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Tony Plummer of
Hambros Bank in London is responsible for
trading
gilts--British government bonds. He writes from the
viewpoint of a
trader, not an
ivory-tower theoretician.
Plummer presents
many fresh and original ideas and takes several theories to
a new level of clarity and depth. For example, he is
probably the first author to explain logically how and why
Fibonacci sequences work in the financial markets. His
concept of "information shocks" and their impact at
different stages of a trend is a fresh contribution to our
understanding of the markets.
Plummer shows the
role of individual and mass psychology in trading. When you
enter a long or short position, you give up much of your
independence and become a member of the crowd. A crowd
suppresses the ability of an individual to remain self-aware
and to think logically. The group pressures them to conform.
Traders feel
pleasure when prices go in their favor. They feel anger,
depression and fear if prices turn on them. This stress
binds traders to the crowd as a hoped-for refuge for safety.
Plummer describes a
bull-bear cycle in emotions and the roles of herd instinct
and investment gurus. Decisions tend to become increasingly
non-rational as a trend develops.
Each crowd has a
life cycle -- growth, maturity and decline. Information
impacts a crowd differently depending on the stage of its
life cycle. An information shock undermines the existing
trend. Inertia is overcome, profit-taking comes in, and the
trend is ready to reverse.
Due to the crowd's
cohesiveness, Plummer says, each price is mathematically
related to the last move.
This analysis
brings Plummer to Fibonacci. He explains how financial
market traders can use Fibonacci.
He uses many
diagrams to confirm his theory that multiplying the width of
a
trading
range by 2.618
gives the breakout target price. The trading examples
included are impressive.
The first half of
the book, dealing with mass psychology and Fibonacci, is
brilliant. Toward the end, Plummer presents his own wave
theory but falls into an old trap. If you use enough cycles
and ratios, you can explain any turning point on any chart.
Still, this book
deserves to be read by every serious technical analyst.
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