isk reports of Delphic Options Research as implemented forStandard & Poor's trading systems and Prudential Securities to give the reader an appreciation of
the depth and complexity of professional thinking about risk and portfolio analysis. The originals ofthese reports were designed by Blair Hull and Lester Loops for their own use in market making.
PORTFOLIO RISK ANALYSIS (.30 Filename)
*TOT -6900
-559 -7459 47,165
-63,9444 -141,969 93,000
166 24,7470 100.0
OMS+ .30 PORTFOLIO RISK ANALYSIS 3/24/87 10:55:28
--STOCK-- ----DELTAS
SYMPOSOPTIONTOTALPROFITBETA$BETA $DELTA $GAMMA$THETA$RISK%RISK
FDX2800-3063-26316,7341.60-32,081-7017158,136-121 18,0757.3
GE3200-3089110 12,632.95 11,3742993120,104-16 13,0005.3
HWP-62005682 -51782701.20-45,959-13,404-522,208734 56,61722.9
LIT-67000 -67000 1.40-56,9834-122,1070 0 122,10749.3
NSM3600-4080-48010,411 1.45-21,076-7267150,464-169 17,4367.0
XRX-36003991 391 -882 1.0518,1324835186,506-260 20,2328.2
AVERAGE VOLATILITY: .338
EQUIVALENT MARKET EQUITY: -419613.40
PORTFOLIO PROFIT RATIO: .191
PORTFOLIO PROFIT GAMMA RATIO: 4.815
Diagram B.2 Risk analysis.
$GAM = An annualized risk figure based on curvature of the position. A positive $Gamma indicates abackspread, and a negative $Gamma indicates a vertical position: $Gamma = Total
Gamma x (Stock Price x Volatility);
$THETA = Theoretical dollar amount a position will gain or lose in one day if the stock price remainsunchanged;
$RISK = The annualized standard deviation of the position based upon a composite of $Delta and$Gamma;
%RISK = Percent of portfolio risk in each position;
TOT = Totals for each of the above categories;
AVERAGE VOLATILITY = Average volatility for the stocks;
EQUIVALENT MARKET EQUITY = Sum of each of the stock prices multiplied by their total deltas;PORTFOLIO PROFIT RATIO = Total portfolio profit divided by the total portfolio risk; PORTFOLIOPROFIT GAMMA RATIO = Total portfolio profit divided by the portfolio $Gamma squared.
Key: portfolio profit report. The Portfolio Profit Analysis screen summarizes delta, profit, and severalmeasures of profit for a portfolio of user-specified stocks and options.
The screen displays:
STOCK SYM = The stock symbol;
STOCK POS = Stock position, or number of shares owned;
DELTAS OPTION = Total delta of the option position;
DELTAS TOTAL = Sum of the stock deltas and option deltas;
M TO M = Mark to market: Total value of stock and options positions based upon market prices;
PROFIT TOTAL = Total theoretical profit for each position;
PROFIT/DAY = Theoretical profit divided by the number of days to expiration; PROFIT/RISK = Ratio oftheoretical profit to risk;
PROFIT/DY/RISK = Ratio of theoretical profit per day to risk;
PORTFOLIO PROFIT ANALYSIS (.31 Filename )
OMS+.31 PORTFOLIO PROFIT ANALYSIS 3/24/87 10:55:28
--STOCK— ----DELTAS ---------PROFIT--------- $ $ %
SYMPOSOPTIONTOTALM TO MTOTAL/DAY/RISK/DY/RISKTHETARISKRISK
FDX2800-3063-26342,316216,734213.93 4.31 -12118,0757.3
GE 3200-3089110 704,00612,632107.97 3.01 .16 13,0005.3
HWP-62005682 -51753,7878270150.15 .97 734 56,61722.9
LIT-67000 -6700-407,0250 0 .00 .00 0 122,10749.3
NSM3600-4080-480157,29310,411 105.60 2.21 -169174367.0
XRX-36003991 391 -4431-882-18-.04-.34 -26020,2328.2
*TOT-6900-559 -7459926,79247,165557.19 .00 166 247,470100.0
AVERAGE VOLATILITY: .338
EQUIVALENT MARKET EQUITY: -419613.40
PORTFOLIO PROFIT RATIO: .191
PORTFOLIO PROFIT GAMMA RATIO: 4.815
Diagram B.3 Profit analysis.
$THETA = Theoretical dollar amount a position will gain or lose in one day if the stock price remainsunchanged;
$RISK = The annualized standard deviation of the position based upon a composite of $Delta and$Gamma;
%RISK = Percent of portfolio risk in each position;
TOT = Totals for each of the above categories;
AVERAGE VOLATILITY = Average volatility for the stocks;
EQUIVALENT MARKET EQUITY = Sum of each of the stock prices multiplied by their total deltas;
PORTFOLIO PROFIT RATIO = Total portfolio profit divided by the total portfolio risk;
PORTFOLIO PROFIT GAMMA RATIO = Total portfolio profit divided by the portfolio $Gammasquared.
Section 7: Software packages and internet technical analysis sites
The first cavemen, fighting over resources, used teeth and claws. The nature of warfare was changedforever when one of the smarter ones picked up a tree branch. Then another smart one discovered theprinciple of artillery and picked up a rock. Naive and arrogant traders laughed at Wyckoff's charts. Marketmakers on the Pacific Coast Options Exchange sniggered at Blair Hull when he started appearing on thefloor with printouts. In the days of the wooden racquet, squash players hated the arrivistes who appearedwith metal and then composite racquets.
No longer—the last to adopt the new weapons is a dead man. Charts showed their power and so did Hull'swonky printouts made with the Black Scholes Model. The losers figured out pretty quickly they needednew weapons. With that dissertation on the epistemology of warfare, I present some of my favoriteweapons in the following software and internet sites. No attempt whatsoever is made to be comprehensiveor encyclopedic. On the contrary, idiosyncrasy is my operating method and no disfavor is implied to thosenot included here.
For myself, three desktop software packages are powerful and sufficient for all the needs of a technicalanalyst: AIQ Trading Expert Pro (http://www.aiqsystems.com), Metastock 9.0 (http://www.equis.com),and TradeStation 2000i and later versions (http:// www.tradestation.com). The reader will find examplesof charts sprinkled throughout this book, supplementing the beautiful hand-drawn charts of Magee. Allthese packages have the basic requirements necessary for technical chart analysis, basic charting onreadily available data and portfolio. I have said before that all the chart analyst really needs is the abilityto draw lines on a chart ... and then perhaps to see the chart as a line chart, or a candlestick chart or ... andso on and so on. The analyst is soon seduced by the dazzl


harts of Magee. Allthese packages have the basic requirements necessary for technical chart analysis, basic charting onreadily available data and portfolio. I have said before that all the chart analyst really needs is the abilityto draw lines on a chart ... and then perhaps to see the chart as a line chart, or a candlestick chart or ... andso on and so on. The analyst is soon seduced by the dazzling features, and the analysis is enriched andmade more powerful. Even if one says (as I do), when he looks at an oversold tool, “What do I need thatfor? I saw it on the bar chart.” The analyst finds himself wanting to know more about %R. If it worked forLarry Williams, there must be something in it.
AIQ: TRADING EXPERT PRO
AIQ's package includes an on-screen control panel and scrolling indicator boxes that are color-coded, andthis information is synthesized in an indicator barometer. Data management is smooth and easy, and theuser may use a system module to create and test his own trading ideas. A panoply of reports is available toaid the investor. For the trader, real-time alerts are a feature. A portfolio manager module aids the investorin managing not just the portfolio, but also his positions by making stop management facile. An ExpertGuru lurks behind the curtain to aid the user in analyzing situations.
METASTOCK 9.0
Metastock 9.0 boasts an impressive array of tools and indicators. “System Experts” pop up on demandand can also guide the user through systems tests and explorations. The Experts can also suggest buys andsells. A point and figure toolbox is a valuable feature. The ability to create and test trading systems, withexhaustive and critical data analysis, is a powerful tool. Metastock adapts easily to add-ons, of whichSlauson's Powerstrike (the quantitative tool for finding critical Support-Resistance zones) is a goodexample.
Tradestation 2000i and Tradestation 8
Tradestation 2000i is the standalone version of Tradestation 8. Tradestation 8 is a real-time onlinepackage that allows for trading through the Tradestation brokerage affiliate. The package is so powerfulthat online professional and semiprofessional users probably benefit by combining their softwarearrangement with a brokerage arrangement. 2000i requires the user to maintain his local database,whereas Tradestation 8 always has the data on demand. For the creatively lazy (among them the editor)this is an attractive feature. Systems building and testing has always been and remains a powerful featureof Tradestation. With “EasyLanguage,” the user may specify virtually any system and then chat about itwith the Tradestation community of traders. This community has contributed to a large database oftrading systems and ideas.
The Internet: prophet (http://www.thinkorswim.com)
For the even lazier and more casual investor, there is http://www.prophet.net (now at thinkorswim.com),an internet technical analysis site whose free features will fulfill the needs of the general charting investor.
With powerful interactive charts and portfolio reporting, the penurious investor will save many pennies athttp://www.prophet.net. As Mark Twain said, a penny saved is a penny earned. Actually, what did BenFranklin mean by a penny saved is capital when put to work? A user community and sharing are otherattractions. And no local data maintenance is necessary. Among its most valuable features,http://www.prophet.net occasionally distributes market commentary and analysis by this editor. All in all,http://www.prophet.net appears to deserve the continuing awards it has received from Barron's andForbes, as well as Technical Analysis magazine. Prophet charting is now available to customers ofhttp://www.tdameritrade.com.
The Internet: http://www.stockcharts.com
Of similar quality, and similarly honored by Forbes and Technical Analysis magazine, http://www.stockcharts.com has an additional valuable feature: point and figure (P&F) charting. I have notremarked on P&F charting here, but it is an important technical method, especially for the patientinvestor. All the other features are available at http://www.stockcharts.com, including candlesticks, barcharts, and others. Also, the distinguished analyst John Murphy makes his electronic home there. There isalso a “Voyeur” feature that allows the user to see what other traders are doing.
A brief summary
Knowledge is power. Knowing where to find knowledge is even more powerful. The inquiring investorcan keep himself up to date on these sites through the yearly evaluations in Barron's and Forbes, and thefinancial press regularly updates its evaluations of Internet resources.
Section 8: The Leverage Space Portfolio Model
No less than John Bollinger called Ralph Vince's Handbook of Portfolio Mathematics, the most importantwork on the subject. Mr. Vince has done the readers of this book, and me, the very great favor ofdescribing his work in a short article I present here verbatim.
In 1884, Charles H. Dow began his compilation of what would become known as the Dow Jones Indexes.Theories pertaining to non-confirmation of these indices, known as “Dow Theory,” would become thecornerstone of modern Technical Analysis.
It is fitting then, with Dow Jones Indexes having embraced the concepts expressed herein with thecommercial offerings of The Dow Jones LSP indexes in 2011, this explanation of Optimal f and theresultant Leverage Space Portfolio Model be included in this the foundational text on modern TechnicalAnalysis.
Let us consider a case of a simple trade with two possible outcomes. In one of the outcomes, we win 2units, and in the alternative outcome, we lose 1 unit. We can construct a spectrum ranging between avalue 0, where we risk nothing, and 1, where we risk our entire equity. We will consider this valuebetween 0 and 1 as the fraction (f) of our stake at risk, and we will refer to this interchangeably as ourleverage. Thus, on any given trade or over any given period, we are risking some fraction of our stake,and thu

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


he alternative outcome, we lose 1 unit. We can construct a spectrum ranging between avalue 0, where we risk nothing, and 1, where we risk our entire equity. We will consider this valuebetween 0 and 1 as the fraction (f) of our stake at risk, and we will refer to this interchangeably as ourleverage. Thus, on any given trade or over any given period, we are risking some fraction of our stake,and thus for any given trade or over any given period, we have a value, f, assigned to us whether we areaware of it or not.
If we consider over this hypothetical, simplistic 2-outcome, 2-1 trading situation (similar to if it were thetwo outcomes of a coin toss) we could plot what we would expect to make on our trading equity(expressed as a multiple of our initial equity) over one play at various values for f as depicted in DiagramB.4.
Diagram B.4 Expected Multiple of Starting Stake in a Single 2:1 Coin Toss.
Diagram B.5 Expected Multiple of Starting Stake after Forty Tosses in a 2:1 Coin Toss.
When there is more than 1 trade or period and what we have left to invest in the immediate play or periodis a function of what we have made or lost up to this period, the straight line becomes curved, and thepeak of the curve settles into a fixed point, migrating in from 1.0 off to the right where a positiveexpectation trade or period is growth-maximized over 1 trade or period. Thus, after many trades orperiods, it settles in to a given location, and for the simplistic case of a coin toss that pays 2-1, that peakwill settle in at .25 as depicted in Diagram B.5.
The height of the curve for any given value for f is given by the formula for Optimal f, determined as:
t1
multiple = 1 + f *| py |
'( P)
* *
\( Pn )'
number_of_expected_plays_or_trades
Thus, for n trades or periods, for a given value of f, we can determine the multiple made on our stake withsimply the outcome of each trade or period (t), probability of that outcome (p), and the worst-caseoutcome (w), the lowest of all the values for t. We raise the resultant product to the power of howevermany plays we want to determine our expected growth, obtaining the multiple on our initial tradableequity at that many trades or periods.
This represents what you would expect to make as a multiple on your starting stake for risking a givenfraction, f, of your stake.
Notice this is not the same as what is known as The Kelly Criterion, which gives a peak as a “leveragefactor,” a value between 0 and infinity representing how much to lever up one's account, rather than
a fraction (a value between 0 and 1) of an account to risk as expressed by the Optimal f formula. Undercertain conditions the two will give an equivalent value for the peak, for example, the leverage factor willequal the optimal fraction to risk, as in the 2:1 coin toss example herein, but often not, and it can be aperilous mistake to assume that the answer given by The Kelly Criterion is an optimal fraction of accountequity to risk to be expected growth optimal. The Kelly Criterion never yields a peak whose value is theexpected growth optimal fraction of an account to risk, but rather always yields the expected growthoptimal leverage factor. The two can be translated between one another, but the real benefit of theOptimal f formula is it gives us the height to this curve, expressed as an expected multiple made (or lost)on our initial equity (which is not provided by the Kelly Criterion), from which we can derive a field ofstudy.
For example, there is a point left of the peak where the curve goes from concave up to concave down.Given the vertical axis is the expected growth multiple and the horizontal axis is the risk, we can state thispoint of inflection represents that point where marginal increase in growth is occurring faster thanmarginal increases in risk, and this flips at the point of inflection.
Consider the height of the curve at both f = .l and f = .4 as equivalent yet the latter is risking four times asmuch! Clearly, there is never any reason to be beyond the peak of the curve to the right.
We have spoken that you are on this curve, somewhere, whenever you have a position in the markets,whether you acknowledge this or not. Note the point in Figure 2 where f = .5, where the multiple = 1.0. Torisk any more than this is to see a multiple less than 1.0, and therefore the more one continues to trade atthis level, multiplying his initial equity by a number less than 1, the more one insures he will go broke.
Most importantly, this is a situation created without borrowing anything at all—it occurs in a cashaccount! This is a situation created wherein one would have on one unit risked for every 2 units in equity,a situation that clearly requires no borrowing whatsoever, and yet, to continue at that level of “leverage”under these (very favorable) conditions, one will go broke with certainty as he continues to trade.
When more than one trade or play occurs simultaneously in various markets or approaches, the curvedisplayed in Figure 2 (which is a curve in 2D space since we are looking at one component), manifests inN + 1 dimensional space for N components traded simultaneously. If we consider a case of trading two ofthese issues simultaneously, of wagering on two 2:1 coin toss games simultaneously, we find ourselves inan N + 1 dimensional manifold (in this case, 2 + 1 = 3 dimensional manifold) space as depicted inDiagram B.6.
This N + 1 dimensional space is referred to as “Leverage Space,” and portfolios derived therefrom as“Leverage Space Portfolios” (“LSP” portfolios). LSP-style portfolio construction grants us insights
unavailable by more conventional portfolio constructs. For example, in Figure 3, we find the peak of thecurve at the f coordinates for both
f C o in 2
.50
f C o in 1
Diagram B.6 Expected Multiple of Starting Stake after Twenty Tosses in Two Simultaneously Played 2:1Coin Toss Games.
games at.23, .23. Yet, notice what happens if we are off on only one axis; we can be at, say .23, .6, and wefin


ights
unavailable by more conventional portfolio constructs. For example, in Figure 3, we find the peak of thecurve at the f coordinates for both
f C o in 2
.50
f C o in 1
Diagram B.6 Expected Multiple of Starting Stake after Twenty Tosses in Two Simultaneously Played 2:1Coin Toss Games.
games at.23, .23. Yet, notice what happens if we are off on only one axis; we can be at, say .23, .6, and wefind our multiple, the height of the graph at these coordinates, to be less than 1. Thus, even though we areoff on only one component in the portfolio (and still not borrowing money to assume any positions) weinsure we will go broke as we continue to trade. The notion of diversification as one of meliorating risk isclearly challenged in an LSP-style portfolio, and this is not at all evident by more traditional perspectiveson portfolio construction.
Not only are we ineluctably in leverage space when we put on one or more positions in the markets, butwe are also very likely moving through leverage space with changes in our equity and the markets, payingthe price and reaping the consequences for the various points we traverse through the surface of leveragespace.
Thus, various paths can be constructed algorithmically through leverage space to achieve different criteriathan the conventional criterion of maximizing expected return to expected variance, or even that ofmaximizing expected growth (which would be to reside at the peak in the surface). With a path throughleverage space in an LSP-style portfolio, a path through the surface of expected growth as a multiple ofour starting stake, we are now able to seek solutions to any investment criteria.
Appendix C: Technical Analysis beyond Edwards& Magee
• Section 1: A brief general survey of number driven tools
• Section 2: The creative technician—the work of Richard Arms
• Section 3: The Point and Figure method by an eminent analyst, Mike Moody
• Section 4: One of the most famous of technical routines—Bollinger Bands
Section 1: A brief general survey of number driven tools
Here is something to contemplate: A listing of technical analysis tools.
Technical Overlays
1. Bollinger Bands: A chart overlay showing the upper and lower limits of “normal” price movementsbased on the Standard Deviation of prices 2. Chandelier Exit: An indicator used to set trailing stop-lossesfor both long and short position 3. Ichimoku Cloud: A comprehensive indicator defining support andresistance, identifies trend direction, gauges momentum and provides trading signals
4. Kaufman's Adaptive Moving Average (KAMA): A unique moving average that accounts forvolatility and automatically adjusts to price behavior
5. Keltner Channels: A chart overlay showing upper and lower limits for price movements based on theAverage True Range of prices 6. Moving Averages: Chart overlays showing the “average” value overtime. Both Simple Moving Averages (SMAs) and Exponential Moving Averages (EMAs) are explained 7.Moving Average Envelopes: A chart overlay consisting of a channel formed from simple movingaverages 8. Parabolic SAR: A chart overlay showing reversal points below prices in an uptrend andabove prices in a downtrend 9. Pivot Points: A chart overlay showing reversal points below prices in anuptrend and above prices in a downtrend 10. Price Channels: A chart overlay showing a channel madefrom the highest high and lowest low for a given period of time 11. Volume by Price: A chart overlaywith a horizontal histogram showing the amount of activity at various price levels
12. Volume-Weighted Average Price (VWAP): An intraday indicator based on total dollar value ofall trades for the current day divided by the total trading volume for the current day
13. ZigZag: A chart overlay showing filtered price movements greater than a given percentage
Technical Indicators
1. Accumulation/Distribution Line: Combines price and volume to show how money may beflowing into or out of a stock
2. Aroon: Uses Aroon Up and Aroon Down to determine whether a stock is trending or not
3. Aroon Oscillator: Measures the difference between Aroon Up and Aroon Down 4. AverageDirectional Index (ADX): Shows whether a stock is trending or oscillating
5. Average True Range (ATR): Measures a stock's volatility
6. Bandwidth: Shows the percentage difference between the upper and lower Bollinger Band
7. %B Indicator: Shows the relationship between price and standard deviation Bollinger Bands 8.Chaikin Money Flow (CMF): Combines price and volume to show how money may be flowing into orout of a stock Alternative to Accumulation/Distribution Line 9. Chaikin Oscillator: Combines price andvolume to show how money may be flowing into or out of a stock. Based on Accumulation/DistributionLine 10. Chande Trend Meter (CTM): Scores the strength of a stock's trend, based on several technicalindicators over six different timeframes 11. Commodity Channel Index (CCI): Shows a stock's variationfrom its “typical” price 12. Coppock Curve: An oscillator using rate-of-change and a weighted movingaverage to measure momentum 13. Correlation Coefficient: Shows the degree of correlation betweentwo securities over a given timeframe
14. DecisionPoint Price Momentum Oscillator (PMO): An advanced momentum indicator trackinga stock's rate of change
15. Detrended Price Oscillator (DPO): A price oscillator using a displaced moving average toidentify cycles
16. Ease of Movement (EMV): An indicator comparing volume and price to identify significantmoves
17. Force Index: A simple price-and-volume oscillator
18. Mass Index: An indicator identifying reversals when the price range widens 19. MACD (MovingAverage Convergence/Divergence Oscillator): A momentum oscillator based on the difference betweentwo EMAs 20. MACD Histogram: A momentum oscillator showing the difference between MACD andits signal line 21. Money Flow Index (MFI): A volume-weighted version of RSI showing shifts is buyingand selling pressure 22. Negative Volume Index (NVI): A cumulative volume-based indicat


e widens 19. MACD (MovingAverage Convergence/Divergence Oscillator): A momentum oscillator based on the difference betweentwo EMAs 20. MACD Histogram: A momentum oscillator showing the difference between MACD andits signal line 21. Money Flow Index (MFI): A volume-weighted version of RSI showing shifts is buyingand selling pressure 22. Negative Volume Index (NVI): A cumulative volume-based indicator used toidentify trend reversals 23. On Balance Volume (OBV): Combines price and volume in a very simpleway to show how money may be flowing into or out of a stock
24. Percentage Price Oscillator (PPO): A percentage-based version of the MACD indicator
25. Percentage Volume Oscillator (PVO): The PPO indicator applied to volume instead of price
26. Price Relative/Relative Strength: Technical indicator comparing the performance of two stocksto each other by dividing their price data
27. Pring's Know Sure Thing (KST): A momentum oscillator from Martin
Pring based on the smoothed rate-of-change for four different timeframes 28. Pring's Special K: Amomentum indicator from Martin Pring combining short-term, intermediate and long-term velocity 29.Rate of Change (ROC) and Momentum: Shows the speed at which a stock's price is changing 30.Relative Strength Index (RSI): Shows how strongly a stock is moving in its current direction 31. RRGRelative Strength: Uses RS-Ratio to measure relative performance and RS-Momentum to measure themomentum of relative performance
32. StockCharts Technical Rank (SCTR): Our relative ranking system based on a stock's technicalstrength
33. Slope: Measures the rise-over-run for a linear regression
34. Standard Deviation (Volatility): A statistical measure of a stock's volatility
35. Stochastic Oscillator (Fast, Slow, and Full): Shows how a stock's price is doing relative to pastmovements. Fast, Slow and Full Stochastics are explained
36. StochRSI: Combines Stochastics with the RSI indicator to help you see RSI changes moreclearly
37. TRIX: A triple-smoothed moving average of price movements
38. True Strength Index: An indicator measuring trend direction and identifying overbought/oversoldlevels 39. Ulcer Index: An indicator designed to measure market risk or volatility 40. UltimateOscillator: Combines long-term, mid-term and short-term moving averages into one number 41. VortexIndicator: An indicator designed to identify the start of a new trend and define the current trend 42.Williams %R: Uses Stochastics to determine overbought and oversold levels Outline
This is a list of tools and indicators available at stockcharts.com. Most if not all of these tools are alsoavailable either through software packages (Tradestation, AIQ, Metastock) or online (thinkorswim andothers). I display the list so newcomers to technical analysis get an idea of the plethora of tools available.Also, I display the list so that students see the philosopher's stone nature of building systems to beat themarket. To briefly review, the philosopher's stone is a stone which allows the owner to convert lead togold. In the Middle Ages, it was the subject of much dedicated research. At present, to my knowledge,only George Soros has a philosopher's stone, but it is entirely possible for the dedicated student to find inthe list a tool or method which will allow him to reap rich rewards.
Displaying the list also prompts me to repeat what we have frequently told our graduate students over theyears: You can drive a nail with a screwdriver; so if it works for you it doesn't matter what it looks like. Tothis end I will comment on some, but not all, of the tools listed here—in some cases revealing tools andsystems which, in research, have been fiendishly effective.
Moving averages
Technical Analysis of Stock Trends is often the first book investors read when they become interested inthe technical approach to the market. This is as it should be and also new analysts need to be informed ofthe amazingly varied field of technical analysis. Chart analysis is the cornerstone of technical analysis anda required field of knowledge. If the analyst is more statistically oriented or is looking for an algorithmicmethod he must search through the numerous alternatives in the technical toolbox.
This appendix is intended not to teach the reader the details of operating a moving average or stochasticsroutine, but to place the various technical tools and systems (or methods) in context and in perspective.The first of these tools is the moving average. We personally can testify to the power of these systems,having reaped outsize profits using moving average systems. Note these profits were gained in roaring bullmarkets. In sideways markets trading a moving average can be the equivalent of producing sausage with ameat grinder. Thus, having confidence in the state of the market is an absolute necessity. The effect of amoving average is to smooth raw price behavior and clarify the trend of the market. The bells and whistlesyou can hang on a moving average are like a Christmas tree. You can use the moving average as input to asignal —buying when the price penetrates above the MA line. Using the MA line as a stop, selling whenprices fall below the MA line. Or you can construct a filter—buying or selling when prices pierce the lineby x%. The possible variations are infinite.
As is probably obvious, MA systems are in the main trend following systems. As are virtually all Edwards& Magee methods and systems. The reason for attempting to employ trending systems is, withoutexception, long-term trend following results in larger profits than any other trading method.
In general, the market makes something of a shibboleth of two moving averages—the 50-day and the 200-day. The 50-day is thought by the media and public to be a warning crack in the market and the 200-daypenetration is thought to be a bear market phenomenon. In our trading, we watch the 50 and the 200--daybut we don't use them as signals. We are usually more concerned with patterns and th


g method.
In general, the market makes something of a shibboleth of two moving averages—the 50-day and the 200-day. The 50-day is thought by the media and public to be a warning crack in the market and the 200-daypenetration is thought to be a bear market phenomenon. In our trading, we watch the 50 and the 200--daybut we don't use them as signals. We are usually more concerned with patterns and the character of themarket rather than using these moving averages as signals. Rather, we use them as alerts as to what thepublic is thinking and depend on Basing Point analysis for stops.
Magee's consideration of moving averages is contained in Chapter 36. It is amusing to quote a remark ofhis upon discovering moving averages: "...one could derive a sort of Automated Trendline that woulddefinitely interpret the change of trend. It seemed almost too good to be true. As a matter of fact, it was toogood to be true.”
Personally, we have experienced excellent profitability with moving average systems. While we originallythought this was a sign of genius, with time we realized that the market was the genius and my companywas trading in a roaring bull market—and indeed we were—the monstrous commodity bull markets of the‘70s—the Russian wheat market, the Hunt silver market.. Almost anything, including bonobo monkeysthrowing darts, works in a tidal market.
Nevertheless, a long moving average can keep the investor fully invested for months— if not years. In thecase of the great Bull Market of 2009-2017, it took years, as evident by the chart with a 200-period simplemoving average. (Figure C.1) A number of different types of moving averages are used by technicians:simple, exponential, triangular, variable, and weighted. The distinguishing difference amongst thesemethods is the simple method weights all prices equally. Weighted and exponential routines place a highervalue on the most recent data, enabling more sensitive and rapid reaction. Triangular averages put moreweight in the middle of the time period and variable averages adjust the weighting according to thevolatility of prices.
Does this smack of the philosopher's stone? One thing it should tell the newcomer—and grizzled veteran—is the search for a market beating method is incessant and indefatigable— it never ceases.
Figure C.1 A 200 period moving average on a weekly chart. The investor would never (virtually never)have felt the least anxiety for his position. His confidence in the trend would have been buttressed by theMA line.
Contemplating an exponential versus a simple moving average the difference is probably not worth thetrouble. Trading decisions might be moderately accelerated on trading length systems (-5-15 days for veryshort term; 15-23 days for short term; and 24-50 days for intermediate term; and 100 days and up for longterm. With recent thinking we might add super long term—that is 200 days or even longer weekly basedsystems.) The conventional way to use a moving average system is to go long when price breaks above themoving average and sell when price falls below the moving average. Probably the most usual modificationto these systems is to put a filter on them, for example requiring the penetration of the moving average lineby 1 (or x) % to assure validity. (Cf. Chapter 36, the Pentad system) We think, based on experience, thismay be the most effective way to employ this tool. Sometimes two moving averages are used. Signals arecreated by the interplay of the moving average lines, one moving above or below the other. This is acharacteristic of MACD, which will be discussed later.
Stochastics
The first thing to do when studying stochastics is stop trying to figure what “stochastics” means. Ofcourse, it has a dictionary meaning to be discussed later. Right now, the reader should put aside thequestion of actual meaning and consider what it means in the discipline of technical analysis.
Markets have two basic theoretical (and actual) states: trending or mean reverting. If the market is non-trending, swinging back and forth, up and down, traders need tools to deal with it. If they want to tradeunder these conditions they turn to oscillators. The purpose of the oscillator is to aid in identifying wavebottoms and wave tops. The stochastic algorithm is one of the more popular of these oscillators.
Stochastics establishes a “window” on the market for the analysis of prices. The default value for thiswindow is 14 bars, but different practitioners customize the value for their own use. The price highs andlows within this window are integral to the analysis. The routine establishes a line (called %K) as theessential benchmark or guide of the analysis. A second line is calculated (%D) using a simple movingaverage of %K. This moving average is quite short (3 periods default value) and thus creates a line ofgreat sensitivity. Conventionally these lines are displayed on a scale from 1 to 100. Signals are generatedby values of 20 and 80. The routine buys when the low value is 20 and sells upon a high value of 80. Inshort, selling strength and buying weakness. 20 and 80 refer to where the closing price is relative to thewindow trading range, thus placing price position at 20% or 80% of the range. Other means of generatingsignals are available, to wit the interaction of the two lines, as for example, the %K line falling below orrising above the %D line. (Figure C.2)
As with most tools, the technician can modify the routine to suit his whim.
MACD (Moving Average Convergence/Divergence)
MACD is a trend following momentum indicator that shows the relationship between two movingaverages of price. It is calculated as the difference between a 26 and a 12-day exponential moving average.Gerald Appel, who is reported to be the creator of the routine, placed a 9-day exponential moving averageon top of the MACD as a means of identifying trading signals. Generally, a sell signal occurs whenMACD falls below the signal line and a buy signal when it rises above the si


een two movingaverages of price. It is calculated as the difference between a 26 and a 12-day exponential moving average.Gerald Appel, who is reported to be the creator of the routine, placed a 9-day exponential moving averageon top of the MACD as a means of identifying trading signals. Generally, a sell signal occurs whenMACD falls below the signal line and a buy signal when it rises above the signal line. Trading also occursas MACD goes above and below zero. (Figure C.3) As one can well imagine with 55 indicators (andcounting), there is a tool for every occasion. One must always remember the rule of tools: To a man with ahammer everything looks like a nail. Rather than attempting to explicate every tool, I will restrict myselfto the obvious, after reminding the reader that careless and uneducated use of any tool can seriouslyendanger his capital.
Some other chosen indicators to consider: ADX, a tool which shows whether an issue is trending oroscillating. This tool is easily replaced with a ruler and the naked eye. This is the case with many of theindicators; they have been developed by their inventors to attempt to remove ambiguity from the market—a desire the experienced chart analyst doesn't possess. The chart analyst looks at a chart and most of time itis obvious. If not, it becomes obvious the moment a ruler is laid on it. Another tool which does more orless the same is the Aroon which uses Aroon Up and Aroon Down to determine whether an issue istrending or not. Once again, a question which is painfully obvious at first glance to the chart analyst. Weshould make clear that some intelligent analyst has used each of these tools to wring a profit from the
market. Accumulation /Distribution Line showing how money flows in and out
Figure C.2 Stochastic routine on a gold chart. Obviously interpreting the indicator requires someexperience and discrimination, but this is true of all number driven indicators.
of an issue may be useful to some practitioners, as may Volume by price which shows the amount ofactivity at various price levels. Pivot points—a relatively simple mechanism evidently popular with manytraders can at least give the trader unambiguous trading points.
Which brings us to a central technical and philosophical point: Almost any system is better than nomethod (or system) at all. The problem for the inexperienced trader— or investor—is what system. Thisbook answers that question for most investors and is a good method while the investor refines his ownmethods. We continue to say the trader who invents a system without thorough knowledge of this book isputting life limb and capital at risk. This statement may be a little less true now than in years past—simplybecause so much of this book's material has leaked via osmosis into general investor knowledge—usuallyunconsciously, but often through outright imitation or worse. Not a practice which outrages us, though,sometimes amuses us—but no tears. Also, as we have been in education for many years, we observe thespread of knowledge as something the enlightened and educated do as a responsibility to the communityand humanity.
Point and Figure analysis
Bar chart analysis has so dominated investor usage for so long (partly because of this book) that evenmany experienced analysts have ignored an interesting and valuable method which we will explore brieflyhere. That method is Point and Figure analysis.
$SPX S3P 500 Large Cap Index INOX
© StockCharts com
Figure C.3 MACD on a gold chart. MACD is a popular tool and deemed effective by many traders.Readers can see why from the chart.
544 Appendix C
Said by some to be an invention of Charles Dow, and by others to be created by the Russians, PnF chartinghas shown itself to be surprisingly effective in our experience. When we examine some of itscharacteristics we get an idea why. Bar charts represent price action (open high low close) with a verticalbar with cross hatches for open and close. The x axis represents time, the y, price. PnF ignores time for themost part, though there is a nod to it as we will see.
Several basic decisions are made in the construction of the chart. Since the chart is made up of boxes, thesize of the box must be determined. The analyst chooses a box style appropriate to the duration of thechart. Obviously, if one is dealing with years of data in the INDU the box must be large—50, 100 points.At shorter durations wave analysis would suggest a good size; and at any rate online routines presentreasonably sized charts. In general, one might say larger boxes furnish perspective and smaller boxesfurnish detail.
The other choice the analyst must make is reversal size. The traditional choice here is a three box reversal.Thus, if the box size is 4 and we are in an x column, 12 points down must occur to change to a column of0s and three 0s would be drawn in the next column. And although time is usually ignored, a box is markedwith a month indicator as a column rolls over to a new month.
All these options are subject to change and adjustment by the individual technician. What is more, thereare other varieties of PnF charts—one box reversal, for example, but the basic idea is the same. Using a
variety of methods, one may make forecasts from the chart. Let me emphasize: Treat this method and anyother algorithmic method with caution until you have thoroughly examined it (Figure C.4).
Next for comparison, a bar (Candlestick) chart shows the traditional picture of this period (Figure C.5).
As the reader can see, PnF charting is a fascinating and valuable method. Many investors rely on thismethod alone for their analyses.
As with all of the tools surveyed here no attempt is made to give a definitive exploration of the tool or todescribe the mechanics of its creation. Those details about PnF charts are ably discharged by the booksPoint & Figure Charting by Thomas Dorsey and The Definitive Guide to Point and Figure by Jeremy duPlessis. Later in this appendix Mike Moody will discuss the


thod alone for their analyses.
As with all of the tools surveyed here no attempt is made to give a definitive exploration of the tool or todescribe the mechanics of its creation. Those details about PnF charts are ably discharged by the booksPoint & Figure Charting by Thomas Dorsey and The Definitive Guide to Point and Figure by Jeremy duPlessis. Later in this appendix Mike Moody will discuss the method in a much more sophisticated way.
Section 2: The creative technician—the work of Richard Arms
The Arms Index (TRIN) by Richard Arms
In 1967, when I was still an unknown in Technical Analysis and was working as a stockbroker for a majorNYSE firm, we moved into new modernized offices. Among the improvements were new quote machines,which actually had a tiny screen to display the information. Moreover, the data included some fascinatingnumbers. It was possible to see the number of stocks that were up and the number of stocks that weredown at any time, and even a total of the volume traded on the up stocks and a total of the volume tradedon the down stocks. Looking at this, I began to wonder if it could serve as an indicator, telling us if theratio of up to downs was the same as the ratio of up volume to down volume. If not, deviations fromnormality might show when the buyers or the sellers were more in control. In seconds, the Arms Index, orTRIN, came into being in my mind and then in my research. An article in Barron's was all that was neededand it took on a life of its own.
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Figure C.4 Here from the edwards-magee.com website is a PnF chart from November 2015 which looksfor a target of 2549—this when the S&P was around 2000.
$ S P X S&P 500 Large Cap Index INDX ® StockCharts.com
Appendix C 547
The calculation
With so many sources, such as newspapers, television stations and every quotation service, providing thecalculated index most users will never need to make the calculation themselves. However, in order toappreciate the significance of the index one should be familiar with its derivation. The Formula is:(ADVANCES/DECLINES)
2---------------------- = ArmsIndex
(ADV.VOL./DECL.VOL.)
At any time, we can retrieve the numbers showing how many stocks are up for the day, how many stocksare down for the day, the volume on the advancing stocks and the volume on the declining stocks.Plugging them into the above formula we end up with a single number, the Arms Index for that instant.The above example* (footnote) has produced a somewhat bearish index. An index of 1.00 is a standoff,indicating both the advancing stocks and the declining stock received their fair share of the volume. Avalue over 1.00 is Bearish, indicating the declining stocks are receiving more than their share of thevolume. An index lower than 1.00 is Bullish since the up stocks are receiving more than their fair share ofthe volume. Normally, the index will fluctuate closely around 1.00. We have seen days end with an indexas low as .19 and other days with an index over 10.00, but these were rare occurrences, where the traderswere reacting to extremes in euphoria or fear. Normally, the index will be somewhere between .65 and1.75.
EXAMPLE THE ARMS INDEX: ADVANCES 1024 DECLINES 2030 ADVANCING VOLUME 299,790,000DECLINING VOLUME 786,830,000 1024/2030 =.504 1024/2030 =.504 299790/786830 =.381 .504/.381
= 1.32 .504/.381 = 1.32 (ADVANCES / DECLINES) (ADV. VOL. / DECL. VOL.) (ADV. VOL. / DECL.VOL.) = THE ARMS INDEX (TRIN) EXAMPLE
The reasoning
At any time, the Arms Index is telling us whether the up stocks are getting their share of the volume ornot. If the index is over 1.00 the down stocks are overpowering the up stocks. (Remember, under 1.00 forthe raw number is good, and over 1.00 is bad. It is counter-intuitive, but it is the way the index was firstcalculated, and it's late to try to change it now. If that really bothers you, invert the calculation and it willbe more intuitive, but you will be out of step with everyone else using the index. You will see the index isdealing with comparing two ratios, so it is commonplace to have a market that appears to be Bullishbecause of there being more stocks up than down, but is actually under pressure, in that those up stocksare not getting their share of the volume, and the index is Bearish. Similarly, we can have more stocksdown than up, but have a Bullish index, because the up stocks are getting more than their fair share of thevolume. The Arms Index is measuring the internal dynamics of the market—dynamics that may not beotherwise readily apparent. A Bullish Arms Index in a slumping market may be telling us there isaccumulation going on, under the guise of a down market.
Using the index
The index was originally developed as an intraday timing tool, and it still is valuable in that role. There aretwo things to look at: the actual reading and the way it is changing during the day. The actual level istending to reflect the current conditi


rent. A Bullish Arms Index in a slumping market may be telling us there isaccumulation going on, under the guise of a down market.
Using the index
The index was originally developed as an intraday timing tool, and it still is valuable in that role. There aretwo things to look at: the actual reading and the way it is changing during the day. The actual level istending to reflect the current condition; sometimes a Bullish reading in a declining market or a Bearishreading in a rising market makes the move suspect. More often, the value will be in line with the currentmarket activity, but watch for the big extremes. Not always, of course, but often, the index will go too farin one direction, and suggest the move is overdone. It is reflecting those times when reason is beingabandoned and a blind panic or a feeding frenzy is dominating the trading. A very high or a very low indexcan be a sign it is time to be a contrarian. The other intraday use is watching for change, rather than justthe actual value of the index. Often the index will change direction before a reversal becomes apparent inthe averages. A Bearish index in a Bearish market that suddenly starts to move toward lower (less Bearish)levels may be a warning the market is about to turn up. The same is true bullish numbers that start to gethigher; suggesting a downturn may be developing. Most often, though, the index is now used on a longer-term basis. The most common use is a simple 10-day moving average of the closing daily numbers. Thistends to be a good indicator for market moves lasting a few weeks. For short-term trading, I like the 5-daymoving average. In order to get a feel for longer-term trends, I use a 21-day and a 55-day. The big marketmoves can be recognized by using very big moving averages, such as the 233-day. On each of thefollowing charts, we are looking at simple moving averages of the Arms Index on an inverted scale. Thered line is the index and the black line is the market. Since the scale has been inverted for the index, thelows on the indicator line tend to coincide with low points in the market. Similarly, peaks in the indexcoincide with the market tops. I have chosen different time intervals on each of the charts below since thelonger-term moving averages are used for longer-term predictions. I have not given any hard-and-fastnumerical levels as buy and sell signals because we need to look at the index in the context of the currentmarket. Buy signals in a Bear Market are at more oversold levels than they are in a Bull Market. Extremepeaks and troughs, compared to what has been seen recently, tell when it is time to become a buyer or aseller. These are only a few applications and examples. Not shown are Arms Indices, now available, forNASDAQ and also for a number of foreign markets, in which the index is equally effective. Immenseamounts of work, using many different methods, has been done over the years since the index was firstmade public. Anyone wishing to know more is referred to the various books by Richard W. Arms, Jr.Figure C.6 illustrates the index and shows Equivolume chart for context.
Figure C.6 Notice how on the Equivolume chart the breakaway is accentuated by the wide bars. Thetechnician is constantly in need of accents and alerts like this (cf. also Figure C.7).
Equivolume charting
Introduction
In 1971, with the Arms Index a part of Wall Street methodology, I had become more fascinated by the roleof Volume in the marketplace. I had been spending great deal of time studying an early edition of the bookyou now hold but had also been learning the ideas of Richard Wyckoff; both placed a great deal ofemphasis upon the importance of Volume in evaluating stock movements. As I was driving home fromwork one afternoon, I was thinking about stock charts and volume and suddenly realized there might be abetter way of depicting trading action. What if we could substitute volume for time on our charts? Wecould depict each day as a rectangle rather than the traditional line on a bar chart. The width of the boxwould represent the volume for that day. Unbeknownst to me, I was reinventing a method suggesteddecades earlier, but not widely popularized. I decided to call my new approach Equivolume (cf. FiguresC.7 and C.11).
Figure C.7 Once again the wide volume indicating bars alert the technician to an important surge in themarket.
The technique
In the days before the proliferation of computers, implementing the concept of Equivolume was far fromeasy. In order to lift the volume from the bottom of the chart and insert it in the posting, a scale for eachstock had to be devised based upon its normal trading. That scale could change if the stocks went into aphase of much heavier or lighter trading. I will not go into the calculations I used at the beginning, but itseemed to work. I hired a lady to draw dozens of charts for me and proceeded to learn to read what theysaid; this led to my first book. Later, each new advancement justified another book. Once people a lotsmarter than me figured out how to let a computer do the work, it became a lot easier. Now, one can getEquivolume charts on most major charting services, so there is really no need to wonder about the scaling.Suffice it to say, the rectangles on any chart are proportional to one another in reflecting the volume.
The result
An Equivolume chart does not in any way change the high and low on each entry, but when combinedwith the volume it becomes a box, the shape and size of which reflects supply and demand for that tradingperiod. All the techniques popularized by the masters who first published this book are valid when usedwith Equivolume charts.
However, for example, trendlines tend to be broken earlier if volume becomes heavier, and breakouts aremore noticeable if volume increases, thereby legitimizing them, as are levels of support and resistance.Equivolume uses all the same data, but just gives us a different picture, which includes all the data in asingle ent


ers who first published this book are valid when usedwith Equivolume charts.
However, for example, trendlines tend to be broken earlier if volume becomes heavier, and breakouts aremore noticeable if volume increases, thereby legitimizing them, as are levels of support and resistance.Equivolume uses all the same data, but just gives us a different picture, which includes all the data in asingle entry. Below are two charts: a bar chart and an Equivolume chart of the same stock over the sametime period. This is three months of trading in General Electric (Figure C.8).
The chart below is posted on a weekly basis (Figure C.9).
Conclusion
Equivolume represented a far better way of looking at market action because each entry told a morecomprehensive story. The shape of the box indicated how easy or hard it was for prices to move while thesize of each box showed the interest intensity. It was a method that could be used for any investmentproduct, as long as both price movement and volume numbers were available. It has become a completemethodology and is readily available on a plethora of data services.
Arms CandleVolume charting
After the introduction and wide adoption of Equivolume, the next logical step was to combine theEquivolume concept with the Japanese method known as Candlesticks. Yet, I was slow to do this becauseone or more of the major charting services had already included a partial joining of the two techniques,calling it CandleVolume, but doing it in such a way some of the visual advantages of Equivolume werelost in the process. Yet, if I did the combination of the methods in my way, completely merging the twotechniques, I found it could be another great advance in the way we looked at charts. Clumsily doubleprinting of charts, I was able to work on it and found the results to be very helpful, and since the nameCandleVolume was already taken, I started calling it Arms CandleVolume. Then, after my first speech onthe approach, to the International Federation of Technical Analysts in San Francisco a few years ago, theproblem was solved. Within minutes of completing the speech the President of Stockcharts.com, who hadbeen in the audience, showed me he had quickly adapted their software for the new technique and, withmy approval, would immediately include it in their service, which they did. The illustrations in this articleare from that source.
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Figure C.8 This is three months of trading in General Electric illustrating two different but complimentarypictures of the market. By dragging the volume off the bottom margin and including it in the price wehave made it apparent all days are not equal in importance. Moreover, the concept of eliminating time as amarket measurement led, in later studies and books, to the development of Volume Cyclicality, Ease ofMovement and of Volume Adjusted moving averages. It had become apparent the market is a volumefunction. If nothing trades, nothing happens; The more trading, the more importance.
Figure C.9 Vividly illustrating the usefulness of the Equivolume chart like signposts on a battlefield: Lotsof fighting here.
The advantages
Although the open and the close appear on some versions of bar charts, the Equivolume methodology hadignored them. The Candlestick charts did contain the opens and closes; in fact, they emphasized them. Itled to different and fascinating visual patterns using the ancient methods from their origin given
imaginative and memorable names. I have, in order to distinguish the new methods and to emphasizeadding volume changes the meanings very often, tended to use my own nomenclature. The Japanesemethods are wonderful, but the volume adds a new dimension. As one starts to use this technique itbecomes ever more apparent the open and close levels, added to high and low and volume, are providing apowerful additional tool.
The technique
All we have done is to place the Candlestick inside the Equivolume box. However, there is a vertical linethrough the box, the wick, and there are two horizontal lines across the box, the open and the close. Aboveand below these lines are the legs. If the open is lower than the close the body of the posting with be blackand if it is higher the body will be red. If color is not available, the body can be filled or unfilled. Belowwe see a comparison of the three techniques: Bar chart, Equivolume chart, and Arms CandleVolume chart.They are all daily postings of Newmont Mining over the same three-month period (Figure C.10).
To delve into the interpretation is beyond the scope of this article, but it is clear, I think that each day, eachposting, tells us a concise story of supply and demand; of conflicting pressure of buyers and sellers. Boxsizes tell us of overall enthusiasm while box shapes tell us how easy or hard it is for price movement tooccur. Moreover, the difference between the open and the close tell us whether prices are stalled ormoving. Box shape, size, volume and Candle body size all present a picture of ease or difficulty ofmovement.
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Figure C.10 Notice the increasing analysis of information that occurs from one method to the nextmoving from conventional bar chart through Equivolume to Candlevolume.
Figure C.11 Notice the increase in information as we move to the newer technique. Candlevolumecombines virtues of Equivolume and Candlestick charts.
Point & Figure technical analysis by Mike Moody
Like most technical analysts, my exposure to charts came initially from bar charts. I started as a naivestockbroker, hoping to understand markets to help my clients make money. I soon learned the “accountexecutive” position was—from the faulty point of view of the brokerage firm—primarily a sales job. I
quickly learned to use bar charts as a form of selfdefense from the firm's research department. The chartscould be used to examine the position of any security the firm's research department was recommending,in the often vain hope the recommendation and the chart were in synch.
I found the bar charts most commonly in use had a limited perspective, usually only about a year of pricedata. Soon I was taking an additional charting service that used weekly bar charts—including a relativestrength line as well.
My quest for perspective ended when I was introduced to the Point and Figure chart. I think it is anextraordinarily flexible and useful complement to bar charts because of the perspective it can supply.Analysts like Richard Wyckoff used both bar charts and Point and Figure charts in tandem because of theirdifferent features and strengths.
Point and Figure charts are now fairly rare, which is unfortunate. Novices often do not understand whatthey are looking at or how a Point and Figure chart is constructed.
I've included a simple example chart below (Figure C.12).
This chart is an example of a traditionally scaled 3-box reversal Point and Figure chart. The chart stylewas popularized by Abe Cohen of Chartcraft. The price scale is on the left. (You can see that price boxesbelow $20 are smaller than price boxes from $21 to $100. This is a clever, pre-computer attempt to adjustto a more logarithmic scale.) Columns of Xs denote rising prices and columns of Os indicate fallingprices. The small numbers embedded in the chart indicate the month a security first printed that price. (1-9for January through September, and A-C for October through December—another elegant early solution tofit a time identifier in a single-width box.) The perspective is obvious, as this chart covers well over adecade. However, for a technical analyst used to bar charts, two things stick out. First, there is no timescale; years where a lot happened are wide because many reversals occurred. Years where the stock wasquiet are represented by far fewer columns. Second, it is not immediately obvious how a 3-box reversalchart is constructed; it's simple but requires a short explanation.
A 3-box reversal chart is designed to filter out any price movements less than 3 boxes, whatever that maybe on the chart. With a 3-box reversal chart, there will never be a column that consists of less than 3 boxes.The general rule will hold—the minimum column depth will be a function of the reversal value used.
Let's pick up the chart in 2012, as it first reversed upward to $34 in September. There is a simple flowchart logic to plotting a Point and Figure chart.
1. If you are rising in a column of Xs, first look to see if a new price high was made. If yes, put a newX in the column.
2. If no new high was made, check to see if a 3-box reversal down occurred. If yes, put in a newcolumn of 3 Os.
3. If no new price high was made or no reversal down was made, do nothing.
It's the “do nothing” that is different because time can pass with no adjustment made to the chart. Thechart is a record of pure price movement.
By November 2012, General Mills had printed $35—without ever reversing down 3 boxes or more. InJanuary 2013, the price hit $36. February 2013 was a good month—the
Scaling: Traditional [Reversal: 3]
(c) StockCharts.com
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price hit $37 and continued to $40. $41 was reached in March, and $42 and $43 in April. May 2013 sawthe first 3-box reversal, from a peak price of $44 to the minimum reversal level of $41.
Key to the value of Point and Figure charts is their flexibility. Many early practitioners of Point and Figureused single-box reversal charts calculated with intraday data. This style of chart looks more similar to abar chart, but actually captures volatility particularly well because of the use of intraday data. With a barchart, each day might be a single bar, but during a particularly volatile period for the market or for anindividual stock, a single-box reversal chart can put in many, many columns.
Like a bar chart, price targets with a Point and Figure chart are usually estimated from the width of thebase—and during a particularly volatile period like 1987 or 2008 many, many reversals can occur in asingle day! Alan Shaw, formerly the chief market technician at Smith Barney, believed that intraday,single-box reversal point & figure charts were the premier


chart can put in many, many columns.
Like a bar chart, price targets with a Point and Figure chart are usually estimated from the width of thebase—and during a particularly volatile period like 1987 or 2008 many, many reversals can occur in asingle day! Alan Shaw, formerly the chief market technician at Smith Barney, believed that intraday,single-box reversal point & figure charts were the premier way to estimate price moves from a base. As aguide to this type of chart, Alan always recommended Alexander Wheelan's Study Helps in Point andFigure Technique. On more than one occasion, this knowledge allowed Alan to estimate large price moveswhen the base on a bar chart was narrow.
The computer age has improved Point and Figure charting immeasurably. The computer has no troublecreating true logarithmic charts. Here is the same chart of General Mills, this time using a 2% box and a 3-box reversal. Also shown is the traditional 45-degree trendline, drawn from prominent highs or lows.(Figure C.13) Percentage charts are, I think, significantly clearer. There is no reason not to use them nowsince they can be so easily generated. (All of the charts here are courtesy of StockCharts.com.) Detail canbe added by shrinking the box size; greater perspective can be achieved with a larger box size.
It seems simple but changing the box size or reversal value allows the Point and Figure chart to be adaptedto any time frame, from scalping to swing trading to infinity.
The chart below, using a 1% box size with a 3-box reversal shows a clear breakout from a downtrend thatis not visible at the same price on a chart with a larger scale. (Figure C.14)
Moving averages can also be helpful on Point and Figure charts to help determine trend. The differencewith a Point and Figure chart is that the moving average is a moving average of the center point of acertain number of columns.
The chart below simply replaces the 45-degree trendline with a 10-column moving average. (Figure C.15)Trend is critically important, but as my career developed into money management, it became importantalso to measure the power and durability of the trend. The Chartcraft service had, for years, calculated arelative strength ratio (stock price divided by index price), adjusted the decimal points to make itchartable, and then plotted it on a traditional 3-box reversal chart. At Dorsey Wright, we changed theserelative strength charts to percentage charts and gained vast additional perspective.
The chart below, of Danaher Corp., is a relative strength chart using a 6% scale with a 3-box reversalvalue. The price of Danaher is divided by the price of an S&P 500 ETF and plotted on a log scale.Suddenly, it becomes apparent—in broad terms—Danaher has been outperforming the market for morethan 15 years. (Figure C.16) The final strength of Point and Figure charts is their objectivity. A skilledpractitioner with a bar chart can be very effective, but one analyst might discern a continuation pattern
where another sees a different pattern in a larger or smaller time frame. Two analysts Scaling: Percentage(Reversal: 3, Box Size:2.0%]
(c) StockChartscom
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Figure C.13 An alternative view of General Mills.
70 15
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Figure C.14 Clarifying the issue with percentage boxes.
looking at the same Point and Figure chart, on the other hand, will always be in agreement about whether thechart is on a buy signal or a sell signal.
The criterion is incredibly simple and unambiguous. If the price exceeds the immediately previous column ofXs, it is on a buy signal. If the price declines below the immediately previous column of Os, it is on a sellsignal. On the Danaher relative strength chart, for example, there is a buy signal at 10.88 in October 2000. (Itexceeded the previous rising column, which topped out at 10.27.) There is no subsequent sell signal, as nocolumn of Os ever falls below the previous column of Os. A security, by definition, is always on either a buyor sell signal.
The objective nature of Point and Figure can be use


a sellsignal. On the Danaher relative strength chart, for example, there is a buy signal at 10.88 in October 2000. (Itexceeded the previous rising column, which topped out at 10.27.) There is no subsequent sell signal, as nocolumn of Os ever falls below the previous column of Os. A security, by definition, is always on either a buyor sell signal.
The objective nature of Point and Figure can be useful in other realms as well. Market indicators or diffusionindexes can be plotted on a Point and Figure chart and objectively graded as a buy or sell, for example.
Perspective, flexibility, and objectivity, then, are the cardinal virtues of the Point and Figure charting method.They give a perspective, unlike a bar chart, abstracting pure price and giving deep insight into volatility. Theyhave almost unlimited flexibility to be
Scaling: Percentage [Reversal: 3, Box Size:1.0%)
(c) StockChartscom
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Figure C.15 Overlaying the PnF with a moving average.
adapted to different scales, time frames, and purposes. Finally, their objectivity can become a powerful tool inthe hands of any analyst.
For further investigation, some of the best-known resources are: Alexander Wheelan, Study Helps in Point &Figure Technique A.W. Cohen, How to Use the Three-Point Reversal Method of Point & Figure Stock MarketTrading: A Technical Approach to Stock Market Trading Thomas J. Dorsey, Point and Figure Charting: TheEssential Application for Forecasting and Tracking Market Prices Jeremy du Plessis, twenty-first CenturyPoint and Figure: New and Advanced Techniques for Using Point and Figure Charts Bollinger Bands
The creation of John Bollinger, Bollinger Bands is an inventive solution to the question of measuring anddisplaying price volatility. Technicians had previously developed channels DHR:SPY DsnjhefCo<p7SWS6P'OOETF NYSE
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Figure C.16 Relative strength perspective.
and envelopes which have proved productive for some. Bollinger made the concept dynamic, developing achannel whose lines (or bands) are variable depending on volatility.
Bollinger Bands are printed as three lines. The middle line (or band) is a conventional moving average. Theupper band is equivalent to the middle band but shifted two standard deviations up. The lower band is similarbut shifted two standard deviations down. As volatility varies the bands narrow and widen and technicianslook to the position of price
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Figure C.17 The dynamic nature of the bands dramatizes the nature of volatility and can be a great aid intrading—usually over the short term. Bollinger recommends 20 periods for the moving average.
relative to the lines to orient their trading. Thus, the bands are useful in lending perspective as prices oscillate.The routine is quite popular and this mention is meant only as an introduction and should inspire theinterested student to take up Bollinger's publications to explore this interesting and valuable tool. Bollinger onBollinger Bands may be found at Amazon. (Figure C.17)
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
List of Illustrations and Text
Diagrams
Regarding the illustrations in this book, except for those which are marked
as adapted from other sources, the charts listed as Figures below have been
reproduced from the authors' own “working” charts. As such, they were
made up originally for private use only and without a thought to their
eventual reproduction, much less their publication. They are not and do not
pretend to be works of art, but it is hoped that they will, despite their
“homemade” appearance, serve the purpose of illustrating the various
formations, patterns, market phenomena, and trading principles discussed in
the text. That they do not show the clean line and expert lettering of a
professional draftsman's work is regretted. The reader will, we trust, make
allowances.
As for their selection, it should be stated most emphatically that it was not
necessary to search through thousands of charts in order to find good
examples of all these various technical formations. Many dozens, even
hundreds, were available for practically every type of pattern. Anyone who
has learned to recognize them can find for himself plenty of good technical
pictures in a quick examination of even as small a portfolio as 50 or 100
charts. In other words, the illustrations in this book are in no sense unique.
In selecting them, we have tried only to show as much variety as possible
and samples from previous as well as more recent market history.
Perhaps it is not necessary, but it is at least in accord with custom, to add
that the information as to specific market prices, volume of transactions,
etc., used in preparing our illustrations (or cited in the text of this book) has
been derive


sense unique.
In selecting them, we have tried only to show as much variety as possible
and samples from previous as well as more recent market history.
Perhaps it is not necessary, but it is at least in accord with custom, to add
that the information as to specific market prices, volume of transactions,
etc., used in preparing our illustrations (or cited in the text of this book) has
been derived from sources believed to be reliable, but is not guaranteed.
Part One
Figure Page
1945.
Shoulders Bottom in 1942. Weekly chart.
8.19 BATH IRON WORKS. Descending Triangle Top of 1946,
showing adjustment of 90 pattern lines for Ex-Dividend Gap.
with horizontal bottom line.
from apex of Triangle, and Double Top. 1946.
leverage junior utility stock. Monthly chart, 1938 to 1946.
and futures to control portfolio risk.
Part Two
Figure Page
sensitivity.
24.2 CUBAN-AMERICAN SUGAR. Weekly, 1945 to 1946. Habits of
low-priced stock 343 of fairly low sensitivity.
24.2 ELECTRIC BOAT. Weekly, 1945 to 1946. Habits of low-priced
stock of somewhat 343
higher sensitivity.
Ascending Triangle and Head-and-Shoulders Top.
Daily chart.
37.20 AVNET ELECTRONICS CORPORATION. May through
October 1961, showing 448
Bearish Trend during a time when the market Averages were strong. Daily
chart.
37.21 BURNDY CORPORATION. April to September 1961. Classic
Head-and- 449
Shoulders Top and rallies to neckline. Daily chart.
37.22 BRUNSWICK CORPORATION. Showing the end of the great
Bull Market Move 450
in this stock, and the decline which followed. 1960 to 1962. Weekly chart.
37.23POLAROID. First 6 months of 1962. Long Rectangle followed
by a precipitous drop after penetration of Support. Daily chart.451
37.24COPPER RANGE. First 6 months of 1962. Head-and-
Shoulders Top with down-sloping neckline. Daily chart.452
37.25
U.S. SMELTING, REFINING & MINING. April through
September, 1962. Head-and-Shoulders Bottom, breakout,
reaction, and advance. Daily chart.
453
37.26
The DOW-JONES INDUSTRIAL AVERAGE. Weekly, July
1961 through June 1962. The massive Head-and-Shoulders
Pattern preceding the 1962 break.
454
37.27ABC VENDING CORPORATION. Daily, April to September
1963. Head-and-Shoulders Top and Major Downtrend. 455
37.28
CERRO CORPORATION. Daily, January to June 1963.
Symmetrical Triangle and uptrend, showing reaction to “cradle
point.”
456
37.29CRUCIBLE STEEL. Daily, March to August 1963. Ascending
Triangle, showing Breakaway Gap. 457
37.30
SUPERIOR OIL. June to November 1962. Showing an
important Double Bottom, which became the base for a Major
Advance.
458
37.31GENERAL STEEL INDUSTRIES. Daily, November 1962 to
April 1963. Example of a Major Uptrend with normal reactions.459
37.32
UNITED ARTISTS. Daily, February to August 1963. A Major
Downtrend, demonstrating Resistance Levels during the
decline.
460
37.33
UTAH-IDAHO SUGAR COMPANY. January to June 1963.
Breakout and rapid advance appearing suddenly in a normally
dull stock.
461
37.34
CONTROL DATA CORPORATION. Daily, February to August
1965. Example of a Wedge with downside breakout and Major
Collapse.
462
37.35
U.S. SMELTING, REFINING & MINING. Daily, July to
December 1965. Breakout from dormancy, Major Advance,
showing Symmetrical Triangle Consolidation.
463
37.36
LIVINGSTON OIL COMPANY. Weekly, January 1965 into
January 1966. Downside Major Trend, Symmetrical Triangle
Bottom, Major Reversal to uptrend.
464
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
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
37.39ASTRODATA, INC. Daily, October 1969 through February
1970. A complete collapse; then reopens 20 points lower. 467
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
37.41PUBLIC SERVICE ELECTRIC & GAS. Monthly, 1969
through 1970. A typical electric and gas utility stock.469
37.42
MEMOREX CORPORATION. Daily, September 1969 through
May 1970. Last “Bull” fling for Memorex before gapping down
with volume in February 1970.
470
37.43FLYING TIGER CORPORATION. Monthly, October, 1969
through 1971. From the 1967 high of 48%, "FLY" started a
471
downtrend that lasted 2 years and took the stock down to 11%.
37.44
ACTION INDUSTRIES. Daily, November 1971 to April 1972.
A large Ascending Triangle formed after an advance of 90%,
and followed by a breakout and a further advance practically
duplicating the first one in percentage gain.
472
Figure Page
37.45DELL COMPUTER. From nothing (a college dorm) to
something. 473
37.46DELL. Air pockets return. 474
37.47INTEL. The heart of the Microsoft computer. Compare MSFT. 474
37.48NOKIA. The story of the communications revolution.475
37.49AMD. Intel's counterpart. 475
37.50YAHOO. Internet rocket fuel. 476
37.51YAHOO 2005. After the tulipomania. 477
37.52APPLE COMPUTER. The revenge of Steve Jobs. 478
37.53APPLE 2005. The press' whipping stock strikes back.479
37.54NDX. A ten year trade using Basing Points. 480
A.1 Important swings of the DOW-JONES INDUSTRIAL AND
RAIL AVERAGES, 1941 through 1946. 508
A.2
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, February 1 to
August 31, 1941.
509
A.3
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, March 2 to
October 31, 1942.
510
A.4
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, November 2,
1942, to June 30, 1943.
511
A.5
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, July 1, 1943, to
January 31, 1944.
512
A.6
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, May 1 to
November 30, 1945.
514
A.7
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, Ma


ume, November 2,
1942, to June 30, 1943.
511
A.5
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, July 1, 1943, to
January 31, 1944.
512
A.6
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, May 1 to
November 30, 1945.
514
A.7
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, May 1, 1945, to
November 30, 1945.
516
A.8
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, December 1,
1945, to May 31, 1946.
518
A.9
The DOW-JONES INDUSTRIAL AND RAIL AVERAGES.
Daily closing prices and total market volume, May 4 to
October 19, 1946.
520
Text Diagrams
The charts listed as Figures all represent actual market history. In
contradistinction, the diagrams listed below do not depict real trading
history, but have been specially drawn as simplified, hypothetical market
situations to facilitate the explanation of certain trading principles. EN:
Certain of these rather than drawings are exhibits of other interest.
Diagram Page
Alphabetic Index of Stock Charts
FigureStock Name Summary Description of ChartPage
23.7 3COM.
Underwriters cleverly only threw 3% of
3Com-owned Palm stock onto the
market at the IPO.
331
12.9 A.O. SMITH
CORPORATION.
A technically significant (Runaway)
Gap in 1946 decline. Weekly chart.
180
37.27ABC VENDING
CORPORATION.
Daily, April to September 1963. Head-
and-Shoulders Top and Major
Downtrend.
455
37.44ACTION
INDUSTRIES.
Daily, November 1971 to April 1972. A
large Ascending Triangle formed after
an advance of 90%, and followed by a
breakout and a further advance
practically duplicating the first one in
percentage gain.
472
10.2 AIR REDUCTION.The classic Broadening Top of 1929. 123
10.8 ALLIED STORES.Flat-topped Broadening Pattern of 1945,
and Breakout Gaps. 126
33.5 ALLIED STORES.
Daily, last half of 1946. Symmetrical
Triangle Consolidation in decline; also
small Head-and-Shoulders Continuation
Pattern.
398
11.11 ALTRIA GROUP
(MO).
2005 gaps and flags galore. Chartist's
joy. 162
23.11 AMAZON.
Weekly. Internet dreams of glory.
Documenting the great Internet bubble.
Blow-off and hangover.
335
23.12AMAZON. Daily. Details of the blow-off with some
techniques to profit and not suffer. 335
23.13AMAZON. 2005. Rolls on. Biggest river in world.
Not of profits. 336
37.49AMD. Intel's counterpart. 475
7.12
AMDAHL
CORPORATION.
Complex Head-and-Shoulders Bottom,
1984. 65
11.14
AMERICAN &
FOREIGN
POWER 2D PFD.
A Head-and-Shoulders Consolidation
Pattern of 1945. 164
7.16
AMERICAN &
FOREIGN
POWER 2ND
PFD.
A Rounding Bottom formed in 1945.68
9.14 AMERICAN
AIRLINES.
Weekly Chart. Bull Market Top of 1945
to 1946, a form of Double Top. 113
Stock Name
AMERICAN BANK NOTE.
AMERICAN BOSCH CORPORATION.
AMERICAN CABLE & RADIO.
AMERICAN CAN.
AMERICAN CAR &
FOUNDRY.
AMERICAN
LOCOMOTIVE.
AMERICAN
LOCOMOTIVE.
AMERICAN
LOCOMOTIVE.
AMERICAN ROLLING MILL.
AMERICAN ROLLING MILL.
AMERICAN SAFETY RAZOR.
AMERICAN STEEL FOUNDRIES.
AMERICAN WATER WORKS & ELECTRIC.
AMERICAN WOOLEN.
AMERICAN ZINC, LEAD & SMELTING.
ANACONDA COPPER.
ANACONDA COPPER.
APPLE.
APPLE.
APPLE.
APPLIED MAGNETIC CORPORATION.
ARCHER DANIELS MIDLAND COMPANY.
ARKANSAS BEST. ARMOUR & COMPANY.
Summary Description of Chart Page
Runaway Gap and Flag. 1945.
Perfect “Half-Mast” Pattern in 1946, with gaps 161 and Ascending
Triangle.
The Consolidation Rectangle which followed a 108 Head-and-Shoulders
Top in 1946.
which distribution eventually overcame upward trend.
FigureStock Name Summary Description of ChartPage
33.3 ASSOCIATED DRY
GOODS.
Daily, first half of 1946.
Rounding Top; also Broadening
Consolidation.
396
33.10ASSOCIATED 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
37.39ASTRODATA, 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
37.20AVNET ELECTRONICS
CORPORATION.
May through October 1961,
showing Bearish Trend during a
time when the market Averages
were strong. Daily chart.
448
14.17BACYRUS ERIE. 1984Excellent Fan Pattern. 220
12.10BALTIMORE & 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
14.15BARBER ASPHALT. Application of three-fan principle
to Bull Market Reaction. 1946.219
28.1 BASING POINTS. The most important chart in the
book? 362
28.2 BASING POINTS, V2
Basing Points illustrations
showing both 366
28.3 BASING POINTS, V2
wavelow stops and new high
stops 369
28.4 BASING POINTS, V2 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
12.12BETHLEHEM 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
176
Top.
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
FigureStock Name
Summary Description of
Chart Page
11.5 BRIGGS
MANUFACTURING.
Bull and Bear Flags and
Symmetrical Triangle
Top in 1936. Support-
Resi


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
FigureStock Name
Summary Description of
Chart Page
11.5 BRIGGS
MANUFACTURING.
Bull and Bear Flags and
Symmetrical Triangle
Top in 1936. Support-
Resistance phenomena.
156
37.22BRUNSWICK
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. Major
Rounding Bottom of 1942.70
37.17CHICAGO, 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
23.14CISCO. Exercises in adroit
speculation. 337
23.15CISCO. Zooming in on Cisco. 338
15.12CLAUDE NEON. (Curb Exchange). Strongly up-
curved Bull Trend of a low-
235
priced, highly speculative
issue. Monthly chart, 1938 to
1946.
16.12COFFEE 1994 A perfect flag and spike
reversal. 256
14.4 COMMERCIAL
Intermediate Downtrend and
Uptrend in 1946. 211
SOLVENTS.
FigureStock Name Summary Description of ChartPage
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
37.34CONTROL DATA
CORPORATION.
Daily, February to August 1965.
Example of a Wedge with
downside breakout and Major
Collapse.
462
37.24COPPER 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
15.14CORN 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.
ed.).
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
16.10CRB INDEX 2005.The long term view, with double
bottom. 255
37.29CRUCIBLE 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
FigureStock Name Summary Description of ChartPage
14.16DELAWARE &
HUDSON.
Application of three-fan
principle to Bull Market
Reaction. 1944.
219
37.5
DELAWARE,
LACKAWANNA &
WESTERN.
Rectangle and uptrend. 1954 to
1955. 432
37.45DELL. From nothing (a college dorm) to
something. 473
37.46DELL. 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
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES.
Daily closing prices and total
market volume, March 2 to
October 31, 1942.
510
FM.1
DOW-JONES
INDUSTRIAL AND
RAIL AVERAGES OW
The historic bull market of 2009-
2018. 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,