Forecasting Financial Markets: The Psychology of Successful Investing Sixth Edition

The logic of non-rational behaviour in financial markets

1 Wholly individual or indivisibly whole 
The relationships in nature; The break with tradition; The conceptual revolution; The problem of motivation; The dualistic nature of motivation;

 
2 Two’s a crowd
The influence of groups; The insights of Gustave Le Bon; The group’s ability to organize itself; Mind as a dynamic principle; The group mind; The triune human brain; The neocortex; The amygdala; The response to a threat;
The ‘intelligence’ of crowd 

3 The individual in the crowd
The integrative tendency ; Identification ; Beliefs ; Self-awareness and confirmity enforcement ; The crowd leader ; The findings of Stanley Milgram ; Altruism and conflict; Splitting and projection; 

4 The systems approach to crowd behaviour
Non-equilibrium conditions; Openness to the environment: the exchange of energy; Openness to the environment: the exchange of information; The mechanism for transmitting information; Feedback loops and the transformation of information; Oscillating systems; The role of the crowd leader ; The interrelationship between a crowd and its
environment ; 

5 Cycles in the crowd 
The life cycle ; Co-evolution ; Limit cycles ; Limit cycles through time ; Limits cycles in nature ; Multiple limit cycles; Multiple cycles in two dimensions ; The impact of shocks ; The profile of shocks ; Shocks in two dimensions ; Some insights into social change 

6 Approaches to forecasting crowd behaviour 
Random or non-random ; Price movements in the Dow ; Strange attractors ; Predictable price movements ; Methods of predicting price movements ; Economic forecasting ; Problems with economic forecasting ; Problems with conceptual framework ; The rational expectations hypothesis ; Bubbles and crashes ; Non-linear mathematics ; The challenge to economic theory ; Technical analysis ; The past and present as a guide to the future ; The
rationale behind technical analysis 

The dynamics of the bull–bear cycle

7 The stock market crowd
The individual investor; The dealing strategy; The financial market crowd; The influence of emotions; The herd instinct; The mechanism of price fluctuations; The bull–bear life cycle in emotions; The objectives of technical analysis; The influence of price movements on crowd psychology; The contest between the two crowds; The influence of prices on behaviour; The shift from isolation to belonging ; The limit cycle between prices and
behaviour; Beliefs and leadership ; Individuals as crowd leaders ; The conditions for effective leadership ; Investment advisers ; 

8 The shape of the bull–bear cycle 
The limit cycle between prices and sentiment ; The bias in the limit cycle ; The influence of ‘external’ factors ; The limit cycle between equity markets and the economy ; The influence of shocks ; Pro-trend shocks ; Contra-trend shocks and energy gaps ; Shocks and the limit cycle ; The return to the limit cycle ; Practical implications ; The pattern of adjustment after troughs ; The reversal process ; The idealized three-stage reversal pattern ; The influence of fear ; The bias in the bull–bear cycle ; Asymmetric investment attitudes ; The price pulse ; The time
hierarchy ; Price–sentiment limit cycles ; Limit cycles and the transmission of shocks ; The hierarchy of fluctuations ; 

9 Energy gaps and pro-trend shocks 
Energy gaps ; Bridging energy gaps; Bridging the first energy gaps in financial markets ; Bridging the second energy gap in financial markets ; The importance of timing ; Pro-trend shocks in financial markets ; Energy gaps and information flows ; Changes in the quality of information ; Identifying the shock point ; The pattern of a trend 

10 The spiral and the golden ratio 
The mathematics of the spiral; The Fibonacci number sequence 125; Fibonacci’s rabbit problem 126; The Fibonacci sequence and nature 126; The properties of the Fibonacci sequence 127; The important ratios 128; The golden ratio 128; The golden ratio in geometry 128; The golden mearure and the human body 129; The golden measure in nature 130; Three terms from two 130; The golden rectangle and the golden ratio 131; The spiral of rectangles 132; The golden spiral 132; Properties of the golden spiral 133; The golden measure and ancient religious insight 134; The ‘laws’ of life 135; Information and the human mind 135; Recognizing information 136; Understanding by
analogy 136; Creative insight 137; Self-organizing hierarchies 137; Metaphor and reality 138; Financial market crowds 139; The golden measure and financial markets 140

11 The mathematical basis of price movements 
The calculation of price targets 143; The application of the target formula 144; Examples from the UK gilt-edged market 146; additional examples 148; Examples from the US Treasury bond market 151;

12 The shape of things to come 
Examples 155; Price and momentum 158; Momentum examples 159; Imitations of cyclicality 160;
Stylized patterns 162; Asymmetry 162; 

 

Forecasting turning points

13 The phenomenon of cycles
The influence of groups; Satiation; Transformation of energy and information; The patterns that connects; Tracking the cycle 171; Momentum indices 171; Momentum and the cycle 172; Anticipating inflexion points 173; Velocity and non-confirmation 174; Acceleration and the cycle 175;

14 The threefold nature of cycles 178
The 111⁄2 -year cycle in the Dow 178; Idealized cycles 181; Comparing the cycles 182; The 111⁄2 -year cycle and the panic of 2008 186; Actual cycle timings 188; The four-year cycle in the Dow 189; Triads, dyads and energy gaps 189; The 1987 Crash 190; Confirming the energy gap 193; The Wall Street Crash 193; Cycle characteristics 194; Cycle functions 195; Cycle translation 196; Translations within a triad 196; The influence of higher-level cycles 197; Cycle biases and energy gaps 198; Cycle behavioural traits 199; Behavioural traits in a base cycle 199; Behavioural traits in a trend cycle 200; Behavioural traits in a terminal cycle 200; A schematic for financial markets 201; Limited cycle patterns 202; 

15 Economic cycles 205
Note on economic theory; An integrative view; Relationships between economic cycles; From Kitchin to Strauss and Howe; Strauss and Howe to Kitchin 208; Kuznets and Kondratyev 209; Economic theory and technical analysis
210; Cycle characteristics 211; Biases in cycles 211; An example from history 213; Juglar cycles during the 1946
to 1980 Berry cycle 213; Theory and fact 214; The first cycle 215; The second cycle 215; The third cycle 216;
Evolution 217; Labelling the cycles 218; Conclusion 219

16 Recurrence in economic and financial activity 221
Economic and financial market cycles ; Searching for cycles ; The 1866–94 cycle ; The 1894–1921 cycle ; The 1921–46 cycle; Strauss and Howe meta-cycle ; The Berry terminal cycle 227; The first Juglar cycle 228; The second Juglar cycle 228; The third Juglar cycle 229; Confirming the 1946 low 229; The 1946–80 Berry adaptation
cycle 230; The 1970–80 Juglar cycle 231; The Kitchin triad 231; The post-1980 Berry regeneration cycle 233;
The Juglar transition and innovation cycles 234; Kitchin cycles in the Juglar innovation cycle 235; The Juglar
disruption cycle 235; Kitchin cycles in the Juglar disruption cycle 237; 

17 Integrating the cycles 240
Historical schematic 240; Historical experience 242; Survey of the schematic diagram 243; The differing nature of upswings and downswings 245; Using the schematic diagram 246; Disruption vs depression 247; The next Berry crisis cycle 248; Kondratyev cycles 248; The post-1949 Kondratyev cycle 251; Price cycles and output cycles 253; Kondratyev, Berry, and Strauss and Howe 254; Juglar disruption and Berry crisis 255;

18 Forecasting with cycles 259
Introduction 259; The post-1980 Berry cycle 259; Cycle alignment 260; Sentiment in a Juglar innovation cycle
261; Sentiment in the Juglar disruption cycle 262; Comparisons with previous terminal cycles 263; Comparisons with averages of previous cycles 265; Financial markets and the economy 266; Conclusion 268

19 Price patterns in financial markets 269
Hierarchical trends 269; Markets and fundamental trends; Economic cycles, price patterns and price trends 271; The pattern of a trend 271; The five–three wave pattern in complex structures 272; The Elliott wave principle 273; Investment guidelines 274; The buy signal after a low 274; Warning of a bear phase 275; The terminal cycle 276; The location of corrections 277; The strength of a contra-trend rallies 279; Non-confirmation revisited 279; Anticipating turning points 281; The golden ratio formulae 281; Some examples 282; Conclusion 284

20 The Elliott wave principle 285
Elliott’s discovery; The price pulse as the basis of the wave principle ; The basic wave pattern ;
Corrections ; A universal phenomenon ; The wave principle as a natural phenomenon ; Derived rules: trend indications ; Derived rules: impulse waves ; Derived rules: corrections ; Complications within the system; Fifth-wave variations: failures and extension; Behaviour following failure or extension; Fifth-wave variations: diagonal triangles; Variations in corrections: the three-phase A-wave ; The flat correction; Complex corrections; Triangles ;
The implications of a triangle; Inverted corrections; The ‘rule of alternation’ ; The problem with the
Elliott wave principle

21 Information shocks and corrections 301
Information shocks; Information shocks and a five-wave trend 302; Shocks and cycles; Information shocks and boundaries; Corrections and shocks 306; The golden ratio boundaries 308; Technical corrections and fundamental reversals 308; Top retractments 309; Base retractments 311; Corrections and trend reversals 312; The 1987 Crash and the 2000–02 bear 312; Hierarchical structuring 313; Guidelines for calculating boundaries 315; Pro-trend shocks 316; A practical example 318; The base pattern 318; The wave 4 correction 319; The dollar–yen bear market 320;

22 The confirmation of buy and sell signals 323
Investor confidence and price flucuations; Overextended markets and the principle of non-confirmation; Indicators of investor behaviour; Volume and open interest; The level of volume; The level of open interest; Sudden changes in indicators; The direction and change in volume and open interest; Changing emotions during the cycle; Sharp rises in volume and open interest; The reversal process; Volume and open interest during fifth waves; Volume and open interest during re-tests; The wider implications of falling open interest; Momentum and overextended markets; Momentum and non-confirmation; Measures of momentum; Rates of change; Deviations from a moving average; The relative strength index (RSI); Momentum trading rules ; The directional indicator; The
advance–decline index 338; A second price index ; The principle of direct confirmation: the Dow theory ; The principle of direct confirmation: other indicies

The psychology of trading

23 The psychology of fear 
The subconscious mind; The role of habits ; The response to a threat ; Stress ; The influence of emotions ; Beliefs and memories ;

24 The troubled trader 
The three-part mind ; The psychological matrix; Basic personality types; Primary behavioural characteristics ; The gut-oriented personality ; The heart-oriented personality ; The head-oriented personality ; The chink in the ego’s
armour ; Basic motivations ; Avoidance compulsions ; Response strategies ; Some awkward personal questions ; The threat from financial markets; Financial markets and personal space; Financial markets and the self-image; Financial markets and fear; The emergence of the crowd;

25 The psychology of success 

Basic requirements ; Goal-setting ; Goals for the trader ; Practical considerations ; The five aspects of effective goal-setting ; Converting desires into actual beliefs ; Visualization; Writing down and affirmations ;
Strategy for achieving goals ; Strategies for traders; Method ; Energy ; Physical health ; Mental and emotional health ; Stress ; Relaxation techniques ; Conclusion

26 Summary and conclusions