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Market Technician Issue 84 - March 2018

The Journal of the Society of Technical Analysts



A Brief History of the Development of Median Line Analysis

Extending the Frontiers of Technical Analysis:

AKA Andrews Pitchfork (Part 1) by Timothy Brackett and Kyle Crystal

the application of W. D. Gann’s forecasting method to the currency markets - James Smithson

Contents Foreword • IFTA 2018 Conference 04 • Save the date - 50th Anniversary 06 News • The 30th annual IFTA conference 07 • Photographs from 2017 Annual Dinner 08 • The new STA Home Study Course - Luise Kliem 10 • Our New Membership System - John Abberton 13 Research • A Brief History of the Development of Median 17 Line Analysis, AKA Andrews Pitchfork (Part 1) - Timothy Brackett and Kyle Crystal • Sensemaking: a new twist on what is needed for 21 success in trading and investment - Steve Goldstein • Extending the Frontiers of Technical Analysis: the 25 application of W. D. Gann’s forecasting method to the currency markets - James Smithson • Did you know? 29 Analyst Focus • Head and shoulders above - Trevor Neil 30 • The 2016 Bronwen Wood winner describes his 32 experience of the STA course - Marco Meola Book Review • STA Book Club - Nicole Elliott 34 • Review of Trading with Ichimoku by Karen Peloille 36 - David Watts The Society of Technical Analysts • Benefits of STA Membership 39 • STA Calendar 40 • STA Library 41 • The Education Channel 42 • Balance professional development and your personal 44 life with our new Home Study Course© • Congratulation! Latest STA Diploma MSTAs 45 • The STA Executive Committee 46 • STA Advertising Rates 47 Disclaimer: The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.

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Editor's Letter

Nicole Elliott Technical Analyst, Private Investor, E-journalist for the STA

I have a feeling that the electronic only Market Technician, The Journal of the Society of Technical Analysts magazine, has been a hit. Click and download data confirm and there is anecdotal evidence aplenty, but most compelling has been the sheer number of articles submitted. In a way this is the lifeblood of the magazine and of the society itself - the pooling together and exchange of old concepts and new thinking by and for our members. We encourage all members (and non-members who’ve stumbled across the magazine) to write in and submit articles. Caveat: it might be worth checking with as to length, content and other limitations before you start bashing away at your keyboard. In case you’ve missed it, the STA website home page has a link to the blog that I write, open and free to view for members and non-members alike. Here I welcome suggestions and content from MSTAs; just email me at Another thing to remember is that the exchanges are done in a collegiate, friendly and genuine way. New members: do come to our monthly meetings and ask us questions; we’re all here to help, interact and learn. Plus, this year there are lots of really exciting events, as well as the regular meetings on the second Tuesday of each month, now at 18:30pm. For those of you who didn’t make January or February’s lecture and networking, we have a spanking new venue courtesy of the Chartered Institute for Securities and Investment (CISI): the Walkie Talkie tower (pic, left), the building famous for melting parts of cars parked in front of it at 20 Fenchurch Street, London EC3M 3BY. The tower was designed by New York based, Uruguayan starchitect Rafael Viñoly; check out the venue and see its famous sub-tropical rooftop gardens. Our diploma course, conducted as a series of evening lectures at the London School of Economics, continues to attract a varied crowd including complete beginners, private

investors and representatives from investment funds as well as central and corporate banks. Looking at the profile of our lecturers, I’m not at all surprised that they’re popular. And as one speaker noted: “The best thing, from a lecturer’s point of view, is the mix between newbies and those professionally trading in financial markets. The students gel well and help each other out in a friendly environment, asking intelligent questions and challenging us teachers.” Just look what this year’s Bronwen Wood memorial prize winner Aldo Lagrutta has to say: “For the past 25 years I have been dedicated to the study of the Elliott Wave Principle; engaging in it is a daily lesson in humility. Undertaking the path of STA certification is enough to give one pause. I live in Germany and had to travel every week to London to receive the training. Having obtained my certification made it all worthwhile; the Bronwen Wood Prize is a surprising and rewarding bonus.” As it’s the society’s 50th birthday, we’ve decided on a big bash - a ticketed event on the evening of Thursday 7 June, courtesy of Sadiq Khan’s City Hall on the South Bank by Tower Bridge. There will be drinks, canapés, networking and live entertainment no less! I can assure you, this is not one to miss. And finally, I am not forgetting the International Federation of Technical Analysts’ annual meeting which this year will be held in Kuala Lumpur, Malaysia. A delegation was over in London late last year sketching details of what looks to be an interesting schedule in a fascinating country. Diarise, if you will, 26-28 October 2018. Readers, I do hope you enjoy this issue.



IT’S OUR BIRTHDAY! Save the date and be part of the celebrations! In 2018 the STA will celebrate its 50th anniversary. This golden landmark gives us the opportunity to look back at all we have achieved since our inauguration and to look forward to building on our success together. We’re already excited about celebrating with you on 7 June 2018 at the spectacular London Living Rooms - City Hall’s venue with a view - and as part of our pre-event planning we’d like to offer you an exclusive member’s offer. Tickets cost £50 and are for two people, so bring your partner. Non-members are also welcome to join in the celebrations, so please do share details of the event with your network. Don’t forget to put the date in the diary. This is one party you won’t want to miss! Click here to book now!

London Living Rooms - City Hall

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The 30th annual IFTA conference The 30th annual IFTA conference was hosted by the Italian Society of Technical Analysis (SIAT) in the heart of Milan at the stunning Gallia hotel. It had a packed agenda spread over three and a half days with more than 40 speakers giving insights into technical analysis.

from a paradigm of mechanics, the latter from the paradigm of socionomics. Perry’s talk was titled: “Two Trading Systems with a Twist”. There are countless ways to profit in the market, and Perry demonstrated two new methods that teach and reinforce basic investment principles.

The title of the conference “Sailing to the future” accurately caught the mood of the event with a number of the talks covering Bitcoin, block chain, artificial intelligence and systematic/ algo trading. There were of course renowned speakers giving great talks on more traditional technical approaches such as John Bollinger, Robert Prechter and Perry Kaufman to name but a few. John shared a personal history of technical analysis focusing on the contributions of the individuals that he found most useful in his investment process. Bob gave a talk on “Linear vs Fractal Extrapolation” in which he examined people’s natural tendency to extrapolate social trends linearly. As an alternative, he offers extrapolation based on a fractal model of social change. The former method derives

The Leonardo da Vinci science and technology museum was the location not only for the kick-off drinks but also a fabulous gala dinner event. A rather unusual restaurant, Blue Note, was the venue on the second evening where the chef (who confessed to being an economist) managed to make fresh pasta while a DJ was on stage at the same time. All in all it was a great event with plenty of networking, meeting old friends and making new contacts. The event baton has now passed over to the Malaysian society and I’m looking forward to their conference in Kuala Lumpur for IFTA 2018.



Photographs from the 2017 Annual Dinner on Wednesday 20 September at the National Liberal Club.

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The new STA Home Study Course

Luise Kliem FSTA STA Chief Examiner and HSC Editor

It is truly a delight to be able to say that, at long last, the new edition of the STA’s proprietary Home Study Course© (HSC) is now available. To make this happen, much time has been spent, and a Herculean effort made by some very dedicated STA members, and so we are extremely pleased that this complex project has now been completed. We have also been very encouraged by the hugely positive feedback we received when our Chairman Axel Rudolph presented the new HSC ‘prototype’ to our colleagues at the October 2017 IFTA conference in Milan. Our LSE autumn and spring courses remain immensely popular and for some students there is simply no substitute for the immediacy that face-to-face sessions with lecturers can provide. They also enjoy the stimulating classroom atmosphere that these courses give them. But for others, the convenience of learning at their own pace, or of not having to travel, makes e-learning with the HSC the preferred option. With the first HSC already very popular, both in the UK and overseas, this new STA course is likely to spark considerable interest. The first version of the Home Study Course© (launched in 2009 and updated as necessary) was a great

success, with examiners seeing very impressive Diploma pass rates – at least equalling those achieved by other students, and on occasion even surpassing them. But time came to reflect more precisely the ever-growing interest in a wider field of topics such as TA-based money management techniques and behavioural finance, as well as an enlarged IFTA syllabus. There was also a need to make delivery as flexible as possible. So now this exceptional technical analysis e-learning course has been considerably expanded and is website based, although remains fully downloadable. It may be used online or offline on PC, Mac, iPad or Android machines. Course structure The new edition of the course, which covers both the Part 1 and the Part 2 Diploma exam syllabi, offers 15 subject teaching units written specifically for it by leading market technicians. The units are presented using text and, of course, a good deal of graphical information. In total, the 15 units contain more than 350 images and close to 100,000 words, all of which suggests a rather mighty tome. However, the information is presented in ‘digestible’ sections!

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For further information visit ‘Browse Courses’ on the STA website.

Each unit includes exercises to self-test understanding and progress. These exercises provide access to a store of multiple choice questions and answers in ‘Exam builder’, thus offering the additional benefit of practice in the Part 1 exam ‘MCQ’ format. In addition, a short trial exam is available, to give students some practical experience of ‘how the exam works’. At the end of the course, students will further benefit from an exam preparation module, with particular attention here paid to the Part 2 exam. There is also access to past Part 2 exam papers. Each unit is introduced by a video résumé and contains an animated focus chart with voiceover. The face in the videos and the voice on the animated chart voiceovers are those of Dominic Frisby. He was our choice because, as a financial writer, actor and voiceover artist, he has exactly the right (and rather unusual) combination of knowledge and presentational skills for this project. He is, incidentally, also a highly original comedian. That latter

skill was not required on this occasion, although it was, of course, greatly appreciated by those who attended the STA Dinner in 2013, at which he was our guest speaker! Our authors Many of the highly respected contributors to the first version of HSC are still represented, having revised and updated their original work. The foremost authority on point and figure charting, Jeremy du Plessis, has again contributed a brilliant module on that topic, and much-praised units on candlestick charts (Adam Sorab), Dow (Michael Smyrk), moving averages (George MacLean), indicators (Elizabeth Miller) and cycles (John Cameron) still form a core part of the HSC. Replacement units, with particular focus on practical application, have been written on Gann Theory (George MacLean), Market Profile® (Dan Gramza) and the Elliott Wave Principle (Murray Gunn). Additional units, not available in the first HSC, cover Ichimoku (David

Linton), market psychology, trading plans and money management (Julian McCree), managing risk and constructing a quantitative trading system (Malcolm Pryor) and behavioural finance (Steven Goldstein). As chief examiner, I made some additions to the original foundation, chart types and candle units to arrive at full coverage of both the Part 1 and the Part 2 exam syllabi. I also provided an additional ‘exam prep’ module. This offers guidance on the multiplechoice Part 1 exam and detailed advice on Part 2: what examiners look for, time management, chart annotation and advice on the different ways of structuring the answer to the crucial Question 1. An additional download, on general technical analysis report writing, was provided by Anne Whitby. Her advice will be particularly useful at the post-Diploma stage for those aiming to publish professional reports, although much of what she says will also help with the report writing aspect of Question 1.

Authors Profiles John Cameron FSTA John is a Fellow of the STA and a former STA Board Member. His long career in technical analysis and teaching has included a pivotal role in setting up the STA’s education programme and for more than a decade he held the position of Head of Education and Chief Examiner. John continues to be involved in the STA Diploma marking process.

Jeremy du Plessis BComm BEng (Hons) FSTA Jeremy, whose company Indexia Research produced one of the first PC-based charting systems, is a Fellow of the STA. He is an acclaimed designer of technical analysis software (he designed the award winning Updata software), a leading authority on point and figure charting and the author of ‘The definitive Guide to Point and Figure’ and ‘21st Century Point and Figure’. He teaches regularly on the STA Diploma course. Steven Goldstein MBA Steven is a performance coach and organisational development consultant specialising in financial market risk businesses. Prior to his current career he worked for more than 20 years as a rates and FX trader, holding senior trading positions at American Express Bank, Commerzbank and Credit Suisse. Steven teaches behavioural finance on the STA Diploma course.

Daniel Gramza BSc Eng MBA Daniel is President of Gramza Capital Management, Inc. He is a trader, consultant, advisor to hedge funds, developer of equity and derivative securities and co-inventor of two issued security patents. He has authored numerous publications and develops and presents courses on essential mental techniques for traders, behavioural Japanese candle analysis, Market Profile®, technical analysis, options and option trading strategies.


For further information visit ‘Browse Courses’ on the STA website.

NEWS Murray Gunn MA (Hons) MSTA

Murray is an independent trader who also contributes analysis to Elliott Wave International’s and He was previously Head of Technical Analysis at HSBC and a fund manager and trader for the Abu Dhabi Investment Authority and Standard Life Investments. A published author in technical analysis, he has served on the Board of the STA and teaches on the STA Diploma course. Luise Kliem BA (Hons) FSTA Luise is a Fellow of the STA. Her 20-year City career included commodity broking and the positions of Senior Technical Analyst (Director of Global Securities Research & Economics) at Merrill Lynch and Head of Technical Analysis at Commerzbank Securities. Since 2001 she has taken on consultancies, working with the Credit Suisse TA team for several years. She has taught on the STA Diploma course, has been an examiner for 10 years and has held the position of STA Chief Examiner since 2013. David Linton BSc Eng MFTA David is founder and CEO of Updata, and a well-known commentator on the technical analysis of financial markets. He is a member of AAPTA (American Association of Professional Technical Analysts) and holds IFTA’s MFTA designation. David is the author of ‘Cloud Charts – Trading Success with the Ichimoku Technique’ and teaches Ichimoku on the STA Diploma course.

George MacLean BSc MSTA Before taking up a position as training consultant at Linedata Services, George spent 12 years at Standard and Poor’s MMS, where he was a director of European technical analysis. He holds IFTA’s MFTA designation and is the author of the book ‘Fibonacci and Gann Applications in Financial Markets’. George teaches Gann theory on the STA Diploma Course.

Elizabeth Miller BA MSc MSTA Elizabeth has been a commodities research manager at Mars Inc. since 2007, providing applied macro and behavioural economic insights for the ‘raws’ procurement teams. She previously held senior technical analyst positions at Redtower Asset Management, Deutsche Bank, Bank of America and MMS International. She has been a lecturer on the STA Diploma Course and an examiner for the STA Diploma and IFTA CFTe II examinations. Julian McCree BSc (Hons) MSTA Julian is an energy trading and investment professional with 20 years’ experience in a complex risk environment. He is derivatives manager at Genesis Energy (Auckland, New Zealand). Previously Julian was senior portfolio manager at Infinity Capital (London), senior proprietary trader at Erste Bank (London and Vienna) and a proprietary trader at Manro Haydan.

Malcolm Pryor MA (Oxon) MSTA Malcolm is a private trader and investor, a trading coach and also the author of several books on trading. His book ‘The Financial Spread Betting Handbook’ is a best seller and is now in its third edition. He holds the rank of Premier Grand Master at bridge. Malcolm has been teaching the risk and trading systems session on the STA Diploma Course for several years.

Michael Smyrk FSTA Michael is a Fellow of the STA. Now working as a consultant, he began to use chart analysis when trading in commodity markets in 1965, and has been expanding his technical analysis horizons ever since. Many years of involvement in technical analysis education have included managing the MFTA programme for IFTA, teaching on the STA Diploma course and working as examiner both for IFTA and the STA. He continues to be involved in the STA Diploma marking process. Adam Sorab BSc FSTA Adam, a Fellow of the STA, has been working in financial markets since 1984. He spent 13 years as Head of Technical Research at CQS and is now a Partner and Head of Investor Relations & Sales at Lodbrok Capital LLP. He is also an independent member of the BUPA pension fund investment committee. He was Chairman of the STA from 1998 to 2008, during which time he was the driving force behind the first STA Home Study Course. He was also President of IFTA from 2010-13. Anne Whitby BA (Hons) FSTA Anne, a Fellow of the STA, has been a technical analyst for more than 40 years. She started her career at Chart Analysis Ltd, where she was Managing Director from 1986-95, and subsequently set up a technical analysis department at 4CAST Ltd. She has also spent some time in investment banking, working with the Credit Suisse TA team in 1999-2000. While STA Chairman (1995-98) Anne established the first formal STA teaching courses at South Bank University.

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Our New Membership System

John Abberton STA Administration Services

As members will be aware, 2017 saw big changes in the STA website and membership database, and by the time this is published we expect to have completed another stage in implementation, enabling a single log-in for the society site. In 2016 we were notified that the previous membership system was being phased out by the software developers and would cease to be usable in mid-2017. Accordingly, the society put together a team led by treasurer Simon Warren to source a replacement. After an initial assessment by the society office, they were able to produce a number of options for the executive committee to consider.

The new layout allows far greater freedom in allocating access to different groups of members.

It was apparent the changeover presented us with an opportunity to move to a fully integrated system, one that would allow members to have far greater control in their interactions with the society and to enjoy a more personalised experience. There would also be the opportunity for the directors of the society to have live access to management information, enabling more timely decision making. After reviewing the various options, the Society of Technical Analysts invested in a new cloud-based membership system offered by ASI, an organisation that specialises in software for non-profit organisations. As we had recently invested in an excellent new website, the decision was made to retain as much as possible of this as a ‘shop window’ for the society and to create a new members-only site which would hold the online shop and the other items that we wanted to provide exclusively to members.

Original ‘Shop window’ site

New ‘Members only’ site

The new layout allows far greater freedom in allocating access to different groups of members; for example, students on the Part 2 Diploma Course are automatically given access to a course page with videos, notes and other resources as soon as they register for the course. Similar pages will be available for the Part 1 Course and Home Study Course candidates. There is a continuous programme of enhancements to the site, but elements that we hope to add in the near future include specific pages for national chapters such as Malaysia and Myanmar. We would also like to add pages for specific interest groups within the society.


NEWS This exciting project has been introduced in two phases. The first phase of the launch in August 2017 allowed members to access their own ‘personal landing’ pages where they could join, renew their membership, view purchase history and book events. Phase two is the integration of the new member system with the member section of the STA website. Now when members log into they will be taken to the members’ area home page at

You still have the freedom to remain on the original site; however to make any purchases or access member information you will have to log in.

You still have the freedom to remain on the original site; however to make any purchases or access member information you will have to log in. So, what will you see? The first thing will be a new login screen:

If you have not logged in here before, click on ‘I don’t know my username or password‘ This will open another small window:

Your username will always be your email address. Enter your email address and click ‘Submit’.

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NEWS You will then be sent an email with a reset link. Click on the link and create a password. This will then be the password that you will use for this site. If you don’t get the email, then contact the STA Office at and we will be able to reset it for you. You will also find that in order to help keep your data secure, you will have to change your password every 90 days; the system will remind you of this at the appropriate time. Once logged in, the site opens with your personalised landing page. At the top you will find topical reminders and the menu; further down you will see elements of your membership record and details of your participation in society activities. There are two important areas at the top, underneath the banner. The first contains links to any committees or groups that you are part of, and clicking on these will take you to the landing page for that group or committee. There, you will typically find announcements and documents of interest to that group, together with a list of other members.

The second area will show any open invoices - normally the only invoice that you will see there will be your membership renewal invoice. For all members other than those paying by Direct Debit, this will usually appear at the beginning of the month when your subscription is due. If you pay using a credit card then please select it and follow the instructions to pay. If you pay using PayPal it will disappear when your PayPal payment is processed. If you pay by Direct Debit it shouldn’t appear at all…



NEWS Possibly the menu item that you will use most often is ‘Book Meeting’. For security reasons, now that our meetings are at 20 Fenchurch Street (aka ‘the Walkie Talkie’), all members must both book in before attending the event and carry photo ID to show at the entrance. Simply click on the menu item and then select ‘Register Myself’ for the appropriate meeting (or meetings).

You will notice that a question appears, asking if you wish to claim CPD for the meeting, please select yes or no and save the response. You will still have to have your attendance validated on the night, but this will facilitate the production of reports which you will be able to access on your home page.

As with the previous website member section, in addition to the above, you will be able access current and past Market Technician journals from the starting point of your personalised landing page. You will also be able to watch monthly meeting videos and IFTA webinars, join the education forum, book onto courses, access research articles plus much more. We encourage you to log in and see exactly what we have been able to make available to you. Finally as with all projects of this nature, despite extensive testing there will be glitches, things we have missed and things that you think we could do better! We would be very grateful if you could send any reports of problems or suggestions for the site to We can’t promise to implement all of them, but they will all be read and acknowledged.

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A Brief History of the Development of Median Line Analysis, AKA Andrews Pitchfork (Part 1) Introduction The authors’ intent in writing this brief paper is to draw a timeline of the evolution of Median Line Analysis and briefly touch on those whom have contributed to the development of what we know today as Andrews Pitchfork.

Timothy Brackett Timothy Brackett, MSTA, CFTe, is a technical analyst with 35 years’ financial markets experience both on the sell and buy side. He is currently working with a portfolio management team monitoring portfolio positions and searching for investment ideas at Marketfield Asset Management LLC. His focus includes, but is not limited to, median line analysis, Elliott Wave Principle and multiple time frame price momentum work in concert with candlestick studies. He has coauthored The Weekly Speculator since 2004 and can be reached at

Although the technical methodology known as Median Line Analysis as we know it today is rightly attributed to Dr Alan Andrews, it should be known that it found its genesis hundreds of years before his time. That said, it was he who brought it forward to the study of stocks, bonds, currencies and commodities and his extensive analysis and studies are the basis of what is now referred to as Andrews Pitchfork. It has been elaborated on since his passing by several students who studied directly with him as well as by a number of learned and talented technicians who have refined and studied it in concert with other indicators. It has been said his disciples, who were grain traders, were responsible for attaching the moniker Andrews Pitchfork to the technique. It is our intention to give a brief history of the development of what we believe to be an underutilised technical tool that belongs in every analyst’s tool box. A Walk through Andrews Pitchfork First, it’s worth walking through the construction of the standard Andrews Pitchfork. Most charting software includes the Pitchfork as part of its ‘tools package’, enabling users to effortlessly apply this tool to a price chart and we have created this an abbreviated tutorial: Andrews Pitchfork is a trend channel tool consisting of three lines. The first step is to pick three points on the price chart that mark reaction highs or reaction lows. FIGURE 1: APPLYING ANDREWS PITCHFORD TO A CHART - FIRST PICK YOUR POINTS

Kyle Crystal Kyle Crystal, CMT, CFTe, is a Principal of Crystal Capital Advisors, LLC and Lakeshore Technical Analysis, LLC. He has more than 10 years of investment experience managing long/short, long only, global macro and commodity strategies. He specialises in multiple time frame analysis, market geometry (including median line analysis), Elliott Wave Principle, momentum analysis and cycles. You can reach him at

In Figure 1, a daily chart of Spot Gold, we have marked the start of the median line at a reaction or swing low by point of origin, or PO. We then mark the next pivot at the high P1 and the next pivot at the higher low at P2 and identify the midpoint of P1 and P2.


RESEARCH The median line is drawn from the first pivot, at PO, through the midpoint of P1 and P2, as shown in Figure 2 below. FIGURE 2: THEN DRAW YOUR MEDIAN LINE

A “swing line” is added between the pivots and parallel lines are then projected from P1 and P2, Figure 3. This creates the “pitchfork” that represents a price channel. FIGURE 3: FINALLY, ADD YOUR SWING LINE AND PARALLELS TO CREATE THE PITCHFORK

This is only meant to be a brief introduction into the construction of Andrews Pitchfork for those unfamiliar with this technical tool. We now direct our readers back to the original intent of this discourse, namely the history and development of Median Line Analysis.

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In the Beginning...

Sir Isaac Newton (1643-1726)

Roger Ward Babson (1875-1967)

George Fillmore Swain (1857-1931)

In total, there are 47 scared texts that are known of; among these, three major Hermetic texts or doctrines have been attributed to Hermes Trismegistus, a syncretic combination of the Greek god Hermes and the Egyptian god Thoth. Of these three major teachings, we turn our attention to The Emerald Tablet, which may be one of the earliest alchemical works that survives. It has been translated numerous times by many different authors from many cultures. Our focus is on a later translation of the text by Sir Isaac Newton in around 1680. In his translation, the second verse states: “That which is below is like that which is above, that which is above is like yet which is below”.

Roger Babson was born in Gloucester, Massachusetts on 6 July 1875. His father was Nathaniel Babson, a dry-goods merchant in the city; and his mother was Nellie Sterns, whose mother owned a millinery store. His was a typical childhood of that period, although he relates he was an unruly child who suffered whippings at the hand of his teacher, as did most children who ‘acted up’ during school. The first statistics that Babson compiled were of that early age: the record of thrashings that various boys and girls received during the school year. His score was forty-seven. This was a dubious start, but a start nonetheless to a renowned career as a statistician, bond trader, businessman, economist and writer which spanned decades and created a legacy and position of notoriety in the history of financial markets. Babson founded Babson’s Statistical Organization after receiving his training as an engineer from 1895-98 at the Massachusetts Institute of Technology. Here, he studied under professor of engineering, George F. Swain, with whom he forged a long-standing friendship. It is their philosophical connection that interests us, in particular their development of the normal or median line.

Babson was in New York selling his bond statistical analytical research on the day of the 1907 stock market crash and was taken aback by the large losses accumulated by supposedly learned and experienced market professionals. At the time, he had been studying Benner’s Prophecies of Future Ups and Downs in Prices and Hall’s How Money is Made In Security Investments , believing that there must be a way to forecast economic and market changes in a more proactive and less reactive manner. With these two books and his own amassed statistical data in hand he sought out his former professor and friend George Swain. Both concluded that, in these two books and Babson’s collected data, there was the basis for a technique which, when applied properly, could forge a new method of forecasting. It was Professor Swain who introduced and drew a ‘normal line’ through the historical data in the Babson’s Composite Chart of pig iron, corn and, hogs that would normalise the volatile ‘zig-zagging’ index Babson had been developing. He also suggested that Newton’s Law of Action and Reaction could apply to this and other economic indicators, as it does to physics, chemistry and astronomy. Thus was the origin of the famous Babson charts, which were integrated into Babson’s Statistical Organization’s publications and later analytically led to his famous timely prediction of the 1929 crash, which was published in New York Magazine.

Most of those who were responsible for the Scientific Revolution studied Hermeticism. These three wisdoms of the whole universe – alchemy, astrology, and theurgy – played a vital role in the advancement of physics, astronomy, mathematics and natural sciences. Needless to say, Newton played an important part in the Scientific Revolution, so much so that “Newtonian” came to be used to describe the bodies of knowledge that owed their existence to his theories. It is Newton’s Third Law, one of three laws of motion derived by Newton from Johann Kepler’s Laws of Planetary Motion and his studies of The Emerald Tablet, which brings the history of median line analysis forward. The Third Law states that “for every action, there is an equal but opposite reaction”.

1 George Benner, Benner’s Prophecies of Future Ups and Downs in Prices (Cincinnati: Robert Clarke & Co., 1879). 2 Henry Hall, How Money is made in Security Investments (New York: The De Vinne Press, 1907).



It was Babson’s further devotion to the work of Sir Isaac Newton that later prompted him to create the Gravity Research Foundation at the suggestion of Thomas Edison. This suggestion was easily accepted, as is revealed in a later essay he wrote called Gravity- Our Enemy Number One. He indicated that his desire to overcome gravity stemmed from the childhood drowning of his younger sister: “She was unable to fight gravity, which came up and seized her like a dragon and bought her to the bottom.” It was at one of Babson’s seminars years later, where he illustrated how Newton’s Third Law could be applied to the stock market, that he met Alan Andrews. They became hardened friends and Babson taught Andrews his action and reaction techniques. Andrews later named his median line course the Action-Reaction Course, in acknowledgement of the teachings his mentor had shared with him. Dr Alan Hall Andrews Although Alan Andrew’s date of birth remains unknown, we do know he passed on in 1985. Little is known of his personal life, wife or children. His father owned a broker/dealer where he traded for clients and his own account and is said to have made a large amount of money in the Great Depression. Alan’s father sent him to engineering school at Massachusetts Institute of Technology and then on to Harvard. The story goes that, after he graduated, his father challenged him to make one million dollars in a single year while working at his father’s brokerage firm. He did not accomplish the task in a single year, but in two years had made one million dollars trading commodities. Andrews later became a lecturer in civil engineering at the University of Miami in Florida. After he retired, he returned to his roots and decided to not only manage his own investments but to teach others. He began publishing a weekly advisory newsletter, sold by subscription, which focused on his trading methods and included recommendations for the coming week. He also created the FFES (Foundation for Economic Stabilization) Case Study Course applying principles of mathematical probability to the production of profits from prognostication. It detailed various median line methods and others techniques, including fan lines which he referred to as Horns of Plenty. He sold the course for the tidy sum of £1,500 during the 1960s and 1970s. He also held seminars and one-on-ones that were attended by New York and Chicago pit traders. Andrews also often incorporated his student’s observations and studies into his work, careful to name methods such at Schiff Adjusted Median Line (named after Jerome Schiff a New York trader who brought it to his attention) and Hapogian Lines named after another one of his students Dr Hapogian.

(Part 2 will be available in the next edition of the journal.)

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Sensemaking: a new twist on what is needed for success in trading and investment Example one: EURCHF and the Swiss National Bank On 15 January 2015 the Swiss National Bank (SNB) announced that it would no longer hold the Swiss franc at a fixed exchange rate with the euro. In a matter of minutes, the EURCHF FX rate plummeted from close to 1.2000 to almost 0.8500, a drop of nearly 30%.

Steven Goldstein Steven Goldstein is a performance coach and organisational development consultant specialising in working with financial market risk businesses. Prior to his current career, Steven worked for more than 20 years as a rates and FX trader, holding senior trading positions at American Express Bank, Commerzbank and Credit Suisse. Steven also lectures on the subject of behavioural finance on the STA Diploma.

Whilst many banks and trading desks were left severely bruised and bloodied, the London branch of one overseas bank was left thankful that not only had they avoided a more than EUR35m loss on one position alone, they had actually turned in a tidy profit for the day. FIGURE 1: EURCHF FX RATE PLUMMETED BY NEARLY 30%

Just a week earlier, one of the bank’s proprietary traders in its London office had been running a long position of more than EUR100m spot EURCHF. The trader had been running this position for some time and was emboldened by the comments of the head of the SNB earlier that month, which had described the cap as “absolutely central” to SNB policy. The Head of FX Trading at the bank did not share the same enthusiasm as his trader for the position. As a veteran of the markets he had always been a highly perceptive and well-tuned-in individual who had amassed a strong record as an exceptional taker and manager of risk. Remaining curious and open to other views was a part of his mind-set. In light of the potential exposure to the EURCHF, he ensured he was as informed as possible on all things Swiss franc. As he read and learned more, something just didn’t feel right; he didn’t know why, but for him, things were not adding up.



It was rare for the Head of FX Trading to interfere with his traders’ decisions. On this occasion however; he decided to make an exception. A few days before the 15 January crash, he asked the trader to exit his position, a move which was to prove extremely insightful and which was to lead to the avoidance of more than EUR30 million losses. There were also other secondary benefits which were to flow from his action. The decision alerted the head of the spot desk, who immediately alerted his team and ensured that all his traders knew what exposures they had to the Swiss Franc.

• Processes around money management, risk management, position sizing and developing an approach which reduces the impact from our natural human biases and foibles. • People’s ‘state of mind’, thus contributing to greater success with less stress and anxiety and improving performance. • The development of better tools, systems and instruments to support methods, process and practices.

On 15 January, the SNB’s announcement stunned the market. Trading desks rushed to assess their full exposure to the Swiss franc. The EURCHF pair dropped initially to 1.1500 before rebounding temporarily for just a few seconds. Whilst the rest of the market sat transfixed and momentarily paralysed, this bank’s spot desk was prepped and responded brilliantly. Its traders hit the market fast, covering their exposure to all client stop orders, and ensuring they were on the right side of the market.

In the above example, the actions of the Head of FX were triggered by a significant exposure to threat. Exposures to threat (and missed opportunity) are significant aspects of Sensemaking. Exposure, immersion (skin in the game), is a vital characteristic of Sensemaking. Having ‘skin in the game’ provides the individual Sensemaker with ‘felt senses’; these are not available to the observer of a market. This provides ‘colour’ and ‘insight’ unique to the individual, and prompts them to look beyond the ‘prima facie’ data and information that presents itself.

What is Sensemaking? The above example is the first of three I describe in this article which highlight high quality or ‘Master’ Sensemaking. Sensemaking is a term used to describe the physical, cognitive and mental practices adopted by a person to ‘make meaning out of ambiguous data to help navigate situations characterised by high uncertainty and extreme complexity’. A more robust description of Sensemaking would include mention of: abilities in relation to mental processing and pattern recognition. Other aspects may include; understanding of semantics of logic, anticipative abilities, heightened self-awareness, reading and understanding of holistic situation. Taken together these help people to detect disconnects and anomalies, and provide an elevated ability to recognise and relate to what is happening around them in regard to context and environment. In trading and investment roles, developing Sensemaking capabilities can help to improve: • How one encounters, engages and manages within the heightened uncertainty and ambiguity that defines risk roles. • How someone explores and understands their market(s), helping to improve the analytical process and behaviours to broaden their scope beyond facts, figures and data to make them more rounded and robust. • How someone understands themselves, where their edge is, and helping them become more aware of their own patterns in real time. • How a person manages themselves, ensuring they are more present and focused, more capable of living with the emotional highs and lows, and how they fight the constant battle with their own ego.

Example two: the asset manager who bought against his own firm's ‘sell’ recommendation A large asset management company was concerned at the performance of one of the stocks in its major portfolio. The stock already had an underweight recommendation from the firm’s analysts; however the firm asked its research department to do a further analysis in light of continued poor share price performance. The analysts put together a comprehensive research piece about the state of the company. They presented this internally to their portfolio managers. Their conclusions on the firm were extremely negative, and the recommendation on the stock was to downgrade it to ‘sell’ from ‘underweight’. The following week, to their surprise, one senior portfolio manager (PM) at the firm doubled his holding of the stock. The analysts were worried that their research was not being taken seriously! Over the next few weeks, the price of the stock stabilised, having fallen sharply for several months. Then, over subsequent weeks, it began to claw back its losses before starting to rally more significantly. Within three months it had surged by close to 15% from the time of the ‘sell’ recommendation. The PM then sold the firm’s entire holdings of the stock. Over the following six months, the share price went into sharp decline, eventually moving well below the previous lows. The analyst behind this report remained puzzled. He knew the PM’s actions were right in hindsight, but he could not understand why he had ignored the ‘fact-based’ fundamental assessment of the stock. To him, the PM’s actions at the time made no sense. Some months later the analyst had a chance to talk to the

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PM about this trade. The PM told him that he did not know that the share price would bounce, but he felt that something about the behaviour of the share price just did not feel right. On the one hand the stock felt heavy; on the other, each new negative story and additional wave of selling was having less downside impact. In his opinion, he thought it might be a good time to go against the market. He felt the stock was possibly oversold and thus buying it offered a favourable ‘risk/reward’ opportunity. Master Sensemaking This is a great example of Master Sensemaking. This individual was a legend of the investment world; he had made many outstanding investments calls in a career spanning more than 30 years. He had a ‘felt sense’ of what was happening in the market on stocks he was exposed to. This ‘felt sense’ could not be represented in data, numbers, fundamentals, but it provided him with ‘colour’ on the market. ‘Embracing of Uncertainty’ Another aspect implicit in Sensemaking, is the ‘embracing of uncertainty’. When one ‘embraces uncertainty’ one accepts that they ‘don’t know’, they accept ‘being wrong’ as a strong possibility, a necessary evil on the path to success. ‘Not knowing’ and yet still acting is challenging. But in both of these examples, and as will be seen in the next one, the individuals involved stated that they did not know what was going to happen next, but they still acted. They were comfortable living with that decision, and with the consequence that they might be wrong. Tough as this ‘mindset’ is, it is also enormously empowering. Accepting the possibility or potential of failure upfront can help remove much of the ‘self-judgment’ that comes with the post-trade or post-execution analysis people engage in. It makes it easier to contextualise an action. In addition, one is more likely to factor in the possibility of failure into all aspects of planning, position-sizing and risk-management. For Sensemakers, ‘not knowing’ and ‘failure’ are just parts of the landscape, rather than any sort of existential threat. Failure is accepted as the price of success. Sensemakers would never allow themselves to be fooled by phrases such as ‘failure is not to be tolerated’. It is very much to be tolerated, within a certain context; call it ‘informed failure’. It is worth noting that the PM above is famed for making such calls. He accepts that, while some of them turn out wrong, the aggregate is what matters, and indeed his aggregate returns have been extraordinary. Without the willingness to accept failure as a possibility, and the factoring in of failure in to the pre-execution analysis, he probably would not have taken many of the trades of the type described above. Sensemaking is an ‘Attitude and State of Mind’ Sensemaking is as much about how one ‘is’, as what they do. Most people I come across have the ability, knowledge and


competence ‘to do’; however, it is how people ‘are’ or how they are able to ‘be’ that distinguishes the ‘great’ from the merely ‘good’. Sensemaking also requires a ‘state of presence’ or being ‘present’. Being ‘present’ allows people to move to levels of performance which are out of the reach of most. These people can bring the best of themselves to their work on a regular basis. This ‘state of presence’ cannot be turned ‘on and off’ like a tap; it is something these people have deliberately worked on over many years through trial, error, success, failure and reflection. As a performance coach and organisation development practitioner, a major part of my work is helping people, teams and businesses within financial market environments develop their ‘Sensemaking’ abilities. Many of the best traders I work with are outstanding Sensemakers; it still surprises me when they come to me for coaching, though it shouldn’t really. A characteristic of great Sensemakers is the desire to always grow, get better and stay ahead of the field. Example three: the Bund Trade My third example relates to a more short-term trading approach with a small twist at the end. It occurred 1:30pm on a Friday in May 2007 as the latest US GDP number was released. Twice in recent weeks, the trader had entered the market on the short side in Bunds; twice he had stopped himself out. He still favoured Bunds to thrust lower on what he felt was potentially a very favourable ‘risk/ reward’ set-up. However at this time he had no position. The data release was significantly weaker than expected; this did no favours for the trader’s view. Bunds were closely correlated to moves in the US 10-year note, which jumped in response to the data. However, the move higher quickly ran out of steam and soon started to reverse. The trader noted that the initial jump higher was less spectacular than the disappointing data warranted, and 10 minutes after the release, all the gains were erased. This now had the trader’s attention! The market continued to tick lower, at first just gradually, but then it started to gather speed. The trader re-checked the economic data release; there was nothing ambiguous within it, and it was weak data. He also noted that the trading volume was far larger on the selling than the buying. This was not ‘normal’ price action and, instinctively, he started selling Bunds. He did not know why, but things felt different this time. Maybe this was the move he had been anticipating. By the day’s end he was fully short his 1200 lot limit and that afternoon’s trading had fully erased most of the negative USD600,000 PnL for the year with which he had started the day. Over the next couple of weeks, this trade continued to move sharply in his favour, soon getting close to the objective he




were ultimately proved right, but in a different timeframe. Equally, the US GDP data release in the third example was a sign of sharply slowing economy. Further data confirmed this in the months ahead, and within weeks of the data release, US and European bonds commenced a multi-year bear move. In all three examples, the individuals picked up on disconnects between the first-hand reading of the data and price action which provided great risk-reward opportunities. It may have made no sense to the external observer; however, the traders had ‘colour’ on the market, and feelings which could not be captured in a rational reading of the fundamental data.

set for this move. He booked his profit on this trade, close to USD3m million overall. Sensemaking is far more than intuition. It would be a mistake to confuse Sensemaking with intuition, the ability to understand something instinctively and without the need for conscious reasoning. Sensemaking informs intuition. When we are engaged in Sensemaking practices, we are increasingly open to picking up non-conscious signals. Sensemaking takes us beyond the data and facts. Financial markets confound many people because they so often do not conform to models or expectations. In all three examples above, the markets confounded conventional wisdom of how they should perform in reaction to the events which preceded the decisions. Imagine, if in each of these examples a commentator was expected to make assertions on likely market direction based off the first-hand data which preceded each decision, as they do on financial TV programmes. In the first example, a response to the SNB stating their continued support for the euro peg from a commentator, would have been likely to state this as providing strong underlying support for the EURCHF. In response to the sell recommendation from the asset management firm’s analysts, a commentator would have remarked that this should be significantly bearish for the stock in question. In the third example, the obvious response on the GDP data would have been to stress this as bullish for bonds. Sensemaking gives the chance to tap into a much deeper well of knowledge, to reveal hidden signals, to gain deeper understanding, to be able to intuit. This, of course, is not easy; not every choice will be right, which is why ‘embracing uncertainty’ can be so challenging. Many of my clients do not like having to explain their decisions to others; most people want sound explanations based on hard data. This also proves challenging for analysts. They must make recommendations based on their models and first-hand data. They do not have the luxury of making assumptions based on feelings, felt insights, hidden knowledge and market colour. Interestingly, the conclusions reached by the asset management firm’s analysts

Sensemaking, the Key to Extraordinary Performance In these examples the individuals concerned had no idea what was going to happen next, nor were they aware of why they felt they were taking the right action. However, they trusted their intuitions and instincts acted upon them, and were willing to accept the consequences of being wrong. These stories are not isolated. I work with many outstanding traders, investment professionals, salespeople and leaders in the industry. As shown by many similar examples in other fields of performance, great performance seems to defy logic and reality. In a world characterised as mechanised, ordered and digitalised, we increasingly overlook the human factors which play such a major part in the processes needed for success. I have not named the individuals or their firms in the first two, as their companies require extreme levels of confidentiality. However, revealing the little twist I alluded to earlier, I can tell you that in the third example the trader was me, from a time when I was working at American Express Bank in London.

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Extending the Frontiers of Technical Analysis: the application of W. D. Gann’s forecasting method to the currency markets James Smithson James Smithson is an investor and trader based in London. You can contact James on

Introduction William Delbert Gann (1878-1955) was a successful stocks and commodities trader. He also wrote seven books and numerous short courses on how to trade. Gann’s success as a trader was based on his forecasting method, which he developed from his research between 1902 and 1908. This paper examines the application of Gann’s forecasting method to the currency markets. The evidence suggests that Gann never traded currencies. I examine the reason for this omission, and why his forecasting method can nonetheless be applied to the currency markets today, and also look at the potential practical problems. Why did Gann not Trade the Currency Markets? Gann does not mention currency trading in his books and courses, nor in his various advisory services or in his personal trading records. Thus it is reasonable to assume that he never traded them. To identify the reason for this, it is first necessary to examine his method. Cycles of time form the basis of the technique (Smithson 2016) and Gann referred to cycles throughout his writings, including: “Time is the most important factor in determining market movements because the future is a repetition of the past and each market movement is working out time in relation to some previous time cycle.” (Gann 1946, p4) and “My experience has taught me that nothing can stop the trend as long as the time cycle shows up-trend. Nothing can stop its decline as long as the time cycle shows down. Stocks can and do go up on bad news and go down on good news.” (Gann 1949, p3) He summarised his forecasting method in the following statement: “In making my calculations on the stock market, or any future event, I get the past history and find out what cycle we are in and then predict the curve for the future, which is a repetition of past market movements.” (Gann 1927, p76) Thus the method essentially has three stages: 1) 2) 3)

Acquire a detailed price history of the financial instrument; Analyse that price history to identify the underlying cycles driving the financial instrument; and Forecast the future prices of that financial instrument from the future progression of those underlying cycles.

Therefore a necessary condition for the application of the method is that prices should fluctuate freely in accordance with underlying cycles, both historically (ie during the period of the price history) and into the future. However, the evidence



suggests that between 1908 (when Gann completed the creation of his forecasting method) and 1955 (when he died), this condition was not generally present in the currency markets. To be specific, the major currencies typically did not fluctuate freely. A detailed history of currency controls from 1908 to 1955 is beyond the scope of this paper; but here is a summary of the exchange-rate regimes of the leading industrial countries during that period which indicates the constraints and controls on currency prices: • 1908-14: Fixed-exchange-rate gold standard • 1914-18: First World War: gold standard suspended and capital controls • 1919-27: Interwar managed-floating-exchange-rate period • 1928-31: The major currencies returned to gold standard by 1928 and from 1931 began leaving gold standard in response to the Great Depression • 1931-39: Interwar managed-floating-exchange-rate period • 1939-45: Second World War • 1945-55: Bretton Woods system of fixed exchange-rates. In summary, it would appear that Gann never traded currencies because, from 1908-55, the major currencies were typically prevented from fluctuating freely, nullifying his forecasting method. Application to the Currency Markets Today It is more than 60 years since Gann died and the Bretton Woods system of fixed exchange-rates that was in force for the last decade of his life eventually collapsed in 1971-73. Today the major currencies (by which I mean the Australian dollar, British pound, Canadian dollar, euro, Japanese yen, Swiss franc and US dollar) ostensibly float freely. They are monitored by their respective central banks, all of which are mandated to maintain economic stability and hence can intervene in currency markets when they deem necessary. For example, the Swiss central bank pegged the Swiss franc to the euro between September 2011 and January 2015. The key question, which I shall now attempt to answer, is: Can Gann’s forecasting method be applied to the currency markets today? As stated above, the first stage is to acquire a detailed price history. I decided to examine first the US dollar and therefore obtained a series of daily price charts (open/high/low/close bar charts with arithmetic price scale) of the US dollar index (ie measured against a trade-weighted basket of currencies) from 1988 to 2017. I selected a 30-year period because this is long enough to include a range of market conditions. Finally, I selected a starting-date of 1 January 1988 because that was 15 years after the end of the Bretton Woods system of

fixed-exchange rates. I hoped that by this time the US dollar and the other major currencies would have been fluctuating freely in accordance with their underlying cycles. As stated above, the second stage is to analyse the price history to identify the underlying cycles. I found it quite straightforward to identify the set of cycles driving the US dollar and therefore I concluded that Gann’s forecasting method can be applied to the currency markets today. Unfortunately my conclusion was premature. More specifically, when I then applied this same methodology to the other major currencies (as stated above, the Australian dollar, British pound, Canadian dollar, euro, Japanese yen and Swiss franc) I was unable to identify clearly any underlying cycles. This absence of clear cycles prevailed whether I analysed a currency index or the various currency pairs. My initial thought was that I must have been mistaken in my analysis of the US dollar, that proponents of the Efficient Markets Hypothesis were correct after all and that market prices are essentially random, making looking for underlying cycles in a price history a naïve and futile activity. However, I rapidly came to my senses, remembering that I had already successfully applied Gann’s forecasting method to a range of stocks and commodities. I therefore hypothesised that currencies present a specific problem: individual stocks and commodities are essentially single financial instruments that are measured in a currency that is relatively stable compared with the stock or commodity. In contrast, a currency pair is essentially two financial instruments fluctuating simultaneously in accordance with their underlying cycles and therefore it is difficult to identify those cycles. I then hypothesised that I had been able to identify the underlying cycles of the US dollar from its index price history because its cycles dominate those of the basket of currencies it is measured against. In contrast, the underlying cycles of the other major currencies are relatively evenlybalanced. Therefore the cycles driving a particular currency are obscured, whether one is examining a currency index or currency pair. I therefore concluded that in order to identify the underlying cycles driving a particular currency it is necessary to measure that currency in terms of a second currency, one that is relatively inert. Consequently, I set out to find a currency issued by a country both economically and politically very stable and with few natural resources (eg mineral or energy assets, whose cycles may influence its currency). The New Zealand dollar appeared to be a suitable currency. I then re-examined the major currencies, employing the New Zealand dollar as the reference currency. In each case

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the underlying cycles driving that currency could finally be clearly identified. I then re-examined the US dollar, but measured in New Zealand dollars, and confirmed my earlier findings regarding its underlying cycles. I then examined a selection of minor currencies, the Brazilian real, Indian rupee, Mexican peso, Norwegian krone, Russian rouble, South African rand, South Korean won, Swedish krona and Turkish lira. Once again, I employed the New Zealand dollar as the reference currency and, in each case, the underlying cycles driving that currency could be identified. I excluded some currencies from this analysis because they are linked to others, once again nullifying Gann’s method. These were the Chinese yuan (partially-pegged to a basket of currencies), Danish krone (pegged to the euro), Hong Kong dollar (allowed to trade in a range linked to the US dollar) and Singapore dollar (stabilised against a concealed basket of currencies). In summary, my research encompassed the 21 most actively-traded currencies by value, which constitute approximately 97% of foreign exchange turnover (BIS 2016). More specifically, the underlying cycles of 16 currencies were identified. Four were excluded because they are linked to other currencies and it was not possible to identify the underlying cycles of the New Zealand dollar due to the apparent absence of a more stable reference currency. I then concluded that Gann’s forecasting method can be applied to the currency markets today. However, in order to identify the underlying cycles driving a particular currency it is necessary to analyse the price history of that currency measured in New Zealand dollars. At this point I should apologise for not providing a detailed exposition on how to identify the underlying cycles driving a currency from a price history of that currency. I am however continuing a practice started by Gann himself: “Mr. Gann has refused to disclose his method at any price” (Wyckoff 1909, p55) and “It is not my aim to explain the cause of cycles” (Gann 1927, p78). Potential Problems in the Practical Application of Gann’s Forecasting Method to the Currency Markets 1) Identifying the underlying cycles that drive a currency As discussed above, currencies present a particular problem because a currency pair is essentially two financial instruments fluctuating simultaneously in accordance with their underlying cycles and therefore it is difficult to identify the cycles driving each component. The solution, when analysing a particular currency, is to employ the New Zealand dollar as the reference currency. This is an effective solution because the currency is relatively inert, apparently reflecting


“Do not expect General Motors to have a big advance because Studebaker has already advanced… Also consider that it has a capital stock of fifty million shares, while Studebaker has only 750,000 shares… It requires a much larger buying power to move a stock with several million shares than it does one with only 750,000.” (Gann 1923, p104)

the country’s stability and small economy (New Zealand’s gross domestic product was ranked fifty-third in the world by the IMF in 2016). 2) A currency ceases to act in accordance with its underlying cycles Gann’s forecasting method is nullified when a financial instrument ceases to act in accordance with its underlying cycles. The major cause of this problem in currencies is central bank intervention. The solution is to avoid such currencies, in the same way that Gann recommended we avoid stocks acting similarly: “The kind of stocks to trade in are those that are active and those that follow the rules and a definite trend. There are always queer-acting stocks and some stocks that don’t follow the rules. These stocks should be left alone” (Gann 1936, p34). 3) A currency’s low sensitivity to its underlying cycles Under Gann’s forecasting method, the price of a financial instrument is driven by cycles. One ramification is that the larger the amount that has been issued, the stronger the cycles must be to drive it: “Do not expect General Motors to have a big advance because Studebaker has already advanced… Also consider that it has a capital stock of fifty million shares, while Studebaker has only 750,000 shares… It requires a much larger buying power to move a stock with several million shares than it does one with only 750,000.” (Gann 1923, p104) The currency markets are some of the largest financial markets in the world. Therefore they are particularly susceptible, displaying a low sensitivity to their underlying cycles and only the strongest cycles produce major moves. One solution is to trade the so-called cryptocurrencies (eg Bitcoin or Ethereum) as these usually have a price history from which their underlying cycles may be identified and used to forecast future price movements, and the amount of issued currency is apparently strictly controlled. Unfortunately there would also appear to be a grave risk that in future these currencies will not act in accordance with



their underlying cycles due to such factors as fraud, hacking, network and infrastructure failure and regulatory intervention. 4) A breakdown in the geometry of currency markets Although cycles are the basis of Gann’s forecasting method, he also discovered that market prices typically unfold in a coherent way in response to these cycles and hence there is a geometry to the stock and commodity markets. For example, changes in the rate of vibration (as measured by the slope of the trend line in prices) are not continuous but conform to a series of principal energy levels and subshells (Smithson op. cit.). Consequently, in his forecasting of the stock and commodity markets, Gann analysed the underlying cycles and the resultant market geometry. However, in the currency markets this geometry typically breaks down because of the simultaneous price fluctuations of each component of a currency pair. Although the New Zealand dollar is sufficiently stable as a reference currency to enable the identification of the underlying cycles driving a particular currency, it is usually not sufficiently stable to enable the use of market geometry as a supplementary forecasting method. Therefore, unlike stock and commodity markets, when analysing currency markets, we can only rely on the underlying cycles.

Conclusion The Efficient Markets Hypothesis is currently the dominant paradigm in the field of investment. In summary, it postulates that price movements are essentially random in highly-developed or “efficient” markets. W. D. Gann’s forecasting method is the direct antithesis of the Efficient Markets Hypothesis. In summary, it postulates that the price history of a financial instrument can be analysed to identify the underlying cycles driving the financial instrument; these can then be used to forecast future prices. A necessary condition for the application of Gann’s forecasting method is that a financial instrument should fluctuate freely. This condition was not generally present in the currency markets during Gann’s lifetime and therefore he never traded currencies. However, it is generally present in the currency markets today and therefore his forecasting method can now be applied. The exception are pegged currencies, which do not fluctuate freely. A key problem in application is identifying the cycles driving a particular currency. The solution is to employ the New Zealand dollar as the reference currency. Another problem is when a currency ceases for a period of time to act in accordance with its underlying cycles, the usual cause being central bank intervention. A third problem is a currency’s low sensitivity to its underlying cycles, the usual cause of which is the very large amount of currency that has been issued. A final problem is the breakdown in market geometry, the usual causes of which are the simultaneous price fluctuations of each component of a currency pair. Since Gann’s forecasting method can be applied to any financial instrument that fluctuates freely in accordance with its underlying cycles, and where a detailed price history is available to enable identification of these cycles, the investment universe today essentially includes all stocks, all commodities and all currencies that are not pegged to other currencies.

References • • • • • • • •

Bank for International Settlements (BIS). 2016. “Foreign Exchange Turnover in April 2016.” BIS Triennial Central Bank Survey. Gann, William D. 1923. Truth Of The Stock Tape. Lambert-Gann Publishing Co. Gann, William D. 1927. The Tunnel Thru The Air Or Looking Back From 1940. Lambert-Gann Publishing Co. Gann, William D. 1936. New Stock Trend Detector. Lambert-Gann Publishing Co. Gann, William D. 1946. Forecasting Grains By Time Cycles (included in W. D. Gann Commodities Course) Gann, William D. 1949. 45 Years In Wall Street. Lambert-Gann Publishing Co. Smithson, James. 2016 “Rediscovering W. D. Gann’s Method Of Forecasting The Financial Markets.” Market Technician, issue 80. Wyckoff, Richard D. 1909. “William D. Gann: An Operator Whose Science And Ability Place Him In The Front Rank.” The Ticker And Investment Digest.

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Did you know? Did you know that we run an education forum? This is to help people pass the STA exam. It is run by Rajan Dhall. Below is some of the feedback we have been getting:

“Hi Raj, thought I’d let you know I passed the exam. I was sure I would be resitting it but somehow managed to get 82%. Thanks for looking over the reports I emailed you, it really helped knowing I was on the right path. Thanks for all your help.” Sam Bloxham, private investor.



Head and Shoulders above: Trevor Neil

At the age of 18, armed with my ‘A’ Levels, I was lucky enough to get a job with the esteemed firm Ralli Merrill Lynch, Piece, Fenner and Smith. They sent me straight to New York on a two-month induction programme, Fast Track Trader, where we learned technical analysis, point and figure charts in particular. In those days, if you were a trader, you obviously needed to be good at charting.

Trevor Neil MSTA Trevor is a Director at RRG Research. As well as teaching technical analysis, he is an Accredited Training Provider for the Chartered Institute for Securities and Investment and runs courses for them in behavioural finance, Blockchain and technical analysis. He has presented the popular Trevor Neils’s Technical Analysis Surgery, a monthly webinar sponsored by Thomson Reuters, for more than six years. He has been involved in the world’s only institutional technical analysis awards since they started 10 years ago and is proud to host the annual Technical Analyst Magazine Awards.

My very first job was representing the firm on the floor of the London Coffee Exchange. I moved on to trade other soft commodity futures and from there to the offices as a broker looking after trade hedging customers. At that time a revolution took place in technical analysis - the PC was invented. Many of you may not be aware there was a time when people and even companies didn’t own computers; they had big mechanical adding machines. Only NASA and universities had computers. But suddenly everyone had access to the low-cost PC - we’ve recently witnessed a similar revolution with the arrival of the smartphone and now nearly everyone around the world has one or even two. The PC had a big effect on technical analysis. Our tools moved from being pencil, graph paper, ruler and compass to Apple II. Most of us used the Apple because it had a really good charting package called Compu-Trac. This programme (long gone now) has an important legacy in the history of technical analysis; the owners ran an annual conference in the US where people presented their new theories and ideas and, if accepted by their peers at the conference, these ideas were added as a tool in the programme. I attended four of these conferences and saw Wells Wilder, Gerald Appel, George Lane and many others present their indicators. I remember chatting to a nervous young man who was about to do his presentation about his new book, The Elliott Wave Theory. I will skip quickly through a few decades now. When LIFFE opened, many of us commodity traders moved to financial futures and FX and eventually to equity derivatives. My own career took the path into fund management and into systematic trading. At this time I was involved in the establishment of technical analysis as a profession, being on the board that changed an association into the Society of Technical Analysts, and I was involved in the creation and acceptance of the exam qualification that is now a global franchise. I served on the board under four Chairmen and I am proud to have been a member from the start and enjoy attending meetings (and the excellent dinners) even today. My career moved forward and I ran a technically driven systematic fund that was stock exchange quoted called Helix Fund for a bank. I had a brief period again on the floor of LIFFE in the Bund pit before being offered a great job as Head of Technical Analysis at Bloomberg which I loved, but I missed the markets too much and decided to have one more go.

The PC had a big effect on technical analysis. Our tools moved from being pencil, graph paper, ruler and compass to Apple II...

With a colleague, we raised the capital in 2003 to form a hedge fund trading using the work of Tom Demark. Seeded mainly by a large South African insurance company, we ran the Isivuno Fund (Zulu for harvest) from there and, after moving to South Africa, I lived in Johannesburg and Cape Town. In 2006 I wanted to return to the UK and sold my share of the fund to my partner.

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I have some wonderful clients including stock exchanges and even central banks. I am particularly appreciated in the energy and power market and by hedge funds.

Since then I have run a small fund trading systematically using technical analysis. I started BETA Group and teach technical analysis skills to institutional traders, portfolio managers, analysts and hedgers worldwide. I have some wonderful clients including stock exchanges and even central banks. I am particularly appreciated in the energy and power market and by hedge funds. The former look to use the timing aspects of technical analysis to reduce and manage risk, the latter to get exposure to risk. For almost 10 years I have presented a popular free monthly webinar sponsored by Thomson Reuters, Trevor Neil’s Technical Analysis Surgery. I am one of those fortunate people who love their job. I am proud to be able to call myself a Professional Technical Analyst. I never want to retire because my hobby is technical analysis. I have made many friends through the STA and at the IFTA conferences I have attended and spoken and of course, my clients. Technical analysis has been very good to me in my 40+ year career.




The 2016 Bronwen Wood winner describes his experience of the STA course: Marco Meola

What is your background and how did you get into the financial industry? My decision to go to university and then to join the financial industry was mainly to avoid my family’s business of Italian restaurants! I wanted to stand on my own two feet. After studying Economics and Management at Oxford University, I was selected for an internship at UBS in 2010 and then joined the Foreign Exchange Institutional Sales team full time in 2011. I do sometimes regret this choice when trying to spot trendlines rather than perfecting pasta sauces with my father and brother! What is your role at UBS Investment Bank? Foreign Exchange Institutional Sales involves interacting with a mixture of hedge funds, insurance companies and pension funds, providing a range of services including trade execution, content production and account management. These three quite varied functions, combined with the fact

that the team looks at a very broad range of markets and financial instruments, makes the role especially interesting. When did you first hear about technical analysis? I was introduced to technical analysis by Mike Bichan, now global head of FX sales at UBS, when I joined UBS. Alongside fundamental analysis, he used technicals to gain a better understanding of market sentiment and I found this approach very useful. I also spent some time with Richard Adcock, then the in-house technical analyst at UBS, who explained the key indicators and methods he looks at, further catalysing my interest. What made you decide to take the STA diploma course? I heard about the diploma from a number of colleagues and clients. In particular I thought it would help me better understand market sentiment and timing, as well as adding an element of objectivity to how I think about markets. I was

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also attracted to the flexibility and adaptability of technical analysis, to different time frames, levels of risk appetite, and asset classes. I wanted to use both technical and fundamental analysis; it doesn’t have to be one or the other. How did you find the course and what was your favourite part? The course was a fantastic way to get to grips with a range of technical analysis tools. Part one is a foundation course that gives you a solid grounding. Part two looks at topics in more detail, each week meeting a new expert in their field who explains a new technique. I enjoyed this part the most. You’re not told what to do; rather, you are introduced to a broad range of techniques and you then decide which of them to apply and in what combination. How was the exam? The part one exam is multiple choice; it requires a good amount of work but is generally manageable. Part two is a lot more difficult but also a lot more rewarding and applicable to my job. You get three hours to write a technical report across time frames, as well as answering one long and two short essay questions. It’s less about the rigid right and wrong answers of part one. In part two, very different answers could both be of a high standard. It’s about applying the principles and techniques that you’ve learned in the way you see fit providing justification where relevant and reaching evidenced conclusions. The most important thing in my opinion to succeed in the exam is time management, both in terms of planning your revision, and planning how you will use your limited time in the exam itself. The course instructors are very good at explaining this and the exam preparation classes are incredibly useful. But ultimately you need to ensure you plan and do as much practice as possible under exam conditions. Did it meet your expectations? And why? Overall the course beat my expectations. I didn’t expect to have such a range of teachers covering so many different techniques. Furthermore, the course strikes a very good balance between the academic discussions around the advantages and disadvantages of technical analysis, and the practical application of whether the outlook for an asset is bullish or bearish and what might change your mind. How do you now use technical analysis in your day-to daywork? Has this changed since taking the exam? I use technical analysis for a combination of purely technical trade ideas, and to support or refute ideas based on fundamental analysis – both my own and those of my


peers. In addition, clients, colleagues and traders are often interested in support and resistance levels. Overall, I have found ideas that combine technical and fundamental analysis generate the most interest. Since doing the course, the range of indicators I use has increased, and the number of people who value my technical opinion is notably higher. What do you like about technical analysis and what areas do you concentrate on? I primarily like that it keeps you honest. Human beings have a selection bias; if you are bullish an asset you tend to see the evidence that supports that claim and ignore that which contests it. Technical analysis can give you a framework, a point of reference, to keep yourself in check. I use a combination of traditional trend lines and patterns, which can be a bit subjective but I find useful, combined with candle formations, MACD and stochastics to do this. The other thing that attracts me to technical analysis is the idea that market action discounts everything - including fundamentals, political risk and investor psychology. Would you recommend the diploma course and exam to anyone thinking about taking it? Absolutely. Quite simply there is no better way to become versed in such a range of technical analysis tools.



Book Club by Nicole Elliott Nicole cross-examines some of today’s leading experts to put together the definitive reading list for those keen to expand their technical analysis wisdom. Were you given a book or three for Christmas? If they’re rubbish, I have an idea! At least twice a year, the media machine feels the need to tell you which books to buy. For yourself, to keep you entertained over the summer holidays, and for your nearest and dearest (who you haven’t seen in a year) at Christmas. Journalists, who don’t know you from Adam, feel compelled to make lists of suggestions. Why on earth would I listen to them? They don’t know what I like and have an even foggier idea of who my friends are. Why can’t we have chefs reviewing recipe books, musicians pushing poetry, or policemen covering crime fiction? Now that might be fun! As my friend the supreme-court judge who, like me, has to read an awful lot for work says: “Reading for pleasure becomes a little more difficult every year. Or are we more demanding?” Yes, demand better and (preferably) more concise. Don’t even open the unwanted Xmas gift; don’t think of thumbing through it. Write the requisite thank you note (email will do for a present where so little time and effort were involved) and see if you can wangle an exchange. Off to the book store, online retailer, or EBay with a lame excuse. For those of you who are technical analysts, or want to learn more about the subject, I have some books in mind which hopefully will cover all ability levels. But I wouldn’t be so bold - or so industrious - as to pick the mix myself. Oh no! I have strong-armed the best in the business to give me their suggestions. I’ve enlisted committee members of the UK’s Society of Technical Analysts and some of the biggest names into proffering a couple of suggestions apiece.

Starting with STA chairman Axel Rudolph a multi-lingual German banker and an efficient chap his reply was first in my inbox, bagging a book that many other also did suggest: ‘Reminiscences of a Stock Operator’, the story of Jesse Livermore by Edwin Lefèvre. Published in 1923 my money market broker gave me a copy (for Christmas!) 30 years ago and I’ve re-read it several times. Axel says: “it has many insights into trading, life, and psychology which are as relevant today as they were when the book was written”. Another MSTA pointed out that its other advantage is that it’s a small, short book and therefore easy to pack. Axel’s second choice is ‘Trader Vic - Methods of a Wall Street Master’ by Victor Sperandeo because “his set-ups, such as a false breakout, can still be profitably traded today”. Adam Sorab, a previous STA chairman and global multi asset hedge fund manager said: “Personally, my first recommendation would be ‘Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance’ by James Montier. The reason is that while many books do a good job of teaching TA techniques, few books do such a good job of teaching one about the very real neurological and psychological barriers to investment success. James’s book brings together a lot of solid academic research and pulls the lid on many investment myths. I think it’s essential reading for anyone who is ever going to try and make money by investing in markets. If I had to give a second recommendation it would be Thomas Cleary’s translation of ‘Art of War’ by Sun Tzu. It’s a very accessible version of this essential ancient Chinese military strategy text. Art of War is a 2500 year old piece of writing that still has a huge amount to teach us about coping with conflict and opportunity in today’s world”. John Cameron, who is responsible for much of the syllabus and exam format of the STA Diploma Course likes these books: ‘Getting started in Technical Analysis’ by Jack D.

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Schwager where “his purpose is to avoid a text book approach and show TA as essentially practical, something he achieves brilliantly”; he penned the best-selling ‘Market Wizard’ series. John’s second choice is also ‘Trader Vic’ because “it’s a fascinating biographical, forthright, entertaining and enjoyable read” which as the foreword claims ‘this book [is] valuable to everyone, regardless of their level of interest or expertise in the stock or commodity markets’.

it’s very cheap and it explains to the novice investor that you have to get saving early because compounding is key. It also shows people they should be doing important things like having a will”. He adds another two: ‘The Trading Athlete’ by sports psychologist Shane Murphy and trader Doug Hirschhorn and ‘Market Wizards’ (again) which is available as an audiobook. Handy! Indeed, podcasts are currently more popular than video interviews.

Luise Kliem, who currently sets the STA exams and developed the Home Study modules, recommends ‘Marber on Markets’ by City legend and my guru Brian Marber saying: “It’s very informative with a practical approach that all investors (particularly private investors) will welcome – and it’s so utterly irreverent and entertaining that I forgive him for poohpoohing Fibonacci.” Her number two is ‘Candlestick Charts’ by Clive Lambert because it does what it says on the tin: written in a “clear, informal and engaging style that quickly gives the reader a grasp of what’s important”.

Mark Tennyson-d’Eyncourt, who is every bit as suave a fellow as the name suggests, said, “I have a nasty feeling that my recommendations don’t fit your criteria, but here goes: ‘Charters on Charting’ by David Charters but it might be out of print.” Great! Then ‘The Great Crash of 1929’ by J. K. Galbraith, my copy of which became almost mandatory reading in the dealing room in 2007 and 2008. He also suggests Adam Smith’s ‘Money Game’ and ‘Beginners Please’, a 1975 edition of extracts from the Investors Chronicle “where the TA chapter also acts as a primer and where the charts show the major tops in 1972 and the declines through to 1974. A real bear market! This should be required reading for younger analysts”. I’ve read a later version and it’s brill, complete with original Investors Chronicle material from David Fuller.

John Douce, STA librarian at our collection in the Barbican, focused on texts for newcomers because, as Woody Allen said, “stockbrokers invest your money until it’s all gone”. ‘The Intelligent Investor’ by Ben Graham (18941976) was first published in 1950 and the fourth edition has a preface by Warren Buffet, footnotes by Jason Zweig. His second choice is the output of industry veteran Martin Pring, one of his many books being ‘Technical Analysis Explained’. Enthusiastic head of marketing and consummate professional chartist Karen Jones’ first suggestion is John Murphy’s ‘Technical Analysis of the Financial Markets’. “For a beginner’s book I think it’s hard to beat. When I first started out this was my reference book of choice.” Considered by many a dictionary of TA, it runs to many hundreds of pages with lots of chart examples. Note: it should be tackled in small doses. “Because I have always been fascinated by Fibonacci I also enjoyed ‘Fibonacci Trading: How to Master the Time and Price Advantage’ by Carolyn Boroden,” Karen says. I would also suggest an offbeat book, ‘The Secret Code’ by Priya Hemenway, subtitled ‘The mysterious formula that rules art, nature, and science’; venturing into the occult here. Treasurer Simon Warren, ex-fund manager at health insurer Bupa proffered these little gems: ‘Motley Fool: Make your Child a Millionaire’ “because it’s small and light to travel with,

Charles Newsome, Divisional Director at Investec Wealth & Investment Ltd (who moonlights as vice chairman of the STA) was succinct. ‘Steve Jobs’ by Walter Isaacson. “OK, it’s a biography but I think it’s a must read and gives an insight into this brilliant man. ‘The Outsiders’ by William Thorndyke which is the story of eight unconventional outsiders who thought differently about capital allocation”. Clive Lambert, whose candlestick book was chosen earlier, now pops up in his guise as part of the STA marketing team. His third choice (he was asked for two but is a generous man) is ‘Extraordinary Popular Delusions and the Madness of Crowds’ by Charles Mackay. “It amazes me how often investors forget about bubbles; this is a cracking read that serves as a great reminder to anyone who is thinking about piling into Bitcoin right now... for example!” David Watts, trading systems consultant likes ‘Secrets for Profiting in Bull and Bear Markets’ by Stan Weinstein, “the most lucid book on the use of moving averages”. His other book is ‘Technical Analysis of Stock Market Profits: A Course



in Forecasting’ by Richard Schabacker which he deems was the first real Bible of TA. I agree, adding that my primer was Edwards & McGee’s ‘Technical Analysis of Stock Trends’, which interestingly focuses on commodity futures markets as these were then at the forefront of investment thinking. Youthful hedge fund manager Tom Hicks says he’d “have to go for ‘Reminiscences” (yes, another plug for this delightful little book) and a toe-curling ‘Ichimoku Charts: An Introduction to Ichimoku Kinko Clouds’ by Nicole Elliott. Yours truly’s oeuvre “was the book that got me into trading using Ichimoku techniques” and which Luise liked for its writing style. Lastly, company secretary and fellow of the society, veteran Anne Whitby says: “I’m afraid I have no books to recommend. I’ve only ever read one (because I had to proof read it) by Ellie Gifford and it’s now out of print”. This reminds me of one of my fellow bank traders who insisted on working from home saying he wanted to keep away from the distracting chatter of other dealers. For those interested in commodity markets, I’ve roped in ex-head of risk management at United Biscuits, Brenda Sullivan. She says: ‘Economics of Futures Trading’ by Thomas Hieronymus is “a classic. This book makes accessible the relationship between futures and the cash or physical markets. These concepts underpin all asset classes and price movements”. Her other gem, Peter Steidlmayer’s ‘New Market Discoveries’ (one of which was the Market Profile technique). “This method put order into markets before we had digitalisation and this method of arranging data links to geometry and the statistical concept of standard deviations.” Book reviewer, technical analyst and private trader Simon Gray likes Alexander Elder’s ‘The New Trading for a Living’ where “its strengths are market psychology, risk control and account management”. As an alternative to Schabacker there’s John Burford’s ‘Tramline Trading - A Practical Guide to Swing Trading with Tramlines, Elliott Wave and Fibonacci Levels’. A mouthful, published by Harriman House in 2014. This segues neatly on to Stephen Eckett, who set up Harriman House in the early 1990s and which is now the

UK’s leading publisher of books on finance, investment, and trading. He casts his vote for ‘A Beginners Guide to Charting Financial Markets’ by Michal Kahn, and says: “This book gives the basics; it covers only the nuts and bolts of chart analysis leaving the whizzbang stuff well alone.” Another choice is Eoin Treacy’s ‘Crowd Money’ where “at its heart is the application of the insights into crowd psychology. The author’s approach to measuring the rhythm of the market has been the secret weapon of alpha generators for decades”. I’ve kept the best ‘till last, a hero of mine, the man who single-handedly revived Elliott Wave Theory, the maverick who likes combining all sorts of areas of thinking - a Renaissance man - Robert Prechter, who also likes ‘Popular Delusions’. His other choice is too cheeky to be true: penned by his very own hand and published in 2017, ‘The Socionomic Theory of Finance’. Piecing together psychology, herding tendencies, mood, linear extrapolation bubbles, scepticism and economics, this is an 813 page brain teaser. “I wouldn’t call it beach fare, but I think it’s fun!” He donated a copy for the STA library; thanks Bob!

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Trading with Ichimoku Karen Péloille (2017) Harriman House Book Review by John Cameron FSTA Do you struggle with chart analysis? Fortunately, I had the benefit of STA Revision Day training where a version of the Problem Solving Approach (Analysis, Synthesis, and Conclusion) was expounded. Those three stages evolved into Observation, Interpretation, and Evaluation and then became “what you see in the chart, what it means, and what is the probable future outcome resulting from your interpreted observations. Suddenly I had a methodology that has a neat logical flow, and that presents evidence, explains it and combines it into a compelling case. Karen Péloille has found a system that fulfils her trading needs. Indeed, she states, in bold: “This system is Ichimoku Kinko Hyo, which allows traders to understand market movements with one single glance.” In fact, that contention is achievable but requires dedicated study, accumulated experience and a deep appreciation of technical aspects. It won’t come instantaneously. The author, a respected university academic in econometrics and trading educator in both France and USA, does bring rigour and illumination to present knowledge. What is more, and important, is the author also incorporates trading psychology, risk management and money management into the process. The structure of the book, as you might expect from an academic, is well organised. There are four main parts: “Ichimoku theory”, “Ichimoku in Practise”, “Ichimoku and Other Indicators” and “The Art of Disciplined Trading”. Each is tidily further divided into separate numbered and titled

sections as set out on the Contents page. There is no index. Japanese terms are used throughout the book. Where the author wants to emphasise salient points they are printed in bold. However some sections can be obscure and it takes time and effort to unravel them. For instance in the very first section of the first part: “Ichimoku Kinko Hyo is a Japanese term meaning ‘equilibrium at a glance’. The most important thing to remember with this indicator is that it depicts market balance. The five dynamic lines that make up Ichimoku exemplify price equilibrium points and may be used in markets to signal potential ruptures of such equilibrium.” Even if you are used to the language of fundamental or technical analysis it might take you a moment to realise that there is a pattern of five lines that describe the current state of the market. When that five line pattern changes it could indicate a changed situation. The section ends by correctly stating that Ichimoku is a trend indicator. It is constructed from moving averages but not the type used in western markets. All the lines, with the exception of the Chikou or lagging line, are determined by calculating a median as opposed to a mean. Both are forms of central tendency or average. The advantage of a median is that it discounts extremes or outliers. The difference between the two types is well illustrated by a clear chart example. Do not think that wherever the text refers to an “average” it denotes the more commonly understood mean! The rest of the first part, “Ichimoku Theory”, is comprehensive and is particularly clear and well-illustrated if you are not familiar with the technique. Indeed I commend the final section, “3 Analysis”. It starts by stressing the necessity of multi time frame analysis. Working through the examples, all of which are well illustrated will teach you



much and, an added benefit, you will become accustomed to the author’s approach. Finally, in the last section, the author’s methodology is set out. It is a rigorous routine and sensible and consistent. The second part of the book, “Ichimoku in Practise”, is demanding and engaging. As earlier mentioned, it is unusual as it looks at more than technical aspects and covers important broader issues. The first section, “4 trading” distinguishes the differences between technical analysts and technical traders. Initially it defines the needs, the different requirements, of both TA users. It goes on to compare how both are fulfilled. The author provides logical and credible arguments. You may disagree in some detail but it is sound, sensible and well thought out. It is followed by basic candle interpretation. Again, it is entirely sound and, even if you know it already it is a useful reminder. Next comes trading procedure and case studies. Some 98 pages of them! It does take time to study them especially as there is nearly a chart per page. It does grind it home a bit: I know because I found it a hack but then I learnt much. There is one issue of which I am not convinced. The author categorically states that: “A stop that is not based on technical is doomed to failure.” (The author’s emphasis). This second part is the heart of the book. It is useful and sound. In complete contrast, I find the next part, “Ichimoku and Other Indicators”, is unconvincing at best. I think of indicators as separate from moving averages; the latter are for trends and cycles and indicators for oscillators based on momentum, volume or volatility. The author points out that Ichimoku is a complete system and in her view western moving averages and oscillators are unnecessary, that the only western techniques of any merit are trend lines or Andrews pitchfork which itself is considered a form of trend line. I have the impression that the author does not see any benefit from applying trend lines, that Ichimoku does a better job anyway. There is a section on Fibonacci but I expect most of you know about that. The final part, “4. The Art of Disciplined Trading” is commended. It and part 2 are genuinely useful. The whole book could help if you are contemplating whether trading is for you.

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Benefits of STA membership

The STA holds 11 monthly meetings in the City of London, including a summer and Christmas party where canapés and refreshments are served.

As a service to our members, many of whom are unable to attend all our monthly meetings, we have been making videos of meeting presentations for several years.

Key benefits • Chance to hear talks by leading practitioners • Networking • CPD (Continuous Professional Development)

Key benefits • Never miss the latest meeting. • Browse our extensive video archive of previous meetings.

The STA has been running educational courses on technical analysis for 25 years.

Student members have access to an education forum which is available in the member’s area of the website.

Key benefits • Courses are taught by leading authorities in their field such as authors, highly regarded professionals and Fellows. • The STA also offers a Home Study Course for self-study.

The STA ”Market Technician” journal is published online twice a year. Key benefits Members receive the latest issue of the “Market Technician” via e-mail. They are also able to access an archive of past editions in the member’s area of the website. Technical analysts from all over the world contribute to the STA journal.

Key benefits Members can ask questions on technical analysis in the Technical Analysis Forum which a course lecturer, author or Fellow will answer.

The STA has an extensive library of classic technical analysis texts. There are over 1000 books in the collection. It is held at the Barbican Library with a smaller selection available at the City Library, a reference library in London. As a member you can now browse which titles are available on-line. Key benefits Members are encouraged to suggest new titles for the STA book collection and, where possible, these are acquired for the library. The complete listing of books held can be downloaded in Excel format from within the member’s area.

The Society of Technical Analysts and the Chartered Institute for Securities & Investment (CISI) have formed a partnership to work together on areas of mutual interest for our respective memberships. Key benefits CISI examination exemptions for STA Diploma Part 1 and 2 holders. MSTAs with three+ years’ experience can become full members (MCSI).

Endorsed by the Chartered Institute for Securities & Investment (CISI), members of the STA are entitled to receive continuing professional development points (CPD) for their attendance at monthly meetings and taught course lectures. Key benefits • Remain compliant. • Be informed of all new industry developments.

STA members benefit from significant discounts on technical analysis books, magazines and software. Key benefits STA members currently enjoy discounts from: • Your Trading Edge • The Technical Analyst Magazine • MT Predictor • CQG • Tradermade and the Global Investor bookshop.



STA Calendar 2018

Monday 5 March 10.00am Stay Ahead Training Centre STA Diploma Part 1 Exam

More information about the STA events can be found here.

Tuesday 13 March 6.30pm CISI Tom Rubython

Tuesday 17 April 6.30pm CISI. Eddie Tofpik, ADM Investor Services International Ltd

See pg.6 for more info

Thursday 19 April 1.00pm London School of Economics STA Diploma Part 2 Exam

Monday 2 July 10.00am Stay Ahead Training Centre STA Diploma Part 1 Exam

Thursday 11 October 6.30pm CISI TBC

Tuesday 8 May 6.30pm CISI TBC

Tuesday 10 July 6.30pm CISI MiFID II Research Panel Update

Tuesday 13 November 6.30pm CISI TBC

Thursday 7 June 6.30pm London’s Living Room 50th Anniversary Party

Tuesday 11 September 6.30pm CISI TBC

Tuesday 11 December 6.30pm CISI Christmas Party

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STA education: the LSE courses, and the Diploma in Technical Analysis The Education Channel - Monthly meetings videos are available to members here. January 2018

Market Outlook Panel

Panel discussion

December 2017

AGM & Christmas Party

No video recording

November 2017

Pedro Fernandes, Chris Deavin, Tom Hicks, Tim Parker

MiFID II panel discussion

October 2017

Dr Dmytro Bondar, Dr Nazri Khan

Detecting market cycles using inverse-logic spectral analysis Malaysian Society Visit

September 2017

Trevor Neil

The VIX pop trading method - defined and tested

July 2017

Summer Party & Awards Ceremony

No video recording

June 2017

Zaheer Anwari

Ignore the noise of the crash and profit from this bull run

May 2017

Rajan Dhall

Finding value across asset classes using volume profile

April 2017

Paul McLaren

Volume at price: Not all prices are equal!

March 2017

Shaun Downey

Trading time: using the fourth dimension to create a third spatial visualisation from a two dimensional image

February 2017

Rolf Wetzer

Cycles in trading, empirical mode decomposition

January 2017

Stephanie Ames, Chris Clark, Zaheer Anwari

Panel discussion: outlook for 2017

STA Library The public library of the City of London at the Barbican Centre holds around 1500 books on economics, finance and investing; this includes the STA collection. UK STA members can obtain free membership of the library and are sent the relevant form in their membership pack. A UK-wide postal service is also available to members. If you do not have an application form to hand and would like to join, please contact STA Administrative Services ( and they will send you one. More information about the STA library services can be found here.



A BRIEF HISTORY OF THE STA DIPLOMA Anne Whitby FSTA Company Secretary Anne, a Fellow of the STA, has been a technical analyst for more than 40 years. She started her career at Chart Analysis Ltd, where she was Managing Director from 1986-95, and subsequently set up a technical analysis department at 4CAST Ltd. She has also spent some time in investment banking, working with the Credit Suisse TA team in 1999-2000. While STA Chairman (1995-98) Anne established the first formal STA teaching courses at South Bank University.

When Philip Gray, aided by others, initiated the process of converting the Association of Chart and Technical Analysts into the Society of Technical Analysts, (a company limited by guarantee), one of the aims of the new body was to create a formal system of teaching and examining to provide a professional qualification in the subject. Prior to this, some commercial courses were available, notably from David Fuller of Chart Analysis Limited, while Investment Research in Cambridge ran an annual conference focusing on the use of TA, which over the years was addressed by every famous analyst you could name. However, none of these offered a recognised professional qualification. So Philip appointed Bronwen Wood as Head of Education, charged with the task of creating a course and an examination in Technical Analysis. It must be said that no one who has taken the course (now courses) and exam would remotely recognise our earlier efforts. The ‘course’ consisted of five evenings of lectures in one week, conducted at the offices of GT Management, where Philip Gray was a Director. Patently, the syllabus was somewhat shorter...and fairly basic! The lecturers included Philip and Bronwen, Robin Griffiths, Elli Gifford of Investment Research and Anne Whitby of Chart Analysis. Bronwen wrote and marked the papers, with the other lecturers as second markers where necessary. As now, candidates were not named on their papers, but had numbers allocated. Later the course expanded, but remained relatively short. Then in around 1994 Michael Smyrk met Ron Giles of South Bank University, which had achieved its university this status in 1992. Ron was keen on bringing TA into the University and, over discussions on their shared interest in TA, the idea grew that that the STA might run our courses there. The then Chairman, Anne Whitby, and Michael, held a number of discussions with other SBU lecturers and the Finance Professor and the deal was struck. Now all that was needed was a longer course and more lecturers to present it to students.

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By this time Bronwen was on her way to work for ADIA in Abu Dhabi, so John Cameron and Clive Hale, who had jointly taken on the education function, set to designing a course to be held weekly over some eight weeks – and persuading people to teach on it. All was in place, but very shortly before the first lecture of the first course was due, Clive found himself unable to participate. Very fortunately for the STA, John agreed to carry the whole burden of both managing the course and doing a number of the lectures, so it all started as planned. John also continued in this role and that of Examiner until he retired in around 2012. Eventually Ron Giles left South Bank and it was necessary to move our operations, with the result that the courses have been held at the LSE for some years now. Meanwhile, subsequent Heads of Education on the Board, Axel Rudolph and Deborah Owen, have continued to expand all our educational operations, both those connected with the Diploma in Technical Analysis and also those in association with other educational establishments, notably QMUL and Kings College in London. Luise Kliem has for some years been Chief Examiner and Course Director, responsible for the whole of the Diploma programme under the Board’s direction. The number of lecturers has also increased over the years, so we can continue with our strategy of providing true experts to lecture in the various subjects covered by the courses. A furthermore recent development has been to offer two courses a year, one introductory and one leading to the MSTA designation. This was planned to cover the fact that some potential Diploma students had very little basic knowledge, as the Part 2 Diploma course was not long enough to start from basics and go right through to Diploma standard. The provision of a Part 1 more basic course also allows for students who may not wish to take their knowledge to Diploma level, but do wish to gain some knowledge of the subject, which can be proved. So from small but ambitious beginnings, the STA Diploma course has expanded greatly over the past 22 years or so. Meanwhile our examination, which was one of the first of its kind, is now recognised worldwide as a high standard qualification.


Did you know? Did you know that we run an education forum? This is to help people pass the STA exam. It is run by Rajan Dhall. Below is some of the feedback we have been getting:

“Hi Raj, thought I’d let you know I passed the exam. I was sure I would be resitting it but somehow managed to get 82%. Thanks for looking over the reports I emailed you, it really helped knowing I was on the right path. Thanks for all your help.” Sam Bloxham, private investor.



Balance professional development and your personal life with our new Home Study Course© In February 2018 the STA launched the new Home Study Course, HSC 2©. This is an exciting upgrade to the hugely successful HSC© which has been a number of years in development. The STA’s aim was simple - to give you the best product on the technical analysis market, not just in course content or the number of experts involved in its development, but also with the administrative and continuous student support you receive. For the past few years we have been tirelessly working on an updated HSC 2© product and all the hard work and commitment has resulted in the launch of an industryleading home study course that is already being recognised as head and shoulders above anything else available. What’s new in HSC 2?: • How one encounters, engages and manages within the heightened uncertainty and ambiguity that defines risk roles. New industry experts involved in development • More interactive • Improved Q&A • 40% more units created to cover increased range of topics (IFTA syllabus compliant) • Gann unit now more practical and user friendly; additional Elliott Wave theory coverage • Interactive questions for each unit using Exambuilder STA Diploma Part 1 exam software • New modules: Risk & Trading systems, Behavioural Finance, Ichimoku Kinko Yyo • Additional techniques taught: Renko, Kagi, Three-line break charts and much more • More revision and exam preparation

The new HSC 2© course costs £1,195.00 and can be purchased by clicking here. This new price reflects the major enhancements as well as the additional and expanded content. The STA Home Study Course© (HSC) is perfect for students who wish to learn at their own pace rather than in a classroom, due to either time or geographical constraints. Anyone who is not able to, or does not wish to, travel to London to attend the STA Diploma Part 1 and 2 courses will find the HSC an excellent alternative. Although website based, it is fully downloadable and may be used online or offline by PC, Mac, iPad or Android machines. For more details click here or contact the STA office on +44 (0) 207 125 0038 or


Congratulations to the latest STA Diploma MSTAs Distinction Justin Gray

Pass Norhasima Binti Haron Noor Asmah Binti Bokhari Julian Broke Evans Henry Croft George Eddell Teddy Golding Khiam Huat Gooi Matthew Gosling Ahmad Helmi Abdul Halim Sylvester Jonny Arjun Lakhanpal David Madden

Chin Mai Ng Gagandip Pannu Mei Ching Amanda Quek Martin Rea Georgia Solomou Vladimiros Spanos Ă ine Stafford Joseph Stein Stelios Stylianou Petros Theodoulou Wan Nur Salina Binti Wan Ibrahim



The STA Executive Committee

Axel Rudolph BSc (Hons) MSc FSTA MCSI Chairman of the STA

Charles Newsome MSTA FCSI Vice Chairman

Karen Jones BSc (Hons) FSTA Head of Marketing

Mark Tennyson d’Eyncourt FSTA Programmes

Guido Riolo BSc MBA MSTA Marketing / Journal

David Watts BSc (Hons) CEng MICE MIWEM MSTA Systems and Website Specialist

Anne Whitby BA (Hons) FSTA Company Secretary

Clive Lambert MSTA MCSI Marketing

Leona Gomez-Lopez MBA ACCA MSTA Treasurer

Tom Hicks MEng MSTA MSCI Head of Programmes

Richard Adcock MSTA Journal

Nick Kennedy BA (Hons) MSTA Systems and Website Specialist

Please keep the articles coming in The success of the Journal depends on its authors, and we would like to thank all those who have supported us with their high standard of work. The aim is to make the Journal a valuable showcase for members’ research - as well as to inform and entertain readers.

Ben Tyler BA (Econ) FCA MSTA ACSI Finance

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STA Advertising Rates 2018 The Society of Technical Analysts Journal “The Market Technician” is a bi-annual publication, published in pdf format only. The STA will accept advertisements in this publication if the advertising does not interfere with its objectives. The appearance of advertising in the Market Technician is neither a guarantee nor an endorsement by the STA.




Inside Cover


A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed.

Full Page


A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed.

Half Page


Landscape, 198mm (w) x 139.5mm (h).

Quarter Page


96mm (w) x 139.5mm (h).

Circulation The Market Technician has a circulation of approximately 1300. Readership includes technical analysts, traders, brokers, dealers, fund managers, portfolio managers, market analysts, other investment professionals, and private investors.

Contact Contact Katie Abberton, Society of Technical Analysts on or +44 (0) 207 125 0038 for more information.

Advertising policy Advertising is subject to approval by the STA Journal Committee. All advertisements must be non-discriminatory and comply with all applicable laws and regulations. The STA reserves the right to decline, withdraw and/or edit at their discretion.

The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.

Society of Technical Analysts Dean House Vernham Dean Andover Hampshire SP11 0JZ tel: +44 (0) 20 7125 0038

The Society of Technical Analysts (STA) is recognised worldwide as one of the largest and most widely respected not-for-profit organisations which trains and accredits members of the investment community, from industry professionals to private individuals, interested in the study of technical analysis. We have been setting the standards in technical analysis for nearly 50 years and have been teaching at several UK universities such as LSE, King’s College, Queen Mary etc. for nearly 25 years.

Market Technician No 84 - March 2018  
Market Technician No 84 - March 2018