CAREER
Hank Pruden is an internationally-known educator and speculator. He is a professor in the School of Business at Golden Gate University in San Francisco, California where he has been teaching for more than 20 years. Hank is more than a theoretician; having actively traded his own account for more than 30 years he has placed real equity at risk based upon the theories he teaches. His personal involvement in the market ensures that what he teaches is practical for
the trader, and not only abstract academic theory.
At Golden Gate he developed the accredited courses in technical market analysis in 1976. Since then the curriculum has expanded to include advanced topics in technical analysis and trading. In his courses Hank emphasizes the psychology of trading as well as the use of technical analysis methods. He has published extensively in both areas.
Hank has mentored individuals and institutional traders in the field of technical analysis for many years. He is currently on the Board of Directors of the Technical Securities Analysts Association of San Francisco and is past president of that association. Hank was also on the Board of Directors of the MTA and has served as vice chair of the Americas with IFTA. For eleven years Hank was the editor of The Market Technicians Association Journal. From 1982 to 1993 he was a member of the Board of Trustees of Golden Gate University.
Hank completed his Ph.D. (with honors), at Lundquist College of Business, University of Oregon. He also holds an MBA from the Haas School of Business, University of California, Berkeley and a Bachelor’s of Science degree from California State University, Chico.
Professor Pruden, has also served as a visiting professor/visiting scholar at Euromed-Marseille Ecole de Management in Marseille, France. In collaboration with other professors at Euromed-Marsaille, Hank co-authored several articles. With Dr. Bernard Belletante, Hank published a real-time test of the Wyckoff method projecting a new bull move in the DJIA in the IFTA Journal. The Journal of Technical Analysis also published his work with Dr. Bernard Paranque and Dr. Walter Baets.
Hank has long been active in promoting technical analysis in the international community. He helped to launch the Brazilian Technical Society and has been a keynote speaker in Brazil, Argentina and Mexico. Bilingual in Spanish, Hank has been able to address complex and sensitive financial and intercultural issues without the confusion or misunderstanding of translation
EDUCATIONAL PHILOSOPHY
For over a quarter of a century, Hank has taught technical analysis at the university level. A popular scholar, he has won multiple “best teacher and best scholar” awards based upon his ability to be easily understood by motivated beginners in finance and by experienced professional investors. Exposure to investment professionals during that time resulted in feedback as to what works best, resulting in continuous improvements in the curriculum. Getting students to progress from the definition level of instruction to application of theory has proven to be the greatest educational challenge during that time.
Hank discovered that the same approaches cannot be applied at both beginning and advanced levels. Over the years Hank has taken his own academic theories and secondary research to develop the innovative, workable model, the ACTION SEQUENCE METHOD for building the skills and knowledge of intermediate learners of technical analysis. (The ACTION SEQUENCE is fully explained in the Journal of Technical Analysis article, “System States of Pedagogy and the Action Sequence Model” (Issue 58, Summer-Autumn 2002). While the Action Sequence Model may be very roughly thought of as paper trading, the model includes extensive feedback and replays the original sequence incorporating lessons learned from the previous experience. Hank emphasizes that the replay portion of the model is critical. In this way, the student is being trained to react appropriately to future market circumstances. As a consequence of the efforts of Hank and his colleague’s in
the San Francisco financial community, Golden Gate University has the only academically accredited graduate certificate program in technical market analysis in the world.
ANALYTICAL FRAMEWORK
Being a teacher, Hank is able to define complex issues in simple terms. Applying this skill to trading, he found that traders like to use analogies to explain their world and to help them capture a deeper understanding of what it takes to be a complete, high performer. A favorite field from which to draw analogies is competitive athletics. One attractive analogy for the three part skills of the complete trader is the “triple threat” notion in football.
In the early 1950’s, TIME magazine ran a cover story on the then Princeton University All-American Dick Kazmier. The cover story was titled “A Triple Threat from a Single Wing.” Princeton’s football team operated out of a “single wing” formation. Kazmier personified the complete football player of his era: he was outstanding at the run, the pass and the kick. These three complementary talents, combined into one individual, made Kazmier an awesome competitor and an All-American performer. Applying this analogy to trading, Hank found that the 3-in-1 Trader must seek to develop a “triple threat” skill set. It is not running, passing and kicking, but rather:
- Systems building
- Pattern recognition
- Mental state management
These three decision frameworks, illustrated in Figure 1, interact with each other and build on each other in a natural order of progression. A behavioral finance framework for system building provides the structure for integrating and interpreting indicators organized along the key dimensions of price, time, volume, and sentiment. A pattern recognition scheme for discretionary trading, such as the Wyckoff Method of chart reading and of technical analysis furnishes the trader with an almost ideal set of laws and principles that the trader can use as general guidelines to interpret chart patterns and to take action. A model of trader psychology for mental state control is needed for success in system or discretionary trading. Hank’s collaborative research with Dr. Van K. Tharp led to “The Ten Tasks of Top Trading,” a series of discrete contexts for selecting appropriate mental states and providing a logical and comprehensive sequence of tasks for the successful trader to follow. Pertinent papers can be found at http://www.hankpruden.com/tentasks.pdf.
FIGURE 1: THE 3-IN-1 TRADER
Hank relies primarily on the Wyckoff Method of technical analysis. He likens this approach to Woody Hayes’ football philosophy at Ohio State – “three yards and a cloud of dust.” Although neither approach is fancy, both are effective and both produce winners.
Richard Wyckoff was a trader in the early-to-mid 1900’s. He tried to understand the logic behind market action. Like Hank Pruden, Wyckoff was able to explain complex issue in understandable terms, such as “Are you riding a dead horse? Get off and get a live one.” (from Fourteen Methods of Operating in the Stocks Market, 1909/24, as quoted by John Bollinger, CFA, CMT in Capital Growth Topics, May 18, 2001).
By studying the actions of Jesse Livermore, James Keen, J.P. Morgan, and other stock operators of his day, Wyckoff developed a trading system which sought to explain the boom and bust cycle in stocks. The Wyckoff Method uses price charts and volume studies to analyze and forecast the stock market. It also takes into account investor psychology and provides insight into why professional traders buy and sell stocks. Wyckoff emphasized the placement of stops and the importance of controlling the risk of any particular trade. Successful implementation of his model allowed Wyckoff to own a mansion in the Hamptons.
A successful trader from Lebanon introduced Hank to this approach. After much study and practice, he realized this approach made a lot of sense to him, and it has been at the core of his analysis ever since. Hank also finds that teaching reinforces the concepts of the Wyckoff Method, and he has also found that most students who study this method are able to profitably employ it, given sufficient study and practice.
Hank has also sought to expand upon Wyckoff’s work. To this end, he has added some definition to several concepts. As an example, he has refined a checklist to identify market turning points during periods of consolidation. He has also added to the body of knowledge by creating a checklist to assess whether or not that consolidation will lead to a resumption of the prior trend. To obtain an overview of this investment tactic, readers may refer to Hank’s articles, “Wyckoff Laws: A Market Test” in the 2004 issue of the IFTA Journal and “Wyckoff Tests: Nine Classic Tests and Nine New Tests” which appeared in the Spring-Summer 2000 issue of the MTA Journal. This article is available at http://www.hankpruden.com/nineclassic.pdf.
Hank also has been working with Cusp Theory to study market behavior. In the Winter Spring 2004 issue of The Journal of Technical Analysis, Hank co-authors an article entitled, “Interpreting Data from an Experiment on Irrational Exuberance: Applying a Cusp Catastrophe Model and Technical Analysis Rules” which explains this effort. His co-authors Paranque and Baets are at the Euromed-Marseille Ecole de Management.
Cusp Theory is useful to explain the tools of technical analysis, and may provide the mathematical tools to explain why the Wyckoff Method works. In the experiment described in the Journal article, Hank and his co-researchers observed that a collective irrationality drove members of the group. Others chose not to participate in a clearly overvalued market, and thus had no chance of winning. However, disinterested, outside observers would have been able to spot the awaiting calamity just by watching the price patterns emerge. While technical analysis captures the patterns of human behavior, Cusp Theory explains that behavior. Hank feels that this may be among the greatest contributions of Cusp Theory – reinforcing the fact that despite a human tendency to seek complex answers, simple information such as trendlines may be highly predictive of future price movements.
HISTORICAL CALLS
In late 2004, Hank believes that the major trend indicators, such as classic Dow Theory and 200-day moving averages of the major indices, are the keys to understanding the current market. His Wyckoff analysis gave major signs of accumulation followed by the start of a cyclic bull market in 2002-2003. Adding cyclic analysis to the equation, he finds that we are in a dominant bull trend with expectable corrections until a top is reached, most likely in 2005. In “Wyckoff Laws: A Market Test,” published in the 2004 issue of the IFTA Journal, Hank and Professor Belletante of Euromed-Marseille projected a target of 14,400 on the DJIA, expected to occur in 2005. Thereafter, as he explained in a May-June 2004 presentation in Mexico City, he anticipates a tradingrange market reminiscent of the 1970’s. Hank was wrong on the date. The top occurred at a price level of 14.198 in 2007. Although he underestimated the duration of the advance, this was an impressive forecast.
CLOSING ADVICE
Hank firmly believes that in knowledge, there is power. Those seeking to master technical analysis need to attain basic knowledge and practical skills of the field before risking their assets. Investors at all levels often underestimate the level of skill required in this profession. Hank encourages newcomers to read the books written by John Murphy and Martin Pring as a starting point. He also considers Edwin LeFevre’s classic “Reminiscences of a Stock Operator” to be required reading. Experiential learning is also valuable in this field; well guided experience can save a great deal of time and losses for new traders.
Letter from the Editor
FIGURE 1: WINANS INTERNATIONAL PREFERRED STOCK INDEX (CLICK TO ENLARGE)
FIGURE 2. SOURCE: PREFERRED STOCKS: THE ART OF PROFITABLE INCOME INVESTING
FIGURE 3: WINANS CHART OF DTE.A, 2005-2009
