1942, to June 30, 1943.
511
A.8
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, December 1,
1945 to May 31, 1946.
518
A.2
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, February 1 to
August 31, 1941.
509
A.5
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, July 1, 1943, to
January 31, 1944.
512
A.6
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, May 1 to
November 30, 1945.
514
A.7
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, May 1 to
November 30, 1945.
516
6.12
DOW-JONES
INDUSTRIAL
AVERAGE
2007-2008 top with large head-
and-shoulders 54
Figure Stock Name
5.2 DOW-JONES
INDUSTRIAL AVERAGE.
5.3 DOW-JONES
INDUSTRIAL AVERAGE.
5.1 DOW-JONES
INDUSTRIAL AVERAGE.
7.5 DOW-JONES
INDUSTRIAL AVERAGE.
10.12 DOW-JONES
INDUSTRIAL AVERAGE.
15.16 DOW-JONES
INDUSTRIAL AVERAGE.
Summary Description of Chart Page marked with Dow Theory signals
and Magee 39 Procedure signals from 1924-34
marked with Dow Theory signals and Magee 40 Procedure signals from
1900-2011
the unique straight downtrend developed by the 1929 to 1932 Bear Market.
15.19-20- DOW-JONES
21 INDUSTRIAL
AVERAGE.
36.1 DOW-JONES
INDUSTRIAL AVERAGE.
37.16 DOW-JONES
INDUSTRIAL AVERAGE.
37.17 DOW-JONES
INDUSTRIAL AVERAGE.
37.26 DOW-JONES
INDUSTRIAL AVERAGE.
6.6 DUPONT.
Three Bull Market tops.
150day moving average. Editor's choice.
37.9 EAGLE-PICHER LEAD.
8.9 EASTERN AIRLINES.
9.6 EASTERN AIRLINES.
8.25 EBAY.
10.25 EBAY.
Daily chart showing the Broadening Top established in May to August
1957.
Daily chart showing the Broadening Top established in 1999-2000.
Weekly, July 1961 through June 1962. The massive Head-and-Shoulders
Pattern preceding the 1962 break.
Its Major Top in 1936, with an unusual Pullback.
Monthly, 1927 to 1930. Generally Bearish Major Trend.
A Symmetrical Triangle in 1947 that did not carry through.
Long Consolidation ending in Rectangle in early 1945.
2004 Descending Triangle Surprise.
As Ebay broke its trendline and drifted sideways it became a good subject
for reversal day trading.
240
424
444
445
454
50
436
83
107
96
140
FigureStock Name Summary Description of ChartPage
10.26EBAY. 2004-5 Astonishing Ebay breaks
away on wings of great business.141
24.2 ELECTRIC BOAT.
Weekly, 1945 to 1946. Habits of
low-priced stock of somewhat
higher sensitivity.
343
23.10EMULEX. Lessons in high-speed
speculation. 334
18.3 ENRON. The most fundamental lesson.
2005. 298
37.7 FANSTEEL
METALLURGICAL.
Weekly, 1955 to 1956. Showing
Ascending Triangle, reactions to
Support, and eventual uptrend.
434
7.3
FEDERAL NATIONAL
MORTGAGE
ASSOCIATION.
1984. Head-and-Shoulders
Bottom. 60
11.18 FLINTKOTE. Consolidation Formation — a
Symmetrical Triangle —
167
providing signal of Primary
Reversal.
37.47
FLYING TIGER
CORPORATION.
Monthly, October, 1969 through
1971. From the 1967 high of
481/2, “FLY” started a
downtrend that lasted 2 years
and took the stock down to
111/4.
471
7.21 GAMEWELL
COMPANY.
The Rounding Bottom of 1932
showing a temporary rally out of
pattern.
72
7.11 GENERAL BRONZE. Multiple type Bottom formed
July-September 1945. 64
15.1 GENERAL MOTORS. Straight-line Bull Trend.
Monthly chart, 1938 to 1946.230
37.31GENERAL STEEL
INDUSTRIES.
Daily, November 1962 to April
1963. Example of a Major
Uptrend with normal reactions.
459
16.3 GOLD 2005.
A great rounding bottom?
Foretelling? 248
16.4 GOLD 2011 Showing how the great rounding
bottom was fulfilled. 249
8.24
GOODRICH (B.F)
COMPANY.
The remarkably small but perfect
Ascending Triangle which
reversed its Major Trend in 1942.
Weekly chart.
95
20.1 GOODYEAR TIRE $5
PFD.
Monthly, 1943 to 1947, showing
stability of a conservative
preferred stock of the same
company in the same period.
308
20.2 GOODYEAR TIRE
COMMON.
Monthly, 1943 to 1947, showing
rapid advance of a somewhat
speculative common stock
during a Bull Market.
308
13.9 GOODYEAR TIRE.
Four Pullbacks to neckline of
Head-and-Shoulders Top.
Weekly chart, 1945 to 1947.
203
23.16GOOGLE. 2005. More fun than a googly on
a sticky wicket.
339-
340
23.17GOOGLE. Illustrating the follow up story in
Google
37.3 GRANITE CITY STEEL.
Rectangle and Support-
Resistance phenomena in 1956
uptrend.
430
10.18GREYHOUND. A conspicuous One-Day
Reversal at the 1946 134
Bull high.
FigureStock Name Summary Description of ChartPage
33.4 GREYHOUND.
Daily, last half of 1945. Rounding
Bottom and advance with reactions
to Support Levels.
397
33.12GULF, MOBILE &
OHIO.
Daily, first 6 months of 1945.
Intermediate Bottom and Wedge. 405
15.7 HOUSTON OIL.
Accelerating trend of a speculative
oil stock.
Monthly chart, 1938 to 1946.
233
8.1
HUDSON BAY
MINING AND
SMELTING.
Major Bottom of 1941 to 1942, a
perfect Symmetrical Triangle.
Weekly chart.
78
8.22 HUDSON MOTORS. Series of Triangles in the 1929-32
Bear Market. Weekly chart. 93
10.13HUDSON MOTORS. The 1946 Major Top, a Diamond or
Complex Head-and-Shoulders.130
15.2 HUDSON MOTORS. Up-curving Bull Trend. Monthly
chart, 1938 to 1946. 230
18.2 HUDSON MOTORS.
Daily chart from January through
June 1930, showing large
Descending Triangle, also
Symmetrical Triangle
Consolidation during decline.
295
14.10HUDSON MOTORS. Measuring implications of “failure”
in Trend Channel. 1945. 215
6.1 HUMANA, INC. Daily, 1988. Head-and-Shoulders
Top. 46
18.4 IBM.
Perhaps those “best and brightest”
fundamental analysts were not as
feckless as one might think from
looking at their 20-year record.
301
6.5 IC INDUSTRIES.
1986. Head-and-Shoulders Top. 49
7.4
ILLUSTRATION OF
KILROY BOTTOM 60
9.12 INCO COMPANY,
LTD.
Subsequent to the October crash,
developed a large Head-and-
Shoulders Top.
111
37.18INDUSTRIAL RAYON
CORPORATION.
Showing Bearish action of a stock
through the entire year 1957. Daily
chart.
446
23.9 INKTOMI. Scaling the Internet. 333
7.22 INLAND STEEL. Semi-dormant Rounding Bottom of
1935. 72
37.2
INSPIRATION
CONSOLIDATED
COPPER.
Downtrend and break through
Major Suppo


60
9.12 INCO COMPANY,
LTD.
Subsequent to the October crash,
developed a large Head-and-
Shoulders Top.
111
37.18INDUSTRIAL RAYON
CORPORATION.
Showing Bearish action of a stock
through the entire year 1957. Daily
chart.
446
23.9 INKTOMI. Scaling the Internet. 333
7.22 INLAND STEEL. Semi-dormant Rounding Bottom of
1935. 72
37.2
INSPIRATION
CONSOLIDATED
COPPER.
Downtrend and break through
Major Support. 429
37.47INTEL. The heart of the Microsoft
computer. Compare MSFT. 474
13.11 INTERLAKE IRON.“End run” following a late breakout
from Symmetrical Triangle. 1944.204
15.6 INTERNATIONAL
HYDRO-ELECTRIC.
Up-curving Bull Trend of a high
leverage junior utility stock.
Monthly chart, 1938 to 1946.
232
10.5
INTERNATIONAL
PAPER.
Showing a form of “broadening”
which is of doubtful technical
significance. Weekly chart, 1945 to
1947.
125
Stock Name Summary Description of ChartPage
INTERNATIONAL
TELEPHONE &
TELEGRAPH.
Saucer- like Consolidation in 1944.166
INTERNATIONAL
TELEPHONE &
TELEGRAPH.
Support “field” of Symmetrical
Triangle. 1945. 204
J.I. CASE.
The Rounding Bottom of 1932
showing a temporary rally out of
pattern.
71
JEWEL TEA. Major Support-Resistance Levels on
1936 to 1946 monthly chart. 198
JOHNS-MANVILLE.Triangular Bottom development of
1941 to 1942. Weekly chart. 79
JONES & LAUGHLIN.
Normal trend action illustrating
Support and Resistance. Weekly chart,
1944 to 1947.
191
KENNECOTT COPPER. Series of Consolidation Formations in
1937 Bear Trend. 110
KRESGE (S.S.)
1936 to 1946 monthly chart showing
important 196
COMPANY. Support-Resistance Levels.
LEHIGH VALLEY
Daily, end of 1945, beginning of 1946.
Gaps of 407
RAILROAD. various types.
LIBBY, McNEILL &
Monthly, 1927 to 1930. Showing
continuance of 436
LIBBY. Bullish Trend into 1930.
LIGGETT & MYERS
Straight-line trend characteristic of
tobacco 236
TOBACCO B. stocks. Monthly chart, 1938 to 1946.
LIMA LOCOMOTIVE
Rectangular pattern of “conflict” in
1944 to 104
WORKS. 1945.
LION OIL COMPANY.
An Island “shakeout” in a thin stock.
1947. 181
LIVINGSTON OIL
Weekly, January 1965 into January
1966. 464
COMPANY.
Downside Major Trend, Symmetrical
Triangle Bottom, Major Reversal to
uptrend.
LOCKHEED AIRCRAFT. A Head-and-Shoulders Bottom
Reversal in December 1943. 58
LOEW'S, INC. Perfect Rectangle of the “pool
operation” type, 1936. 105
LOEW'S, INC. Falling Wedge of classic form in 1936;
Flag and Rectangle. 132
LORILLARD.
Showing Bullish action of a stock
through the entire year, 1957. Daily
chart.
447
LUCENT. Late 20th, early 21st century
schizophrenia. 142
LUCENT. What happened after the chart in 104.4143
MARTIN-PARRY.
Daily, 6 months in 1945. Pennant,
showing formation of Consolidation
Pattern at halfway point in advance.
406
MARTIN-PARRY. Ideal Flag in rapid advance of 1945.152
MASONITE. Downtrend showing Support-
Resistance phenomena. 1956. 431
MCA, INC. 1986. Complex Head-and-Shoulders
Top 62
FigureStock Name Summary Description of ChartPage
37.42
MEMOREX
CORPORATION.
Daily, September 1969 through
May 1970. Last “Bull” fling for
Memorex before gapping down
with volume in February 1970.
470
11.15 MIAMI COPPER. A genuine Scallop uptrend in
1945. 165
10.24MICROSOFT. A key reversal day in March.140
23.1 MICROSOFT.
A multitude of lessons in
Microsoft. 326
23.2 MICROSOFT. A Monthly perspective. 327
23.3 MICROSOFT. 2005. The long view after the fall.328
11.8
MULLINS
MANUFACTURING.
B. An overlong Flag which
worked nevertheless. 1936.159
9.1 NASH-KELVINATOR.
Rectangular distribution area of
1945 to 1946. 104
14.12NASH-KELVINATOR. Downtrend Channel in 1946.216
37.54NASDAQ 100
Basing Point Procedure applied to
weekly bars 480
11.3 NASH-KELVINATOR. Flag of “Half-Mast” type
preceding 1937 Bull Market Top. 154
10.22NATIONAL CASH
REGISTER.
An example of “One-Week
Reversal” in 1941. Weekly chart.138
13.3 NATIONAL
DISTILLERS.
1926 to 1947 monthly chart
showing Major Support-
Resistance Levels.
195
8.10 NATIONAL GYPSUM.
A typical Symmetrical Triangle
leading to continuation of the
preceding trend in 1944 to 1945.
Weekly chart.
84
11.2 NATIONAL GYPSUM.
An up Flag and another false
move from apex of Triangle.
1945.
153
8.6 NATIONAL GYPSUM.A false move out of the extreme
apex of a Symmetrical Triangle. 81
9.18 NATIONAL GYPSUM.Triple Bottom of 1941 to 1942.
Weekly chart. 117
7.14 NATIONAL SUPPLY.
The “two-headed” Top Formation
of 1946. 67
6.10 NEW YORK
CENTRAL.
Head-and-Shoulders Top in June
through July 1945, followed by a
Multiple Head-and-Shoulders
Bottom.
52
6.20
NEW YORK
CENTRAL.
A typical Panic Selling Climax in
1937. 136
37.48NOKIA.
The story of the communications
revolution. 475
8.7 NORTH AMERICAN
COMPANY.
Symmetrical Triangle topping a
recovery from a Panic Low in
1937.
82
7.25 NORTHERN INDIANA
PUBLIC SERVICE.
A magnificent Scalloping
tendency. 75
33.15NORTHERN PACIFIC.
Daily, 6 months in 1944. Support
and Resistance phenomena; also
showing Symmetrical Triangle
and reaction to apex, and small
Rectangle.
412
37.11 NORTHROP
AIRCRAFT.
1954 to 1955. Descending
Triangle at an important top.438
37.12NORTHROP
AIRCRAFT.
1956 to 1957. Ascending Triangle
and upside breakout. 439
16.1 OATS. Tracing “normal” patterns during
the 1940s (5th ed.). 246
FigureStock Name Summary Description of ChartPage
23.8 ORACLE.
Your modern misshapen rectangles in
Oracle again, marked by runaway days
and gaps.
332
37.40ORACLE.
Lest one think that the air pocket gap
does not still exist, here is an example
from the turn of the century (third
millennium).
468
37.15OTIS ELEVATOR.
Showing a full year of a typical daily
chart on TEKNIPLAT charting paper.
Shows a long Triangle Consolidation,
eventually followed by a continuation
of the Major Advance. 1954 to 1955.
443
11.7 PACIFIC TIN. Flag, following and succeeded by
Triangles, in 1944. 158
37.37
PACKARD-BELL
ELECTRONICS.
Daily, August 1965 to January 1966.
Flag showing “Half-Mast” situation,
and a large Ascending Triangle with
powerful breakout move on the upside.
465
23.5 PALM Masquerading as PLMO. A
Continuation of the shell game.329
23.6 PALM Masq

eBooks\Technical Analysis of Stock Trends, Eleventh Edition-CRC Press (2018).pdf


d by a continuation
of the Major Advance. 1954 to 1955.
443
11.7 PACIFIC TIN. Flag, following and succeeded by
Triangles, in 1944. 158
37.37
PACKARD-BELL
ELECTRONICS.
Daily, August 1965 to January 1966.
Flag showing “Half-Mast” situation,
and a large Ascending Triangle with
powerful breakout move on the upside.
465
23.5 PALM Masquerading as PLMO. A
Continuation of the shell game.329
23.6 PALM Masquerading as PSRC. Which shell is
it under? 330
23.4 PALM. Fool's gold. Fool's gold with naivete
writ large on it. 329
14.8 PAN AMERICAN
AIRWAYS.
Descending Triangle Top and long,
Double Downtrend Channel. 1945 to
1946.
214
14.6
PARAMOUNT
PICTURES.
Double trendlines in accelerated
Intermediate Advance. 1945 to 1946.213
10.7 PARAMOUNT
PICTURES.
The 1946 top, a Right-Angled
Broadening Pattern with horizontal
bottom line.
126
33.9 PARAMOUNT
PICTURES.
Weekly, 1941 to 1943. Double Bottom,
breakout, and reaction to Support
before main advance.
402
37.38PARKE, DAVIS &
COMPANY.
Daily, July 1969 to June 1970. This
could be regarded as a very flat Head-
and-Shoulders Top, or as a long
Rounding Top.
466
12.13
PENNSYLVANIA
RAILROAD.
Changes in technical lines required by
ex-dividend decline. 183
36.2 PENTAD SYSTEMIllustration of filtered moving average
system. 425
14.5 PHILLIPS
PETROLEUM.
An exception to the normal
consequences of valid trendline
penetration. Weekly chart, 1935 to
1938.
212
7.15 PHILLIPS
PETROLEUM.
The 1946 Top — a Multiple Pattern
merging into a Rounding Turn. 67
37.23POLAROID.
First 6 months of 1962. Long Rectangle
followed by a precipitous drop after
penetration of Support. Daily chart.
451
7.13
PUBLIC SERVICE
CORP.
OF NJ.
Weekly chart showing Multiple Bottom
pattern of 1941 to 1942. 66
37.41
PUBLIC SERVICE
ELECTRIC &
GAS.
Monthly, 1969 through 1970. A typical
electric and gas utility stock. 469
FigureStock Name Summary Description of ChartPage
9.17 PUBLICKER
INDUSTRIES.Triple Top of 1946. 116
10.23QUALCOMM.A church spire top in Qualcomm.139
14.13R.H. MACY.
Complex Top in 1946 and penetration of
Intermediate Up Trendline. Tentative
Fan Lines.
217
13.6 REMINGTON
RAND.
Descending Triangle Top and significant
failure of Support. Weekly chart, 1945 to
1947.
199
33.8 REMINGTON
RAND.
Daily, end of 1944, beginning of 1945.
Series of Rectangles during Bull Market
Advance, and return moves to Support
Levels.
401
6.8 REPUBLIC
AVIATION.
Its 1946 Bull Market Top. The Head-
and-Shoulders measuring formula.51
9.13 REPUBLIC
STEEL.
Major Double Top of 1946 with
subsidiary patterns. 112
15.9 REPUBLIC
STEEL.
Typical Bull Trend of steel stocks.
Monthly chart, 1938 to 1946. 234
8.20
REVERE
COPPER &
BRASS.
Large Descending Triangle Top of 1946.91
37.10S.S. KRESGE.Monthly, 1953 to 1956. Generally
Bearish Major Trend. 437
10.16SCHENLEY
DISTILLERS.
A large Wedge which signaled a Primary
Top in 1946. Weekly chart. 133
24.1 SCHENLEY
DISTILLERS.
Weekly, 1945 to 1946. Habits of a stock
of high sensitivity. 342
9.8 SEARS,
ROEBUCK.
A “hybrid” Major Bottom Formation in
1941 to 1942. 109
8.2 SEARS,
ROEBUCK.
Symmetrical Triangle Top of 1946, and
subsequent step-down pattern of same
form.
78
8.15 SEARS,
ROEBUCK.
The Symmetrical Descending Triangle
Top of 1936 and subsequent
Intermediate Recovery Bottom of
ascending form.
86
10.11 SHELL UNION
OIL.
1946 Major Diamond Top and
Descending Triangle. 128
16.4 SILVER 2005. Another great rounding bottom?249
16.5
SILVER MAY
2005 Lessons in agility, gaps and run days
16.5 SILVER 2011 How the rounding bottom was resolved250
16.13SILVER 2011 Illustrating top and stairstops. 257
8.18
SOCONY-
VACUUM
OIL.
Ascending Triangle forming head of
Head-and-Shoulders Bottom in 1942.
Weekly chart.
89
9.4
SOCONY-
VACUUM
OIL.
Rectangle Top Formation of 1946.106
12.7 SOUTHERN
PACIFIC.
A large Measuring Gap in the Panic
Decline of late 1937. 178
33.1 SOUTHERN
PACIFIC.
Daily, 6 months in 1946. Head-and-
Shoulders Top, rally, and subsequent
394
decline.
14.9 SOUTHERN
PACIFIC.
Intermediate Basic and Return Lines and
Flags 214
within Trend Channel. 1945.
FigureStock Name
Summary Description of
Chart Page
8.16 SOUTHERN RAILWAY
PREFERRED.
A perfect Ascending Triangle
in 1936. 87
13.12SOUTHERN RAILWAY.
Typical Pullbacks to Head-
and- Shoulders Neckline, and
increase of volume as Support
is violated. 1946.
205
20.3 SPDR. SPY
For illustration, here is a chart
of the Amex Index Share, the
SPYDR, or share based on the
S&P 500.
309
17.1 SPIEGEL, INC.
The Major Top of 1946 and
the first part of a Bear Trend.
1946 to 1947.
262
17.2 SPIEGEL, INC. Sequel to Figure 198.
Continuation of Bear Trend.
263
1946 to 1947.
15.17
STANDARD & POOR'S
500 INDEX. Horrors of the 1987 Crash.239
15.18
STANDARD & POOR'S
500 INDEX.
The 1987 Crash viewed from
afar. 239
20.2 STANDARD & POOR'S
500 INDEX.
Here the benefits of relaxed
long-term investing may be
seen.
308
20.4
STANDARD & POOR'S
500 INDEX.
The Broadening Top comes
home to roost. 309
15.8
STANDARD OIL OF OHIO.
Straight-line Bull Trend of an
investment oil. Monthly chart,
1938 to 1946.
233
37.30SUPERIOR OIL.
June to November 1962.
Showing an important Double
Bottom, which became the
base for a Major Advance.
458
6.4 TELEDYNE, INC.
1984. Large Head-and-
Shoulders Top. 48
37.8 TEXTRON. 1956 to 1957.
Descending Triangle, with
sharp decline after the
breakout. 1956 to 1957.
435
16.11 TLT
Bond reaction to the great
Bush bear market 255
10.17
TRANSCONTINENTAL
& WESTERN AIRLINES.
Major One-Day Reversal and
long downtrend. 1945 to 1946.134
9.16 TRINITY INDUSTRIES.1985. Triple Bottom. 115
8.11 U.S. INDUSTRIAL
CHEMICALS.
Triangular Pattern completing
an extended reaccumulation
period.
84
37.1 U.S. SMELTING,
REFINING & MINING.
Weekly, 1951 to 1953,
showing Ascending Triangle
and Head-and-Shoulders Top.
428
37.25U.S. SMELTING,
REFINING & MINING.
April through September,
1962. Head-and-Shoulders
Bottom, breakout, reaction,
and advance. Daily chart.
453
37.35U.S. SMELTING,
REFINING & MINING.
Daily,
July to December 1965.
Breakout from dormancy,
Major Advance, showing
Symmetrical Triangle
Cons


. SMELTING,
REFINING & MINING.
Weekly, 1951 to 1953,
showing Ascending Triangle
and Head-and-Shoulders Top.
428
37.25U.S. SMELTING,
REFINING & MINING.
April through September,
1962. Head-and-Shoulders
Bottom, breakout, reaction,
and advance. Daily chart.
453
37.35U.S. SMELTING,
REFINING & MINING.
Daily,
July to December 1965.
Breakout from dormancy,
Major Advance, showing
Symmetrical Triangle
Consolidation.
463
6.11
UNION CARBIDE &
CARBON.
The Head-and-Shoulders
within a Head-and-Shoulders
Top Formation which capped
its 1929 Bull Market.
53
22.1 UNION PACIFIC.
Weekly, first 6 months of
1945, showing tendency of a
high-priced stock of the same
group to make small swings.
320
FigureStock Name Summary Description of ChartPage
9.11 UNITED AIRCRAFT.
The Double Bottom of 1942. Weekly
chart. 111
37.32UNITED ARTISTS.
Daily, February to August 1963. A
Major Downtrend, demonstrating
Resistance Levels during the
decline.
460
1.1 UNITED STATES
STEEL.
Monthly price ranges from January
1929 to December 1946. 5
10.9 UNITED STATES
STEEL.
The three-month Diamond which
formed the 1946 Bull Market Top. 127
10.14UNITED STATES
STEEL.
The Wedge as part of a Rounding
Top on the August 1937 recovery. 131
37.33
UTAH-IDAHO
SUGAR
COMPANY.
January to June 1963. Breakout and
rapid advance appearing suddenly in
a normally dull stock.
461
11.4 VANADIUM
CORPORATION.
Rapid sequence of small
Consolidation Formations in 1936 to
1937.
155
8.8
VERTIENTES —
CAMAGUEY
SUGAR
of Cuba. Triangular- like
development at 1946 Top. 83
6.9 WALT DISNEY
PRODUCTIONS.Head-and-Shoulders Top. 1986. 51
37.10WEST INDIES
SUGAR.
Monthly, 1953 to 1956. Showing
continuance of Bullish Trend
through 1956.
437
37.14
WESTINGHOUSE
ELECTRIC.
Downside trend in the early stages of
the 1955 to 1956 collapse. 437
15.15
WESTINGHOUSE
ELECTRIC.
Major Trendlines. Weekly chart,
1935 to 1938. 237
6.3
WESTINGHOUSE
ELECTRIC.
The Head-and-Shoulders Top of
January through February 1946.47
8.21 WESTINGHOUSE
ELECTRIC.
The Descending Triangle which
topped out “WX” ahead of the
general market.
92
37.10WESTINGHOUSE
ELECTRIC.
Monthly, 1953 to 1956. Showing
Major Top in 1955 and the collapse
during the early months of 1956.
437
12.8 WILLYS-
OVERLAND.
Various types of gaps in 1944, and
Head-and-Shoulders Reversal.179
11.9 WYANDOTTE
WORSTED.
Application of measuring formula to
Flag. 1946. 160
18.5 XEROX. More benefits of fundamental
analysis. 302
37.50YAHOO. After the tulipomania. 2005.476
37.51YAHOO. Internet rocket fuel. 477
13.7
YORK
CORPORATION.
Measuring Gap and long Rectangle.
1945 to 1946. 200
13.8 YORK
CORPORATION.
Sequel to Figure 141. Rectangle
Support, false move from apex of
Triangle, and Double Top. 1946.
201
9.5
YOUNGSTOWN
SHEET
& TUBE.
Major Top of Rectangle formed in
1946. 106
12.3 ZENITH RADIO.Strong Breakaway Gap on weekly
chart of 1942 Major Bottom.174
12.4 ZENITH RADIO.Monthly chart of 1936 to 1946 for
comparison with Figure 12.3.175

Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Glossary
EN: The Glossary is the work of the distinguished editor of the seventh
edition, Richard McDermott. Minor changes are so noted.
EN9: Some entries are written by other analysts, whose names are noted.
Although it requires the use of the human brain and some discrimination
and judgment, the great virtue of Magee chart analysis is it allows the
practitioner to evaluate how well number-driven indicators function. As, for
example, use of a Moving Average to identify the trend works wonderfully
well in a trending market. If used as a signal generator in a trading market,
results will come in whipsaws. Similarly, oscillators often are useful in
trading markets but can mislead the trader when the market begins to trend.
The reasonably accomplished chart analyst can recognize the state of the
market and view the performance of number-driven indicators from a more
informed perspective. Thus, the reader should keep this in mind while
reading about the Average Directional Movement Index and suchlike.
ACCUMULATION—The first phase of a Bull Market. 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.
ACTIVITY—See Volume.
ADX (Average Directional Movement Index)—The ADX is a trend-
following indicator devised by Welles Wilder (Wilder Relative Strength
Index) and is based on the concept of directional movement. It is designed
to evaluate the trending characteristics of a security. The ADX is frequently
used to avoid trendless markets, and signals when a trend reaches a
profitable trading level. In a trendless market, the ADX indicates avoidance.
Directional movement is a measure of the net total price movement during a
set period of time. First, the positive and negative directional movements
are determined by summing the daily up and down moves. The values
obtained are next normalized by dividing them by the “True Range,” the
absolute value of the total move for the period; this difference between
normalized values (expressed as a percentage) is the directional movement.
The ADX is then obtained from directional movement by the use of
exponential average and ratios. The ADX is often charted with a second
line, the ADXR Indicator. ADXR is a smoothed average of the ADX.
A rising ADX indicates significant directional movement and the beginning
of a good trading period. The declining ADX is shown during a poor period
for trend following. Normally, an ADX Indicator above 25 signals
significant directional movement and good trading.
APEX—The highest point; the pointed end, tip, of a Triangle.
ARBITRAGE—The simultaneous buying and selling of two different, but
closely related, instruments to take advantage of a disparity in their prices in
one market or different markets.
EN: Those who buy the acquirer and sell the acquired in takeover situations
—sometimes c


above 25 signals
significant directional movement and good trading.
APEX—The highest point; the pointed end, tip, of a Triangle.
ARBITRAGE—The simultaneous buying and selling of two different, but
closely related, instruments to take advantage of a disparity in their prices in
one market or different markets.
EN: Those who buy the acquirer and sell the acquired in takeover situations
—sometimes called “arbs” or arbitrageurs—are ersatz or faux
arbitrageurs; they are really spreaders. Arbitrageur is a solecism used in
that sense. It is also a false cognate to the French.
AREA GAP—See Common Gap.
AREA PATTERN—When a stock or commodity's upward or downward
momentum has been temporarily exhausted, the ensuing sideways
movement in the price usually traces out a design or arrangement of form
called an Area Pattern. The shape of some of these Area Patterns, or
Formations, has predictive value under certain conditions. (See also
Ascending Triangle, Broadening Formations, Descending Triangle,
Diamond, Flag, Head-and-Shoulders Pattern, Inverted Triangle, Pennant,
Rectangle, Right-Angle Triangles, Symmetrical Triangles, and Wedges.)
ARITHMETIC SCALE—Price or volume scale where the distance on the
vertical axis (i.e., space between horizontal lines) represents equal amounts
of dollars or number of shares.
ASCENDING (PARALLEL) TREND CHANNEL—When the tops of the
rallies composing an advance develop along a line (sometimes called a
Return Line), which is also parallel to the basic Up Trendline (i.e., the line
that slopes up across the wave bottoms in an advance); the area between the
two lines is called an Ascending or Up Channel.
ASCENDING (UP) TRENDLINE—The advancing wave in a stock or
commodity is composed of a series of ripples. When the bottoms of these
ripples form on, or very close to, an upward-slanting straight line, a basic
Ascending or Up Trendline is formed.
ASCENDING TRIANGLE—One of a class of Area Patterns called Right-
Angle Triangles. The class is distinguished by the fact that one of the two
boundary lines is practically horizontal, whereas 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 Ascending Triangle.
The implication is Bullish, with the expectant breakout through the
horizontal line. Measuring Formula: add the broadest part of triangle to the
breakout point.
AT-THE-MONEY—An option, the strike price of which is equal to the
market price of the underlying instrument.
AVERAGES—See Dow-Jones Industrial Averages, Moving Averages,
Dow-Jones Transportation Averages, and Dow-Jones Utility Averages.
AVERAGING COST—An investing technique in which the investor buys a
stock or commodity at successively lower prices, thereby “averaging down”
his average cost of each
stock share or commodity contract. Purchases at successively higher prices
would “average up” the price of stock shares or commodity contracts.
EN: A very foolish technique for the amateur.
AXIS—In the graphic sense, an axis is a straight line for measurement or
reference. It is also the line, real or imagined, on which a formation is
regarded as rotating.
BALANCED PROGRAM—Proportioning capital, or a certain part of
capital, equally between the long side and the short side of the market.
BAR CHART—Also called a Line Chart. 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; however, with the growing number of personal
computers and the availability of “real-time” quotes, it is not unusual for
traders to use some period of minutes to construct a bar chart.
BASIC TRENDLINES—See Trendlines.
BASING POINT—The price level in the chart that determines where a
stop-loss point is placed. 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.)
BASIS POINTS—The measure of yields on bonds and notes. One Basis
Point equals 0.01% of yield.
BASKET TRADES—Large transactions made up of a number of various
stocks.
BEAR MARKET—In its simplest form, a Bear Market is a period when
prices are primarily declining, usually for a long period of time. Bear
Markets generally consist of three phases. The first phase is distribution, the
second is panic, and the third is akin to a washout, during which those
investors who have held through the first two phases finally give up and
liquidate.
BENT NECKLINE—See Neckline.
BETA—A measurement of an individual stock's sensitivity to market
swings.
BETA (COEFFICIENT)—A measure of the market or non-diversifiable risk
associated with any given security in the market.
BLOCK TRADES—Large transactions of a particular stock sold as a unit.
BLOW-OFF—See Climactic Top.
BLUE CHIPS—The nickname given to high-priced companies with good
records of earnings and price stability; also called gilt-edged securities.
Examples include IBM, AT&T, General Motors, and General Electric.
BLUE PARALLEL—A line drawn parallel to the trendline (Blue Trendline)
that connects at least two highs. The Blue Parallel is started off a low and
used to estimate the next low point.
BLUE TRENDLINE—A straight line connecting two or more Tops
together. To avoid confusion, Edwards and Magee use a blue line for Top
Trendlines and a red line for Bottom Trendlines.
BOLLINGER BANDS (BB)—An envelope, in the form of two lines, that
surrounds the price bars on a chart. Bollinger Bands are plotted two
standard deviations away from a Simple Moving Average. This is the
primary difference between Bollinger Bands and other envelopes.
Envelopes are plotted a fixed percentage above and be


nd Magee use a blue line for Top
Trendlines and a red line for Bottom Trendlines.
BOLLINGER BANDS (BB)—An envelope, in the form of two lines, that
surrounds the price bars on a chart. Bollinger Bands are plotted two
standard deviations away from a Simple Moving Average. This is the
primary difference between Bollinger Bands and other envelopes.
Envelopes are plotted a fixed percentage above and below a Moving
Average. As standard deviation is a measure of volatility, Bollinger Bands
adjust themselves to differing market conditions. The bands grow wider
during volatile market periods and narrower during less volatile periods.
Bollinger's premise is to ask the market what it is doing, rather than to tell it
what to do. He focused on volatility with the use of standard deviation to set
the bandwidth. The bands are normally plotted two deviations away from
the standard deviation, which is effectively a 20-day Moving Average Line.
The plot is valid if an average acts as a Support Line on market corrections.
If the average is penetrated on corrections, it is too short. Bollinger
recommends 10-day Moving Averages for short-term trading, 20-day for
intermediate-term trading, and 50-day for long-term trading. Deviations
also need to be adjusted: 10 days can use 1.5 deviations, 20 days use 2
deviations, and 50 days use 2.5 deviations. The nature of the time periods
does not matter; the bands can be used on monthly, weekly, daily, and even
intraday figures.
Bollinger Bands do not usually generate buy and sell signals alone. Most
often, they provide a framework within which price may be related to other
indicators. Bollinger recommends using the bands in relation to other buy
and sell signals. However, the bands can be an integral part of the signal. If
a price touches an upper band and indicator action confirms it, no sell signal
is generated (it is a continuation signal if a buy signal was in effect). If a
price touches an upper band and an indicator does not confirm (diverges), it
is a sell signal. If a Top Price Chart Formation is formed outside the bands
and is followed by a second Top inside the bands, a sell signal is generated.
The exact opposite is true on the buy side.
When combined with other indicators, such as the Relative Strength Index
(RSI), the Bollinger Bands become quite powerful. RSI is an excellent
indicator with respect to overbought and oversold conditions. Generally,
when price touches the upper Bollinger Band and RSI is below 70, it is an
indication that the trend will continue. Conversely, when price touches the
lower Bollinger Band, and RSI is above 30, it is an indication the trend
should continue. If a situation occurs in which price touches the upper
Bollinger Band and RSI is above 70 (possibly approaching 80), it is an
indication that the trend may reverse itself and move downward. On the
other hand, if price touches the lower Bollinger Band and RSI is below 30
(possibly approaching 20), the trend may reverse itself and move upward.
(See also Multicolincarity, Percent B, Wilder Relative Strength Index.)
BOOK VALUE—The conventional accounting measure of what a stock is
worth based on the value of the company's assets less the company's debt.
Eminently manipulable.
BOTTOM—See Ascending Triangle, Dormant Bottom, Double Bottom,
Head-and-Shoulders Bottom, Rounding Bottom, and Selling Climax.
BOUNDARY—The edges of a pattern. BOWL—See Rounding Bottom.
BRACKETING—A trading range market or a price area that is non-
trending.
BREAKAWAY GAP—The hole or gap in the chart created when a stock or
commodity breaks out of an Area Pattern.
BREAKOUT—When a stock or commodity exits an area pattern.
BROADENING FORMATION—Sometimes called Inverted Triangles,
these are formations that start with narrow fluctuations that widen out
between diverging, rather than converging, boundary lines. (See also
Broadening Top, Diamond Patterns, Head-and-Shoulders Pattern, and
Right-Angled Broadening Formations.)
BROADENING TOP—An Area Reversal Pattern that may evolve in any
one of three forms, comparable in shape, respectively, to inverted
Symmetrical, Ascending, or Descending Triangles. Unlike Triangles, the
Tops and Bottoms of these patterns do not necessarily stop at clearly
marked diverging boundary lines. Volume tends to be unusually high and
irregular throughout pattern construction. No Measuring Formula is
available.
BULL MARKET—A period when prices are primarily rising, normally for
an extended period. 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.
CALL OPTION—An option that gives the buyer the right to buy the
underlying contract at a specific price within a certain period, and that
obligates the seller to sell the contract for the premium received before
expiration of the designated time period.
CANDLESTICKS—A Japanese graphic representation of price action
using the same data as bar charts, but that adds color to the candlestick (or
data) to indicate the direction of prices from the opening (see Nison,
Bibliography.)
CATS AND DOGS—Low-priced stocks of no investment value.
CHANNEL—If the Tops of the rallies and Bottoms of the reactions develop
lines that are approximately parallel to one another, the area between these
lines is called a Channel. (See also Ascending Trend Channel, Descending
Trend Channel, and Horizontal Trend Channel.)
CHART—A graphic representation of a stock or commodity in terms of
price and/or volume. (See also Bar Chart and Point and Figure Chart.)
CLEAN-OUT DAY—See Selling Climax.
CLIMACTIC TOP—A sharp advance, accompanied by extraordinary
volume, that is, much larger volume than the normal increase, which signals
the final “blow-off” of the trend, followed by either a Reversal, or at least
by a period of stagnation, formation of Cons


n of a stock or commodity in terms of
price and/or volume. (See also Bar Chart and Point and Figure Chart.)
CLEAN-OUT DAY—See Selling Climax.
CLIMACTIC TOP—A sharp advance, accompanied by extraordinary
volume, that is, much larger volume than the normal increase, which signals
the final “blow-off” of the trend, followed by either a Reversal, or at least
by a period of stagnation, formation of Consolidation Pattern, or a
Correction.
CLIMAX DAY—See One-Day Reversal.
CLIMAX, SELLING—See Selling Climax.
CLOSING PRICE—The last sale price of the trading session for a stock. 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.
CLOSING THE GAP—When a stock or commodity returns to a previous
gap and retraces the range of the gap. Also called covering the gap or filling
the gap. (See also Gap.)
COIL—Another term for a Symmetrical Triangle.
COMMISSION—The amount charged by a brokerage house to execute a
trade in a stock, option, or commodity. In a stock, option, or commodity, a
commission is charged for each purchase and each sale. In a commodity, a
commission is charged only when the original entry trade has been closed
with an offsetting trade. This is called a round turn commission.
COMMON GAP—Also called Area Gap. Any hole or gap in the chart
occurring within an Area Pattern. The forecasting significance of the
Common Gap is nil. (See also Gap.)
COMPARATIVE RELATIVE STRENGTH—Compares the price
movement of a stock with that of its competitors, industry group, or the
whole market.
COMPLEX HEAD-AND-SHOULDERS—Also called Multiple Head-and-
Shoulders. It is a Head-and-Shoulders Pattern with more than one right and
left shoulder and/or head. (See also Head-and-Shoulders Pattern.)
COMPOSITE AVERAGE—A stock average composed of the 65 stocks that
make up the Dow-Jones Industrial Average and the Dow-Jones Utility
Average.
COMPOSITE LEVERAGE—In Edwards and Magee, it is a formula for
combining the principal factors affecting a given sum of capital used (i.e.,
sensitivity, price, and margin) into one index figure.
CONFIRMATION—In a pattern, it is the point at which a stock or
commodity exits an Area Pattern in the expected direction by an amount of
price and volume sufficient to meet minimum pattern requirements for a
bona fide breakout. 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. To confirm a new high (or low)
in a stock or commodity, an oscillator needs to reach a new high (or low) as
well. 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.
CONGESTION—The sideways trading from which Area Patterns evolve.
Not all Congestion periods produce a recognizable pattern, however.
CONSOLIDATION PATTERN—Also called a Continuation Pattern, it is
an Area Pattern that breaks out in the direction of the previous trend. (See
also Ascending Triangle, Descending Triangle, Flag, Head-and-Shoulders
Continuation, Pennant, Rectangle, Scallop, and Symmetrical Triangle.)
CONTINUATION GAP—See Runaway Gap.
CONTINUATION PATTERN—See Consolidation Pattern.
CONVERGENT PATTERN (TREND)—Those patterns with upper and
lower boundary lines that meet, or converge, at some point if extended to
the right. (See also Ascending Triangle, Descending Triangle, Symmetrical
Triangle, Wedges, and Pennants.)
CORRECTION—A move in a commodity or stock that is opposite to the
prevailing trend, but not sufficient to change that trend. 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.
COVERING THE GAP—See Closing the Gap.
CRADLE—The intersection of the two converging boundary lines of a
Symmetrical Triangle. (See also Apex.)
DAILY RANGE—The difference between the high and low price during
one trading day.
DEMAND—Buying interest for a stock at a given price.
DESCENDING (PARALLEL) TREND CHANNEL—When the Bottoms of
the reactions comprising a decline develop along a line (sometimes called a
Return Line), which is also parallel to the basic down trendlines (i.e., the
line which slopes down across the wave tops in a decline), the area between
the two lines is called a Descending or Down Channel.
DESCENDING TRENDLINE—The declining wave in a stock or
commodity is composed of a series of ripples. 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.
DESCENDING TRIANGLE—One of a class of Area Patterns called Right-
Angle Triangles. The class is distinguished by the fact one of the two
boundary lines is practically horizontal, while the other slants toward it. 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.
DIAMOND—Usually a Reversal Pattern, but it will also be found as a
Continuation Pattern. It could be described as a Complex Head-and-
Shoulders Pattern with a V-shaped (bent) Neckline, or a Broadening Pattern
that, 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. Many Complex Head-and-Shoulders Tops
are borderline Diamond Patterns. The major di


Pattern. It could be described as a Complex Head-and-
Shoulders Pattern with a V-shaped (bent) Neckline, or a Broadening Pattern
that, 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. Many Complex Head-and-Shoulders Tops
are borderline Diamond Patterns. 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.
DISTRIBUTION—The first phase of a Bear Market, which really begins in
the last stage of a Bull Market. The period when farsighted investors sense
that the market has outrun its fundamentals and begin to unload their
holdings at an increasing pace. Trading volume is still high; however, it
tends to diminish on rallies. The public is still active but beginning to show
signs of caution as hoped-for profits fade away.
DIVERGENCE—When new highs (or lows) in one indicator are not
realized in another comparable indicator. (See also Confirmation.)
DIVERGENT PATTERN (TREND)—Those patterns with upper and lower
boundary lines that meet at some point if extended to the left. (See also
Broadening Formation.)
DIVERSIFICATION—The concept of placing your funds in different
industry groups and investment vehicles to spread risk. Not to put all your
financial eggs in one basket.
DIVIDENDS—A share of the profits, in cash or stock equivalent, paid to
stockholders.
DORMANT BOTTOM—A variation of a Rounding (Bowl) Bottom, but in
an extended, flat-bottomed form. It usually appears in “thin” stocks (i.e.,
those issues with a small number of shares outstanding) and
characteristically will show lengthy periods during which no sales will be
registered for days at a time. The chart will appear “fly-specked” due to the
missing days. The technical implication is for an upside breakout.
DOUBLE BOTTOM—Reversal Pattern. A Bottom formed on relatively
high volume that is followed by a rally (of at least 15%), and then a second
Bottom (possibly rounded) at the same level (plus or minus 3%) as the first
Bottom on lower volume. 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.
DOUBLE TOP—A high-volume Top is formed, followed by a reaction (of
at least 15%) on diminishing activity. Another rally back to the previous
high (plus or minus 3%) is made, but on lower volume than the first high. 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. Also called an “M” Formation.
DOUBLE TRENDLINE—When two relatively close Parallel Trendlines
are needed to define the true trend pattern. (See also Trendline.)
DOW-JONES INDUSTRIAL AVERAGE—Developed by Charles Dow in
1885 to study market trends. Originally composed of 14 companies (12
railroads and 2 industrials), the Rails, by 1897, 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 1916 and to 30 in
1928. 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.
DOW-JONES TRANSPORTATION AVERAGE—Established at the turn of
the century with the new Industrial Average, it was originally called the Rail
Average and was composed of 20 railroad companies. With the advent of
the airlines industry, the Average was updated in 1970 and the name
changed to Transportation Average.
DOW-JONES UTILITY AVERAGE—In 1929, utility companies were
dropped from the Industrial Average and a new Utility Average of 20
companies was created. In 1938, the number of issues was reduced to the
present 15.
DOWNTICK—A securities transaction at a price lower than the preceding
transaction.
DOWNTREND—See Descending Trendline and Trend.
DRAWDOWN or RETRACEMENT—The ebb, or loss, of a portfolio's
equity from a relative high to a relative low. Maximum drawdown equals
retracement from maximum high point to minimum low point.
END RUN—When a breakout of a Symmetrical Triangle Pattern reverses
its direction and trades back through axis Support (if an upside 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.
EQUILIBRIUM MARKET—A price area that represents a balance
between demand and supply.
EXCHANGE-TRADED FUND (ETF)—Funds tracking indexes (e.g., SPY,
DIA) or baskets of stocks that trade like stocks and do not involve the
investor in membership in a mutual fund. An ideal way to replace mutual
fund investing.
EX-DIVIDEND—The day when the dividend is subtracted from the price
of the stock.
EX-DIVIDEND GAP—The gap in price caused when the price of a stock is
adjusted downward after the dividend payment is deducted.
EXERCISE—The means by which the holder of an option purchases or
sells shares of the underlying security.
EXHAUSTION GAP—Relatively wide gap in the price of a stock or
commodity that occurs near the end of a strong directional move in the
price. 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. An Exhaustion Gap cannot be
read as a Major Reversal, or even necessarily a Reversal. It signals a halt in
the prevailing trend, which is ordinarily followed by some sort of area
pattern development.
EXPIRATION—The last day on which an option can


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. An Exhaustion Gap cannot be
read as a Major Reversal, or even necessarily a Reversal. It signals a halt in
the prevailing trend, which is ordinarily followed by some sort of area
pattern development.
EXPIRATION—The last day on which an option can be exercised.
EXPONENTIAL SMOOTHING—A mathematical method of forecasting
that assumes future price action may be forecast by using a weighted
average of past periods; a mathematical series in which greater weight is
given to more recent price action. A method of trend identification.
FALLING WEDGE—An Area Pattern with two downward-slanting,
converging trendlines. 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 Falling Wedge is up.
Minimum Measuring Formula: a retracement of all the ground lost within
the Wedge. (See also Wedge.)
FALSE BREAKOUT or FALSE SIGNAL—A breakout that is confirmed
but quickly reverses and eventually leads the stock or commodity to a
breakout in the opposite direction. Indistinguishable from premature
breakout or genuine breakout when it occurs.
FAN LINES—A set of three secondary trendlines drawn from the same
starting high or low that spread out in a Fan shape. In a Primary Uptrend,
the fan would be along the tops of the Secondary (Intermediate) Reaction.
In a Primary Downtrend, the fan would be along the bottoms of the
Secondary (Intermediate) Rally. When the third Fan Line is broken, it
signals the resumption of the Primary Trend.
50-DAY MOVING AVERAGE LINE—Is determined by taking the closing
price over the past 50 trading days and dividing by 50.
EN: Simple Moving Average for n days consists of summing prices for n
days and dividing by n. On n + 1 drop the first day and add the new day to
the formula, etc.
FIVE-POINT REVERSAL—See Broadening Pattern.
FLAG—A Continuation Pattern. A flag is a period of congestion, less than
four weeks in duration, that 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. In an uptrend, the pattern resembles
a Flag flying from a mast, hence the name. Flags are also called Measuring
or Half-Mast 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. Minimum Measuring Formula: add the distance from the
breakout point, which started the preceding “Mast” rally or reaction, to the
breakout point of the Flag.
FLOATING SUPPLY—The number of shares available for trading at any
given time. Generally, the outstanding number of shares less shares closely
held and likely to be unavailable to the public. Shares of a company held by
its employee pension fund, for example, would not generally enter the
trading stream and could be subtracted from the outstanding shares.
FORMATION—See Area Pattern.
FRONT-MONTH—The first expiration month in a series of months.
FUNDAMENTALS—Information on a stock pertaining to the business of
the company and how it relates to earnings and dividends. In a commodity,
it would be information on any factor that would affect supply or demand.
EN: Also, earnings, profits, profit margins, cash flow, sales, and other
statistics sometimes used to obfuscate the value of the issue.
GAP—A hole in the price range that occurs when either (1) 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 (2) 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. (See also Common or Area Gap,
Ex-Dividend Gap, Breakaway Gap, Runaway Gap, Exhaustion Gap, and
Island Reversal.)
GRAPH—See Chart.
HALF-MAST—See Flag. Edwards said, “The Flag flies at half-mast,”
referring to the tendency of prices to consolidate halfway through a surging
vertical run.
HEAD-AND-SHOULDERS BOTTOM—Area Pattern that reverses a
decline. (See also Head-and-Shoulders Pattern.) EN: An upside-down name
for an upside-down pattern. (See Kilroy Bottom.)
HEAD-AND-SHOULDERS CONSOLIDATION—Area Pattern that
continues the previous trend. (See also Head-and-Shoulders Pattern.)
HEAD-AND-SHOULDERS PATTERN—Although occasionally an
Inverted Head-and-Shoulders Pattern (called a Consolidation Head-and-
Shoulders) will form, which is a Continuation Pattern, in its normal form,
this pattern is one of the more common and more reliable of the Major
Reversal Patterns. It consists of the following four elements (a Head-and-
Shoulders Top will be described for illustration): (1) a rally that ends a more
or less extensive advance on heavy volume, and that is then followed by a
Minor Reaction on less volume; this is the left shoulder; (2) another high-
volume advance that exceeds the high of the left shoulder, followed by
another low-volume reaction that takes prices down to near the bottom of
the preceding reaction, and below the top of the left shoulder high; this is
the head; (3) a third rally, but on decidedly less volume than accompanied
either of the first two advances, and that fails to exceed the high established
on the head; this is the right shoulder; and (4) a decline through a line
drawn across the proceeding two reaction lows (the neckline), and a close
below that line equivalent to 3% of the stock's market price. This is the
confirmation of the breakout. A Head-and-Shoulders Bottom, or any other
combination Head-and-Shoulders Pattern, contains the same four elements.
The main difference between a Top Formation and a Bottom Formation is
in the volume pat


line through a line
drawn across the proceeding two reaction lows (the neckline), and a close
below that line equivalent to 3% of the stock's market price. This is the
confirmation of the breakout. A Head-and-Shoulders Bottom, or any other
combination Head-and-Shoulders Pattern, contains the same four elements.
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. The
breakout in a Bottom must show a “conspicuous burst of activity.”
Minimum Measuring Formula: add the distance between the head and
neckline to the breakout point.
HEAD-AND-SHOULDERS TOP—Area Pattern that reverses an advance.
(See also Head-and-Shoulders Pattern.)
HEAVY VOLUME—The expression “heavy volume,” as used by Edwards
and Magee, means heavy only with respect to the recent volume of sales in
the stock you are watching.
HEDGING—To try to lessen risk by making a counterbalancing
investment. In a stock portfolio, an example of a hedge would be to buy 100
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. (See also Natural Hedge.)
HISTORICAL DATA—A series of past daily, weekly, or monthly market
prices.
HOOK DAY—A trading day in which the open is above/below prior day's
high/low and the close is below/above prior day's close with narrow range.
HORIZONTAL CHANNEL—When the Tops of the rallies and Bottoms of
the reactions form along lines that are horizontal and parallel to one another,
the area in between is called a Horizontal Trend Channel. It may also be
called a Rectangle during the early stages of formation.
HORIZONTAL TRENDLINE—A horizontal line drawn across either the
Tops or Bottoms in a sideways trending market.
HYBRID HEAD-AND-SHOULDERS—A small Head-and-Shoulders
Pattern within a larger Head-and-Shoulders Pattern. (See also Head-and-
Shoulders Pattern.)
INDUSTRIAL AVERAGE—See Dow-Jones Industrial Average.
INSIDE DAY—A day in which the daily price range is totally within the
prior day's daily price range.
INSIDERS—Individuals who possess fundamental information likely to
affect the price of a stock, but which is unavailable to the public. 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.
INTERMEDIATE TREND—In Edwards and Magee, the term Intermediate
or Secondary refers to a trend (or pattern indicating a trend) against the
Primary (Major) Trend, which is likely to last from three weeks to three
months, and which may retrace one-third to two-thirds of the previous
Primary Advance or Decline.
INVERTED BOWL—See Rounding Top.
INVERTED TRIANGLE—See Right-Angled Broadening Triangle.
ISLAND REVERSAL—A compact trading range, usually formed after a
fast rally or reaction, which is separated from the previous move by an
Exhaustion Gap, and from the move in the opposite direction that follows
by a Breakaway Gap. 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 Island 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.
KILROY BOTTOM—The editor's contribution to the nomenclature. A
more descriptive term for the undescriptive “Head-and-Shoulders Bottom.”
LADDERING—A practice some Wall Street underwriters used in the
Tulipomania of the 1990s. Consists of selling initial public offering (IPO)
shares for the pre-opening price to insider customers in exchange for their
agreement to buy more in the public offering at higher prices. Caused
extreme volatility and big run ups in early days of IPOs. An unethical form
of price manipulation.
LEVERAGE—Using a smaller amount of capital to control an investment
of greater value. For example, exclusive of interest and commission costs, if
you buy a stock on 50% margin, you control $1.00 of stock for every $0.50
invested or leverage of 2-to-1.
LEVERAGE SPACE PORTFOLIO—Ralph Vince uses drawdown as the
risk metric for portfolios (as does this editor) instead of variance in returns.
A sophisticated method for determining portfolio risk and trade size and
optimizing portfolio growth.
LIMIT MOVE—A change in price that exceeds the limits set by the
exchange on which the futures contract is traded.
LIMIT ORDER—A buy or sell order limited in some way, usually in price.
For example, if you placed a limit order to buy IBM at 100, the broker
would not fill the order unless he could do so at your price or better (i.e., at
100 or lower).
LIMIT UP, LIMIT DOWN—Commodity exchange restrictions on the
maximum upward or downward movements permitted in the price for a
commodity during any trading session day.
LINE, DOW THEORY—A Line in the Dow Theory is an Intermediate
Sideways Movement in one or both of the Averages (Industrial and/or
Transportation) in the course of which prices fluctuate within a range of 5%
(of mean price) or less.
LOGARITHMIC SCALE—See Semilogarithmic Scale.
MAJOR TREND—In Edwards and Magee, the term Major (or Primary)
refers to a trend (or pattern leading to such a trend) that lasts at least one
year and shows a rise or decline of at least 20%.
MARGIN—The minimum amount of capital required to buy or sell a stock.
The rate, 50% of value in 2005, is set by the government. In a commodity,
margin is also the minimum, usually about 10%, needed to buy or sell a
contract. 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.
MARKET ON CLOSE—An order specification tha


10%, needed to buy or sell a
contract. 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.
MARKET ON CLOSE—An order specification that requires the broker to
get the best price available on the close of trading.
MARKET ORDER—An instruction to buy or sell at the price prevailing
when the order reaches the floor of the exchange.
MARKET RECIPROCAL—Normal average range of a stock based on the
average range for a number of years, divided by the current average range.
The result is the reciprocal of the market movement for the period. Wide
market activity, for example, would show a small decimal, less than 1. Dull
trading would be a larger number.
MAST—The vertical rally or reaction preceding a Flag or Pennant
Formation.
McCLELLAN OSCILLATOR—An Index based on New York Stock
Exchange net advances over declines. It provides a measure of such
conditions as overbought/oversold and market direction on a short- to
intermediate-term basis. The McClellan Oscillator measures a Bear Market
Selling Climax when registering a very negative reading like -150. A sharp
buying pulse in the market is indicated by a very positive reading, well
above 100.
MEASURING FORMULAE—There are certain patterns that do allow the
chartist the opportunity to project at least an interim target level of the
direction of the Primary Trend. The most important of these patterns are
found to be Triangles, Rectangles, Head-and-Shoulders, and Pennants and
Flags.
• Triangles—When a stock breaks out of a Symmetrical Triangle (either up
or down), the ensuing move should carry at least as far as the height of the
Triangle as measured along its first reaction.
• 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.
• Head-and-Shoulders Tops/Bottoms—The Head-and-Shoulders Pattern has
one of the better measuring sticks. 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.
• Pennants and Flags—The one thing to remember about these Continuation
Patterns is they “fly at half-mast.” In other words, the leg in equals the leg
out.
MEASURING GAP—See Runaway Gap.
MEGAPHONES—Megaphones are Broadening Tops. 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 has a tendency to spike down more than up.
MELON—A handsome rich dividend.
MINOR TREND—In Edwards and Magee, the term Minor refers to brief
fluctuations (usually less than six days and rarely longer than three weeks)
that, in total, make up the Intermediate Trend.
MOMENTUM INDICATOR—A market indicator utilizing volume
statistics for predicting the strength or weakness of a current market and
any overbought or oversold conditions and to distinguish turning points
within the market.
MOVING AVERAGE—A mathematical technique to smooth data. It is
called moving because the number of elements are fixed, but the time
interval advances. Old data must be removed when new data are added,
which causes the average to “move along” with the progression of the stock
or commodity.
EN: Simple Moving Average for n days consists of summing prices for n
days and dividing by n. On n + 1, drop the first day and add the new day to
the formula, etc.
MOVING AVERAGE CONVERGENCE/DIVERGENCE (MACD)—An
oscillator derived by dividing one Moving Average by another. Basically, it
combines three Moving Averages into two lines. In today's computer
programs, the Moving Averages are usually exponentially weighted, thus
giving more weight to the more recent data. It is plotted in a chart with a
horizontal Equilibrium Line.
The Equilibrium Line is important. When the two Moving Averages cross
below the Equilibrium Line, it means the shorter Exponential Moving
Average (EMA) is at a value less than the longer EMA. This is a Bearish
signal. When the EMAs are above the Equilibrium Line, it means the
shorter EMA has a value greater than the longer EMA. This is a Bullish
signal.
The first line is the difference between a 12-period EMA and a 26-period
EMA. The second line (signal line) is an approximate exponential
equivalent of a nine-period Moving Average of the first line. The
exponential values being 0.15, 0.075, and 0.20.
An MACD can be displayed as a line oscillator or a histogram.
Buy signals are generated when the faster Moving Average Line crosses the
slower Moving Average Line from below. Sell signals come from the
opposite, when the faster line crosses the slower line from above. Beware of
mechanically trading every MACD crossover; it can lead to whipsaws and
drawdowns with substance. The fact is, narrow trading ranges give many
false signals that can be avoid


istogram.
Buy signals are generated when the faster Moving Average Line crosses the
slower Moving Average Line from below. Sell signals come from the
opposite, when the faster line crosses the slower line from above. Beware of
mechanically trading every MACD crossover; it can lead to whipsaws and
drawdowns with substance. The fact is, narrow trading ranges give many
false signals that can be avoided with additional interpretation.
MOVING AVERAGE CROSSOVERS—The point at which the various
Moving Average Lines pass through or over each other.
MULTICOLINCARITY—The flawed procedure of using the identical data
to supply different types of indicators. The indicators will all confirm each
other because they are based on the same data. Combining RSI, Moving
Average Convergence/Divergence (MACD), and rate of change (where all
indicators use the same closing prices and relative time periods) should
provide the same signals, but they could easily be incorrect.
Multicolincarity can be avoided by using one indicator based on closing
prices, another from volume, and a third from price ranges. It can also be
avoided by using data-generated indicators compared to chart patterns. (See
also Bollinger Bands, MACD, Wilder Relative Strength Index.)
MULTIPLE HEAD-AND-SHOULDERS PATTERN—See Complex Head-
and-Shoulders.
NARROW RANGE DAY—A trading day with a narrower price range
relative to the previous day's price range.
NATURAL and UNNATURAL METHODS or SYSTEMS—Bassetti's half-
humorous identification of “natural methods” of analysis, such as chart
analysis, which looks directly at market data, as opposed to “unnatural
methods,” which place an algorithm between the data and the analysis, such
as Moving Averages, oscillators, and so on.
NATURAL HEDGE—Bassetti's formulation of a technique recommended
by Magee whereby a portfolio is always somewhat long and somewhat
short. It is an imperfect hedge intended to cushion downside (or upside)
risks—for example, long the DIA and short its members (or their proxies)
which are in downtrends.
NECKLINE—In a Head-and-Shoulders Pattern, it is the line drawn across
the two reaction lows (in a Top), or two rally highs (in a Bottom), which
occur before and after the head. This line must be broken by 3% to confirm
the Reversal. In a Diamond Pattern, which is similar to a Head-and-
Shoulders Pattern, the neckline is bent in the shape of a V or inverted V.
(See also Diamond and Head-and-Shoulders Pattern.)
NEGATIVE DIVERGENCE—When two or more Averages, indexes, or
indicators fail to show confirming trends.
NORMAL RANGE FOR PRICE—EN: An analytical tool invented by
Magee for measuring the volatility of stocks. Cumbersome in the modern
context, but interesting. Described in Appendix A, ninth edition.
NUMBER-DRIVEN TECHNICAL ANALYSIS—The use of statistics and
algorithms to analyze the market instead of pure chart analysis. Moving
Averages and oscillators are examples as are stochastic. There are
innumerable indicators of this type. Although having many virtues, it places
an algorithm between the price and the analyst.
ODD LOT—A block of stock consisting of fewer than 100 shares.
ON BALANCE VOLUME (OBV)—OBV is a popular Volume Indicator,
developed by Joseph Granville. Constructing an OBV line is very simple:
the total volume for each day is assigned a positive or negative value
depending on whether prices closed higher or lower that day. A higher close
results in the volume for that day getting a positive value, whereas a lower
close results in a negative value. A running total is kept by adding or
subtracting each day's volume based on the direction of the close. The
direction of the OBV line is watched, not the actual volume numbers.
Formula:
• If Today's Close > Yesterday's Close, then OBV = Yesterday's OBV +
Today's Volume
• If Today's Close < Yesterday's Close, then OBV = Yesterday's OBV -
Today's Volume
• If Today's Close = Yesterday's Close, then OBV = Yesterday's OBV
ONE-DAY REVERSAL—See Island Reversal.
OPTION—The right granted to one investor by another to buy (called a call
option) or sell (called a put option) 100 shares of stock, or one contract of a
commodity, at a fixed price for a fixed period of time. The investor granting
the right (the seller of the option) is paid a nonrefundable premium by the
buyer of the option.
OPTIONS RESEARCH, INC.—Founded by Blair Hull, later of Hull
Trading Co. The first company to computerize the Black-Scholes Model.
ORDER—See Limit Order, Market Order, and Stop Order.
OSCILLATOR—A form of momentum or rate-of-change indicator usually
valued from +1 to -1 or from 0% to 100%.
OVERBOUGHT—Market prices that have risen too steeply and too
quickly.
OVERBOUGHT/OVERSOLD INDICATOR—An indicator that attempts
to define when prices have moved too far and too quickly in either
direction, and thus are liable to a reaction.
OVERSOLD—Market prices that have declined too steeply and too
quickly.
PANIC—The second stage of a Bear Market when buyers thin out and
sellers sell at any price. The downward trend of prices suddenly accelerates
into an almost vertical drop, whereas volume rises to climactic proportions.
(See also Bear Market.)
PANIC BOTTOM—See Selling Climax.
PASSIVE INDEXER—Investor who invests in a major index and holds it
through up and down waves.
PATTERN—See Area Pattern.
PEAK—See Top.
PENETRATION—The breaking of a pattern boundary line, trendline, or
Support and Resistance Level.
PENNANT—A Pennant is a Flag with converging, rather than parallel,
boundary lines. (See also Flag.)
POINT AND FIGURE CHART—A method of charting believed to have
been created by Charles Dow. Each day the price moves by a specific
amount (the arbitrary box size), an X (if up) or O (if down) is placed on a
vertical column of squared paper. As long as prices do not change direction
by a specified amount (the Reversal), the trend is considered to be in force
and no new column is made. If a Reversal takes place, another vertical
column is started immediately to the right of the


harles Dow. Each day the price moves by a specific
amount (the arbitrary box size), an X (if up) or O (if down) is placed on a
vertical column of squared paper. As long as prices do not change direction
by a specified amount (the Reversal), the trend is considered to be in force
and no new column is made. If a Reversal takes place, another vertical
column is started immediately to the right of the first, but in the opposite
direction. There is no provision for time on a Point and Figure Chart.
PREMATURE BREAKOUT—A breakout of an Area Pattern, and then a
retreat back into the pattern. 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 from a
genuine breakout.
PRICE/EARNINGS RATIO—Price of stock divided by earnings (which
may or may not be real) to give the P/E ratio. Sometimes an unnatural, or
imaginary, number.
PRIMARY TREND—See Major Trend.
PROGRAM TRADING—Trades based on signals from various computer
programs, usually entered directly from the trader's computer to the
market's computer system.
EN: Usually indicates large volume transactions on large baskets of stocks
by professional traders.
PROGRESSIVE STOP—A stop order that follows the market up or down.
(See also Stop.)
PROTECTIVE STOP—A stop order used to protect gains or limit losses in
an existing position. (See also Stop.)
PULLBACK—Return of prices to the boundary line of the pattern after a
breakout to the downside. Return after an upside breakout is called a
Throwback.
PUT—An option to sell a specified amount of a stock or commodity at an
agreed time at the stated exercise price.
RAIL AVERAGE—See Dow-Jones Transportation Average.
RALLY—An increase in price that retraces part of the previous price
decline.
RALLY TOPS—A price level that finishes a short-term rally in an ongoing
trend.
RANGE—The difference between the high and low during a specific time
period.
REACTION—A decline in price that retraces part of the previous price
advance.
RECIPROCAL, MARKET—See Market Reciprocal.
RECOVERY—See Rally.
RECTANGLE—A trading area bounded on the Top and the Bottom with
horizontal, or near horizontal, lines. A Rectangle can be either a Reversal or
Continuation Pattern depending on the direction of the breakout. Minimum
Measuring Formula: add the width (difference between Top and Bottom) of
the Rectangle to the breakout point.
RED PARALLEL—A line drawn parallel to the trendline (Red Trendline)
that connects at least two Bottoms. The Red Parallel (basically a Return
Line) is started off a high and used to estimate the next high point.
RED TRENDLINE—A straight line connecting two or more Bottoms
together. To avoid confusion, Edwards and Magee use a red line for Bottom
Trendlines and a blue line for Top Trendlines.
RELATIVE STRENGTH (RS or RS INDEX)—A stock's price movement
over the past year as compared with a market index (most often the
Standard & Poor's 500 Index). Value below 1 means the stock shows
relative weakness in price movement (underperformed the market); a value
above 1 means the stock shows relative strength over the one-year period.
Equation for Relative Strength:
Current Stock Price/Year-Ago Stock Price
Current S&P 500/Year-Ago S&P 500
(See also Wilder Relative Strength Index.)
RESISTANCE LEVEL—A price level at which a sufficient supply of stock
is forthcoming to stop, and possibly turn back for a time, an uptrend.
RETRACEMENT—A price movement in the opposite direction of the
previous trend.
RETURN LINE—See Ascending or Descending Trend Channels.
REVERSAL GAP—A chart formation where the low of the last day is
above the previous day's range with the close above midrange and above
the open.
REVERSAL PATTERN—An Area Pattern that breaks out in a direction
opposite to the previous trend. (See also Ascending Triangle, Broadening
Formation, Broadening Top, Descending Triangle, Diamond, Dormant
Bottom, Double Bottom or Top, Head-and-Shoulders Pattern, Rectangle,
Rising or Falling Wedge, Rounding Bottom or Top, Saucer, Symmetrical
Triangle, and Triple Bottom or Top.)
RIGHT-ANGLED BROADENING TRIANGLE—Area Pattern with one
boundary line horizontal and the other at an angle that, when extended, will
converge with the horizontal line at some point to the left of the pattern.
Similar in shape to Ascending and Descending Triangles, except they are
inverted and look like Flat-Topped or Bottomed Megaphones. Right-Angled
Broadening Formations generally carry Bearish implications regardless of
which side is flat. But any decisive breakout (3% or more) through the
horizontal boundary line has the same forceful significance as does a
breakout in an Ascending or Descending Triangle.
RIGHT-ANGLE TRIANGLES—See Ascending and Descending Triangles.
RISING WEDGE—An Area Pattern with two upward-slanting, converging
trendlines. 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.
ROUND LOT—A block of stock consisting of 100 shares of stock.
ROUND TRIP—The cost of one complete stock or commodity transaction,
that is, the entry cost and the offset cost combined.
ROUNDING BOTTOM—An Area Pattern that pictures a gradual,
progressive, and fairly symmetrical change in the trend from down to up.
Both the Price Pattern (along its lows) and the Volume Pattern show a
concave shape often called a Bowl or Saucer. There is no minimum
measuring formula associated with this Reversal Pattern.
ROUNDING TOP—An Area Pattern that pictures a gradual, progressive,
and fairly symmetrical change in the trend from up to down. The Price
Pattern, along its highs, shows a convex shape sometimes called an Inverted
Bowl. The Volume Pattern is concave shaped (a bowl) as trading activity
declines into the peak of the Price Pattern and in


minimum
measuring formula associated with this Reversal Pattern.
ROUNDING TOP—An Area Pattern that pictures a gradual, progressive,
and fairly symmetrical change in the trend from up to down. The Price
Pattern, along its highs, shows a convex shape sometimes 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.
RUNAWAY GAP—A relatively wide gap in prices that occurs in an
advance or decline gathering momentum. Also called a “Measuring Gap”
because it frequently occurs at just about the halfway point between the
breakout that started the move and the Reversal Day that calls an end to it.
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.
RUNNING MARKET—A market wherein prices are moving rapidly in one
direction with very few or no price changes in the opposite direction.
SAUCER—See Rounding Bottom and Scallop.
SCALLOPS—A series of Rounding Bottom (Saucer) Patterns where the
rising end always carries prices a little higher than the preceding Top at the
beginning of the pattern. Net gains will vary from stock to stock, but there
is a strong tendency for it to amount to 10%-15% of the price. The total
reaction, from the left-hand Top of each Saucer to its Bottom, is usually in
the 20%-30% area. Individual Saucers in a Scallop series are normally five
to seven weeks long, and rarely less than three weeks. The volume will
show a convex or Bowl Pattern.
SECONDARY TREND—See Intermediate Trend.
SECULAR TREND—A major long-lived trend based in solid economic
conditions, as opposed to cyclic or technical.
SELLING CLIMAX—A period of extraordinary volume that comes at the
end of a rapid and comprehensive decline that exhausts the margin reserves
of many speculators or patience of investors. Total volume turnover may
exceed any single day's volume during the previous upswing as Panic
Selling sweeps through the stock or commodity. Also called a Clean-Out
Day, a Selling Climax reverses the technical conditions of the market.
Although it is a form of a One-Day Reversal, it can take more than one day
to complete.
SEMILOGARITHMIC SCALE—Price or volume scale in which the
distance on the vertical axis (i.e., space between horizontal lines) represents
equal percentage changes.
SENSITIVITY—An index used by Edwards and Magee to measure the
probable percentage movement (sensitivity) of a stock during a specified
percentage move in the stock market as a whole.
EN: More or less equivalent, or with the same intent as beta.
SHAKEOUT—A corrective move large enough to “shake out” nervous
investors before the Primary Trend resumes.
SHORT INTEREST—The number of shares that have been sold short and
not yet repurchased. This information is published monthly by the New
York Stock Exchange.
SHORT SALE—A transaction in which the entry position is to sell a stock
or commodity first and to repurchase it (hopefully at a lower price) at a later
date. 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.
SHOULDER—See Head-and-Shoulders Pattern.
SMOOTHING—A mathematical approach that removes excess data
variability while maintaining a correct appraisal of the underlying trend.
SPIKE—A sharp rise in price in a single day or two.
STOCHASTIC—Random.
STOCHASTICS—The Stochastic Oscillator, developed by George Lane,
compares a security's price closing level to its price range over a specific
period of time. This indicator shows, Lane theorized, in an upward-trending
market, prices tend to close near their high; and during a downward-
trending market, prices tend to close near their low. As an upward trend
matures, prices tend to close further away from their high; as a downward
trend matures, prices tend to close away from their low. The Stochastic
Indicator attempts to determine when prices start to cluster around their low
of the day in an uptrending market, and cluster around their high in a
downtrend. Lane theorizes these conditions indicate a Trend Reversal is
beginning to occur. The Stochastic Indicator is plotted as two lines, the %D
Line and %K Line. The %D Line is more important than the %K Line. The
Stochastic is plotted on a chart with values ranging from 0 to 100. The
value can never fall below 0 or above 100. Readings above 80 are
considered strong and indicate a price is closing near its high. Readings
below 20 are strong and indicate a price is closing near its low. Ordinarily,
the %K Line will change direction before the %D Line. However, when the
%D Line changes direction prior to the %K Line, a slow and steady
Reversal is often indicated. When both %K and %D Lines change direction,
and the faster %K Line changes direction to retest a crossing of the %D
Line, though does not cross it, the incident confirms stability of the prior
Reversal. A powerful move is under way when the Indicator reaches its
extremes around 0 and 100. Following a Pullback in price, if the Indicator
retests extremes, a good entry point is indicated. Many times, when the %K
or %D Lines begin to flatten out, the action becomes an indication the trend
will reverse during the next trading range.
STOCK SPLIT—A procedure used by management to establish a different
market price for its shares by changing the common stock structure of the
company. Usually a lower price is desired and established by canceling the
outstanding shares and reissuing a larger number of new certificates to
current shareholders. The most common ratios are 2-to-1, 3-to-1, and 3-to-
2. Occasionally, a higher price i


e.
STOCK SPLIT—A procedure used by management to establish a different
market price for its shares by changing the common stock structure of the
company. Usually a lower price is desired and established by canceling the
outstanding shares and reissuing a larger number of new certificates to
current shareholders. The most common ratios are 2-to-1, 3-to-1, and 3-to-
2. Occasionally, a higher price is desired and a reverse split takes place
where one new share is issued for some multiple number of old shares.
STOP—A contingency order 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.)
STOP LOSS—See Protective Stop.
SUPPLY—Amount of stock available at a given price.
SUPPLY LINE—See Resistance.
SUPPORT LEVEL—The price level at which a sufficient amount of
demand is forthcoming to stop, and possibly turn higher for a time, a
downtrend.
SYMMETRICAL TRIANGLE—Also called a Coil. Can be a Reversal or
Continuation Pattern. A sideways congestion in which each Minor Top fails
to attain the height of the previous rally and each Minor Bottom stops above
the level of the previous low. The result is upper and lower boundary lines
that 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 a Wedge. Volume tends to diminish during formation. Minimum
Formula: add the widest distance within the Triangle to its breakout point.
TANGENT—See Trendline.
TAPE READER—One who makes trading decisions by watching the flow
of New York Stock Exchange and American Stock Exchange price and
volume data coming across the electronic ticker tape.
TEKNIPLAT™ PAPER—A specially formatted, two-cycle,
semilogarithmic graph paper, with sixth-line vertical accents, used to chart
stock or commodity prices. Check http:// www.edwards-magee.com.
TEST—A term used to describe the activity of a stock or commodity when
it returns to, or “tests,” the validity of a previous trendline, or Support or
Resistance Level.
THIN ISSUE—A stock with a low number of floating shares and is lightly
traded.
THREE-DAYS-AWAY RULE—An arbitrary time period used by Edwards
and Magee in marking suspected Minor Tops or Bottoms.
THROWBACK—Return of prices to the boundary line of the pattern after a
breakout to the upside. Return after a downside breakout is called a
Pullback.
TOP—See Broadening Top, Descending Triangle, Double Top, Head-and-
Shoulders Top, Rounding Top, and Triple Top.
TREND—The movement of prices in the same general direction, or the
tendency or proclivity to move in a straight line. (See also Ascending,
Descending, and Horizontal Parallel Trend Channels, Convergent Trend,
Divergent Trend, Intermediate Trend, Major Trend, and Minor Trend.)
TREND CHANNEL—A parallel probable price range centered about the
most likely price line.
TRENDING MARKET—Price continues to move in a single direction,
usually closing strongly for the day.
TRENDLINE—If we actually apply a ruler to a number of charted price
trends, we quickly discover the line most often really straight in an uptrend
trend 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 down-move—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.
TRIANGLE—See Ascending Triangle, Descending Triangle, Right-Angled
Broadening Triangle, and Symmetrical Triangle.
TRIPLE BOTTOM—Similar to a flat Head-and-Shoulders Bottom, or
Rectangle, the three Bottoms in a Triple Bottom.
TRIPLE TOP—An Area Pattern with three Tops widely spaced and with
quite deep, and usually rounding, reactions between them. Less volume
occurs on the second peak than the first peak, and still less on the third
peak. Sometimes called a “W” Pattern, particularly if the second peak is
below the first and third. The Triple Top is confirmed when the decline
from the third Top penetrates the Bottom of the lowest valley between the
three peaks.
200-DAY MOVING AVERAGE LINE—Determined by taking the closing
price over the past 200 trading days and dividing by 200, then repeating the
process each succeeding day, always dropping off the earliest day.
UPTICK—A securities transaction made at a price higher than the
preceding transaction.
UPTREND—See Ascending Trendline and Trend.
UTILITY AVERAGE—See Dow-Jones Utility Average.
V/D VOLUME—Is the ratio between the daily up-volume to the daily
down-volume. It is a 50-day ratio determined by dividing the total volume
on those days when the stock closed up from the prior day by the total
volume on days when the stock closed down.
VALIDITY OF TRENDLINE PENETRATION—The application of the
following three tests when a trendline is broken to determine whether the
break is valid or whether the trendline is still basically intact: (1) the extent
of the penetration, (2


-day ratio determined by dividing the total volume
on those days when the stock closed up from the prior day by the total
volume on days when the stock closed down.
VALIDITY OF TRENDLINE PENETRATION—The application of the
following three tests when a trendline is broken to determine whether the
break is valid or whether the trendline is still basically intact: (1) the extent
of the penetration, (2) the volume of trading on the penetration, and (3) the
trading action after the penetration.
VALLEY—The V-shaped price action that occurs between two peaks. (See
also Double Top and Triple Top.)
VINCE, RALPH—Author of Handbook of Portfolio Mathematics where
optimal f is described as a quantitative way to achieve optimal allocation
and leverage of a portfolio. The Leverage Space Model achieves optimal
bet sizing for maximizing gains while minimizing risk.
VOLATILITY—A measure of a stock's tendency to move up and down in
price, based on its daily price history over the latest 12-month period. (See
Appendix B, Resources, for the formula.)
VOLUME—The number of shares in stocks or contracts in commodities
traded over a specified period of time.
“W” FORMATION—See Triple Top.
WEDGE—A chart formation in which the price fluctuations are confined
within converging straight (or practically straight) lines.
WILDER RELATIVE STRENGTH INDICATOR (RSI)—Although relative
strength, comparing a security price to a benchmark index price, has been
around for some time, this indicator was developed by J. Welles Wilder, as
explained in his 1978 book, New Concepts in Technical Trading.
Relative Strength is often used to identify price Tops and Bottoms by
keying on specific levels (usually “30” and “70”) on the RSI chart, which is
scaled from 0 to 100. The RSI can also be useful to show the following:
1. Movement that might not be as readily apparent on the bar chart.
2. Failure Swings above 70 or below 30, warning of coming Reversals.
3. Support and Resistance Levels appear with greater clarity.
4. Divergence between the RSI and price can often be a useful
Reversal indicator.
The RSI requires a certain amount of lead-up time to operate successfully.
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
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