preface in forex

PREFACE

I’ve been fortunate in many respects in my life in being in the right place at

the right time. I took a sabbatical from corporate life to write this book, in

time to not be in my office at Cantor Fitzgerald on the 105th floor of One

World Trade Center, during the tragic events on September 11, 2001. I’m

immensely grateful that I was able to be here to author this book and I suppose

you could say that technical analysis saved my life. Thanks also goes

to my editor at John Wiley & Sons, Pamela van Giessen, who provided

guidance and encouragement in the process of writing this book.

My most fortunate opportunity, in terms of technical analysis, presented

itself in 1984 when Mark Weinstein, a world-class trader of stocks

and index futures, began mentoring me. Mark demonstrated to me the

truth of the words of legendary stock speculator Jesse Livermore, as

quoted in Barron’s in 1921, when he said that “Speculation is a business. It

is neither guesswork nor a gamble. It is hard work and plenty of it.”

I was at the time an investments vice president at Dean Witter, now

Morgan Stanley Dean Witter. A friend, who was an active investor and

sometimes speculator in bonds and index futures, came by my office to tell

me of this person, Mark Weinstein, whom he had teamed up with to invest

money—and that he was his wife’s driving instructor. You can be sure that

I did not consider that this fellow could know much about the markets, or

to have been very successful in them! I then met Mark when he came by to

place some orders for his new partner’s account—I was his broker. Mark

Weinstein turned out to be a very intense person, and the focus of that intensity

was the stock and commodities markets, as well as technical analysis,

the means that he used to make market decisions. He was temporarily

burned out from his life as a professional speculator for the prior 10

years—and was considering buying a driving school, so he was getting a

first-hand look at the basics of the business. He often said that he hoped to

lead a normal life and that maybe some other business would allow him to

do that.

Mark, I discovered, knew about all technical chart patterns, indicators

and their effective use, how to interpret volume and the stock tape, going against popular market sentiment, interpreting Elliott wave patterns, and a

lot more. I knew a little about technical analysis from some self-study and

made some use of charts and technical indicators in my business. Mark,

however, had been mentored by many top traders and analysts, such as

George Lindsay. Mark would literally show up on their doorsteps and ask

them if he could learn from them.

What developed over the following two years was that Mark started

teaching me what he had learned about the internal dynamics of the markets.

He didn’t take a position in the market often, but when he did he invested

heavily and called in his orders from home. Mark would, for

example, take large index options positions at a market low and hold onto

them for the first and strongest part of a move. He did this multiple times

in this two-year period. I would know when he decided that the market

had turned, as he would call me up and tell me shortly after the fact. One

morning sticks out in my mind when he called and said the market had

bottomed. Nothing was happening in the market either that morning or in

prior weeks, as the market was in the doldrums. However, by the end of

the day the market was up substantially.

Over time I spent many hours on the phone with Mark listening to

him espouse his market knowledge, without arousing much notice in an office

full of other brokers talking to their clients. This wasn’t great for my

business, but I was able to absorb a lot of what he knew. He had time on

his hands then, as he was only in the market sporadically. The hundreds of

hours he spent discussing his techniques and experiences were of immense

value. There are rarely these opportunities to work with such highly successful

speculators—these are the market professionals whose sole focus

and passion is winning in the market. I sometimes didn’t think that this

man was real, as his knowledge was so superior to anything I had been exposed

to on Wall Street up until then. The only analogy is to compare this

to the prowess of a Michael Jordan or a Tiger Woods in the sports world—

no doubt if you played with them, they would seem to inhabit another

realm. Just as with Jordan and Woods, you won’t find the world-class market

pros teaching what they know—they also just do what they know. Nor

do these top traders write market advice letters or sell winning trading systems—

in fact, Weinstein often debunked this idea, saying that no one

would sell a profitable system, only use it themselves to make money.

In 1986 when I was the stock index and financial futures specialist at

PaineWebber, I brought Mark to the attention of Jack Schwager, then senior

technical analyst there, as a candidate for his first Market Wizards

book. Jack was as amazed as I was that Mark claimed he had almost no losses, in hundreds if not thousands of trades. Jack checked one of his account

statements and also relied on me as judge of his trading record. I had

known about dozens of Mark’s transactions as they were occurring and

followed the stock, option, or futures as subsequent market action unfolded.

He was the real thing as far as being able to profit from his predictive

abilities.

Like all the other top traders Jack Schwager wrote about in his Market

Wizards book, Mark Weinstein was also intently focused on avoiding

losses. He would exit a position with a small profit or with a small loss (a

very rare occurrence), without hesitation, if the market did not move his

way. The other very important lesson learned from this enormously successful

trader was that the emotional factor makes a difference. Knowledge

is important, but someone could have as much, if not more, market knowledge

than Weinstein and still lose in the market because of not having the

right emotional temperament and discipline it takes to be successful plus, a

constant willingness to give up their current notions of market trends when

wrong.

It is the emotional element that is the key to winning and losing big in

the market. Part of that is waiting for the right price, the right moment,

and then having the discipline to stay with your position. And to not overstay

or invest too much of your capital. So while technical analysis might

be the key to knowing what to buy when, there is this crucial psychological

component to capitalizing on this knowledge.

At PaineWebber, I had the opportunity, besides advising the firm’s brokers,

to devise and run a stock index futures fund. I developed a rule-based

system of market entry and exit based on technical criteria and it was these

ideas that were sound. However, I found that I was one of the people who

had difficulty in handling the emotional pressures of running a speculative

fund. I found that I was a better advisor—numerous brokers at PaineWebber

said they profited from my advice—than trader or fund manager. Having

a natural bent toward teaching, I continue in this vein with this book.

After PaineWebber, where I ended up as senior technical analyst, I had

the opportunity to combine marketing and technical analysis as the Dow

Jones Telerate global product manager for technical analysis in 1993 both

in New York and later in London. While still in New York, I organized the

establishment and rules governing the Charles H. Dow Award, given annually

by the Market Technicians Association (MTA) of which I am a member,

for outstanding achievement in technical analysis work. Like the man

himself, I stipulated that the Award given in Dow’s name by the MTA in

conjunction with Dow Jones & Co., be awarded for work that stressed the practical and involved clarity of writing that was superior. This has always

been the goal of my own writing.

When I took a position at Cantor Fitzgerald, one of the largest institutional

bond and equities brokers in the world, I also had the opportunity to

write technical analysis columns for the Cantor Morning News and also

for CNBC.com. This book is an outgrowth of the attention I got from publishers

in 1999–2000 while I was writing these columns. I finally decided to

take on the opportunity and challenge of being able to write more than

1,000 words at a time and to expand on the essential principles of technical

analysis. Making this effort was very much influenced by the hundreds

of e-mail inquiries I received from CNBC.com viewers and their interest in

this subject, as well as the appreciation so many of them expressed of my

efforts to make technical analysis interesting and useful to them. I hope

that this book is the helpful introduction to technical analysis that many of

them said they would like to read.