Foreword

When I first received a copy of Tom DeMark's new book on technical analysis, I was a bit puzzled by the title. After all, technical analysis isn't “new.” I've even written a couple of books on the subject myself. After reading through the material, however, I quickly realized that the key word in the title was “science.” Technical analysis has always had more art than science to it. Two chartists could look at the same chart of any given stock, and the same group of technical indicators, only to come up with two completely different conclusions. Much of technical analysis is truly “in the eye of the beholder.”

For many reasons, this book is particularly timely. For one thing, technical analysis has never been more popular. The proliferation of powerful computers, supported by inexpensive software programs, put the arcane world of technical analysis at the fingertips of even the smallest investor and trader. With the growing popularity of futures and options trading—and the expansion of those trading vehicles to include stock indexes. Treasury bonds and foreign currencies—traders have been forced increasingly to fall back on technical methods to cope with such fast moving markets. Intermarket linkages between the four market sectors—commodities, bonds, currencies, and stocks—forced traders to follow a much wider universe of markets. Global linkages between financial markets also forced traders to adopt methods that required lightning-quick responses to rapid market movements—namely technical analysis.

Another major contribution to the growing popularity of technical analysis comes from the television screen. Daily business coverage on CNBC, which is seen all over the world, includes a heavy dose of technical analysis. Never before have so many people been exposed to daily explanations and analysis utilizing technical methods. The academic world has even adopted a more benign attitude, with many educational institutions encouraging students to pursue technical research.

All of which brings us back to Tom DeMark's emphasis on a more scientific approach to technical analysis. With so many people now investigating the technical approach, DeMark's call for less art and more science couldn't be more timely. Starting with a more precise way to draw trendlines, and then working his way through more creative approaches to wave analysis and moving averages to name just a few, DeMark takes a fresh look at traditional approaches and adds a few new ones of his own. In each instance, his message is to be more creative and more precise—in a word, to improve. In doing so, he raises each method to a new level.

For the past twenty years, DeMark's work as a consultant has been restricted to large institutions and many of the legendary traders in the world today. By sharing his creative ideas with us, and with his passion for precision and improvement, Tom DeMark's emphasis on the “new science” of technical analysis helps push the technical frontier another step forward. With the unprecedented attention now being paid to technical analysis, this new book couldn't have come at a better time.

JOHN J. MURPHY

John J. Murphy, author of Technical Analysis of the Futures Markets and Intermarket Technical Analysis and technical analyst for CNBC, is president of JJM Technical Advisors Inc., Oradell, New Jersey.