Pattern Recognition and Trading Decisions

Rating:
Summary: Horrible
Review: First, the book is mistitled. Why is a chapter of the book devoted to "Introductory Fundamental Analysis"? Unfortunately, the contents are a hodgepodge of misleading and sometimes laughable technical analysis. For example, on page 161 in the middle of the book, the author states "In an established uptrend, short-term moving averages are above long term." This is a prime example of a shockingly dumb observation, and you're already halfway through the book! The book has no coherence with brief forays into Elliott Wave, linear regression, etc. -- all ultimately unenlightening.

Here's another example of absurdity regarding a trader's portfolio. "If you are happy to rely on the ad hoc diversity that is likely to accrue anyway from having a portfolio and wish to use strategies based on "feel," then judgments about the content of a portfolio may not involve calculations." Anyone know how to program a strategy based on "feel"?

The flowchart on page 324 starts with "Trawl: look for criteria of interest; ensure that minimum acceptable criteria are satisfied. If so, continue down the flow chart." Next step: "Can the instrument be exploited for an adequate profit?" Next step: "Yes". Thanks Sherlock.


Rating:
Summary: Putting different investing techniques together
Review: I have read about fundamental analysis, I have read about technical analysis, and so on - but this is the first book to put it all together in a way that makes sense for the non-specialist investor. OK, it is quite mathematical, but with backing from people such as Martin Pring and Merrill Lynch's Dan Kapetinakis, it is certainly worth the effort. The Author's Notes on the web-site at www.tfl.biz give some indication of how the book is structured, which also helps.

Rating:
Summary: Patterns, phases and profits
Review: The instant we began classifying seemingly random events into recurring configurations we discovered patterns; that day our simian ancestors gained an incontestable advantage over other species. Later, the ability to detect patterns was so vital to our survival that it became an innate evolutionary skill. Using these skills in the markets can make you loose your shirt. And even with proper training-one of the objectives of Dr. Satchwell's book-recognizing valid patterns is still a matter of understanding probabilities.

There are a few classic studies (Working's and Slutzky's in the 1930s, and Robert's in 1959) that play havoc with our supposed chart-pattern recognition abilities. Essentially, these statisticians plotted randomly generated data on graph paper. They then showed the charts to technical analysts who quickly started seeing rounded bottoms, symmetrical triangles, head-and-shoulder tops, and similar designs.

Dr. Satchwell's book helps us distinguish between a possible chart pattern and a probable configuration; between a fake and a potential trade.

But the book does much more than that because it provides tools that will help us define the phases of the market. On a given day the market will behave like a manic-depressive and offer you dollars for fifty cents; another day, in an orgy of euphoria, the opposite will be true. Then, it will turn around and behave randomly, with the senseless Brownian motion exquisitely described by Bachelier, Fama, Samuelson, et al. A bit later, the market will show persistence and develop unimaginably long trends. And then, for no reason whatsoever, it will trace a Mandelbrot fractal and take us to the very onset of chaos. And just when you thought that you had it licked, it will start to behave like a mean-reversion machine-with a shifty mean, of course.

Bayesian analysis, Cobweb theory, Regularization, Non-linear forecasting, and Trend2Noise, among others, are brilliant tools that can be used to define the ever-changing phases of the market. I am a professional money manager with a solid, long-term track record. I have finished reading the book, now I have to study it.