Value in Time : Better Trading Through Effective Volume

401 Pages·2008·15.73 MB·English

by  Willain, Pascal.

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Value in
Time
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Value in
Time
Better Trading through
Effective Volume
PASCAL WILLAIN
John Wiley & Sons, Inc.
iii
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Copyright(cid:1)C 2008byPascalWillain.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
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LibraryofCongressCataloging-in-PublicationData:
Willain,Pascal,1959–
Valueintime:bettertradingthrougheffectivevolume/PascalWillain.
p. cm.–(Wileytradingseries)
Includesbibliographicalreferencesandindex.
ISBN978-0-470-11873-3(cloth)
1.Investmentanalysis. 2.Stocks–Charts,diagrams,etc. I.Title.
HG4529.W5392008
332.63(cid:2)2042–dc22 2007049358
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
iv
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Theworld’sever-growingpopulationincreasinglyaffectsourdaily
lives.Likeneverbefore,thisdemographicchallengeisforcingusto
addresscriticalissues:boostingtheproductionofbasicfoods,
findingnewsourcesofenergy,recyclingbasemetals,
andtacklingenvironmentalissues,tonameafew.
Inmyview,thestockmarketprovidespeoplewithasimpleway
totakepartinthesehigh-growthsectorsbyinvestingin
companiesthatoffersolutionstotheseproblems.
However,becausemanypeoplearetoobusyjusttryingtosurvive,
theywillnotbeabletoadapttoorevenrecognize
thecomingchanges.
Simplydedicatingthisbooktothesepeopledoesnothelpmuch,but
perhapsmonetarydonationswill.Ihavedecidedtoofferfreeof
chargetheEffectiveVolumetooldescribedinChapter1.Iwelcome,
however,donationstotheNelloandPatrascheFoundation,
afoundationthatmywifeandIcreatedsomeyearsago
forthebenefitofhandicappedorphans.
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Contents
Foreword xi
Acknowledgments xiii
Introduction: Revolution Is at Your Doorstep 1
PART ONE The Set of Tools That Will Change
Technical Analysis 9
CHAPTER 1 Effective Volume: An Open Window
into the Market 11
TradersGetaSecretNewTool:ABriefIntroductiontothe
TradingMechanismsandtheMarketPlayers 14
VolumeThatMovestheMarkets 20
EffectiveVolume 30
PracticalExamplesofEffectiveVolumeCalculations 40
TechnicalSection:HowtoCalculatetheSeparationVolume 51
ImproveYourTrading:DecideontheBigPicture 57
AComparisonwithTraditionalTools 59
WhatWeLearnedRegardingEffectiveVolume 66
CHAPTER 2 Price and Value: The Active
Boundaries Indicator 67
BuyLow 67
TraditionalMeasureof“Cheap" 69
WhyDoTrendsExist? 81
GrandmothersAreAlwaysRight! 101
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viii CONTENTS
ForMathLovers:HowtoCalculatetheActiveBoundaries 109
WhatWeLearnedRegardingActiveBoundaries 110
CHAPTER 3 When Volume Diverges from Price 113
EffectiveVolume:TwoArrowsfromOneBow 114
PriceandEffectiveVolumeTrends 118
Price-VolumeDivergenceAnalysis 134
ExamplesofDivergenceAnalysis 144
HowtoSettheOptimalAnalysisWindow 176
EmptyTradingMinutes 181
WhatWeLearnedRegardingDivergenceAnalysis 183
CHAPTER 4 Supply and Demand: The Key to Trading 185
Supply/DemandEquilibrium 186
Funds’Strategies 205
FundsandMarketManipulation 211
WhatWeLearnedRegardingtheSupplyAnalysis 218
PART TWO Trading Strategies 219
CHAPTER 5 Performance: The Risk/Return Balance 221
TheTradingStrategy 223
OptimizingProfits 226
MinimizingRisks 245
MeasuresofRisk-AdjustedPerformance:TheSharpeand
BurkeRatios 260
WhatWeLearnedinThisChapter 262
CHAPTER 6 Automated Trading Systems 265
ProductionofTradingSignals 268
TradingStrategies 274
WhatWeLearnedinThisChapter 317