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Herewith, a review of the 10th edition from the IFTA Journal (International Federation of Technical Analysts) by Regina Meani, CFTe
Technical Analysis of Stock Trends, Tenth Edition
By Robert D. Edwards, John Magee, and W.H.C. Bassetti
My introduction to technical analysis over 30 years ago occurred when someone loaned me a copy of Technical Analysis of Stock Trends, which I later learned to affectionately call “Edwards and Magee.” I can’t remember which edition it was that I first read, but later I was compelled to buy my own copy, which turned out to be the fifth edition, printed in the Iate 1960s.
It only came to my notice a short while ago that, after 65 years, it was in its tenth edition. Again, I was compelled to purchase a copy and see if what I had always considered to be the “bible” of technical analysis had been expanded on and, if possible, improved.
After my first reading many years ago, I did as suggested by Magee: the reader should not skim through this book and put it on his Iibrary shelf. Instead it should be read and reread and constantly referred to.1 I advise my clients and all first time readers that they should take a chapter at a time and really absorb it before going on to the next.
I was intrigued to see what changes had been made. One of the most notable differences was the interaction between the Internet and the material in the book, meaning that the content will not be overlooked or undervalued by our 21st century obsession with everything digital. The Web links enhance the reading experience, as it allows a side-by-side visage with charts, and the links to past letters give real-time examples. Chapter 17 summarises the effect of the advances in technology and its impact on the technical analyst. Appendix B is invaluable for its resources–with links to internet sites and further reading.
The flyleaf states that so much has changed since the first edition, yet so much has remained the same. It is to Bassetti’s credit that in the three editions he has edited and co-authored, he has meticulously moved or deleted much of the content that would seem laborious and heavy to the novice but has left in place the traditional and fundamental methodology of technical analysis to remain as the essential backbone of the text.
One may ask how a book can survive 65 years in an ever-evolving and changing market environment. The answer is given in the preface to the eighth edition and lies in the answer to
the quintessential technical analysis question about how chart patterns form and trend lines develop. To quote Bassetti, “Chart formations identified and analysed by the authors are graphic representations of unchanging human behaviour in complex multivariate situations. They are the depiction of multifarious human actions bearing on a single variable (price).”2 To add another quote that I find appropriate here is from the lips of Gordon Gecko in the movie “Wall Street”: “The point is, ladies and gentleman, that greed, for lack of a better word, is good.
Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for Iife, for money, for love, for knowledge has marked the upward surge of mankind.”3 While Gecko focuses on greed, his message is about human emotions, which is one of the strongest market forces powering price.
So if this text has withstood the test of time, why did it need to be updated? The text’s survival into the 21st century results from Bassetti’s ability to encompass the ongoing advances
in technology. Furthermore, since the 1950s and 1960s, the marketplace has been flooded by a vast array of derivatives and new products, and their inclusion is a welcome and necessary addition.
In conclusion, Technical Analysis of Stock Trends remains a must-read for everyone from the beginner to the more advanced trader and investor. It provides a comprehensive guide to the Dow Theory, and moreover, John Magee’s Basing Points Procedure is presented as an alternative to the theory. Detailed explanations are provided for our basic building blocks for technical analysis–trend behaviour, pattern recognition, and stock selection. Taking things further, the
text delves into the complexities of portfolio risk management and diversification and includes technical analysis in commodity, futures, and other derivative markets.
Additions to the tenth edition include replacing some of the chapters on Dow Theory; new material covering the Basing Points Procedure; more information on Stops and MovingAverage Systems; and new content on Ralph Vince’s Leverage Space Model.
I was pleased to note that the fifth edition (my copy) was the source for the following five updates, and it is indeed as Bassetti says, “a tribute to the clarity, style and content of the original”4 that the majority of the text has remained unchanged. In my opinion, those of us with the earlier editions can continue to treasure them, but now valuable new material is available in the later editions. I must comment that I enjoyed the humour with which Bassetti tackled his monumental task, and I believe that I must join him in the dinosaur ranks. It is comforting to know that the traditional practises of technical analysis as found in the pages of Edwards and Magee are still being learned today.
1 Robert D. Edwards, J. Magee, and W.H.C. Bassetti, Technical Analysis of Stock Trends, tenth edition, CRC Press, FL, 2013, p. w.
2 ibid, p. xxiii.
3 Wall Street, Twentieth Century Fox, 1987.
4 Robert D. Edwards, J. Magee, and W.H.C. Bassetti, Technical Analysis of Stock Trends, Tenth edition, CRC Press, FL, 2013, p. xxvi.
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