Technical Analysis and Stock Market Profits

About the Series Editor......Page 6
Table of Contents......Page 8
Editor's Introduction......Page 12
Preface to First Edition......Page 20
Study I: Technical Approach to Stock Trading......Page 22
An ‘‘Advanced Course’’......Page 24
Stocks Eligible for Charting......Page 25
Charts as the ‘‘Complete Memory’’......Page 26
Technical Chart Action – the New Science......Page 27
Reasons for Contrary Technical Action......Page 28
Summary of the Technical Approach......Page 29
No Easy Road to Profits......Page 30
Newspapers which Publish Charts......Page 31
Services Selling Daily Charts......Page 32
Advantages of Making Your Own Charts......Page 33
Number of Charts Necessary......Page 34
Chart Paper......Page 35
Constructing the Scale......Page 36
Plotting the Price Data......Page 37
Shifting the Volume Chart......Page 38
Holidays on the Time Scale......Page 39
Helpful Notes on ‘‘Fundamentals’’ May Be Added......Page 40
Starting a New Sheet......Page 41
Stock Price Movements......Page 42
Intermediate Movements......Page 43
Major Trends Shown on Monthly Charts......Page 44
Importance of Minor Movement Study......Page 48
Study II: Important Reversal Formations......Page 50
Public vs. the Insiders......Page 52
Why the Public Usually Loses......Page 53
How to Become an Insider......Page 54
Charts Detecting Professional Operations......Page 55
Turns Are Most Important......Page 56
Why Volume Increases on Reversals......Page 57
Volume Needed to Overcome Momentum......Page 58
Examples of One-Day Reversal......Page 59
Price and Volume Must Be Considered Together......Page 60
Volume Showing Insiders Crossing the Public......Page 61
Introductory Review......Page 62
Description of Head and Shoulders......Page 63
Typical Volume in Head and Shoulders......Page 64
‘‘Breaking the Neck’’......Page 66
Varying Width of Shoulders......Page 68
Warning in Drooping Shoulder......Page 71
Action on Ascending Neck Lines......Page 72
Head and Shoulders Bottoms......Page 73
Examples of Head and Shoulders Bottom Reversals......Page 74
Flat Shoulders......Page 78
Uncompleted Head and Shoulders Patterns......Page 79
Patterns in Weekly and Monthly Charts......Page 81
Measuring Extent of Movement......Page 82
Logic of Chart Patterns......Page 84
Logic of Head and Shoulders Reversal......Page 85
Study III: Important Reversal Formations Continued......Page 86
Definition of the Common Turn......Page 88
Chart Example of the Rounding Top......Page 89
Chart Patterns in the Averages......Page 91
Volume on Rounding Turns......Page 92
The Triangle or Coil......Page 95
Triangle Unreliable as a Reversal......Page 96
Denotes Continuation More Often than Reversal......Page 97
Examples of Triangular Reversal......Page 98
Break-out Confirmed by Volume......Page 99
Break-out may Come Quickly......Page 100
Varieties of Triangular Tops......Page 101
Early Break-out Reliable......Page 103
Triangular Bottom Reversals......Page 104
Wave Movement Following Apex......Page 108
More Reliable as Forecasters......Page 109
The Descending Triangle as a Reversal......Page 110
Out-of-Line Movements......Page 112
Effect of General Market on Individual Issues......Page 114
Ascending Triangle Reversals......Page 115
The Wedge Formation......Page 116
Up-turned and Down-turned Wedges Compared......Page 120
Summary of the Triangle Reversal Group......Page 123
Probable Causes for Triangles......Page 124
Study IV: Important Reversal Formations Continued......Page 126
Relation to Preceding Price Movement......Page 128
Examples of Double Top Reversals......Page 129
Shorter Intervals Between Tops......Page 133
Multiple Tops and Bottoms......Page 135
An Illustration of a False Double Top......Page 138
Double Tops and Bottoms on Long-range charts......Page 140
Double Tops and Bottoms in the Averages......Page 142
The Complex Pattern – a Reliable Forecaster......Page 145
The Double Head and Shoulders Top......Page 146
Variations as in Simple Head and Shoulders......Page 147
Head and Multiple Shoulders Types......Page 148
Complex Bottoms in Same Varieties as Tops......Page 150
The Broadening Top – a Rare and Intricate Pattern......Page 153
Chart Example of the Broadening Top......Page 154
Completion of the Pattern......Page 156
Ending Bull Markets......Page 157
Distinction Between ‘‘Long’’ and ‘‘Short’’ Trading......Page 159
Broadening Formations Which Fail......Page 161
A Brief Review......Page 162
As has previously been not......Page 158
Study V: Minor Reversal Formations......Page 164
The Inverted Triangle......Page 166
The Symmetrical Inverted Triangle......Page 167
A More Typical and Less Profitable Example......Page 169
Difficulty of Trading on Inverted Triangles......Page 171
Explanation for Inverted Triangles......Page 173
Examples of Diamond Reversals......Page 175
The Rectangle as a Reversal......Page 177
Rectangular Bottom Reversals......Page 180
The Rectangle as a Top Reversal......Page 182
Break-out of Dormancy......Page 185
Relative Dormancy in an Active Stock......Page 186
The Island Formation......Page 189
The Island Formation Described......Page 190
Gaps Should Form at Same Level......Page 192
Other Island Manifestations......Page 193
Continuation Formations Next......Page 196
Study VI: Major Continuation Formations......Page 198
Inside Operations and Intermediate Chart Patterns......Page 200
The Market Writes Its Own Forecast......Page 201
Upward Continuation Triangles......Page 202
Examples in Preceding Illustrations......Page 204
Right-angle Continuation Triangles......Page 205
True Right-angles Triangles as Continuations......Page 207
False Moves Studied Later......Page 209
Inverted Triangles as Continuations......Page 211
Almost a Broadening Top......Page 212
Right-angle Inverted Triangles More Reliable......Page 213
The Rectangle as a Continuation......Page 216
Examples of Rectangles in an Up-trend......Page 219
Rectangles in Chrysler, 1935......Page 220
Examples in the 1931 Bear Market......Page 222
Flags and Pennants – Dependable Signals......Page 225
Examples of Flags in Upward Movements......Page 226
Upward Flying Flags in Up-trends......Page 228
Flags and Pennants in Weekly Charts......Page 231
An Illustration in Crown Cork and Seal......Page 233
Often the Only Helpful Indication......Page 235
Review of Continuation Patterns......Page 236
Their Application in Practical Trading......Page 237
Formations Which Change Their Nature......Page 238
Study VII: Miscellaneous Intermediate Patterns and Phenomena......Page 240
But First Some General Considerations......Page 242
The Drooping Bottom......Page 243
Drooping Bottom Offers Quick Profits......Page 245
Examples Without Previous Break-outs Very Rare......Page 247
Trading on the Accelerating Patterns......Page 248
The Horn as a Continuation Formation......Page 250
Out-of-line Movements......Page 254
Sometimes Resembles a True Break-out......Page 255
The Interpretation of the Out-of-line Action......Page 256
The Out-of-line from a Symmetrical Triangle......Page 259
The Zig-zag Movement......Page 260
Recurrent Patterns of Price Action......Page 261
The Scallop – an Opportunity and a Warning......Page 263
The Price Gap – an Interesting but Often Puzzling Phenomenon......Page 266
Gaps More Common in Thin Markets......Page 268
The Common Gap – Soon Covered......Page 270
Apparent Break-away Gaps that Are Later Closed......Page 271
Difficulty of Immediate Classification......Page 272
Continuation and Exhaustion Gaps......Page 273
Characteristics of the Exhaustion Gap......Page 275
An Exhaustion Gap of Only Temporary Effect......Page 276
Reviewing the Island Formation......Page 277
An Abnormal Island Reversal......Page 278
Limited Forecast of Islands Within Patterns......Page 280
Summary of the Gap Study......Page 281
Gap Implications to be Studied Later......Page 282
Study VIII: Trend Line Action......Page 284
Examples of Long-term Trend Lines......Page 286
The Theory of Trend Lines......Page 287
Practical Uses of Trend Lines......Page 288
Trial and Error Method in Establishing Lines......Page 290
Practicing on the Chart......Page 291
Patterns Appearing Within Trends......Page 293
Completing the Picture in Baltimore and Ohio......Page 295
Trading on the Simple Primary Trend Line......Page 297
Establishing Parallel Trend Lines......Page 299
Playing the Major Trend......Page 300
Trend Lines Help to ‘‘Let Profits Run’’......Page 301
Horizontal Trading Areas......Page 304
What Constitutes a Significant Break......Page 305
Fanning Trend Lines and Flattening Trends......Page 307
Patterns Help in Interpretation of Trend Lines......Page 308
Practical Use of the Throw-back......Page 310
Trend Lines on Logarithmic Scale......Page 311
GENERAL REVIEW OF VOLUME......Page 312
Volume Characteristics Previously Discussed......Page 314
Typical Volume Action on Reversals......Page 315
Volume Action at Temporary Halts in Trends......Page 316
Volume as an Indication of Continuation......Page 317
Relation of Volume Action to Basic Trend......Page 318
THE DOW THEORY......Page 319
The Major Tenets of the Dow Theory......Page 320
Application to Stock Trading......Page 321
Study IX: Suport and Resistance Levels......Page 322
Deciding Upon Our Terminology......Page 324
Logical Explanation for Reversal Levels......Page 325
The Memory Factor Comes into Play......Page 326
Degree of Reliability of Supply and Demand Levels......Page 327
And Old Tops Become New Bottoms......Page 328
Value of Weekly Charts in Forecasting......Page 329
Levels Established During the Bear Market......Page 331
Forecasting the Next Steps in General Electric......Page 332
Resistance and Support Levels in Intermediate Trends......Page 333
Negative Usefulness of Minor Support Levels......Page 335
Trend Lines Defining Support and Resistance......Page 337
The Cradle – a Strong Resistance Point......Page 338
Support and Resistance Lines on Multiple Formations......Page 340
Support and Resistance Set Up by Symmetrical Triangles......Page 342
The Symmetrical Triangle Forms a Cradle......Page 344
A Third Significant Level......Page 346
Support and Resistance at Gaps......Page 347
A Second Opportunity to Buy or Sell......Page 348
How Long Are Previous Levels Valid......Page 349
The Half-way Intermediate Movement Theory......Page 350
A Good Place to Take Profits......Page 351
Use of Support and Resistance Levels in Short Selling......Page 352
Study X: Measuring Rules and Formations......Page 354
Back History of Support and Resistance......Page 356
Trend Lines as Measuring Indications......Page 357
Measuring Implications of Patterns Themselves......Page 358
Testing the Head and Shoulders Measuring Formula......Page 359
Measuring Implications of Triangles......Page 360
The Flag Rule Does Not Forecast A Reversal......Page 361
Examples of Half-mast Congestions......Page 362
Reliability of the Half-mast Pattern......Page 364
The Single Gap Measuring Theory......Page 366
A Less Easily Interpreted Example......Page 368
May Be Applied Also to Two Continuation Gaps......Page 369
Dependability of Multiple Gap Rule......Page 370
FALSE MOVES AND SHAKE-OUTS......Page 371
Misleading False Moves Fortunately Rare......Page 372
The Ordinary Symmetrical Triangle False Move......Page 373
The Exceptional False Move with High Volume......Page 375
False Moves out of Rectangles......Page 377
False Moves Following Head and Shoulders......Page 378
The Shake-out on High Volume......Page 380
The Use of Stop-loss Orders Against False Moves......Page 381
The ‘‘End Run’’ – Not a False Move......Page 382
STOP-LOSS ORDERS......Page 384
The Mechanics of the Stop-loss Order......Page 385
Where to Place Stop Orders......Page 386
Applying the Principles to a Long Commitment......Page 387
The First Shift in the Stop-loss Level......Page 389
Completing the Trade in US Rubber......Page 390
The Stop Loss Order in Short Selling......Page 391
Stop-loss Orders in Short Trading are Buy Orders......Page 392
The Use of ‘‘Mental’’ Stops......Page 394
Stop-loss Orders of Little Help within Patterns......Page 395
Other Minor Uses for Stop Orders......Page 396
Study XI: Use of long-term charts, averages and groups......Page 398
The Monthly Chart......Page 400
Formations Develop on Monthly Charts......Page 401
The Uses of the Average Charts......Page 403
The Uses of Group Charts......Page 404
Lessons in Long-term Analysis......Page 407
Breaking up the Daily Time Interval......Page 408
The Minor-Move Chart......Page 409
Point and Figure Charts......Page 410
Limitations of Point or Figure Charts......Page 412
Other Special Lines of Chart Research......Page 413
The Bond Market......Page 414
An Example of Bond Chart Action......Page 415
Charts Interrupted by Exploration of Different Options......Page 417
Different Methods of Charting Options......Page 418
Close Relation Between Prices of Different Grains......Page 420
A Continuation Triangle and a Measuring Gap......Page 421
Charting the Cotton Market......Page 422
An Example of Cotton Market Charting......Page 423
Commodity Trading Has its Own Problems......Page 424
Study XII: Trading Tactics......Page 426
Some Aids In Practical Trading......Page 428
Diversification of Risk......Page 429
Capitalization and Leverage Factors......Page 430
Consistency of Swing Habits Illustrated......Page 431
Poor Stocks to Chart......Page 433
Wait for the Ideal Situation......Page 435
Regular Time for Daily Chart Consideration......Page 436
Intestinal Fortitude – a Word to the Naturally Conservative......Page 437
The Conservative vs. the Overconfident Type......Page 438
But Give the Market a Chance to Act......Page 439
Weigh Risks in Advance......Page 440
Don’t Lean Too Heavily on Outside Advice......Page 441
Judging Personal Aptitude for Chart Trading......Page 442
SUMMARY AND REVIEW......Page 443
Reviewing the Continuation Family......Page 444
The Question of Too Much Theory......Page 445
Why Charts Are Not Infallible......Page 446
A PROGRAM FOR THE BEGINNER......Page 447
1. Making Up the List......Page 448
3. Studying the Patterns......Page 450
5. Trading on Paper......Page 451
6. The Final Test......Page 452
Index of Figures by Number......Page 454
Index of Figures by Subject......Page 458
Index to Figure References......Page 461
Index of Subjects......Page 465