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One of the first books anyone interested in technical analysis should read is this canonized volume. William Peter Hamilton published the famous Stock Market Barometer in 1922 using the accumulated theory of Charles Dow named in his honor: "Dow Theory". While Hamilton does not claim the business cycle itself has a life of its own, he admits that respected students and professors of economics and business have a "profound and reasonable faith" in an underpinning cyclical movement of humanity in its progress toward further economizing available resources. This social bias is the broad foundation over which Dow Theory is built. It is the sociological explanation for the crowd's aggregate appreciation of a given financial instrument. Hamilton quotes Childe Harold's poetry offering the arbitrager on acid an image for consideration:
Here is the moral of all human tales,
'Tis but the same rehearsal of the past.
First freedom and then glory; when that fails
Wealth, vice, corruption, barbarism at last.
And history, with all her volumes vast,
Hath but one page.
From panics to irrational exuberance and back to panic again, crowds move prices in broad swings over time as their collective bias continues its influence for sometimes many years. In periods of upward trending prices the crowd regards news concerning the market with passive disregard for negative information and quick appreciation of positive: thus moving prices only slightly down or not at all with the announcement of bad news and much more upward with good. Accordingly, in periods wherein the crowd's bias is toward negative news, the opposite outcome is achieved. This bias played out over time takes prices higher and higher or lower and lower in what Dow called a "primary movement". Hamilton took care to at least make mention that the moves in prices are not the movie-depicted manifestation of the tinkering of any manipulator, but the uncoordinated and chaotic aggregate behavior of a great crowd. On Wall Street: "How very weak the very wise, how very small the very great are." (page 184)
For the extent of his precision, Hamilton said the primary move in the stock market "tends to run over a period of at least a year and is generally much longer". The arbitrager on acid should quantify primary moves in terms of changes in price without consideration for the duration of a move. And Hamilton further made that point by calling Dow's calculation of the average primary move of "four to six years" "where Dow went wrong". Hamilton, looking at history gives the analysis that they are "rarely three years and oftener less than two".
Dow's theory was that aggregate averages of stocks (now commonly tracked by everyone interested in financial markets) change over time and manifest the more general bias in the society participating in the markets, but many including the arbitrager on acid considering forex pairs apply Dow's thinking to individual instruments.
Dow wrote in 1900: "The market is always to be considered as having three movements, all going on at the same time. The first is the narrow movement from day to day. The second is the short swing, running from two weeks to a month or more; the third is the main movement, covering at least four years in its duration." Hamilton calls this triple-movement model and its implications "the essence of Dow's Theory".
The more technical definition of a primary move was given by Dow: "It is a bull period as long as the average of one high point exceeds that of the previous high points. It is a bear period when the low point becomes lower than the previous low points." As different technical analysts have put forward various technical means of specifically designating primary moves, this arbitrager on acid has selected that put forward by Victor Sperandeo in his book Methods of a Wall Street Master.
Dow viewed the crowd bias manifested in the primary moves of the average to be the best predictor of the coming business environment for the country. For this reason the averages were called a "barometer". Hamilton casts an image of smart men who judiciously move the markets by their buying and selling of equities to prices that best include all the pertinent data in valuing the instruments. He contrasts these men against foolish gamblers that come into the market making losses and cry aloud when they are broke bringing undue attention to their plight. It is the smart traders and investors that give the averages their barometric capacity.
Hamilton characterizes the fools as running losses and taking only small profits with accounts funded beyond their means. But the "Intelligent Trader" gets in early in bull markets having studied well, takes his losses immediately when the market turns against him, and funds his activities within his means. He is not a gambler like the loser, he is professional. The loser follows "tips" and "hunches", he buys in oversold markets and profits patiently.
Hamilton describes the small details of the buying and selling of these participants as the mechanics of the detailed actions of the price throughout the day which form the "daily fluctuations" in the market that can be ignored in ascertaining the primary movement of the averages. He mentions the secondary swings as those that ultimately make up the primary but swing against it from time to time. He says that the important function of the secondary swing is in detecting the beginning and end of the primary swings.
Hamilton spends some length defending the stock market barometer against critics, politicians, and other businessmen. He further goes on to defend the very business cycle that makes the barometer possible. And he makes mention that the extent and duration of a primary move cannot be divined, only delineated in real time. He also reminds the reader that Dow expected the averages to confirm one another before making any proclamation of any change in the primary moves. Hamilton in fact warns of the danger in accepting a single average's movement as a clear barometric reading. This is something to consider when dealing with forex. Perhaps changes in a given currency are better confirmed in multiple pairs.
Hamilton says that a new top after a bearish swing at what looked to be the end of a primary bull move means a resumption of the primary move. He further points out that breaks of minor lows or highs "made by both averages may best be taken as representing the turn of the market" (page 158). Thus a break below a minor low in a bull market confirms the end of the bull market. Hamilton even calls out the concept of a double top or bottom as evidence of the end of a primary move.
But as the average teeters between the high and the minor low at the end of a major move, the average is said to be making a "line" which Hamilton says: "may be considered as often preceding an appreciable recovery in a primary bear market or a well defined reaction in a primary bull market, and, rarely as the possible turning of a major movement." (page 172) So Dow theorists often look for a resumption of trend after a line.
Following the primary moves in currencies and stock averages is simply the act of following the aggregate biases of the market participants as a whole and can serve to be a vital endeavor for any arbitrager on acid. This particular book, the canonical basis of quantitative analysis is one that should be visited in psychedelia every few years or so.
For the extent of his precision, Hamilton said the primary move in the stock market "tends to run over a period of at least a year and is generally much longer". The arbitrager on acid should quantify primary moves in terms of changes in price without consideration for the duration of a move. And Hamilton further made that point by calling Dow's calculation of the average primary move of "four to six years" "where Dow went wrong". Hamilton, looking at history gives the analysis that they are "rarely three years and oftener less than two".
Dow's theory was that aggregate averages of stocks (now commonly tracked by everyone interested in financial markets) change over time and manifest the more general bias in the society participating in the markets, but many including the arbitrager on acid considering forex pairs apply Dow's thinking to individual instruments.
Dow wrote in 1900: "The market is always to be considered as having three movements, all going on at the same time. The first is the narrow movement from day to day. The second is the short swing, running from two weeks to a month or more; the third is the main movement, covering at least four years in its duration." Hamilton calls this triple-movement model and its implications "the essence of Dow's Theory".
The more technical definition of a primary move was given by Dow: "It is a bull period as long as the average of one high point exceeds that of the previous high points. It is a bear period when the low point becomes lower than the previous low points." As different technical analysts have put forward various technical means of specifically designating primary moves, this arbitrager on acid has selected that put forward by Victor Sperandeo in his book Methods of a Wall Street Master.
Dow viewed the crowd bias manifested in the primary moves of the average to be the best predictor of the coming business environment for the country. For this reason the averages were called a "barometer". Hamilton casts an image of smart men who judiciously move the markets by their buying and selling of equities to prices that best include all the pertinent data in valuing the instruments. He contrasts these men against foolish gamblers that come into the market making losses and cry aloud when they are broke bringing undue attention to their plight. It is the smart traders and investors that give the averages their barometric capacity.
Hamilton characterizes the fools as running losses and taking only small profits with accounts funded beyond their means. But the "Intelligent Trader" gets in early in bull markets having studied well, takes his losses immediately when the market turns against him, and funds his activities within his means. He is not a gambler like the loser, he is professional. The loser follows "tips" and "hunches", he buys in oversold markets and profits patiently.
Hamilton describes the small details of the buying and selling of these participants as the mechanics of the detailed actions of the price throughout the day which form the "daily fluctuations" in the market that can be ignored in ascertaining the primary movement of the averages. He mentions the secondary swings as those that ultimately make up the primary but swing against it from time to time. He says that the important function of the secondary swing is in detecting the beginning and end of the primary swings.
Hamilton spends some length defending the stock market barometer against critics, politicians, and other businessmen. He further goes on to defend the very business cycle that makes the barometer possible. And he makes mention that the extent and duration of a primary move cannot be divined, only delineated in real time. He also reminds the reader that Dow expected the averages to confirm one another before making any proclamation of any change in the primary moves. Hamilton in fact warns of the danger in accepting a single average's movement as a clear barometric reading. This is something to consider when dealing with forex. Perhaps changes in a given currency are better confirmed in multiple pairs.
Hamilton says that a new top after a bearish swing at what looked to be the end of a primary bull move means a resumption of the primary move. He further points out that breaks of minor lows or highs "made by both averages may best be taken as representing the turn of the market" (page 158). Thus a break below a minor low in a bull market confirms the end of the bull market. Hamilton even calls out the concept of a double top or bottom as evidence of the end of a primary move.
But as the average teeters between the high and the minor low at the end of a major move, the average is said to be making a "line" which Hamilton says: "may be considered as often preceding an appreciable recovery in a primary bear market or a well defined reaction in a primary bull market, and, rarely as the possible turning of a major movement." (page 172) So Dow theorists often look for a resumption of trend after a line.
Following the primary moves in currencies and stock averages is simply the act of following the aggregate biases of the market participants as a whole and can serve to be a vital endeavor for any arbitrager on acid. This particular book, the canonical basis of quantitative analysis is one that should be visited in psychedelia every few years or so.
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