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Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement

Book Description

Since Burton Malkiel's seminal work A Random Walk Down Wall Street was published, the financial world has swallowed whole the idea that market movement is chaotic and random. Richard Lehman, coauthor of New Insights in Covered Call Writing, uses behavior-based trend analysis to debunk that theory. He demonstrates that the market has discernible trends that are forseeable. By learning to spot those trends, traders and investors can predict market movements to boost returns in anything from equities to 401(k) accounts.

Table of Contents

  1. Copyright
  2. Praise for Far From Random
  3. Foreword
  4. Acknowledgments
  5. Preface
    1. WHY SHARE?
  6. Introduction
    1. FROM MARKETING TO MARKET TRENDS: EPIPHANIES ABOUT INVESTOR BEHAVIOR
      1. THE WAVES OF R. N. ELLIOTT
      2. NEW INSIGHTS
      3. THE TREND CHANNEL EPIPHANIES
      4. THE BEHAVIORAL PERSPECTIVE
      5. WHAT TO EXPECT
  7. I. A Market of What?
    1. 1. The Time Has Come
      1. 1.1. MISINFORMATION AT THE SPEED OF LIGHT
      2. 1.2. THE "OTHER" ANALYSIs
      3. 1.3. TREND CHANNELS
      4. 1.4. HIDDEN IN PLAIN SIGHT
      5. 1.5. WHAT THE MARKET IS TELLING US
      6. 1.6. CHAPTER NOTE
    2. 2. Fundamentally Flawed
      1. 2.1. TRADITIONALISM
        1. 2.1.1. VARIOUS SHADES OF BUY
        2. 2.1.2. CAN YOU REALLY COMPARE TODAY WITH THE 1930?
        3. 2.1.3. INTRINSIC VALUE: THE FINANCIAL GRAIL
      2. 2.2. WHY IS WALL STREET FIXATED ON FUNDAMENTALS?
      3. 2.3. WHAT'S ABSENT FROM FUNDAMENTAL ANALYSIS?
      4. 2.4. CHAPTER NOTES
    3. 3. Subjective Value
      1. 3.1. A MORE SUBJECTIVE APPROACH TO VALUATION
        1. 3.1.1. GOING CONCERN PREMIUM
        2. 3.1.2. CONVENIENCE PREMIUM
        3. 3.1.3. POPULARITY PREMIUM: THE "WINNER'S CURSE"
        4. 3.1.4. ANTICIPATION PREMIUM
      2. 3.2. A LIFE-CYCLE VIEW OF SUBJECTIVE VALUE
      3. 3.3. QUANTIFYING SUBJECTIVE VALUE
      4. 3.4. CHAPTER NOTES
    4. 4. Random and Efficient Markets
      1. 4.1. EFFICIENT MARKET HYPOTHESIS
      2. 4.2. THE INFAMOUS RANDOM WALK
        1. 4.2.1. THE REALITIES OF RANDOMNESS
      3. 4.3. WHERE DOES A RANDOM WALK TAKE YOU
      4. 4.4. SUFFICIENTLY EFFICIENT
      5. 4.5. CRACKS IN THE RANDOM WALKWAY
      6. 4.6. CAN STOCKS BE RANDOM BUT MARKETS NOT?
      7. 4.7. CHAPTER NOTES
    5. 5. Market Timing
      1. 5.1. FORGIVE ME FOR I HAVE TIMED
      2. 5.2. WALL STREET CAN'T TIME
      3. 5.3. THE RISKS AND REWARDS OF TIMING DECISIONS
      4. 5.4. ASSET ALLOCATION AS TIMING
      5. 5.5. DOW THEORY AS TIMING
      6. 5.6. TREND FOLLOWING AS TIMING
      7. 5.7. TIME CYCLES AND ELLIOTT WAVES
      8. 5.8. TIMING AS INVESTMENT STRATEGY
      9. 5.9. CHAPTER NOTES
  8. II. Behavior, Behavior, Behavior
    1. 6. New Thinking in Finance Isn't Financial
      1. 6.1. THE MARKETERS WERE FIRST
      2. 6.2. ROBERT PRECHTER, JR., BEHAVIOR PIONEER
      3. 6.3. INNER IRRATIONALITY
      4. 6.4. THE LEFT BRAIN ON WALL STREET
      5. 6.5. THE FINANCIAL VIEW OF IRRATIONALITY
      6. 6.6. CHAPTER NOTES
    2. 7. The Behavioral Phenomenon
      1. 7.1. HEURISTICS
        1. 7.1.1. AMBIGUITY AVERSION
        2. 7.1.2. ANCHORING
        3. 7.1.3. AFFECT HEURISTIC
        4. 7.1.4. AVAILABILITY BIAS
        5. 7.1.5. BELIEF PERSEVERANCE
        6. 7.1.6. CONSERVATIVE BIAS
        7. 7.1.7. DISPOSITION EFFECT
        8. 7.1.8. ENDOWMENT EFFECT
        9. 7.1.9. FRAMING
        10. 7.1.10. GAMBLER'S FALLACY
        11. 7.1.11. HALO EFFECT
        12. 7.1.12. HERDING
        13. 7.1.13. LOSS AVERSION
        14. 7.1.14. MENTAL ACCOUNTING
        15. 7.1.15. MOOD
        16. 7.1.16. OVERCONFIDENCE
        17. 7.1.17. QUASI-MAGICAL THINKING
        18. 7.1.18. REPRESENTATIVENESS
        19. 7.1.19. OTHER BEHAVIORAL THEMES
      2. 7.2. CONCLUSIONS
      3. 7.3. CHAPTER NOTES
    3. 8. Anomalies
      1. 8.1. ARBITRAGE
        1. 8.1.1. INHERENT FACTORS
        2. 8.1.2. THE WISDOM OF YALE
        3. 8.1.3. THE JANUARY EFFECT
        4. 8.1.4. BEST SIX MONTHS
        5. 8.1.5. SEASONAL EFFECTS
      2. 8.2. OTHER ANOMALIES
        1. 8.2.1. SHORT-TERM PRICE DRIFT
        2. 8.2.2. REPORTED INSIDER TRADING ACTIVITY
        3. 8.2.3. THE IPO ANOMALY
        4. 8.2.4. THE PRESIDENTIAL ANOMALY
        5. 8.2.5. OTHER NOTABLE ANOMALIES
      3. 8.3. CONCLUSIONS
      4. 8.4. CHAPTER NOTES
  9. III. Charting a Golden Path
    1. 9. A New Market Paradigm
      1. 9.1. A TALE OF TWO VALUES
      2. 9.2. PSEUDO-RANDOM
        1. 9.2.1. ADDING BEHAVIOR TO THE MIX
      3. 9.3. GETTING TECHNICAL
      4. 9.4. WAGGING THE DOG
      5. 9.5. COMING TO GRIPS WITH MONEY MANAGEMENT
      6. 9.6. CHAPTER NOTES
    2. 10. Introduction to Trend Channel Analysis
      1. 10.1.
        1. 10.1.1. TRENDS AND CHANNELS
        2. 10.1.2. HOW THEY WORK
        3. 10.1.3. BECOMING A CHANNELIST
      2. 10.2. THE PROOF IS IN THE PUDDING
      3. 10.3. CHAPTER NOTE
    3. 11. Reading Between the Lines
      1. 11.1. THE GUIDELINES
        1. 11.1.1. BOUNDARY LINES
        2. 11.1.2. TRIANGULAR FORMATIONS
        3. 11.1.3. A SAMPLE CHART
      2. 11.2. CHANNEL BREAKS
        1. 11.2.1. OVERLAP
        2. 11.2.2. CHANNEL LEGS AND INTERIORS
        3. 11.2.3. SLOPE CHANGES
        4. 11.2.4. REGRESSION LINES
        5. 11.2.5. WIDENING AND NARROWING
        6. 11.2.6. ANGLES
      3. 11.3. REDEFINING THE CONCEPT OF SUPPORT AND RESISTANCE
      4. 11.4. ADVANTAGES OF TCA
        1. 11.4.1. ADVANTAGES
      5. 11.5. CHAPTER NOTE
    4. 12. Putting It All Together
      1. 12.1. RESOLVING THE BULL AND BEAR CONUNDRUM
      2. 12.2. USING TCA
        1. 12.2.1. LONG-TERM ALLOCATION
        2. 12.2.2. Risk Avoidance
        3. 12.2.3. TAXABLE AND NONTAXABLE ACCOUNTS
        4. 12.2.4. EARLY WARNING SYSTEM
        5. 12.2.5. TRADING
        6. 12.2.6. LOOKING FORWARD
      3. 12.3. CHAPTER NOTES
  10. About Bloomberg
  11. About the Author