Larry Connors & Cesar Alvarez 
How Markets Really Work 
Quantitative Guide to Stock Market Behavior

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.

Table of Content

Disclaimer vii

Table Explanation ix

Acknowledgments xi

Chapter 1 Market Edges 1

Chapter 2 Short-Term Highs and Short-Term Lows 7

Chapter 3 Higher Highs and Lower Lows 25

Chapter 4 Up Days in a Row versus Down Days in a Row 43

Chapter 5 Market Breadth 65

Chapter 6 Volume 83

Chapter 7 Large Moves 93

Chapter 8 New 52-Week Highs, New 52-Week Lows 105

Chapter 9 Put/Call Ratio 117

Chapter 10 Volatility Index (VIX) 127

Chapter 11 The Two-Period RSI Indicator 147

Chapter 12 Historical Volatility 157

Chapter 13 Creating a Sample Strategy from This Research 159

Chapter 14 Applying the Information in This Book 163

About the Authors 167

Index 169

About the author

LAURENCE A. CONNORS is Managing Partner of LCA Capital, an asset management firm, and Connors Research, a financial markets research company. Connors has more than thirty years of experience working in the financial markets industry, is a best-selling author, and has been featured and quoted in numerous news outlets, including the Wall Street Journal, the New York Times, and Barron’s.

CESAR ALVAREZ is the Director of Research for Connors Research. Alvarez has been at the forefront of stock market research for years, and has developed a number of successful trading systems now used by investors and fund managers around the world.