter the trade once you have that all figured out, so the trade becomes a mechanical process, because all the work has been done before the trade.

I found his approach quite humble and refreshing (unlike other authors he doesn’t claim to have made millions using a particular approach) and he tries is hardest to be fair, educational and most of all he makes a great job explaining patterns in a way which makes good common sense. For that I give him my full respect and can recommend this book to anyone whether they are interested in technical analysis or not, because of how well written and thought out it is.