Technical Analysis
Technical Analysis for the Trading Professional
Brown's claim is that the 30 and 70 lines on RSI are wrong, and that a 14-period RSI holds 40 to 50 and tops near 80 to 90 in a bull market, then holds 20 to 30 and stalls at 55 to 65 in a bear. The rest of the book is uneven.
The one idea
Every charting package ships RSI with the same three defaults: 14 periods, oversold at 30, overbought at 70. Brown's point is that only one of those three is worth keeping. The 14 stays. The 30 and the 70 are fiction, because the levels an RSI can actually reach are not fixed properties of the indicator. They shift depending on which way the market is already trending.
In a bull market a 14-period RSI finds its floor between 40 and 50 and pushes up into the 80s. It does not visit 30. So a reader waiting for the textbook oversold signal in an uptrend waits forever, misses every pullback entry, and eventually concludes the indicator is broken. In a bear market the whole band drops: the floor moves to 20 to 30 and the ceiling caps at 55 to 65. Now the reader who buys at 30 is buying into normal bear market support and getting run over, and the reader who waits for 70 to sell never gets the signal because the market cannot generate that much strength.
The practical consequence is that RSI stops being an overbought and oversold meter and becomes a trend gauge. You are not reading the number. You are reading which of the two bands the indicator is living in, and, more importantly, watching for the moment it changes bands. A decline that stops at 40 instead of continuing to 25 is the first hint that a bear market is ending, and it shows up before price makes a higher low. That is the whole idea, and it is why the book still gets cited almost thirty years after the first edition.
What it actually teaches
Brown builds the range rules into a sequence you run on any chart, in any market, in any time frame.
SET RSI TO 14 AND LEAVE IT
Every chart in the book uses a 14-period RSI. Every one, across futures, forex, individual stocks, S&P sectors, bond yields, and monthly through two-minute bars. She keeps 14 not because it is optimal but because the price projection method in chapter 8 only calibrates against a 14-period RSI. Optimizing the period would break the rest of the toolkit.
DRAW FOUR HORIZONTAL LINES
Two lines for the bear market band, at 20 to 30 for support and 55 to 65 for resistance. Two lines for the bull market band, at 40 to 50 for support and 80 to 90 for resistance. On a chart that has been trending one way for a while, only one of the two bands will be in use. That tells you the trend without looking at price.
READ THE FAILURE, NOT THE READING
The signal is where the indicator stops, not the number it prints. Her Hang Seng example: the RSI never exceeded 55 to 65 through the February and March 1998 advance, which marked the whole rally as a topping formation inside a bear market. In her words, a market that can only press RSI into the 55 to 65 zone is topping, no matter how bullish the price bars look.
OVERRIDE THE BAND WITH LOCAL HISTORY
The published numbers are a starting guide, not a constant. She says an RSI declining to 39 or 38 still counts as holding 40, and that if a given market historically supported at 37 to 45 in prior bull runs, use 37 to 45 for that market. Bond yields in her example use 25 to 35 as bear support where a stock used 30 to 35. Pull each instrument's own past bands off the chart before you trust the generic ones.
CATCH THE TREND CHANGE AT THE FIRST 40 HOLD
This is the payoff step. In a bear market, RSI fails at 55 to 65 and price drops. Normally the indicator would run down to 20 to 30. If instead it stops at 40 to 50, the market has just shown strength it did not have before. That is the first warning of a reversal, and it fires while price is still making lower lows.
WAIT FOR THE SECOND HOLD TO CONFIRM
One touch of 40 is a warning. A rally that then fails under 65, followed by a second decline that again holds 40 to 50, is the confirmation. After that second hold she expects the market to eventually push RSI into the 75 to 85 range and higher. Double bottoms at the 40 line are common on weekly, monthly, and quarterly charts, less so intraday.
TUNE OTHER OSCILLATORS UNTIL THE RANGES APPEAR
For Stochastics, set %D to half the dominant cycle length. Her worked example: a 118-period cycle on weekly DMK/$ implied 59, which produced a useless indicator. Running TradeStation's optimizer over periods 10 to 50 returned 36, implying a 72-period cycle. The test that 36 was right was not profitability, it was that the range rules from chapter 1 finally showed up in the Stochastics plot.
ADD THE COMPOSITE INDEX WHERE RSI GOES QUIET
Her fix for RSI missing big reversals, disclosed in full for the first time in this edition. Take a 9-period momentum of a 14-period RSI, add a 3-period simple average of a 3-period RSI, then plot 13-period and 33-period simple averages of the result. It diverges when RSI does not. It does not replace RSI, because the Composite has no range rules of its own.
What it looks like Monday morning
You stop taking oversold and overbought signals at face value. Before you act on an RSI reading, you scroll back a year or two on the same chart and write down where that specific instrument's RSI has actually bottomed and topped. If the lows cluster at 42 and the highs at 84, you are in a bull market and every dip to 42 is a buy zone, not a mediocre reading on the way to 30. If the highs cluster at 62, you stop looking for long entries entirely, because the market has been telling you for months it cannot generate real strength.
| Signal | Formula | Arithmetic | Target |
|---|---|---|---|
| Positive reversal (W, X, Y) | (X - W) + Y | (1.5957 - 1.5835) + 1.7415 | 1.7537 |
| Negative reversal abc | c - (a - b) | 1.6658 - (1.7185 - 1.7137) | 1.6610 |
| Negative reversal def | f - (d - e) | 1.6433 - (1.6715 - 1.6706) | 1.6424 |
| Negative reversal ghi | i - (g - h) | 1.5396 - (1.5980 - 1.5741) | 1.5157 |
| Negative reversal bXY | Y - (b - X) | 1.5000 - (1.7137 - 1.5813) | 1.3676 |
Closing prices only, never highs or lows: the 1.7537 target was met by a 1.7540 close on February 11, 1994, and the 1.3676 target by a 1.3678 close, but Brown states these levels must never be used for stop placement.
A market that can press the RSI only to the 55 to 65 zone is indicating a topping formation within a bear market.Constance M. Brown, Technical Analysis for the Trading Professional
Where it fails
- The headline forecast in this edition was spectacularly wrong. Chapter 10, written in August 2011 with the Dow near 11,000, gives her live forecast: a minimum target of 5,400 on the DJIA, and 4,550 as a likely capitulation bottom if 5,400 fails. She presents this as the payoff of an Elliott wave call she had been running since 1998. The Dow never traded below 5,400 again. It went the other direction and never looked back. That forecast is the closing argument of the book's longest chapter, and it should govern how much weight you put on the Elliott and Gann material.
- The second edition is mostly the first edition with new opening paragraphs. She says so plainly. Chapter 1: 'the original text requires no revision.' Chapter 10: 'The balance of this chapter remains as written in the first edition without edits.' So you get 1996 to 1998 charts throughout, including a five-year study of Deutsche Marks per U.S. Dollar for a currency that stopped existing in 2002, plus Bethlehem Steel (bankrupt 2001) and Novell. The software instructions reference Omega TradeStation, CQG for Windows, and Microsoft Windows 95/98, and one section tells you to phone an engineering supply store to buy a proportional divider. The genuinely new material is the Composite Index formula in chapter 12, the Stoller band code in chapter 11, and the chapter-opening commentary.
- The cross-references point to a chapter that does not exist. George Lane's foreword, reprinted from 1998 (Lane died in 2004), states 'There are 14 separate chapters in this book.' This edition has 13. Chapter 1 tells you a Stochastics price projection method is described in chapter 14. Chapter 8 tells you five hand-drawn RSI studies are on the last five pages of chapter 14. There is no chapter 14. The Derivative Oscillator chapter was cut and survives only as code in Appendix A. Nobody fixed the pointers, so a method the book promises you twice is simply not in the book.
- The ranges are stated three different ways and never reconciled. Bull market resistance is 80 to 90 on one page, 75 to 85 and higher a few pages later, 'the 75 level or higher' on the Dow chart, and 70-plus on the Caterpillar chart. Bull support is 40 to 50, except 38 and 39 count, except you should use each market's own history instead, which for bond yields is 25 to 35 and for one stock is 30 to 35. The advice is defensible but it means the crisp rule the chapter title sells dissolves into judgment. It also makes the method awkward to code or backtest, which is why almost every published test of Brown's ranges picks its own numbers.
- Every method in the book stops at the entry and hands you nothing on risk. She is explicit that these are analysis tools, not trading tools, because RSI sees only closing prices. Using an RSI reversal target for stop placement 'would be an inappropriate use of the technique.' Acting on the volatility band signal alone 'would be financial suicide.' There is no chapter on position sizing, expectancy, drawdown, or trade management anywhere in 448 pages. If you do not already have a risk framework, this book gives you better opinions about direction and no way to survive being wrong about them.
- It quietly assumes you already own a full analytical stack. Chapter 10 alone is 88 pages of Elliott wave, and everything in Part 2 leans on a wave count you are expected to be able to produce. The Fibonacci confluence method that supplies the actual price targets is introduced and then redirected to her separate book, Fibonacci Analysis, more than once. Chapter 9 assumes appetite for Gann price and time squares. The intraday work runs 22-minute against 88-minute charts, which means screen time. And the indicators require software that lets you write custom code. A part-time trader on a phone app cannot run any of this.
- Chapter 13 is filler and chapter 12 spends its best pages on a grievance. The final chapter applies art-school depth perception to charts by way of Kodak, Ansel Adams, Munsell color tests, M.C. Escher, and an assertion that over 70 percent of men tested in the 1970s were nearly blind to the blue spectrum. It never lands on a rule you can act on. Chapter 12, which contains the single most valuable new disclosure in the edition, wraps that formula in several pages about an ownership dispute and a Library of Congress copyright claim. The signal-to-story ratio in Part 3 is poor.
Who it is for
Buy it if
You already trade with RSI or Stochastics, you have noticed that the 30 and 70 lines keep failing you in trending markets, and you want a specific, testable framework for why. You have the chart software and the patience to mark up a year of history on each instrument you follow. Chapters 1, 8, 11, and 12 are worth the cover price on their own.
Skip it if
You want a system with entries, stops, and position sizing, because this book deliberately does not give you one. You are new enough that you are still learning what divergence looks like, which she warns about herself. Or you want current examples, since the charts are largely from 1996 to 1998 and the book's own live forecast from 2011 was badly wrong.
As an Amazon Associate I earn from qualifying purchases. It costs you nothing extra, and it does not change what gets recommended or what the verdict says.