Far from random : using investor behavior and trend analysis to forecast market movement

257 Pages·2009·2.83 MB·English

by  Richard Lehman

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

by Richard Lehman
“An overdue book. Lehman’s persistent wisdom puts investors on the
right path to understanding how markets do and do not behave.”
—Robert R. Prechter, Jr.
Author of Socionomics and Conquer the Crash
“By dissecting human behavior, investor psychology, and historic
market action, Richard Lehman unequivocally proves that the market
moves in well-defined, often predictable patterns. In Far From
Random, he demonstrates a new, simple way to really beat the market.
As we noted over the years, ‘Random Walkers, eat your hearts out!’”
—Yale and Jeffrey A. Hirsch
Authors of the Stock Trader’s Almanac
“As someone who has spent a career as a self-described behavioral
scientist, I have found Far From Random to be highly congruent with
my own experience on what actually drives consumer or, in this case,
investor preference and decision making. While I still believe
fundamental market analysis may serve as a valuable frame to
understand and assess markets and stocks, the reality is, that on its
own, it often falls short in forming a comprehensive and accurate
strategy for investing.
In my opinion, Lehman’s focus on behavior finance inclusive of
technical and trend channel analysis adds a significant dimension to
both the theory and practical application of investing. Importantly,
the concepts and their applications can be applied with relative ease
and used to form the basis for a structured and disciplined approach
to discerning market/stock movement.
All in all, it is absolutely clear that human psychology is a primary
driver of real behavior, which may be rational or not, which in the
investment realm ultimately impacts markets and stock valuations
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and this book forms a powerful thesis on how to harness this knowledge
in a mostly predictive and financially-productive way.
This is an exceptional book for those who are not satisfied with the
traditional approach to investing and are seeking ways to enhance their
return.”
—Steven J. Freiberg
Former co-chairman and CEO of Citigroup’s Global Consumer Group
“Can the equity market still be considered efficient after getting sliced
in half twice in the same decade? Is this simply a random occurrence?
Far From Random could not be timelier for what is truly a changed
financial market environment, in good part dominated by HFT, mega­
flows of levered institutional money, etc. The true marriage of technical
and fundamental analysis set against the backdrop of far from perfect or
efficient human decision-making isn’t a consideration for investors, it’s
a necessity. Rick has hit the nail on the head. It’s time investors finally
wake up to a new reality.”
—Brian Pretti, CFA, CFP
Chief Investment Officer, Mechanics bank
“In Far From Random, we learn we aren’t so removed from our ancestors
as we might think. This book demonstrates that markets are neither effi­
cient nor random, and that being stone-cold frozen with fear (a saber­
tooth tiger eyes us for lunch) is akin to buy-and-hold-no-matter-what (our
securities portfolio drags us down to our doom). Richard Lehman boldly
states that human emotion, and not green-eyeshade analysis, is what really
drives prices. Far from being nonsense, this view makes perfect sense.
This book shows how our collective emotional behavior, and the markets
it moves, becomes predictable. That’s an edge any investor would want,
and Far From Random will give you a tantalizing glimpse at that edge.”
—Jim Glidden
Veteran Wall Street bond salesman
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Far From Random

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Also by Richard Lehman
New Insights on Covered Call Writing:
The Powerful Technique That Enhances Return and Lowers Risk in Stock Investing
Also by Bloomberg Press
Market Indicators
by Richard Sipley
Breakthroughs in Technical Analysis
edited by David Keller
New Thinking in Technical Analysis
edited by Rick Bensignor
Technical Analysis Tools
by Mark Tinghino
Trading ETFs
By Deron Wagner
Trading Option Greeks
by Dan Passarelli
Bloomberg Market Essentials: Technical Analysis
DeMark Indicators
by Jason Perl
Fibonacci Analysis
by Constance Brown
Chart Patterns
by Bruce M. Kamich
A complete list of our titles is available at
www/bloomberg.com/books
Attention Corporations
This book is available for bulk purchase at special discount. Special editions or
chapter reprints can also be customized to specifications. For information, please
e-mail Bloomberg Press, [email protected], Attention: Director of Special
Markets, or phone [phone].
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Far From Random

Using Investor Behavior and Trend Analysis
to Forecast Market Movement
R L
ICHARD EHMAN
Foreword by Lawrence G. McMillan
Bloomberg Press

New York

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© 2009 by Richard Lehman. All rights reserved. Protected under the Berne Convention.
Printed in the United States of America. No part of this book may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photo­
copying, recording, or otherwise, without the prior written permission of the publisher except
in the case of brief quotations embodied in critical articles and reviews. For information,
please write: Permissions Department, Bloomberg Press, 731 Lexington Avenue, New York,
NY 10022 or send an e-mail to [email protected].
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This publication contains the author’s opinions and is designed to provide accurate and
authoritative information. It is sold with the understanding that the author, publisher, and
Bloomberg L.P. are not engaged in rendering legal, accounting, investment-planning, or
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incurred as a result of specific investments or planning decisions made by the reader.
First edition published 2009
1 3 5 7 9 10 8 6 4 2
Library of Congress Cataloging-in-Publication Data
Lehman, Richard

Far from random: using investor behavior and trend analysis to forecast market movement /

Richard Lehman; foreword by Lawrence G. McMillan.

p. cm.
Includes bibliographical references and index.
Summary: “In Far From Random, Lehman uses behavior-based trend analysis to debunk
Malkiel’s random walk theory. He demonstrates that the market has discernible trends that
are foreseeable using trend channel analysis, a form of technical analysis. By learning to spot
these trends, investors and traders can predict market movement to boost returns in anything
from equities to 401(k) accounts”—Provided by publisher.
ISBN 978-1-57660-323-9 (alk. paper)
1. Technical analysis (Investment analysis) 2. Investment analysis. I. Title.
HG4529.L447 2009
332.63’2042—dc22
2009037202
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To Roz and Ed Lehman

For 60 years of unwavering support for all my endeavors

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