For years, traders and investors have been using unproven assumptions about popular patterns such as breakouts, momentum, new highs, new lows, market breadth, put/call ratios and more without knowing if there is a statistical edge. 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: A Quantitative Guide to Stock Market Behavior, Second Edition 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 to show how they function and how you can apply that information intelligently when making investment decisions.

For years, traders and investors have been using unprovenassumptions about popular patterns such as breakouts, momentum, newhighs, new lows, market breadth, put/call ratios and more withoutknowing if there is a statistical edge.Common wisdom holds that the stock markets are ever changing.But, as it turns out, common wisdom can be wrong. Offering acomprehensive look back at the way the markets have acted over thelast two decades, How Markets Really Work: A Quantitative Guideto Stock Market Behavior, Second Edition shows that nothing haschanged, that the markets behave the same way today as they have inyears past, and that understanding this puts you in a primeposition to profit. Written by two top financial experts and filledwith charts and graphs that illustrate the market concepts theydevelop, the book takes a sometimes contrarian view of everythingfrom market edges to historical volatility, and from volume toput/call ratio, giving you all that you need to truly understandhow the markets function. Fully revised and updated, How MarketsReally Work, Second Edition takes a level-headed, data-drivenlook at the markets to show how they function and how you can applythat information intelligently when making investmentdecisions.

Disclaimer viiTable Explanation ixAcknowledgments xiChapter 1 Market Edges 1Chapter 2 Short-Term Highs and Short-Term Lows 7Chapter 3 Higher Highs and Lower Lows 25Chapter 4 Up Days in a Row versus Down Days in a Row 43Chapter 5 Market Breadth 65Chapter 6 Volume 83Chapter 7 Large Moves 93Chapter 8 New 52-Week Highs, New 52-Week Lows 105Chapter 9 Put/Call Ratio 117Chapter 10 Volatility Index (VIX) 127Chapter 11 The Two-Period RSI Indicator 147Chapter 12 Historical Volatility 157Chapter 13 Creating a Sample Strategy from This Research 159Chapter 14 Applying the Information in This Book 163About the Authors 167Index 169