It paved the way for Robert Edwards and John Magee's best-selling Technical Analysis of Stock Trends - a debt which is acknowledged in their foreword: 'Part One is based in large part on the pioneer researches and writings of the late Richard Schabacker.
He presents factors that can be confidently relied on, and gives equal attention to the blemishes and weaknesses that can upset the best of analytical forecasts: Factors which investors would do well to absorb and apply when undertaking the fascinating game of price, time and volume analysis.
Author : Charles D. Kirkpatrick II,Julie A. Already the field's most comprehensive, reliable, and objective guidebook, Technical Analysis: The Complete Resource for Financial Market Technicians, Second Edition has been thoroughly updated to reflect the field's latest advances. Selected by the Market Technicians Association as the official companion to its prestigious Chartered Market Technician CMT program, this book systematically explains the theory of technical analysis, presenting academic evidence both for and against it.
Using hundreds of fully updated illustrations, the authors explain the analysis of both markets and individual issues, and present complete investment systems and portfolio management plans. They present authoritative, up-to-date coverage of tested sentiment, momentum indicators, seasonal affects, flow of funds, testing systems, risk mitigation strategies, and many other topics. This edition thoroughly covers the latest advances in pattern recognition, market analysis, and systems management.
The authors introduce new confidence tests; cover increasingly popular methods such as Kagi, Renko, Kase, Ichimoku, Clouds, and DeMark indicators; present innovations in exit stops, portfolio selection, and testing; and discuss the implications of behavioral bias for technical analysis. They also reassess old formulas and methods, such as intermarket relationships, identifying pitfalls that emerged during the recent market decline.
For traders, researchers, and serious investors alike, this is the definitive book on technical analysis. Sixty-three years. Sixty-three years and Technical Analysis of Stock Trends still towers over the discipline of technical analysis like a mighty redwood.
Originally published in and now in its Tenth Edition, this book remains the original and most important work on this topic. The book contains more than dry chart patterns, it passes down accumulated experience and wisdom from Dow to Schabacker, to Edwards, and to Magee, and has been modernized by W.
Bassetti, a client, friend, and student of John Magee, one of the original authors, has converted the material on the craft of manual charting with TEKNIPLAT chart paper to modern computer software methods. In addition, Magee described a trend-following procedure that is so simple and so elegant that Bassetti has adapted it to enable the general investor to use it to replace the cranky Dow Theory. This procedure, called the Basing Points procedure, is extensively described in the new Tenth Edition along with new material on powerful moving average systems and Leverage Space Portfolio Model generously contributed by the formidable analyst, Ralph Vince.
Everyone wants to know how to play the game. The foundational work of the discipline of technical analysis, this book gives you more than a technical formula for trading and investing, it gives you the knowledge and wisdom to craft long-term success. Now in its ninth edition, the first book to produce a methodology for interpreting the predictable behavior of investors and markets remains the benchmark by which all other investment methodologies are measured.
Author : John Magee,W. An indispensable companion to John Magee's and Robert Edward's classic, Technical Analysis of Stock Trends, Winning the Mental Game on Wall Street covers the mind set, the preconceptions, the false and misleading habits that hinder peak performance. It exhaust. To invest successfully or trade in Stocks, Options, Forex, or even Mutual Funds, it is imperative to know AND understand price and market movements that can only be learned from Technical Analysis.
In addition, Magee described a trend-following procedure that is so simple and so elegant that Bassetti has adapted it to enable the general investor to use it to replace the cranky Dow Theory. This procedure, called the Basing Points procedure, is extensively described in the new 10th Edition along with new material on powerful moving average systems and Leverage Space Portfolio Model generously contributed by the formidable analyst, Ralph Vince, author of Handbook of Portfolio Mathematics.
In contrast, the … Expand. The Great Crash, Psychology, Political Science. John Kenneth Galbraith's now-classic account of the stock market collapse, "The Great Crash" remains the definitive book on the most disastrous cycle of boom and bust in modern times.
In the Realm of the Senseless. Extraordinary Popular Delusions and the Madness of Crowds. Confusion de Confusiones. Study Helps in Point and Figure Technique. The Elliott Wave Principle. A Critical Appraisal. How to Make Profi ts in Commodities, rev. Complete Theory and Practice. A breakout of an Area Pattern, and then a retreat back into the pattern. We indicate the level of the stop by the horizontal lines, which, when connected look like stair steps.
Chart 27 As will be seen in this chart the correct actually, correct is a bad word; a better word is skillful approach to the previous Chart 24 was to hold the position, or to increase the investment. The reader should now make the same evaluation of this chart before going to the next odd page. Should the position be held, increased, or liquidated?
Mark the chart with trend lines and support and resistance lines and annotate it. Appendix Drill - 75 Figure Chart 28 Illustrates the Stair Stops three-days-away Procedure using the two charts the Beginner has just analyzed. Chart 29 Once more the reader should make the same analysis of the chart, and annotate his observations and conclusions, now that he has seen a Basing Points analysis. Where is are the trendline or trendlines and where is the price in relationship to the trendlines?
What is the relationship of volume to price? Is it kosher, or suspicious? Are the highs and lows in proper relationship? Does it smell right? And, most importantly, where are the Basing Points? Appendix Drill - 77 Figure Chart 30 Here is a blow up of the end of the chart above.
That chart may be analyzed using Basing Points and Stair Stops and also with conventional chart lines. In actual market action we will almost invariably want to examine the market close up before we make our final trading decision. What is the most important fact on the chart? Chart 31 In Chart 30 the extreme range and extreme volume of the last day would strongly incline the trader to exit even if the stop were not hit.
Appendix Drill - 79 Key to Case 1 Analysis 1. Run Day, big volume; Breakout through line 2; Sure entry signal 5. A weak BP because of shallowness of retracement 8. A potential BP but not a very good one because new high has not been made from Flag which becomes BP TL, but too steep to last BP at 25 is The period when farsighted investors begin to buy shares from discouraged or distressed sellers.
Financial reports are usually at their worst and the public is completely disgusted with the stock market. Volume is only moderate, but beginning to increase on the rallies. When the bottoms of these waves form on, or very close to, an upward slanting straight line, a basic Ascending or Up Trendline is formed. The class is distinguished by the fact that one of the two boundary lines is practically horizontal while the other slants toward it. If the top line is horizontal and the lower slants upward to an intersection point to the right, the resulting Area Pattern is called an Ascending Triangle.
The implication is bullish, with the expectant breakout though the horizontal line. Measuring Formula: Add the broadest part of triangle to the breakout point. A graphic representation of prices using a vertical bar to connect the highest price in the time period to the lowest price. Opening prices are noted with a small horizontal line to the left.
Closing prices are shown with a small horizontal line to the right. Bar charts can be constructed for any time period in which prices are available. The most common time periods found in bar charts are hourly, daily, weekly and monthly.
As technical conditions change, the Basing Point, and stops, can be advanced in a rising market , or lowered in a falling market. See Progressive Stops. Bear Markets generally consist of three phases. The first phase is distribution, the second is panic, and the third is akin to a washout, where those investors who have held through the first two phases, finally give up and liquidate.
The low of the breakout day does not touch the high of the previous day. And, when price crosses a trendline. Unlike Triangles, however, the Tops and Bottoms of these patterns do not necessarily stop at clearly marked diverging boundary lines. Volume, rather than diminishing in triangles, tends to be unusually high and irregular throughout pattern construction. No Measuring Formula is available. Usually, but not always, divisible into three phases. The first phase is accumulation.
The second phase is one of fairly steady advance with increasing volume. The third phase is marked by considerable activity as the public begins to recognize and attempt to profit from the rising market. See the buy-and-hold strategy for Enron. After three days away it becomes a Basing Point. In a commodity, it represents an official price determined from a range of prices deemed to have traded at or on the close; also called a settlement price. Also called covering the gap or filling the gap.
See also Gap. See also Head and-Shoulders. In the Dow Theory, it means both the Industrial Average and the Transportation Average have registered new highs or lows during the same advance or decline. If only one of the Averages establishes a new high or low and the other one does not, it would be a non-confirmation, or Divergence. This is also true of oscillators. Failure of the oscillator to confirm a new high or low is called a Divergence and would be considered an early indication of a potential Reversal in direction.
Not all Congestion periods produce a recognizable pattern, however. Called a rally in a downtrend and a reaction in an uptrend. In the Dow Theory, a Correction is a Secondary Trend against the Primary Trend, which usually lasts from three weeks to three months and retraces from one-third to two-thirds of the preceding swing in the Primary Direction. When the tops of these ripples form on, or very close to, a downward slanting straight line, a basic Descending or Down Trendline is formed.
If the bottom line is horizontal and the upper slants downward to an intersection point to the right, the resulting Area Pattern is called a Descending Triangle.
The implication is Bearish, with the expectant breakout through the flat horizontal side. Minimum Measuring Formula: Add the broadest part of the Triangle to the breakout point. It could be described as a Complex Head-and-Shoulders Pattern with a V-shaped bent Neckline, or a Broadening Pattern which, after two or three swings, changes into a regular Triangle. The overall shape is a four-point Diamond.
Since it requires a fairly active market, it is more often found at Major Tops. The major difference is in the right side of the pattern. It should clearly show two converging lines with diminishing volume as in a Symmetrical Triangle. Minimum Measuring Formula: Add the greatest width of the pattern to the breakout point.
The period when farsighted investors sense that the market has outrun its fundamentals and begin to unload their holdings at an increasing pace. The public is still active, but beginning to show signs of caution as hoped-for profits fade away. Not to put all your financial eggs in one basket.
The technical implication is for an upside breakout. A rally back though the apex of the intervening rally confirms the Reversal. More than a month should separate the two Bottoms.
Minimum Measuring Formula: Take the distance from the lowest bottom to the apex of the intervening rally and add it to the apex. A decline through the low of the reaction confirms the Reversal. The two highs should be more than a month apart. Minimum Measuring Formula: Add to the breakout point the distance from the highest peak to the low of the reaction.
See also Trendline. Originally composed of 14 companies 12 railroads and 2 industrials , the rails, by , were separated into their own Average, and 12 industrial companies of the day were selected for the Industrial Average. The number was increased to 20 in , and to 30 in The stocks included in this Average have been changed from time to time to keep the list up-to-date, or to accommodate a merger.
The only original issue still in the Average is General Electric. With the advent of the airlines industry, the Average was updated in and the name changed to Transportation Average. In , the number of issues was reduced to the present END RUN-When a breakout of a Symmetrical Triangle Pattern reverses its direction and trades back through axis Support if an up-side breakout or Resistance if a downside breakout , it is termed an end run around the line, or end run for short.
The term is sometimes used to denote breakout failure in general. These gaps are quickly closed, most often within two to five days, which helps to distinguish them from Runaway Gaps which are not usually covered for a considerable length of time. It signals a halt in the prevailing trend which is ordinarily followed by some sort of area pattern development. Indistinguishable from premature breakout or genuine breakout when it occurs. A flag is a period of congestion, less than four weeks in duration, which forms after a sharp, near vertical, change in price.
The upper and lower boundary lines of the pattern are parallel, though both may slant up, down or sideways. Glossary - 97 In an uptrend, the pattern resembles a Flag flying from a mast, hence the name.
Flags are also called Measuring or HalfMast Patterns because they tend to form at the midpoint of the rally or reaction. Volume tends to diminish during the formation, and increase on the breakout. Or, as example, fact that tick by tick price data looks the same as monthly data. In a commodity, it would be information on any factor which would affect supply or demand. GAP-A hole in the price range which occurs when either: a the lowest price at which a stock or commodity is traded during any time period is higher than the highest price at which it was traded on the preceding time period, or b the highest price of one time period is lower than the lowest price of the preceding time period.
When the ranges of the two time periods are plotted, they will not overlap or touch the same horizontal level on the chart-there will be a price gap between them. It consists of the following four elements a Head-and-Shoulders Top will be described for illustration : a a rally which ends a more or less extensive advance on heavy volume, and which is then followed by a Minor Reaction on less volume.
This is the left shoulder; b another high-volume advance which exceeds the high of the left shoulder, followed by another low-volume reaction which takes prices down to near the bottom of the preceding reaction, and below the top of the left shoulder high. This is the head; c a third rally, but on decidedly less volume than accompanied either of the first two advances, and which fails to exceed the high established on the head.
This is the confirmation of the breakout. The main difference between a Top Formation and a Bottom Formation is in the volume patterns. The breakout in a Top can be on low volume. See also Head-and- Shoulders Pattern. See also Head-and-Shoulders Pattern. In a stock portfolio, an example of a hedge would be to buy shares of XYZ stock, and to buy one put option of the same stock. The put would help protect against a decline in the stock, but it would also limit potential gains on the upside.
It may also be called a Rectangle during the early stages of formation. An example would be an individual who knows about a merger before it is announced to the public.
Trading by insiders on this type of information is illegal. The result is an Island of prices detached by a gap before and after. If the trading range contains only one day, it is called a One-Day Reversal. The two gaps usually occur at approximately the same level. By itself, the pattern is not of major significance; but it does frequently send prices back for a complete retracement of the Minor Move which preceded it.
For example, if you placed a limit order to buy IBM at , the broker would not fill the order unless he could do so at your price or better, i. Often used to indicate panic selling. But the rate is set by the individual exchanges. The two differ in cost as well. In a stock, the broker lends the investor the balance of the money due and charges interest for the loan. In a commodity, margin is treated as a good faith payment. The broker does not lend the difference, so no interest expense is incurred.
Rectangles-The minimum you would expect from a breakout up or down out of a Rectangle Pattern would be the distance equal to the height of the formation. In either a Top or Bottom, the interim target, once the neckline is penetrated, is the distance from the Top or Bottom of the head to the level of the neckline directly below above the head. The Broadening Formation may evolve in any one of the three forms comparable, respectively, to Inverted Symmetrical, Inverted Ascending or Descending Triangles.
The symmetrical type, for example, consists of a series of price fluctuations across a horizontal axis, with each Minor Top higher and each Minor Bottom lower than its predecessor. The pattern may thus be roughly marked off by two diverging lines, the upper sloping up from left to right, the lower sloping down. These Broadening Patterns are characteristically loose and irregular, whereas Symmetrical Triangles are regular and compact.
The converging boundary lines of Symmetrical Triangles are clearly defined, as a rule. Tops and Bottoms within the formation tend to fall within fair precision on these boundary lines. In the Broadening Formation, the rallies and declines usually do not all stop at clearly marked boundary lines and are subject to spikes. We could call this a Megaphone Spike because the formation keeps on crowding at the lines to look like a megaphone.
It is called moving because the number of elements are fixed, but the time interval advances. See also Diamond and Head-and-Shoulders. A constant in Magee, a parameter in Bassetti. The downward trend of prices suddenly accelerates into an almost vertical drop while volume rises to climactic proportions.
See also Bear Market. See also Flag. Eventually, the trend will break out again and proceed in the same direction. At the time they occur, false breakouts and premature breakouts are indistinguishable from each other, or a genuine breakout.
See also Stop. Return after an upside breakout is called a Throwback. A Rectangle can be either a Reversal or Continuation Pattern depending on the direction of the breakout. Normally, it takes more than three weeks to complete, and volume will diminish as prices move toward the apex of the pattern.
The anticipated direction of the breakout in a Rising Wedge is down. Minimum Measuring Formula: A retracement of all the ground gained within the wedge. RISK-Commonly considered to be variability in returns of the invested instrument. Wide ranges in price of a commodity is riskier than a savings account whose principal does not vary in value. There is no minimum measuring formula associated with this Reversal Pattern. The Price Pattern, along its highs, shows a convex shape sometime called an Inverted Bowl.
The Volume Pattern is concave shaped a bowl as trading activity declines into the peak of the Price Pattern, and increases when prices begin to fall. There is no measuring formula associated with this Reversal Pattern. Minimum Measuring Formula: Take the distance from the original breakout point to the start of the gap, and add it to the other side of the gap.
Also liquidating the investment in units. Selling on scale up or down , or scaling in or out. Although it is a form of a One-Day Reversal, it can take more than one day to complete.
This information monthly by the New York Stock Exchange. In the stock market, shares you do not own can be sold by borrowing shares from the broker, and replacing them when the offsetting repurchase takes place.
In the commodity market, contracts are created when a buyer and seller get together through a floor broker. As a result, the procedure to sell in the commodity market is the same as it is to buy. STOP-A contingency order which is placed above the current market price if it is to buy, or below the current market price if it is to sell.
A stop order becomes a market order only when the stock or commodity moves up to the price of the buy stop, or down to the price of a sell stop.
A stop can be used to enter a new position or exit an old position. See also Protective or Progressive Stop. Can be a Reversal or Continuation Pattern. A sideways congestion where each Minor Top fails to attain the height of the previous rally and each Minor Bottom stopping above the level of the previous low.
The result is upper and lower boundary lines which converge, if extended, to a point on the right. The upper boundary line must slant down and the lower boundary line must slant up, or it would be a variety of Wedge. Volume tends to diminish during formation. Minimum Formula: Add the widest distance within the Triangle to its breakout point.
Return after a downside breakout is called a Pullback. TRENDLINE-If we actually apply a ruler to a number of charted price trends, we quickly discover the line which most often is really straight in an uptrend is a line connecting the lower extremes of the Minor Recessions within these lines. In other words, an advancing wave in the stock market is composed of a series of ripples, and the bottoms of each of these ripples tend to form on, or very close to, an upward slanting straight line.
The tops of the ripples are usually less even; sometimes they also can be defined by a straight line, but more often, they vary slightly in amplitude, and so any line connecting their upper tips would be more or less crooked.
On a descending price trend, the line most likely to be straight is the one that connects the tops of the Minor Rallies within it, while the Minor Bottoms may or may not fall along a straight edge.
These two lines-the one that slants up along the successive wave bottoms within a broad up-move and the one that slants down across successive wave tops within a broad downmove-are the Basic Trendlines.
You draw an Up Trendline by drawing the line on the inner side. You draw a Down Trendline by drawing it on the outside. You draw a Sideways Trendline on the bottom. Modern Portfolio Theory inadequately accounts for this market fact. Fund managers accept it blithely. Less volume occurs on the second peak than the first peak, and still less on the third peak. The Triple Top is confirmed when the decline from the third Top penetrates the Bottom of the lowest valley between the three peaks.
Calculation of volatility is often reduced to the standard deviation. WEDGE-A chart formation in which the price fluctuations are confined within converging straight or practically straight lines. Bolton, A. Hamilton, The Elliott Wave Principle. Edwards, Robert D. Elliott, Prechter, R.
Frost, Alfred J. Galbraith, John K. Kaufman, Perry J. Bassetti, St. Mandelbrot, O. Schultz, John W.
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