How Markets Really Work: Quantitative Guide to Stock Market Behavior

A data–driven look at how thefinancial markets really work

Common wisdom holds that the stock markets are ever changing. But, as it turns out, common wisdom can be wrong. Offering a comprehensive look back at the way the markets have acted over the last two decades, How Markets Really Work, Second Edition: A Quantitative Guide to Stock Market Behavior shows that nothing has changed, that the markets behave the same way today as they have in years past, and that understanding this puts you in a prime position to profit. Written by two top financial experts and filled with charts and graphs that illustrate the market concepts they develop, the book takes a sometimes contrarian view of everything from market edges to historical volatility, and from volume to put/call ratio, giving you all that you need to truly understand how the markets function. Fully revised and updated, How Markets Really Work, Second Edition takes a level–headed, data–driven look at the markets and how you can apply that information intelligently when making investment decisions.

Disclaimer vii

Table Explanation ix

Acknowledgments xi

CHAPTER 1 Market Edges 1

CHAPTER 2 Short–Term Highs and Short–Term Lows 7

CHAPTER 3 Higher Highs and Lower Lows 25

CHAPTER 4 Up Days in a Row versus Down Days in a Row 43

CHAPTER 5 Market Breadth 65

CHAPTER 6 Volume 83

CHAPTER 7 Large Moves 93

CHAPTER 8 New 52–Week Highs, New 52–Week Lows 105

CHAPTER 9 Put/Call Ratio 117

CHAPTER 10 Volatility Index (VIX) 127

CHAPTER 11 The Two–Period RSI Indicator 147

CHAPTER 12 Historical Volatility 157

CHAPTER 13 Creating a Sample Strategy from This Research 159

CHAPTER 14 Applying the Information in This Book 163

About the Authors 167

Index 169

Laurence A. Connors is Managing Partner of LCA Capital, an asset management firm, and Connors Research, a financial markets research company. Connors has more than thirty years of experience working in the financial markets industry, is a best–selling author, and has been featured and quoted in numerous news outlets, including the Wall Street Journal, the New York Times, and Barron′s.

Cesar Alvarez is the Director of Research for Connors Research. Alvarez has been at the forefront of stock market research for years, and has developed a number of successful trading systems now used by investors and fund managers around the world.

"Those who want to improve their trading of the markets in the very short run would benefit from this book." ( Seeking Alpha, March 21st, 2012)