Trend Qualification and Trading: Techniques To Identify the Best Trends to Trade (Wiley Trading) [Englisch] [Gebundene Ausgabe]

Unless markets are absolutely comatose they swing. There are swing points in uptrends, downtrends, and sideways movement. Ideally the short-term trader buys close to the low swing points and sells close to the high swing points. The savvy trend trader ignores the minor swing points; he simply has to identify when he is about to overstay his welcome. All this is patently obvious in hindsight, hellishly difficult at the hard right edge.

In Trend Qualification and Trading: Techniques to Identify the Best Trends to Trade L. A. Little offers what he calls a neoclassical model of trends that relies in large measure on defining and qualifying swing points. The classical model, developed and popularized by Charles Dow and his followers, has of late morphed into what one might call the reductionist classical model: "A trend is evident when two consecutive sets of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend) occur within any given time frame." (p. 23) This reductionist model, Little argues, doesn't work: for one thing, it triggers premature exits.

In its stead Little offers a neoclassical model of trend. "The neoclassical trend model no longer consists of black and white--up or down and nothing in between. It displays varying shades of trend. It qualifies trend on a more granular level; a level that allows the trader to make intelligent decisions based more on probability than supposed absolutes." (p. 26)

For Little, trends should be qualified as suspect and confirmed. The two inputs necessary to differentiate between a suspect trend and a confirmed trend are swing point price and volume. In its most basic terms, "When the current price trades lower (downtrend) or higher (uptrend) than the previous swing point price and volume contracts, the trend is suspect." "When the current price trades lower (downtrend) or higher (uptrend) than the previous swing point price and volume expands, the trend is confirmed." (p. 28)

Of course, nothing is ever so simple in trading. First of all, it's important to identify swing points, both potential and actualized. Any current bar whose high is higher than that of the preceding bar has the potential to be a swing point high. It does not become an actualized swing high, according to Little, until it has remained the highest high for six successive bars. "The time element," Little writes, "can be optimized for differing markets and equities, but my research has shown that six bars tends to represent the optimal `wait time' across most equities, sectors, and general market indexes." (p. 31) This can be six days, six weeks, or six months.

Little offers numerous chart illustrations of potential and actualized swing points and of suspect and confirmed trends in a variety of market regimens.

Little admits that "although trend theory is a necessary condition to trading trends profitably, in itself it isn't sufficient. It is necessary to take the theory and integrate it into a workable and profitable trading system...." (p. 109) The second part of the book therefore deals with preparing to trade, entering and exiting trades, reversals and price projections, time frames, the trading cube, and trading qualified trends. Among the key concepts are anchor bars, which "identify chart price areas where significance exists" (p. 156) (as opposed to swing points, which normally define areas where a price boundary exists), and price zones (not lines).

Naturally, some of the material in the second part of the book is familiar. We encounter, for instance, support and resistance (though viewed as zones, not lines), measured moves (AB = CD), and the usual catalogue of gaps. But Little integrates the familiar with his own contributions and illustrates his points with marked-up charts.

Trend Qualification and Trading is an intermediate-level book for chartists. The only things on Little's charts are price bars, volume, and labeled lines and zones that go far beyond the standard trend lines. For those who like to mark up charts, this book will be a satisfying read.

I work in the industry on the buy-side, helping to build trading systems and I have a good amount of exposure to strategy development. I have read a mass of books on finance, trading, technical analysis and trading algorithm development. Theres some good books out there, some ok books, some dead-awful books and some really great contributions to the field. This book is a great contribution. This book covers a different approach to looking at the markets through what is clearly a well understood view of a complex world. From that deeper understanding, Little has formulated and systematized a way to increase your probabilities of succeeding with your trading. His formulation helps you to discern the style of market you are in, using an interesting technique that is extremely accurate at correctly qualifying the trend. I found I had to read the earlier chapters multiple times, not because the concepts are difficult, but ironically because they are brilliantly simple. The book is not just about qualification of trend, though Little spends a good amount of time explaining all of the different types of markets (bullish, bearish, ranging, but he qualifies them even further to great accuracy) and how to define them using his simple yet profound approach. From there he further explicates the finer aspects of trading with or against the trend, how to extend canonical technical analysis principles such as support and resistance lines into zones, which have even more chances of allowing you succeed with trading.

My view of the trading space has been deepened greatly by this book. I used the techniques to make some successful ETF trades recently, as well as recognizing I had made a bad trade (before I had read this book), which I closed out right before the price tanked. I did that because I spotted a suspect bear was turning into a confirmed bear (suspect and confirmed are further extended ways to categorize trends Little introduces you too in the book). The book isnt just about trends. Little shares his deep knowledge of the practice of trading, and it is that that makes this book extra special.

In my career I have come to realize there are a thousand and one authors and many more books on the subjects of my craft, but I only have a small shelf to house the books that I really need. That handful of books embody the master crasftman at work; they embody the essence of the profession. With the right mentors, thats all you need. Others will stand on their shoulders, others will reformulate or regurgitate, and none will have a place on my bookshelf. On the originals deserve that right. Littles concepts, approach and techniques, as well as his depth of trading experience and knowledge, is openly shared with his reader. He shares everything, from the words within the text to the words between the text. Thats why this book is on my shelf. Buy it.

Trend Qualification & Trading is a must read for all traders that take technical analysis seriously. Little has taken the core trend theory crafted by Dow and Hamilton and added a crucial element, qualifying it. This method of qualification has helped me better analyze and understand trends, which in turn have made my trades much more profitable.

I first encountered Little's work while visiting Thestreet.com's technical analysis videos. Interested in his work and these new concepts I had never seen written or talked about elsewhere, I set out to learn more and subscribed to his site at Tatoday.com; reading each of his articles daily where he explained these concepts as applied to live trades that were
present at the time.

For me, the book has been a blessing as now I have the opportunity to understand his system completely rather than trying to learn it piecemeal through the daily articles and videos. With this new way of defining trend and with the trade implementation ideas like anchored support and resistance bars and zones I have achieved tremendous trading results. I am mostly a day trader (not something he talks about much in his book although he clearly describes how this works on all time frames including day trades) and these ideas have produced huge results allowing me to grow my portfolio by
approximately 200% in under a year.

These concepts do work and this book is a must read. Little's thorough explanation of his systematic approach has me looking forward to even greater gains in the coming months and years now that I have a more comprehensive resource in my hands.

If you are serious about trading, then read this book. In fact, I'm am in the midst of re-reading it because one read simply isn't enough. This book is a resource - not just a read.