Book Reviews, Trading

Book Review of Profiting from Market Trends by Tina Logan

The full title of this book is Profiting from Market Trends: Simple Tools and Techniques for Mastering Trend Analysis by Tina Logan.

The book is full of large chunks of text explaining terminology and listing possible actions that traders can take at various market junctures / scenarios. While it is good to be open to the possibilities and that different successful traders would react differently to the same situations, I would much prefer if the author had gone the way of “in this situation, in my system/setup, I would do A because of <reason>, and I would not do B, C, D, E because of <reasons>”, instead of “in this situation, you can do A, B, C, D, or E”.

A significant section of the book wrote about what Logan monitors daily/weekly, which is helpful in terms of the breadth of coverage. While looking at various sectors and fundamentals is good, it hints at a need to present a macroeconomic framework to bind everything together. To me, the point of looking at the charts of various asset classes and sectors, and monitoring macroeconomic fundamentals, is to feed input into an underlying macroeconomic framework that will provide the bigger picture context that will drive the positioning of a portfolio. This bigger picture context is necessary to identify investment themes that should work for 1 year or more. Hence I would be much more interested in the “glue” (i.e. the macroeconomic model)  rather than the inputs.

Nonetheless, I think the book wrote that it is not meant for experienced traders/investors, so as a book for those new to the markets, I think it is a decent read. It would be much better though if it can be made more succinct.


Trend Direction

  • Uptrend
    • Rising peaks and rising bottoms
    • Rising 20-period SMA
    • Upward sloping trendline connecting the prominent rising bottoms
  • Downtrend
    • Declining peaks and declining bottoms
    • Declining 20-period SMA
    • Downward sloping trendline connecting the prominent declining peaks
  • Sideways
    • No clear direction indicated by the peaks and bottoms
    • Flat 20-period SMA
    • Sideways price movement trapped between support and resistance lines

Time Frames

  • Long-term trend
    • Lasts for six months or longer.
    • Weekly charts
  • Intermediate-term trend
    • Lasts from a few weeks to a few months, and up to several months in some cases.
    • Daily charts
  • Short-term trend
    • Lasts for a few days to a couple of weeks, but seldom longer than three weeks.
    • Intraday charts

Early Warnings of Trend Reversal

  • Uptrend
    • Bearish climax move
    • Bearish divergence (price vs. indicator)
    • Failure to break prior peak
    • Change of slope — steeper rising trendline
    • Break of tight rising trendline (i.e. price was walking up the trendline)
    • Approaching a strong ceiling
    • Bearish candlestick reversal pattern (e.g. dragonfly doji, hanging man, engulfing, shooting star)
  • Warning signs are reversed for downtrend

Early Broad Market Warnings of Trend Reversal

  • Uptrend
    • Bearish divergence (index vs. market internals)
    • High positive market sentiment readings (e.g. new highs, CBOE VIX, Put/Call ratio, Investor’s Intelligence sentiment surveys)
    • Notable change in the count of certain scans (e.g. no. of stocks trading above 200-period SMA, scans for long setups, scans for bearish setups, etc.)
  • Reversed for downtrends

Later Warnings of Trend Reversal

  • Uptrend
    • Breakdown through support
    • Break of up (support) trendline
    • Breakdown below a strong moving average (strong moving average means that price has remained above it during the trend, especially if the moving average had previously provided support when tested)
    • Change in direction of peaks
  • Warning signs are reversed for downtrend

Swing-Ending Warnings

  • Swings are trends on lower time frames…. If price makes a swing up for a period of five days, that is an intermediate-term uptrend on the hourly chart and a long-term uptrend on lower time frames.
  • Warnings on the daily time frame
    • A price swing is approaching a support / resistance
    • The body size of candlesticks is a barometer for short-term momentum. After the formation of average-to-long bodies for a few to several days, if the body size decreases significantly, it may turn out to be a brief pause or it may be the prelude to a reversal.
    • A morning gap after a price swing is getting extended. I’ll often exit at the opening bell, or in the pre-market session if possible, if price is set to gap open.


What to Monitor During a Correction

  • Bull market correction
    • Support below
    • Fibonacci retracement levels of prior uptrend
    • Bottoming price action
    • Positive divergence — index vs. indicators
    • Positive divergence — index vs. internals
    • Bullish candlestick pattern or western reversal bar
    • Notable change in scan hits
    • Break of resistance (downward sloping) trendline
  • Reversed for bear market correction.

Classifying Bull Market Declines

  • 1 to 3% – Market pullback
  • 3 to 5% – Minor correction
  • 5 to 8% – Standard correction
  • 8 to 12% – Deep correction
  • 12 to 16% – Very deep correction
  • 16 to 20% – Minor bear market
  • More than 20% – Bear market


Place Stop Orders Unless Extremely Disciplined

  • Unless a trader has absolutely proven he’ll pull the trigger to exit when required, he should place the order rather than use a mental stop or an alert.
  • I regularly use audible alerts in lieu of stop loss orders to avoid much of the price manipulation (running of stops) that can occur in the market. I also use alerts to avoid having stops triggered by morning gaps that may quickly reverse direction after the opening bell.

Use Volatility-Based Trailing Stops

  • Most of the stop loss orders I do set are volatility-based trailing stops; I especially like them for core positions.
  • In spite of using trailing stops, I still tend to periodically take partial profits on core positions. It is not unusual for me to swing trade around a core position (“Lock and Reload” technique).


Use Relative Strength of Sector ETFs to Find Leading and Lagging Sectors

  • Calculate the percentage change of the S&P 500 Index over a period, and compare that with the percentage change of sectorETFs
    • XLY – Consumer Discretionary
    • XLP – Consumer Staples
    • XLE – Energy
    • XLF – Financials
    • XLV – Healthcare
    • XLI – Industrials
    • XLB – Materials
    • XRT – Retail
    • XLK – Technology
    • XLU – Utilities

Monitor the Market Charts

  • Daily market review
    1. DJIA (DJ-30)
    2. Dow Transports (DJ-20)
    4. Russell 2000 (RUT-X)
    5. S&P Midcap 400 (MID–X)
    6. S&P 500 (SP-500)
    7. 10 SPDR Sector ETFs (see above)
  • Weekly market review
    • Stock market indices
      • Nasdaq 100 Index (NDX–X)
      • NYSE Composite (NYSE)
      • 6 index charts from the daily market review
    • Market internals
      • Advance/decline line (T2100)
      • McClellan Oscillator (T2106)
      • McClellan Summation Index (T2118)
      • Zweig Breadth Thrust (T2103)
    • Bond market indices
      • CBOE 10-Year Treasury Yield Index (TNX–X)
      • CBOE 30-Year Treasury Yield Index (TYX–X)
      • iShares Barclay’s 20-Year Treasury Bond Fund (TLT)
    • Commodities
      • Commodity Research Bureau (CRB) Index (CRY0)
      • Copper (MG132 or SCCO or FCX)
    • Metals
      • Philadelphia Gold/Silver Sector Index (XAU)
      • World Gold Index (XGLD)
      • World Silver Index (XSLV.X)
    • Sector indices
      • 10 SPDR Sector ETFs (see above)
      • SPDR KBW Bank ETF (KBE)
      • SPDR KBW Regional Banking ETF (KRE)
      • AMEX Airline Index (XAL–X)
      • AMEX Biotech Index (BTK–X)
      • AMEX Oil Index (XOI)
      • AMEX Pharmaceutical Index (DRG–X)
      • AMEX Securities Broker/Dealer Index (XBD–X)
      • Dow Utilities (DJ-15)
      • Guggenheim Solar ETF (TAN)
      • HOLDRs Oil Service ETF (OIH)
      • Light Sweet Crude Oil Index (XOIL.X)
      • Market Vectors Agribusiness ETF (MOO)
      • Morgan Stanley Cyclical Index (CYC–X)
      • Philadelphia Housing Sector Index (HGX–X)
      • Philadelphia Marine Shipping Index (SHX.X)
      • Philadelphia Semiconductor Sector Index (SOX–X) / HOLDRS Semiconductor ETF (SMH)
      • U.S. Natural Gas ETF (UNG)
    • International market indices
      • Shanghai Composite Index (SSEC-X)
      • Tokyo Nikkei Index (NIKI-X)
    • Currency
      • U.S. Dollar Index (DXY0)
  • Chart template
    • 20, 50, 100, 200-period SMA
    • Volume bars with 30-period SMA
    • MACD(12, 26, 9 EMA)
    • On-Balance Volume (OBV), Bollinger Bands, Relative Strength, Stochastics, RSI

Monitor the Market Internals

  • Indicators
    • New highs and new lows
    • Advancers and decliners (and/or Advance/Decline line)
    • Up and down volume
    • McClellan oscillator
    • Tick and TRIN (Arms Index)
  • has market breadth indicators provided every hour throughout the day.

Monitor the Fundamentals

  • Weekly Initial Claims for employment
  • Monthly Employment report by Bureau of Labor Statistics
  • Monthly Retail Sales
  • Quarterly GDP
  • FOMC minutes and comments
  • Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) report
  • Base metals (aluminium, copper)

Monitor the Market’s Volatility

  • Monitor the volatility of the Dow, S&P 500, Nasdaq Composite by using average daily range as a gauge.
  • During those wild weeks following the Flash Crash, the Dow’s average daily range was as much as 2.5 to 3%, with it running as high as 3.5% for a short stretch; whereas a more normal reading would be closer to 1 to 1.25%.
  • When the market gets that choppy (e.g. November 2011), I find it easier to day trade — scalping for brief periods, or riding the intraday trends while they last. A trend-following strategy on the daily chart could get whipsawed badly during that type of consolidation.



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