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End User License Agreement
by Gregory L. Morris
Investing with the Trend: A Rules-based Approach to Money Management
Foreword
Preface
Acknowledgments
Chapter 1: Introduction
Believable Misinformation
Indicators and Terminology You Should Be Familiar with
Living in the Noise
Data
Part I: Market Fiction, Flaws, and Facts
Chapter 2: Fictions Told to Investors
Believable Misinformation in Investing
The Void of Accountability
Hiding behind Statistics
You Must Remain Invested or You Will Miss the 10 Best Days of the Year
Diversification Will Protect You?
Dollar Cost Averaging
Compounding Is the Eighth Wonder of the World
Relative Performance
Chapter 3: Flaws in Modern Financial Theory
What Modern Portfolio Theory Forgot or Ignored
Modern Portfolio Theory and the Bell Curve
Standard Deviation (Sigma) and Its Shortcomings
Improper Process
High Sigma Days We All Remember
Rolling Returns and Gaussian Statistics
Risk and Uncertainty
Back to the Original Question: Is Volatility Risk?
Is Linear Analysis Good Enough?
Linear Regression Must Have Correlation
The 60/40 Myth Exposed
Discounted Cash Flow Model
Chapter 4: Misuse of Statistics and Other Controversial Practices
The Deception of Average
One If by Land, Two If by Sea
Everything on Four Legs Is a Pig
Chapter 5: The Illusion of Forecasting
The Reign of Error
An Investment Professional’s Dilemma
Gurus/Experts
Masking an Intellectual Void
Earnings Season
Are Financial Advisors Worth 1 Percent of AUM (Assets under Management)?
Economists Are Good at Predicting the Market
News Is Noise
Chapter 6: The Enemy in the Mirror
Real Time versus History
Behavioral Investing
Behavioral Biases
Bias Tracks for Investors
Investor Emotions
Investors as a Whole Do Poorly
Chapter 7: Market Facts: Bull and Bear Markets
Calendar versus Market Math
Stock Exchange Holidays
Understanding the Past
Bull Markets
Bear Markets
Just How Bad Can a Bear Market Be?
Bear Markets and Withdrawals
Market Volatility
Highly Volatile Periods
Dispersion of Prices
Secular Markets
Secular Bull Markets
Secular Bear Markets
Chapter 8: Market Facts: Valuations, Returns, and Distributions
Market Valuations
Market Sectors
Sector Rotation in 3-D
Asset Classes
The Lost Decade
Market Returns
Distribution of Returns
Part II: Market Research
Chapter 9: Why Technical Analysis?
What Is Technical Analysis?
I Use Technical Analysis Because.
The Challenge of Technical Analysis
Technical Indicators
Some Things That Bother Me
Chapter 10: Market Trend Analysis
Why Markets Trend
Supply and Demand
What Do You Know about This Chart?
Trend versus Mean Reversion
Trend Analysis
Indices Analysis Summary
Trend Analysis on the S&P GICS Data
Trend Analysis in Secular Bear Markets
Chapter 11: Drawdown Analysis
What Is Drawdown?
Drawdown Terminology
The Mathematics of Drawdown and Equivalent Return
Cumulative Drawdown
S&P 500 Drawdown Analysis
S&P Total Return Analysis
Dow Jones Industrial Average Drawdown Analysis
Dow Industrials Total Return Analysis
Gold Drawdown
Japan’s Nikkei 225 Drawdown
Copper Drawdown
Drawdown Intensity Evaluator (DIE)
Part III: Rules-Based Money Management
Chapter 12: Popular Indicators and Their Uses
Moving Averages and Smoothing
Stochastics
RSI (Relative Strength Index)
Moving Average Convergence Divergence (MACD)
A Word of Caution
The Binary Indicator
How Compound Measures Work
Chapter 13: Measuring the Market
Weight of the Evidence Measures
A Note on Optimization
Indicator Evaluation Periods
Price-Based Indicators
Breadth-Based Indicators
Slope of Moving Average
World Market Climate
Cyclical Market Measure
Relative Strength
Dominant Index
Trend Capturing Measure
LTM—Long-Term Measure
Bull Market Confirmation Measure
Initial Trend Measures (ITM)
Trend Gauge
Chapter 14: Security Ranking, Selection, Rules, and Guidelines
Ranking Measures
Pullback Rally Analysis
Pair Analysis
Ranking and Selection
Rules and Guidelines
Asset Commitment Tables
Chapter 15: Putting It All Together: The “Dancing with the Trend” Model
Weight of the Evidence
Investing with the Weight of the Evidence
Ranking and Selection
Discipline
Sell Criteria
Tweaking the Model
Model in Action
Risk Statistics, Ratios, Stops, Whipsaws, and Miscellaneous
Mutual Fund Expenses
Turnover and Taxes
Watching a Tactical Strategy over the Short Term
Benchmarking
Full Cycle Analysis
Actual Results from a Rules-Based Trend-Following Strategy—Dancing with the Trend
Mean Shifting
Chapter 16: Putting Trend-Following to Work
Chapter 17: Conclusions
Financial Advice
A Compilation of Rules and Guidelines for Investors
Secular Markets and the Efficiency Ratio
The Rules-Based Trend-Following Model in October 1987
The Flash Crash of May 6, 2010
Final Observations
Appendix A: Passive versus Active Management
Appendix B: Trend Analysis Tables
Appendix C: Market Breadth
Appendix D: Recommended Reading
Bibliography
About the Author
About the Online Resources
Index
End User License Agreement
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