The Finance Book Club

I'm not familiar with his work. This is someone you're following? I believe that indicator is from Ehlers first book.

I watch his weekly videos about the market. His new idea is to superpose 3 timeframes to forecast a change in cycle, like this


His previous addition is his ''pull back to end of trend''.
I do not use tradestation so I just can't use his indicator. He is the guy behind the better volume indicator by the way. all what he codes can be done in metatrader, if you can reverse engineer it lol, but not his volume indicator because it requires the real volume, his idea is to fix a number of tics, which create a tick charts, then divide the real volume by the fixed number of tics, then compare this to some average of this ratio, and you can see the professionals (his blue bars) from the retailers (his yellow).

By the way the correct mathematical definition of centered moving average is here
https://en.wikipedia.org/wiki/Moving...ge#cite_note-3

Overall, the value of Ehlers' work is really that the more or less naive application of DSP to charts was overdue, at least for the general public. I am sure the professional have done it even before Ehlers wrote his first book, and perhaps even more rigorously, tested the ins and outs of it and kept whatever seemed to work for them at the time. Now the general population has access to ehlers' version of DSP for finance and it's good starting point to dig deeper for people inclined to filters. Although nowadays everybody is infatuated with artificial intelligence so DSP is really not trendy at all lol. Again the only concrete output of the work is some very smooth filters with the price to pay being a small laag and that's it, it's not the holy grail. The only difference with the other MAs is that Ehlers' filter is backed up by an intellectual and mostly rigorous endeavor.

a) Guys are endlessly reinventing the wheel

b) they over complexify what is basic and simplistic



Head and Shoulders by Jim Hurst and by Brian Millard

No need to be an Electrical Engineer to use a Double or/ and a head and Shoulder pattern to trade.

Simplicistic tools do the job

For people who love cycles, of any sort like the economic cycle or even astronomical cycle, There is also this guy who sells a software to output the spectrum of any chart. Then the user chooses whatever frequencies he wants, the software outputs the sine wave of those selected frequencies and the theory is that the price will follow the sine wave

It's cool toy but as usual it's not holy grail lol

Hurst ( 1970)

Millard ( 1990)

Yes, I think most of the 'high-tech' approaches are
a) an effort to remove uncertainty from an inherently uncertain enterprise. Human nature is curious and the result of dissecting chaos is a mess of illusory patterns.
b) a platform upon which to sell products to gullible new traders and aspirants.

Still, the myth of people like Jim Simons persists.

What I'm fairly sure is that if someone has found something highly successful, they aren't talking, and the market is steadily eroding its edge, as it must.

Yes, and where are the massively profitable hedge funds powered by OpenAI, DeepMind, Riken, or AMD/Intel?One thing that surprised me about Neiderhoffer's book is his mention of neural nets. They are not new; they are ancient. But even if they could do what is expected, then everyone would build one and a Nash equilibrium would be reached after some 'disruption'.

Maybe it's Quantum computing that will be the decisive difference? It doesn't change the fact that you cannot have outsized success with small risk and leverage; the marketplace could not function if it were possible.

I think it all goes back to Reflexivity. Inordinate success is swiftly punished/corrected. There are many examples from history; the Hunt Bros., Northern Pacific, Stutz Motors, even now with Elon Musk - who did not make his money selling cars, contrary to popular opinion. He is a master market manipulator but he became a big target. I think all of his Twitter bamboozlement is merely a diversionary tactic and an attempt to try to funnel some of his funds out of a market that is destined to go through some cataclysmic upheavals. Possibly we will see the first signs very soon (or have already seen them), as long-term cycles students (Kondratieff) are likely aware.

Tape Reading and Market Tactics - by Humphrey Neill

I just realized I thought his name was Neill Humphrey and I've been calling him 'NH' the whole time when it should be 'HN'. I could easily do a find and replace to fix it but I'm a lazy trader.

Quite an old book - published 1931- just look at the cover.

What is actually going on there?!

3 steps to market success:

1. familiarize oneself with the power and the methods of the professional speculative groups which operate "behind the tickers”
2. learn the principles whereby one may interpret the manoeuvres of those groups and the actions of the public;
3. most important- attain a mastery of oneself: of temperament, emotions, and the other variables that go to make up human nature.

It seems like nearly every classic trading book is structured this way.

Anyone who attempts to catch the hourly, or even daily, fluctuations of stock prices, is entering upon a risky, foolhardy enterprise. They will only last a few months.

A warning against constant tape reading; missing the forest for the trees; tunnel vision caused by details of a day’s trading.

The intermediate trend is most profitable for the average speculator; lasts from 3 wks-6mos.

Neill Humphrey (NH from now on) is the first author I’ve read who admits there is a danger in writing a book about speculation and ‘how to do it’.

The goal is so that you can avoid becoming a member of The Public: always wrong.

Foreword to the 1959 edition
NH says when we read ‘pools’ we should think ‘pros’ and instead of ‘pool operations’ think ‘operators’.
There are no more ‘pools’ because of the Securities & Exchange Act of the 1930s. (Aren’t there?!?)
He thinks there is no difference to tape reading now (1959) then when the book was written (1931).
The Crowd is always wrong when it’s important to be right.

Foreword to the 1970 edition
The new thing now is mutual funds and pro fund operators. They have more power than the ‘pools’ ever did, NH says. Institutional trading in the market is growing, accounting for 51% of share volume and 56% of all public transactions. (and now??) There are also now more ‘pros’ operating today.

Secondary offerings are already passé as huge share blocks can be easily disposed of.

Principles are still sound and workable, assures NH. At the same time he says we should review modern techniques. He recommends ‘Systematic Stock Trading’ by Tompkins.

Speculation is an art, not a science. (serene sigh)

i like book "trading for a liveng". this is first book i read about trading. and might be last one.

It is a good book. I would be better off it had been my first introduction to trading ideas.

Ch.1 - Stock Speculation

“We may deplore speculation, but if it were not for this outpouring of money for stocks, you and I should not enjoy a fraction of the comforts and luxuries which we accept as necessities.”

There is a constant battle between the pros and the amateurs, “the public”.

The public hopes. The pro engineers.

The business of the financial pro is to sell stocks to the public.

They use a variety of methods (options on big shareholders' stock, short-selling, buying) to manipulate the stock price either cheaper or higher depending on what they want to do. After accumulating the stock they want, they relax their persuasion. News stories are leaked. Advertising campaigns, etc. (I recall similar stories in ‘Reminiscences’ and Wyckoff’s book.)

He is basically describing a ‘pump and dump’ as the company wishes to unload stock. Once the stock is in the public’s hands, the supporting buying evaporates and pros begin to sell short. Eventually the public is left holding the ‘bag’.

“Stocks seldom rise of their own accord, [...] they will sag under their own weight unless they are pushed up.”

Dying activity doesn’t attract speculators.

“The winning combination for us as traders is a stock in which a pool is active, which has strong sponsorship and support from a bank or banks, and the earnings of which are known to be progressively on the increase.”

Insiders have capital to withstand losses when they guess wrong. The public doesn’t.

We can’t know what insiders plan to do but we can see their orders in the tape.

Don’t trade if you can’t lose cheerfully.

Start small and be satisfied with ‘reasonable’ profits.

Judgement is hampered by capital worries.

The non-studious should just buy and hold.

Ch2 - The TickerTape
Think in terms of dollars, not points.

The ticker tape is simply a record of human nature.

We only learn from pro traders and pools what they wish for us to know.

Insiders have the greatest advantage in the minor fluctuations.

Day trading is pointless.

Insiders aren’t interested in you personally but they are interested in ‘you’ collectively.

Small players have the advantage of being able to easily liquidate their positions.

Ch3 - Principles of Tape Reading
Tape reading is consideration of the action of the volume.

The amount of money, the supply and demand tells the story, not price action.

Price is merely the value of the volume.

General Principles
3 types of volume activity

1. Increasing volume during an advance - pauses or setbacks on light volume - advance continues
2. Increased volume at the top of a rally or an advance - lasting for ‘some time’ - no gain in prices - a turning point signal.
3. A struggling, tired advance on light volume that dies at the top - little demand - and selling orders are also light - a ‘rounding over’ where volume might increase on the downside. Sudden reversals especially if they have endured for days.

This is all reversed in declining markets.

Ch4 - Increasing Volume During an Advance
If price is advancing briskly and slows down - but then volume declines - this is a good sign that the trend will continue because it means there isn’t a heavy supply of stock for sale.

Otherwise, there would be an immediate reaction. (I almost feel like this can be tested. The claim seems to be that ranging action favours a continuation of the trend, otherwise we’d see a big retrace right after a rally. This would be something too obvious not to have noticed after many years of staring at charts. OR IS IT??)

After this price stabilization if prices decline, watch for increasing volume on the downward path.

If the volume of transactions is in hundreds not thousands, this is a favourable signal of a trend resumption. ‘Never sell a dull market’. Similarly, ‘never buy a dull market’ in a bear market.

Small volume on rallies, after a decline, are signs of lower prices later.

Ch5 - Turning-Points on Heavy Volume
Heavy volume at the end of a move is indicative of a turning point.

Stocks frequently rally in 3 days periods.

The action of second- and third-rate stocks may give you early confirmation of a reversal if a major turning point is imminent. (but if it’s imminent then it’s inevitable and how can we know in advance? This sounds like something that will fake you out a thousand times.)

“In 1929 the inactive stocks began their decline some weeks ahead of the market leaders. At that time, public speculation was so rampant that buying-power was not dissipated for weeks. The high day for the market averages was September 2, yet leading stocks did not break into their definite downward trend until the middle of October.”

“The prices of stocks are nothing more than the decisions of all buyers and sellers of stocks. At turning-points, the opinions whence come decisions - are evenly divided.”

Various Turning Points
Little headway on heavy volume - sign of a turning point.

Some reversals though aren’t heavy volume. This happens because the steady liquidation over the course of the trend reduces the amount of margined stock. The 1929 crash was caused by panicky margined accounts dumping stock. Institutions don’t dump stock on the market the way individuals do.

Don’t train your ‘tape-sense’ on abnormal conditions. Big market tops and bottoms are rare.

Ch6 - Turning-Points on Light Volume
The Struggling Market
All examples for the bullish case should be reversed for the bearish.

Characteristics are:

1. Slow/irregular advances
2. Light volume
3. Dullness
4. Patience-testing for everyone
5. No one wants to bid in quantity; few sellers want to sell when there is little demand

1. Volume might dry up and sellers will see they cannot dispose of stocks at higher prices causing a rapid down trend.
2. Prices will ‘roll over’, sag, but without selling pressure. Dull. Indecisive. Waiting for news. Waiting for the public to ‘forget’.

Difficult to follow because you can’t tell between 1 and 2.
1 is more common, says NH. So protect with stop losses.

Sluggish Top
Example is Steel start of Sept. 1930.

Note that volume is diminishing as the top forms. Price reacts, confirming the turn.