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Technical Analysis: The Complete Resource for Financial Market Technicians (Second Edition)

by Charles D. Kirkpatrick II and Julie Dahlquist (2010)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

Technical Analysis: The Complete Resource for Financial Market Technicians (Second Edition)

Author: Charles D. Kirkpatrick II and Julie Dahlquist | Categories: Technical Analysis, Textbook, Trading Education

Executive Summary

"Technical Analysis: The Complete Resource for Financial Market Technicians" by Charles D. Kirkpatrick II, CMT, and Julie Dahlquist, Ph.D., CMT, published by Pearson/FT Press in its second edition (2011), is the most comprehensive academic textbook on technical analysis available. Written by two Chartered Market Technicians, the book serves as the primary study resource for the CMT (Chartered Market Technician) designation and provides an exhaustive treatment of every major area of technical analysis.

The book covers the full spectrum of technical analysis from its philosophical and theoretical foundations through chart construction, trend analysis, pattern recognition, mathematical indicators, market structure, behavioral finance, and system testing. It is organized for both sequential study and reference use, making it valuable as both a textbook and a career-long reference.

Core Thesis & Arguments

Kirkpatrick and Dahlquist argue that technical analysis is a legitimate, empirically supported discipline for analyzing financial markets, not merely chart reading or pattern recognition. Their approach grounds technical analysis in the behavioral finance literature, demonstrating that the patterns and signals technicians use are manifestations of predictable human behavioral biases. They present technical analysis as a comprehensive framework that encompasses not just price patterns but also sentiment analysis, market breadth, intermarket analysis, and quantitative testing of technical hypotheses.

Chapter-by-Chapter Analysis

Part I: Introduction and Foundations (Chapters 1-4)

History and philosophy of technical analysis, the Efficient Market Hypothesis debate, the Dow Theory, and the behavioral finance foundations that explain why technical analysis works.

Part II: Chart Analysis (Chapters 5-12)

Bar charts, candlestick charts, point-and-figure charts. Trend lines, channels, support and resistance. Chart patterns: head and shoulders, triangles, rectangles, flags, gaps, and more.

Part III: Mathematical Indicators (Chapters 13-17)

Moving averages, oscillators (RSI, Stochastic, MACD), momentum indicators, volume-based indicators, and market breadth measures.

Part IV: Market Structure and Analysis (Chapters 18-22)

Cycles, sentiment analysis, intermarket relationships, market breadth, and sector rotation. Covers both the theory and practical application of market structure analysis.

Part V: Statistical and System Analysis (Chapters 23-26)

Statistical validation of technical analysis, system design, backtesting methodology, and the evaluation of trading systems.

Key Concepts & Frameworks

  • Dow Theory: The foundational framework of technical analysis establishing the concept of primary, secondary, and minor trends.
  • Chart Pattern Analysis: Comprehensive catalog of continuation and reversal patterns with statistical performance data.
  • Indicator Analysis: Mathematical tools for measuring momentum, trend strength, and overbought/oversold conditions.
  • Market Breadth: Measures of the internal strength or weakness of overall market moves.
  • Intermarket Analysis: The relationships between different asset classes (stocks, bonds, commodities, currencies).
  • System Testing: Statistical methods for validating technical trading strategies.

Practical Trading Applications

  1. Use Dow Theory principles to identify the primary trend before making any trading decisions.
  2. Combine chart pattern analysis with volume confirmation for higher reliability signals.
  3. Use oscillators for timing within the context of the identified trend, not as standalone signals.
  4. Monitor market breadth to assess the health of the overall market trend.
  5. Validate any technical strategy with proper statistical testing before deploying capital.

Critical Assessment

Strengths: The most comprehensive single-volume treatment of technical analysis. Academically rigorous with proper statistical methodology. Serves as both textbook and career reference. CMT exam preparation resource.

Weaknesses: Dense and academic in style. Too comprehensive for traders seeking quick, actionable strategies. The breadth of coverage means some topics receive less depth than specialized books.

Best for: Aspiring CMTs, serious technical analysts who want comprehensive education, and any trader who wants a thorough reference covering all aspects of technical analysis.

Key Quotes

"Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends."

"The validity of technical analysis ultimately rests on the predictability of human behavior."

Conclusion & Recommendation

Kirkpatrick and Dahlquist's "Technical Analysis" is the definitive academic textbook on the subject. While it is too comprehensive for casual readers, it is indispensable for anyone pursuing the CMT designation or wanting a thorough, well-organized reference on all aspects of technical analysis. It belongs on every serious technical analyst's bookshelf as a lifetime reference.