Trading on Expectations : Strategies to Pinpoint Trading Ranges, Trends, and Reversals

Successful traders know that before stepping into the wilderness of the speculative markets, you need a solid understanding of basic market behavior. But the conventional methods often fall short of providing this basic knowledge. Academics assert one thing, economists and fundamental analysts another, and technicians something altogether different. And, seemingly, none of them agree with each other. Trading on Expectations explores the ideas behind the dominant schools of analysis, and shows the validity of each and demonstrates how each, albeit at different times, reflects what the market is doing. Sometimes market prices can be predicted using the economists' models; sometimes prices follow a "random walk" as the academics claim; at other times price is responding to the patterns, trendlines, and breakout levels identified by technicians. In this groundbreaking new book, Brendan Moynihan draws off his experience as a trader, analyst, and researcher to develop a method that focuses on the prime mover of prices and incorporates the strengths of the conventional methods. Drawing on the participant-focused Chicago Board of Trade Market Profile™ and the psychologically focused Contrary Opinion, he synthesizes and modifies the best in these different methods and skillfully creates a single model of market behavior—the Sentiment-Activity Model. Moynihan carefully describes how the combination of participants' actions and expectations about the future determines the direction of prices in the markets. This dynamic interaction between actions and expectations explains the emergence of the dominant phases of the markets: price trends, trading ranges, and trend reversals. What's more, Moynihan's unique model enables you to pinpoint the combinations of activity and sentiment that determine the three states of the market as they unfold, in time frames ranging from a single day to several weeks or months. The Sentiment-Activity Model also provides a way to determine how the market is likely to respond to various news items, explaining the apparent anomalies of price behavior in the process. To document his finding, Moynihan provides illuminating applications over a multimonth time period to four markets: Treasury bonds, soybeans, deutsche marks, and crude oil. Offering a new, more powerful way of understanding the dynamics of market behavior, Trading on Expectations is a must-read for all traders in stocks, options, and futures.