Colby Robert W. - The Encyclopedia of Technical Market Indicators

Second Edition

Robert W. Colby, CMT

To my wife Carolyn

Copyright 2003 by Robert W. Colby, Inc. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-171162-3

MHID: 0-07-171162-7

The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-012057-0. MHID: 0-07-012057-9.

All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps.

McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at bulksales@mcgraw-hill.com.

Disclaimer

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.

TERMS OF USE

This is a copyrighted work and The McGraw-Hill Companies, Inc. (McGraw-Hill) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hills prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms.

THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

The worlds top traders and investors use Technical Market Indicators. This small minority of smart-money investors substantially outperforms the market, growing wealthy from their investments. The evidence in this book strongly suggests that the most probable way to join this successful minority is to adopt a strictly realistic investment approach based on objective performance measurement applied to actual past market behavior.

This book offers an accumulated treasury of more than one hundred of the best Technical Market Indicators. These indicators were developed over decades of close daily observation of market price behavior by intensely involved market participants. Technical Market Indicators are designed to make the highly complex investment decision-making process relatively simple and effective.

We tested all available historical data to show you precisely how to establish specific indicator parameters, clear rules for buying and selling securities, with the objective of maximizing profit while minimizing risk of loss. You will be able to judge for yourself the most suitable indicators to apply to your own investment decision making, consistent with your objectives, whether they involve short-term trading, long-term investing, aggressive speculation, or conservation of capital. You will gain a realistic understanding of the actual forecasting value, the strengths, and the weaknesses of a wide range of possible indicator formulas.

This book will save the intelligent user years of time and effort attempting to rediscover the best approaches to trading and investing. The wheel has been invented; you dont have to reinvent it. Many ideas in this book will inspire independent hypothesis testing by the imaginative market student, as established concepts may be dissected and recombined in a wide variety of new ways. With relatively inexpensive computers, software, and data, any intelligent investor can now access affordable tools to conduct original research. This book provides a rich source of tested ideas for adapting a trading system that is right for you.

Robert W. Colby, CMT

www.robertwcolby.com

If I have seen further, it is by standing on the shoulders of giants. Isaac Newton

Many have struggled long and hard to gain practical understanding of the way markets actually behave, and some have generously shared their valuable and hard-earned experience so that we might benefit. Whenever possible, they are acknowledged by name in these pages.

Equis International provided the powerful MetaStock software used for all historical testing and charts in this book, except where noted. Contact Equis International, Inc., 3950 South 700 East, Suite 100, Salt Lake City, Utah 84107, phone (800) 882-3040 or (801) 265-8886, fax (801) 265-3999, www.equis.com. MetaStock is a registered trademark of Equis International, Inc., a Reuters Company.

Except where noted, long-term data extending several decades back in time was supplied by UST Securities Corporation, 5 Vaughn Drive, CN5209, Princeton, NJ 08543-5209, phone (201) 734-7747. This institutional broker has long been a preferred supplier of technical analysis and reliable data on market breadth (advance-decline and high-low), sentiment (short sales, advisory service opinion, put/call ratios), volume, price indexes, and individual stock data. UST is widely recognized as the source of accurate and detailed point-and-figure charts for institutional investors.

Numerous excellent charts and indicator studies were provided by Ned Davis Research, Inc., 600 Bird Bay Drive West, Venice, FL 34292, phone (941) 484-6107, fax (941) 484-6221, www.ndr.com. For several decades, Ned Davis Research has offered extensive research services for professional and institutional investors.