Technical Analysis Using Multiple Time Frames by Brian Shannon
Reviewed by Mike Carr, CMT
Many books on technical analysis rehash the same ideas that have been presented for more than seventy years. Shannon does something different. He presents a comprehensive explanation of market psychology and uses this as the basis to understand the reasons behind market action. From that starting point, he presents a complete methodology to profit from this knowledge.
He acknowledges the importance of traditional technical patterns, but presents them within the context of investor psychology. In this respect, he is updating Edwards and Magee’s classical explanations of chart patterns. A simple four stage paradigm of market action serves as the starting point to understanding how emotions drive the market.
Trading tactics and risk management make up the bulk of the book. As the title suggests, the importance of viewing the market from different time frames is emphasized and amply illustrated.
Besides presenting the basics of technical analysis within a usable framework, Shannon offers valuable original insights into trading.
Volume Weighted Average Price (VWAP) is among the most widely used institutional trading benchmarks. It is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day.
It is used to evaluate a trader’s performance. If the price of a buy trade is lower than the VWAP, then it is considered to be a good trade. The VWAP is used by large traders to evaluate performance, but rarely considered as a valuable piece of information by market analysts. Shannon suggests that this is an area that individual traders should study and find ways to profit from. He provides an example of how to apply the concept on an intraday basis.
He also presents some valuable information on short interest. More on that idea can be found in an article elsewhere in this publication.
Overall, Shannon has authored a readable and valuable book. The novice technician can benefit from his step-by-step approach while the more experienced technician will gain insights from his perspectives that should allow for testing some new trading strategies.
Technical Analysis Using Multiple Time Frames is available at http://www.technicalanalysisbook.com/.