ANALYST FOCUS Analyst Interview: Patricia Elbaz puts 5 questions to Murray Gunn

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Analyst Interview: Patricia Elbaz puts 5 questions to Murray Gunn

Patricia Elbaz MSTA Technical Analyst & Lecturer

Murray Gunn MSTA

Murray Gunn MSTA is Head of Research for Elliot Wave International’s Global Market Perspective, a monthly summary of the firm’s 25 analysts’ views on every major freely traded market in the world. (You can follow his Elliott Wave analysis at www.elliottwave.com)

A published author on technical analysis, Murray holds the MSTA, is a Certified Financial Technician (CFTe) and has been investing and trading with technical analysis since the early 1990s. Murray is a former member of the board of the STA. Murray, it’s always good to see young graduates starting in banking and various finance roles, taking an interest in Technical Analysis. How were you first introduced to Technical Analysis?

As an Economics graduate, I entered the financial markets thinking that they behaved rationally but quickly realised that they don’t. Thankfully, I soon had the great fortune of working with technical analysis legend Tony Plummer at Hambros Bank from 1992. One of my first assignments was to live-test a futures trading system based on momentum. It was a revelation to see that profits could be harvested from the markets without any “fundamental” input at all. That, and Tony’s seminal work, Forecasting Financial Markets, put me on the path of investigating just what was the underlying driver of price movement. Tony pointed me in the direction of the Society of Technical Analysts, and I was also introduced to Robert Prechter’s work on the Elliott Wave Principle around the same time. I was hooked.

What indicators would you recommend using when starting to learn about Technical Analysis?

Price! Every indicator is a derivative of the raw price and so it makes sense to start with the source. The Elliott Wave Principle is, of course, based on patterns in the price of a market but there are other price-based methods which are very useful to gain an understanding of what is going on. R N Elliott added a forecasting element to Dow Theory and so an understanding of that is essential. Japanese Candlesticks give a splendid education on psychology. Point & Figure takes us back to tape reading which is essentially looking for price patterns as well. An appreciation of how volume (and open interest) relates to price movements should also be a staple for the beginner.

A number of traders have said that they find technical analysis very useful for short-term trading and outlook. Would you agree with that or do you think that a long-term time frame is just as significant?

In the 1930s, R N Elliott discovered that the markets have a fractal design, meaning that patterns in price repeat at every time scale. This makes an understanding of where a market sits in its long-term cycle critical. It could be termed a “top-down” approach where the starting point is to appreciate the direction of the tide. Then

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look at the waves and finally the ripples. Charles Dow used this nautical-based language which Elliott expanded on, and it makes clear the importance of all time frames. When it comes to actually trading or investing, the choice of time frame very much depends on one’s own risk aversion. Like weather forecasting, the short-term offers generally higher probabilities whereas there are more variables at play in the long-term. This is one thing I have learnt over the years that has been a revelation. The general belief is that “day trading” is high risk and long-term investing is low risk. It’s actually the other way around.

What advice would you give an analyst who is starting out learning about the different charts to use - bar, point and figure, candlesticks - and the different indicators?

The most important data point is the daily close and so I would encourage new analysts to get familiar with a simple daily line chart and understand the dynamics around the close in whichever market is being analysed. These days of round-the-clock trading makes it difficult but it’s still possible to mine important information from, for example, the London close in FX markets (London being where the bulk of FX volume takes place). I would also encourage new analysts to fully understand whatever indicator they are using, break it down and even calculate it by hand initially so as to appreciate how it relates to the price movement.

Finally, tell us a little more about the topic that you are teaching on the STA course and your involvement in education.

I will be outlining the major points of Dow Theory, Cycles and Market Breadth. Charles Dow was a business journalist and created his averages (and the Wall Steet Journal) out of a passion for understanding the business cycle. It may seem a little esoteric to those who think that technical analysis is only applicable to day trading, but the forces which Dow wrote about underpin how markets move. Market breadth is very much related to where we are in the market and economic cycle and can be a rich source of information for the analyst.

Thank you Murray for sharing your work and experience with us and for the great advice in using technical analysis tools and indicators. We hope to see many of you at future STA events listed on the website www.technicalanalysts.com.

New!

Student Membership now available!

The STA are delighted to announce a new Student membership category.

Students of recognised academic institutions may join the Society for the duration of their course at the discounted rate of £25 a year.

Student members will have to demonstrate their student status. For enquiries, email the office on info@technicalanalysts.com

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