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Book Review

Technical Analysis Simplified
by Clif Droke
reviewed by Marco den Ouden

Clif (yes - just one f) Droke is a gold specialist and a technical analysis specialist who has written a number of books, one of them called Technical Analysis Simplified. And it is a dandy introduction to the subject. It is short - just 139 pages, of which the meat is on the first 90 pages. The rest is a glossary, bibliography, website index, recommended reading list and so on.

The first two chapters discuss what technical analysis is exactly, and goes over the grandpappy of all technical analysis - the Dow Theory. This theory, while considered archaic by some, still has its adherents and is still useful today. Its tenets include that price action determines the trend of the market, and that for a change in trend to be valid, the Dow Industrials and Dow Transportation Index must confirm each other.

This discussion is followed by the real meat and potatoes of the book - recognizing stock chart patterns. The truly fascinating thing for me was how Droke tied such basic stock patterns as triangles and wedges to basic economic theory. One line in a pattern represents support or demand in economic parlance. The other represents resistance or demand. If one understands basic economics, it is easy to see how these two forces interact and can be used to predict future prices.

Other patterns covered include the classic head and shoulders pattern, rounding bottoms and tops (the basis for the cup and handle formation) and pennants, flags, and rectangles.

Further chapters look at volume and breadth as well as a brief discussion on the reliability of chart patterns. The book finally takes a look at trend channels and even touches briefly on one day reversals as determined using Japanese candlesticks.

The book is pithy and short. It draws heavily on quotes from other writers on the subject including such notables as Martin Pring and Edwards & Magee. And, of course, it includes many handy charts to help the explanation. For an introductory book, you can't go wrong with Droke's handy monograph.

 

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