Stocks & Commodities V.

15:13 (601-602): Quick Scans: Trading Without Fear

QUICK-SCANS
TRADING WITHOUT FEAR
Eliminating Emotional Decisions with
Arms Trading Strategies
John Wiley & Sons
605 Third Avenue
New York, NY 10158
To order: 908 469-4400
Phone: 800 225-5945
Internet: http://www.wiley.com
Author: Richard W. Arms Jr.
228 pages, $49.95, 1996
ISBN 0-471-13748-0
Technician Richard Arms is of the mind
that although the price of a security may
tell us whats happening with that security, its the trading volume that tells us
how its happening. Arms has devoted
much of his career to finding ways of
including volume in the visual depiction
of a securitys movement on the charts of
the technical analyst.
Armss first major contribution to technical analysis was the nowwidely used
Arms index, sometimes referred to as the
short-term trading index (TRIN). Whichever name it goes by, today it can usually
be found on the tickers that run across the
bottom of financial television broadcasts
or around the walls of the Wall Street
caverns.
Arms also developed a charting system known as Equivolume. In it, relative
volume is shown on the price chart, giving the trader a better perspective on
subsequent price movement. In looking
for a way to express his Equivolume
concept numerically as well as visually,
increasing its usability in formulas, Arms
developed an oscillator called ease of
movement. All three of those concepts led
to various works by Arms on those respective subjects.
In Trading Without Fear, Arms begins
with an introductory chapter on technical
analysis, then uses the next three chapters
to summarize the concepts in each of his
previous books as a foundation for lessons on trading with less apprehension.
Since the main theme of his work is
founded on the use of volume over the
more widely used price-based approach
to trading, its not surprising that in Trading Without Fear he introduces more new
ways to make volume a part of several
fundamental indicators.
The moving average is the most basic

of all charting tools, and in chapter 5,

Arms explains how and why to use the
volume-adjusted moving average. Another charting tool is the trendline, and
chapter 6 teaches us to look at volume
before deciding when a trend change is
likely. However, you could not use Gann
trendlines because a precise definition of
the ratio of price to volume is not provided.
In the next two chapters, examined is
changing market tides in regard to volume
as well as price. The reader is taught how
to use Equivolume, ease of movement
and volume-adjusted moving averages to
analyze the waves of price increases and
declines.
In chapter 9, Arms provides an overview of market history up to current times
to tie together his themes. This history of
market tops and bottoms, as seen through
the indicators and charting style developed by Arms, gives the reader insight
into long-term market movement.

THE LONG TERM

Investors have found that the Arms index
is as useful in decision-making for the
long term as it has been for short-term
traders. In one of the many revealing
examples in the book, chapter 10 presents
a graph superimposing the 100-, 200- and
300-day moving averages of the Arms
index. While the amplitudes of the plots
differ somewhat, the spacing of the swings
is similar. Moving averages with longer
lookback periods seem only to eliminate
the quicker price changes caused by
changes in market sentiment.
The next five chapters cover the specifics of buying, selling and shorting the
market. Here, were shown how to put our
newfound knowledge to work in deciding
what securities to own and when to own
them. Arms believes if a trader knows
why he is buying or selling, then the when
will be an automatic reaction. He suggests
you make trading decisions as if you
didnt own the security in question.
Though most of Armss work has to do
with stocks, chapter 16 shows that his
methods are also useful in other markets.
The price movements of futures, indices
and foreign markets, when you can obtain
enough data to perform the calculations,
can all be analyzed using the methods
Copyright (c) Technical Analysis Inc

Trading Without Fear presents a nice summary of

Richard Armss contributions to technical analysis, as
well as illustrating new ways to look at volume in
trading.

outlined here. As in the rest of the book,

the graphs used here visually make the
case for the ideas being presented.
In the concluding chapter, we are reminded that charts incorporating volume
give a much better picture of the trading
behind a security. Often, its the emotions
of traders, played out over and over again,
that cause the prices to change in familiar
patterns, and volume helps us discern
these patterns.
Trading Without Fear is an interesting,
well-illustrated and thoughtful look at the
work of Richard Arms. Each point is
carefully explained and easy to follow.
While he makes it clear that he hasnt set
out to present a mechanical trading system in this book, Arms teaches the reader
how to acquire the discipline to increase
profits and decrease the stress and fear
that trading can induce.
Bruce Faber, Staff Writer

READING
Arms, Richard W., Jr. [1990]. Ease of
movement, Technical Analysis of
STOCKS & COMMODITIES, Vol.8:
May.
____[1990]. Volume-adjusted moving
averages, Technical Analysis of
Stocks & Commodities, Volume 8:
March.
____ [1989]. What volume is it? Technical Analysis of STOCKS & COMMODITIES, Volume 7: December.
Hartle, Thom [1991]. Arms on Arms:
Richard W. Arms, interview, Technical Analysis of STOCKS & COMMODITIES, Volume 9: July.
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