Well, I was looking for a long time after an easier book on technical analysis techniques using a programming language. In other words, I was in for a book where you do not get only the usual lengthy descriptions of various trading techniques and their charts with pointers. After all, it is easy to develop a technique and let it fit with any possible trading – in hindsight.
What I was looking for was a simple way to improve my trading skills and to limit my forex trading risks. If possible, for a book which could be rather practical than conceptual, from which I could learn some code snippets and apply those to trading.
The good news is that there is such a book. “Volatility-Based Technical Analysis: Strategies for Trading the Invisible” by Kirk Northington fills a gap between the individual knowledge of a single trader and the collective wisdom of the large financial institutions. In other words, Northington teaches you how to trade individually using the techniques and the leverages of a large institution. This is a big advantage, especially since the rise of the trading platforms which are so easy to use nowadays online. And where the risk is so high and it is so easy to loose large amounts of money in the blink of an eye 🙂
With this book in hand, any trader can “trade the invisible” by uncovering the hidden mathematical structure on a price chart. The idea is simple yet brilliant – how would you fare in a rapidly moving equities or forex market if you would have the glasses of a large investment bank? Author Kirk Northington does a nice job by describing his proprietary volatility indicators that serve as a market early warning system. If these will work or not – this remains to be seen and tested on each individual market, naturally. Northington tries to learn the students how to fish themselves – how to build your own indicators, test them, and incorporate your original components into your specific trading methods.
The main points covered by the book are:
* Walks traders through the mathematical techniques needed to create indicators that fit their own trading style
* Illustrates volatility-based entries and exits with over 170 descriptive chart examples
* Introduces two new concepts in technical analysis: Volatility Shift and PIV
What I liked mostly was the practicality of the techniques. The snippets of code in TradeStation or other popular programming languages resemble a lot with the logic of any basic programming and might give you some advantage in trading fast moving markets, especially the volatile ones. I must admit though that at times I was a bit lost in the cave of the technicalities, since I am not a programmer. Therefore, I would recommend you a lot of patience in practicing with this book. I personally liked a lot the forex charts and the applications of the new indexes proposed by the author (volatility based) on these markets. The forex markets are fast moving and applying historical technical indicators is easy, but not easily extrapolateable. Northington made my life a bit easier by pointing some minor automation tools which could uncover market patterns much faster than my visual scanning.
Interestingly enough, the book provides quite good exit strategies. Another trader, Alexander Elder, wrote in his book “Come Into My Trading Room” that any fool can place a trade, but few (professionals) can exit at the right moment. The “Volatility-Based Technical Analysis: Strategies for Trading the Invisible” does exactly this – focuses on technical trading techniques (such as Adeo or the rectangles) which will point out naturally where you could exit your trades. As an individual trader, where you don’t have the weight of a trading company behind you, it might be much more important to exit at the proper points rather than to wait until the profits are maximized.
And one more consideration from the author, which I liked a lot:
“Again we ask – does price momentum hide from us? Yes it does, but not where we think.”
The following description of an N band momentum resembles a lot to the Bollinger bands technique. Yet, the anecdotal way of describing it and the possibility of fine tuning (much easier than for the Bollinger bands) make the book a nice lecture. So enjoy!
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