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Book Review
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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