Investor's
Library 
Review of
The Magic of Moving Averages
By Scot Lowry
Having the temerity to write a book about moving averages is a lot like writing a book about walking. After all, in the latter case, once one has made clear the process of putting one foot in front of the other, what more is there to say? Yet, books about walking occupy a lot of shelf space. And, readers who absorb them and use their contents intelligently may profit proportionately.
Similarly, it may be possible for traders who carefully and intelligently actualize the information in Scot Lowry's book, The Magic of Moving Averages, to reap benefits that are born of using a rational indicant of market movement.
Out of 236 pages, 125 are devoted to text. The remaining 111 contain charts that illustrate the author's ideas. Happily, only a few ideas are required to trade a la Lowry, so the charts provide numerous examples of the main Lowry approach, dubbed the "Delphic Phenomenon" while the rest display examples of several ancillary methods for more experienced traders.
As the book's title implies, Lowry bases his work primarily on the use of moving averages, more specifically, on a particular pattern that he has identified as occurring prior to substantial market moves. He states his incredulity at the fact that this obvious pattern has gone unused and, possibly, unnoticed. He considers this remarkable, because the use of this pattern places a relatively low risk trade in the direction of the immediate trend, an obvious goal of many traders.
Salient among the examples of the method's effectiveness are the early, unqualified identification of the crashes of 1929 and 1987. If you were to have followed the signals of the Delphic Phenomenon on those occasions, you would have been short prior to both.
In addition to the Delphic Phenomenon, Lowry provides two indicants of impending thrust that, although found less often, can lead to moves of considerable magnitude. These, too, are nothing more than products of relationships among moving averages and bar charts (i.e., uncomplicated stuff).
Do we have here an undiscovered phenomenon that has been in plain view for, lo, these many years? Have we finally grasped the Holy Grail? Not yet. The fact is that some experienced traders are familiar with the pattern shown in the book. Stripped of its ponderous name, it is nothing more than the process of trading out of a retracement in the direction of a Moving Average (MA) that has crossed a longer MA. It is well known that this works some of the time. It is equally well known that congestions and narrow trading ranges are its nemesis and, unless countered by other means (not mentioned in the book), can account for a disheartening string of losses.
Whether the excellent profits attained in larger moves overwhelm the numerous smaller losses sufficiently to produce a salutary profit factor can only be determined by historical testing (not in the book). The present commentator performed only enough back testing to know that he would be psychologically unable to use this approach, an admitted weakness on his part, but shared with many traders of his acquaintance.
Back testing the Delphic Phenomenon made it obvious that Lowry's rules are constructed imprecisely, to the extent that one must incorporate his own limitations on the parameters if the method is to be followed in any but a carte blanche approach. Furthermore, the exemplary charts are no help in this regard, many of them seeming to follow the general idea that underlies the method, but failing to reveal its operational specifics.
It may be, however, that the Delphic Phenomenon, when properly filtered, would indeed be a profitable trading tool. And, for those traders looking for a deeper understanding of the use of moving averages in trading, with a specific approach that may have merit despite the above aforementioned shortcomings, this book may prove a worthwhile and interesting read.Review by
Edward Dobson, President
Traders Press, Inc.
Greenville, SC
Additional details are available on www.traderspress.com.
