r Bottom Reversal of 1941 to 1942. 85
10.10 AMERICAN BOSCH
CORPORATION.
A Diamond Pattern in 1945 which functioned
as a Consolidation.
127
28.1 AMERICAN CABLE &
RADIO.
Placement and change of stop-order levels. 362
33.11 AMERICAN CAN. Daily, end of 1946, beginning of 1947.
Diamond Formation at top of Secondary rally.
404
15.10 AMERICAN CAR &
FOUNDRY.
Up-curving Bull Trend of heavy industry
issues. Monthly chart, 1938 to 1946.
234
7.8 AMERICAN
LOCOMOTIVE.
Extended top of Multiple type, 1946. 63
11.12 AMERICAN
LOCOMOTIVE.
A Flag in 1935 which appeared to fail but
finally came through.
163
37.6 AMERICAN
LOCOMOTIVE.
Rectangle with false move, and subsequent
upside breakout and advance.
433
8.23 AMERICAN ROLLING
MILL.
The “hybrid” pattern of ascending type which
formed in 1941 to 1943. Weekly chart.
94
10.3 AMERICAN ROLLING
MILL.
Small Broadening Top of 1946 at the end of a
generally broadening (and Bearish)
Formation.
124
7.17 AMERICAN SAFETY
RAZOR.
Monthly chart. Two Major Bottoms — a
Head-and-Shoulders in 1932 and “Bowl” in
1942.
69
33.16 AMERICAN STEEL
FOUNDRIES.
Daily, 6 months in 1947. Parallel Trend
Channels in Primary and Secondary
directions.
413
12.1 AMERICAN WATER
WORKS & ELECTRIC.
Common or Pattern Gaps in a Rectangle;
Runaway Gap and Flag. 1945.
172
11.10 AMERICAN WOOLEN. Perfect “Half-Mast” Pattern in 1946, with gaps
and Ascending Triangle.
161
9.7 AMERICAN ZINC,
LEAD & SMELTING.
The Consolidation Rectangle which followed a
Head-and-Shoulders Top in 1946.
108
11.13 ANACONDA COPPER. Head-and-Shoulders Consolidations in 1936,
and measuring Flag.
164
11.6 ANACONDA COPPER. Wedge or Pennant, Flag and Runaway Caps in
1936–37.
157
37.52 APPLE. The press’ whipping stock strikes back. 2005. 478
37.53 APPLE. The revenge of Steve Jobs. 479
10.19 APPLE. Panic selling and climax in Apple, 1987 Crash. 135
7.23 APPLIED MAGNETIC
CORPORATION.
1988. Saucer-like Pattern. 73
7.10 ARCHER DANIELS
MIDLAND COMPANY.
1984. Complex Head-and-Shoulders Bottom. 64
14.14 ARKANSAS BEST. Fan and Head-and-Shoulders Bottom. 1987. 218
8.17 ARMOUR & COMPANY. Long Ascending Triangle in 1946 to 1947 in
which distribution eventually overcame
upward trend.
88
581Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
33.3 ASSOCIATED DRY
GOODS.
Daily, first half of 1946. Rounding Top; also
Broadening Consolidation.
396
33.10 ASSOCIATED DRY
GOODS.
Daily, first half of 1945. Right- Angled
Broadening Formation and ensuing advance.
403
10.6 ASSOCIATED
DRYGOODS.
Right-Angled Broadening Formation with
horizontal Top, 1945.
125
37.39 ASTRODATA, INC. Daily, October 1969 through February 1970. A
complete collapse; then reopens 20 points
lower.
467
14.2 ATCHISON, TOPEKA &
SANTA FE.
Acceleration of Intermediate Uptrend in 1936.
Support Levels.
209
14.1 ATLANTIC REFINING. Basic Intermediate Trendlines on weekly chart,
1944 to 1947.
208
37.20 AVNET ELECTRONICS
CORPORATION.
May through October 1961, showing Bearish
Trend during a time when the market
Averages were strong. Daily chart.
448
14.17 BACYRUS ERIE. 1984 Excellent Fan Pattern. 220
12.10 BALTIMORE & OHIO
PFD.
Small Island in right shoulder of Major
Head-and-Shoulders Top. 1946.
180
12.6 BALTIMORE & OHIO. The measuring formula applied to a Runaway
Gap in early 1937.
177
22.1 BALTIMORE & OHIO. Weekly, first 6 months of 1945, showing
tendency of a low-priced stock to make wide
swings in a general market move.
320
14.15 BARBER ASPHALT. Application of three-fan principle to Bull
Market Reaction. 1946.
219
28.1
28.2
28.3
28.4
BASING POINTS.
BASING POINTS, V2
BASING POINTS, V2
BASING POINTS, V2
The most important chart in the book?
Basing Points illustrations showing both
wavelow stops and new high stops
362
366
369
370
8.19 BATH IRON WORKS. Descending Triangle Top of 1946, showing
adjustment of pattern lines for Ex-Dividend
Gap.
90
9.9 BELL AIRCRAFT. Ex-dividend drop causing apparent false move
out of Rectangle in 1945.
109
13.2 BENDIX AVIATION. Support–Resistance Levels in an Intermediate
Uptrend. 1944 to 1945.
194
12.12 BETHLEHEM STEEL. Unusual Island Reversal at the 1937 Bull Top. 182
14.7 BETHLEHEM STEEL. Trend Channels and Rectangle. 1945. 213
12.2 BETHLEHEM STEEL. Three types of Breakaway Gap. 1937. 173
12.5 BLAW–KNOX. Gaps following long Rectangle in early 1946,
and Major Double Top.
176
33.2 BRANIFF AIRWAYS. Daily, last half of 1945. Head-and- Shoulders
Bottom, reactions, Ascending Triangle
Consolidation and advancing trend.
395
8.14 BRIGGS
MANUFACTURING.
Weekly chart of 1941 to 1943 showing
Triangular Bottom of ascending type.
86
582 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
11.5 BRIGGS
MANUFACTURING.
Bull and Bear Flags and Symmetrical Triangle
Top in 1936. Support–Resistance phenomena.
156
37.22 BRUNSWICK
CORPORATION.
Showing the end of the great Bull Market
Move in this stock, and the decline which
followed. 1960 to 1962. Weekly chart.
450
7.18 BUDD COMPANY. Monthly chart showing Major Rounding
Bottom of 1942.
70
7.7 BUDD
MANUFACTURING
(now The Budd Company). Multiple Head-
and-Shoulders Top of 1946.
62
37.21 BURNDY
CORPORATION.
April to September 1961. Classic Head-and-
Shoulders Top and rallies to neckline. Daily
chart.
449
17.3 CBOT DOW INDEX
FUTURES AND
DIAMONDS.
Hedging DIAMONDS with index futures
illustrated.
278
17.4 CBOT DOW INDEX
FUTURES AND
OPTIONS ON
FUTURES.
Using options and futures to control portfolio
risk.
282
8.13 CELANESE
CORPORATION.
Ascending Triangle of consolidation type in
1946.
85
15.11 CELOTEX. Accelerating uptrend of a low-priced building
supply stock. Monthly chart, 1938 to 1946.
235
37.28 CERRO
CORPORATION.
Daily, January to June 1963. Symmetrical
Triangle and uptrend, showing reaction to
“cradle point.”
456
33.7 CERTAINTEED
PRODUCTS.
Daily, 6 months in 1946. Broadening Top,
showing rally following the breakout, and
subsequent decline.
400
7.19 CERTAINTEED
PRODUCTS.
Monthly chart. Maj


ting uptrend of a low-priced building
supply stock. Monthly chart, 1938 to 1946.
235
37.28 CERRO
CORPORATION.
Daily, January to June 1963. Symmetrical
Triangle and uptrend, showing reaction to
“cradle point.”
456
33.7 CERTAINTEED
PRODUCTS.
Daily, 6 months in 1946. Broadening Top,
showing rally following the breakout, and
subsequent decline.
400
7.19 CERTAINTEED
PRODUCTS.
Monthly chart. Major Rounding Bottom of
1942.
70
37.17 CHICAGO,
MILWAUKEE, ST. PAUL
& PACIFIC.
The magnificent uptrend of 1954 to 1955 with
numerous Support–Resistance and Area
Pattern features.
440
6.2 CHICAGO,
MILWAUKEE, ST. PAUL
& PACIFIC.
The Head- and-Shoulders Top Formation
which ended its Bull Market in February
1946.
46
37.9 CHRYSLER. Monthly, 1927 to 1930. Showing Major Top in
1928 and the collapse during the early
months of 1929.
436
23.14 CISCO. Exercises in adroit speculation. 337
23.15 CISCO. Zooming in on Cisco. 338
15.12
16.12
CLAUDE NEON.
COFFEE 1994
(Curb Exchange). Strongly up-curved Bull
Trend of a low-priced, highly speculative
issue. Monthly chart, 1938 to 1946.
A perfect flag and spike reversal.
235
256
14.4 COMMERCIAL
SOLVENTS.
Intermediate Downtrend and Uptrend in 1946. 211
583Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
11.16 COMMONWEALTH
EDISON.
Scalloping trend of an investment stock, 1945. 165
15.5 COMMONWEALTH
EDISON.
Straight-line Bull Trend of investment type
utility. Monthly chart, 1938 to 1946.
232
6.7 CONSOLIDATED
EDISON.
The Head-and-Shoulders Reversal of 1937. 50
14.11 CONSOLIDATED
VULTEE.
Part of a two-year Uptrend Channel. 1945. 215
9.15 CONTAINER
CORPORATION.
The Major Double Bottom of 1941 to 1943.
Weekly chart.
114
33.6 CONTINENTAL
MOTORS.
Daily, last half of 1945. Ascending Triangle
showing Pullback to Support Level; also
Symmetrical Triangle with reaction to apex.
399
37.34 CONTROL DATA
CORPORATION.
Daily, February to August 1965. Example of a
Wedge with downside breakout and Major
Collapse.
462
37.24 COPPER RANGE. First 6 months of 1962. Head-and-Shoulders
Top with down-sloping neckline. Daily chart.
452
24.1 CORN PRODUCTS
REFINING COMPANY.
Weekly, 1945 to 1946. Habits of a stock of low
sensitivity.
342
15.14 CORN PRODUCTS
REFINING COMPANY.
Typical Major Uptrend of food group. Monthly
chart, 1938 to 1946.
236
16.2 COTTON FUTURES. Familiar technical action in a futures chart (5th
ed.).
247
10.1 CRANE COMPANY. Broadening Formation of 1945 to 1946, a
warning of final top.
122
14.3 CRANE COMPANY. Short-term trendlines in 1945, and examples of
channel “failure” and Pullback.
210
7.24 CRAY RESEARCH. 1987. Gap and Rounding Top. 74
16.9 CRB INDEX 2005. A futures triangle with breakout. 254
16.10 CRB INDEX 2005. The long term view, with double bottom. 255
37.29 CRUCIBLE STEEL. Daily, March to August 1963. Ascending
Triangle, showing Breakaway Gap.
457
8.5 CUBAN-AMERICAN
SUGAR.
A Rounding Bottom in 1945 which merged
into a Symmetrical Triangle.
81
24.2 CUBAN-AMERICAN
SUGAR.
Weekly, 1945 to 1946. Habits of low-priced
stock of fairly low sensitivity.
343
18.1 CUDAHY PACKING. Head-and-Shoulders Reversal at the Major Top
in 1928.
294
15.3 CURTIS PUBLISHING $7
PFD.
Typical decurving Bull Trend of preferred
stocks. Monthly chart, 1938 to 1946.
231
15.4 CURTIS PUBLISHING
COMMON.
Accelerating Bull Trend of low-priced,
speculative common stocks. Monthly chart,
1938 to 1946.
231
8.4 DELAWARE &
HUDSON.
Weekly chart. Wide-swinging Symmetrical
Triangle Bottom of 1941 to 1942 with
Throwback to apex Support.
80
584 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
14.16 DELAWARE &
HUDSON.
Application of three-fan principle to Bull
Market Reaction. 1944.
219
37.5 DELAWARE,
LACKAWANNA &
WESTERN.
Rectangle and uptrend. 1954 to 1955. 432
37.45 DELL. From nothing (a college dorm) to something. 473
37.46 DELL. A weekly look. 474
7.9 DIGITAL EQUIPMENT
CORPORATION.
1985. From a Head- and-Shoulders Top to
Complex Head-and-Shoulders Bottom.
63
7.2 DOME MINES. Weekly chart showing the Major Head-and-
Shoulders Bottom of 1942.
59
10.21 DOW-JONES
INDUSTRIAL
AVERAGE.
1987 Reagan Crash. 137
A.1 DOW–JONES
INDUSTRIAL AND
RAIL AVERAGES.
Important swings of the 1941 through 1946. 508
A.3
FM.1
DOW–JONES
INDUSTRIAL AND
RAIL AVERAGES.
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES OW
Daily closing prices and total market volume,
March 2 to October 31, 1942.
The historic bull market of 2009–2018.
510
v
A.4 DOW–JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total market volume,
November 2, 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
585Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
5.2
5.3
5.1
DOW–JONES
INDUSTRIAL
AVERAGE.
DOW–JONES
INDUSTRIAL
AVERAGE.
DOW–JONES
INDUSTRIAL
AVERAGE.
marked with Dow Theory signals and Magee
Procedure signals from 1924–34
marked with Dow Theory signals and Magee
Procedure signals from 1900–2011
2007–2008 top illustrating various analytical
methods
39
40
38
7.5 DOW–JONES
INDUSTRIAL
AVERAGE.
Kilroy (H&S) Bottom. 61
10.12 DOW–JONES
INDUSTRIAL
AVERAGE.
1999–2000 Diamond. 129
15.16 DOW–JONES
INDUSTRIAL
AVERAGE.
Monthly chart, 1924 through 1937, showing
the unique straight downtrend developed by
the

eBooks\Technical Analysis of Stock Trends 11thed\original\Technical Analysis of Stock Trends.pdf


rom 1924–34
marked with Dow Theory signals and Magee
Procedure signals from 1900–2011
2007–2008 top illustrating various analytical
methods
39
40
38
7.5 DOW–JONES
INDUSTRIAL
AVERAGE.
Kilroy (H&S) Bottom. 61
10.12 DOW–JONES
INDUSTRIAL
AVERAGE.
1999–2000 Diamond. 129
15.16 DOW–JONES
INDUSTRIAL
AVERAGE.
Monthly chart, 1924 through 1937, showing
the unique straight downtrend developed by
the 1929 to 1932 Bear Market.
238
15.19-20-
21
DOW–JONES
INDUSTRIAL
AVERAGE.
Three Bull Market tops. 240
36.1 DOW–JONES
INDUSTRIAL
AVERAGE.
150day moving average. Editor’s choice. 424
37.16 DOW–JONES
INDUSTRIAL
AVERAGE.
Daily chart showing the Broadening Top
established in May to August 1957.
444
37.17 DOW–JONES
INDUSTRIAL
AVERAGE.
Daily chart showing the Broadening Top
established in 1999–2000.
445
37.26 DOW–JONES
INDUSTRIAL
AVERAGE.
Weekly, July 1961 through June 1962. The
massive Head-and-Shoulders Pattern
preceding the 1962 break.
454
6.6 DUPONT. Its Major Top in 1936, with an unusual
Pullback.
50
37.9 EAGLE–PICHER LEAD. Monthly, 1927 to 1930. Generally Bearish
Major Trend.
436
8.9 EASTERN AIRLINES. A Symmetrical Triangle in 1947 that did not
carry through.
83
9.6 EASTERN AIRLINES. Long Consolidation ending in Rectangle in
early 1945.
107
8.25 EBAY. 2004 Descending Triangle Surprise. 96
10.25 EBAY. As Ebay broke its trendline and drifted
sideways it became a good subject for
reversal day trading.
140
586 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
10.26 EBAY. 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
23.10 EMULEX. 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 — providing signal of Primary
Reversal.
167
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
37.31 GENERAL STEEL
INDUSTRIES.
Daily, November 1962 to April 1963. Example
of a Major Uptrend with normal reactions.
459
16.3
16.4
GOLD 2005.
GOLD 2011
A great rounding bottom? Foretelling?
Showing how the great rounding bottom was
fulfilled.
248
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
23.16
23.17
GOOGLE.
GOOGLE.
2005. More fun than a googly on a sticky
wicket.
Illustrating the follow up story in Google
339-340
37.3 GRANITE CITY STEEL. Rectangle and Support–Resistance phenomena
in 1956 uptrend.
430
10.18 GREYHOUND. A conspicuous One-Day Reversal at the 1946
Bull high.
134
587Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
33.4 GREYHOUND. Daily, last half of 1945. Rounding Bottom and
advance with reactions to Support Levels.
397
33.12 GULF, 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
10.13 HUDSON 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
14.10 HUDSON 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
37.18 INDUSTRIAL 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
37.47 INTEL. 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
588 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
11.17 INTERNATIONAL
TELEPHONE &
TELEGRAPH.
Saucer- like Consolidation in 1944. 166
13.10 INTE


nd 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
588 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
11.17 INTERNATIONAL
TELEPHONE &
TELEGRAPH.
Saucer- like Consolidation in 1944. 166
13.10 INTERNATIONAL
TELEPHONE &
TELEGRAPH.
Support “field” of Symmetrical Triangle. 1945. 204
7.20 J.I. CASE. The Rounding Bottom of 1932 showing a
temporary rally out of pattern.
71
13.5 JEWEL TEA. Major Support–Resistance Levels on 1936 to
1946 monthly chart.
198
8.3 JOHNS–MANVILLE. Triangular Bottom development of 1941 to
1942. Weekly chart.
79
13.1 JONES & LAUGHLIN. Normal trend action illustrating Support and
Resistance. Weekly chart, 1944 to 1947.
191
9.10 KENNECOTT COPPER. Series of Consolidation Formations in 1937
Bear Trend.
110
13.4 KRESGE (S.S.)
COMPANY.
1936 to 1946 monthly chart showing important
Support–Resistance Levels.
196
33.14 LEHIGH VALLEY
RAILROAD.
Daily, end of 1945, beginning of 1946. Gaps of
various types.
407
37.9 LIBBY, McNEILL &
LIBBY.
Monthly, 1927 to 1930. Showing continuance of
Bullish Trend into 1930.
436
15.13 LIGGETT & MYERS
TOBACCO B.
Straight-line trend characteristic of tobacco
stocks. Monthly chart, 1938 to 1946.
236
9.2 LIMA LOCOMOTIVE
WORKS.
Rectangular pattern of “conflict” in 1944 to
1945.
104
12.11 LION OIL COMPANY. An Island “shakeout” in a thin stock. 1947. 181
37.36 LIVINGSTON OIL
COMPANY.
Weekly, January 1965 into January 1966.
Downside Major Trend, Symmetrical Triangle
Bottom, Major Reversal to uptrend.
464
7.1 LOCKHEED AIRCRAFT. A Head-and-Shoulders Bottom Reversal in
December 1943.
58
9.3 LOEW’S, INC. Perfect Rectangle of the “pool operation” type,
1936.
105
10.15 LOEW’S, INC. Falling Wedge of classic form in 1936; Flag and
Rectangle.
132
37.19 LORILLARD. Showing Bullish action of a stock through the
entire year, 1957. Daily chart.
447
10.27 LUCENT. Late 20th, early 21st century schizophrenia. 142
10.28 LUCENT. What happened after the chart in 104.4 143
33.13 MARTIN-PARRY. Daily, 6 months in 1945. Pennant, showing
formation of Consolidation Pattern at
halfway point in advance.
406
11.1 MARTIN–PARRY. Ideal Flag in rapid advance of 1945. 152
37.4 MASONITE. Downtrend showing Support–Resistance
phenomena. 1956.
431
7.6 MCA, INC. 1986. Complex Head-and-Shoulders Top 62
589Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
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
10.24 MICROSOFT. 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
14.12
37.54
NASH–KELVINATOR.
NASDAQ 100
Downtrend Channel in 1946.
Basing Point Procedure applied to weekly bars
216
480
11.3 NASH–KELVINATOR. Flag of “Half-Mast” type preceding 1937 Bull
Market Top.
154
10.22 NATIONAL 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
37.48 NOKIA. 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
33.15 NORTHERN 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
37.12 NORTHROP AIRCRAFT. 1956 to 1957. Ascending Triangle and upside
breakout.
439
16.1 OATS.
Tracing “normal” patterns during the 1940s
(5th ed.).
246
590 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
23.8 ORACLE. Your modern misshapen rectangles in Oracle
again, marked by runaway days and gaps.
332
37.40 ORACLE. 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
37.15 OTIS 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 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 accelera


reakout
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
37.38 PARKE, 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
36.2
PENNSYLVANIA
RAILROAD.
PENTAD SYSTEM
Changes in technical lines required by
ex-dividend decline.
Illustration of filtered moving average system.
183
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
37.23 POLAROID. 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
591Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
9.17 PUBLICKER
INDUSTRIES.
Triple Top of 1946. 116
10.23 QUALCOMM. A church spire top in Qualcomm. 139
14.13 R.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
37.10 S.S. KRESGE. Monthly, 1953 to 1956. Generally Bearish
Major Trend.
437
10.16 SCHENLEY
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
16.5
SILVER 2005.
SILVER MAY 2005
Another great rounding bottom?
Lessons in agility, gaps and run days
249
16.5
16.13
SILVER 2011
SILVER 2011
How the rounding bottom was resolved
Illustrating top and stairstops.
250
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 decline.
394
14.9 SOUTHERN PACIFIC. Intermediate Basic and Return Lines and Flags
within Trend Channel. 1945.
214
592 Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
8.16 SOUTHERN RAILWAY
PREFERRED.
A perfect Ascending Triangle in 1936. 87
13.12 SOUTHERN 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. 1946 to 1947.
263
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
37.30 SUPERIOR 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
37.25 U.S. SMELTING,
REFINING & MINING.
April through September, 1962. Head-and-
Shoulders Bottom, breakout, reaction, and
advance. Daily chart.
453
37.35 U.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 Fo


37.25 U.S. SMELTING,
REFINING & MINING.
April through September, 1962. Head-and-
Shoulders Bottom, breakout, reaction, and
advance. Daily chart.
453
37.35 U.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
593Alphabetic Index of Stock Charts
Figure Stock Name Summary Description of Chart Page
9.11 UNITED AIRCRAFT. The Double Bottom of 1942. Weekly chart. 111
37.32 UNITED 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
10.14 UNITED 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
37.10 WEST 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
37.10 WESTINGHOUSE
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
37.50 YAHOO. After the tulipomania. 2005. 476
37.51 YAHOO. 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

595
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.
596 Glossary
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


d
trading.
596 Glossary
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.
A VERAGES—See Dow–Jones Industrial Averages, Moving Averages, Dow–Jones
Transportation Averages, and Dow–Jones Utility Averages.
A VERAGING 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
597Glossary
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.
598 Glossary
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 plott


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 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.)
599Glossary
BOOK V ALUE—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.)
600 Glossary
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 “


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.)
600 Glossary
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 A VERAGE—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
601Glossary
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
602 Glossary
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


ntal) 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 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.
603Glossary
DOUBLE TRENDLINE—When two relatively close Parallel Trendlines are needed to define
the true trend pattern. (See also Trendline.)
DOW–JONES INDUSTRIAL A VERAGE—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 A VERAGE—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 A VERAGE—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
604 Glossary
often within two to five days, which helps to distinguish them from Runaway Gaps, which
are not usually covered for a considerable


he 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
604 Glossary
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 A VERAGE 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.
605Glossary
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 ne


s 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
patterns. The breakout in a Top can be on low volume. The breakout in a Bottom must show
606 Glossary
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.)
HEA VY 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 A VERAGE—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.
607Glossary
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 a


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
608 Glossary
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
609Glossary
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 A VERAGE—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 A VERAGE 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 val


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 avoided with additional interpretation.
MOVING A VERAGE CROSSOVERS—The point at which the various Moving Average
Lines pass through or over each other.
610 Glossary
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
611Glossary
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


elerates 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.)
612 Glossary
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 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 A VERAGE—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.
613Glossary
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 S tock 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.
614 Glossary
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 BOTTO


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 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.
615Glossary
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
616 Glossary
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 powerf