Book Review: Technical Analysis Using Multiple Timeframes

If you follow my trades and comments, you know I am more of a trader than investor. Given the recent per se deceit flowing from the mouths of government officials and CEOs, I have been spending increasingly more time honing my trading skills because investors (and the public at large) are apparently nothing but suckers.

I have learned this lesson perpetually since graduating during the dotcom bubble, experiencing the bubble’s implosion, watching Fortune 500 companies lie and steal (e.g., Tyco, Worldcom, Enron, etc.), realizing the Federal Reserve purposefully caused new bubbles in the housing and credit markets, and now witnessing the new wave of legal con artists at Bear Sterns, Merrill Lynch (MER), Lehman (LEH), Fannie Mae (FNM), Freddie Mac (FRE), et al. Rather than get angry and fill my days discussing moral hazards, I’ve decided to accept reality and enjoy myself while reading Brian Shannon’s Technical Analysis Using Multiple Timeframes.

First, let me preface my first book review by noting that I am extremely skeptical of marketing experts who sell trading systems and technical analysis products. However, I believe the Internet will allow a handful of successful investors and traders to build a loyal following if and only if said followers can make money. Brian is going to be one of those success stories.

When I first received Brian’s book, my wife joked, “How’s your textbook?” However, I think she was spot-on with her accidental compliment. Like a short textbook, Technical Analysis Using Multiple Timeframes is laid out in a very logical fashion and offers loads of practical knowledge. I would classify the book as intermediate level material, although it’s an excellent resource for technical analysis newbies.

For purposes of this review, the book has four sections. In the first section Brian introduces technical analysis, explains the four stages of a market cycle (accumulation, markup, distribution, and decline), and details the major variables in his methodology (price, support and resistance, trends, volume, moving averages, and time). In the second section he shares his secrets about how and when to buy long and sell short.

In the third section Brian addresses news and fundamentals concerning companies and their stocks, then he has a very nice intermediate/advanced analysis of short squeezes (and how to profit from them). In the fourth section he offers invaluable wisdom on risk management and exit strategies, his personal rules and insights, and an excellent conclusion entitled “Putting It All Together.”

It’s hard for me to go into too much detail because I don’t want to explain Brian’s system and defeat the purpose of reading the book. So, here are some core characteristics to consider:

• Brian is a pure trend trader. If there’s no trend, he ain’t trading.
• Brian possesses professional insights into market structure and the psychology of supply and demand.
• Brian is religious about risk management.

If you are serious about becoming a better trader or learning how to improve your buy and sell decisions, Brian’s book will pay for itself the next time you make a transaction. Unlike countless “classics” that spend 200 pages preying on our get-rich-quick tendencies, Brian skips the infomercial and delivers a practical framework we can use to make money or preserve capital.

If you are interested in purchasing his book or learning more, please visit:

Lehman Buyout Rumors Don’t Pass the Laugh Test

In the legal world, an incredibly illogical argument is said to “not pass the laugh test.” Last week an anonymous source told Reuters that the Korean Development Bank had Lehman (LEH) on their watchlist. LEH and shares of other financials rallied nicely on the news. However, no one stopped to question the absurdity of a savvy prospective buyer literally showing its cards to the entire world.

For those who did not take Econ 101 or Negotiations 101, here’s a quick primer:

If you are going to bid on an asset, do not tell anyone because then those people will buy in anticipation of the bid. As a result, the price will increase proportionally with increased demand, and you will be forced to pay a higher price for the same asset.

In this case, we are supposed to believe that a major financial institution would rather have everyone and their grandparents bidding up shares of LEH so Korean Development Bank could pay a higher price than they otherwise would have if they simply kept their mouth shut. For example, if the bank was planning to offer a 15% premium for LEH, they can either offer that premium on $12 or less, or they could offer that premium on $14 or more after alerting the entire world of their plans.

I honestly feel sorry for the average person who is investing their savings in the stock market on the bare trust that the financial media and SEC are actually doing their jobs. I’m glad longtime readers of SmartGuyStocks never buy on absurd rumors, but I can’t imagine how many hard working middle class folks bought LEH last week and are sad to see the results today. When Wall Street PR spin doesn’t pass the laugh test, those who are laughing hardest are those laughing their way to the bank as they pass the bag.