low.
Ordinarily, the %K Line will change direction before the %D Line. However, when the %D
Line changes direction prior to the %K Line, a slow and steady Reversal is often indicated.
When both %K and %D Lines change direction, and the faster %K Line changes direction to
retest a crossing of the %D Line, though does not cross it, the incident confirms stability of
the prior Reversal. A powerful move is under way when the Indicator reaches its extremes
around 0 and 100. Following a Pullback in price, if the Indicator retests extremes, a good
entry point is indicated. Many times, when the %K or %D Lines begin to flatten out, the
action becomes an indication the trend will reverse during the next trading range.
STOCK SPLIT—A procedure used by management to establish a different market price
for its shares by changing the common stock structure of the company. Usually a lower price
is desired and established by canceling the outstanding shares and reissuing a larger number
of new certificates to current shareholders. The most common ratios are 2-to-1, 3-to-1, and
3-to-2. Occasionally, a higher price is desired and a reverse split takes place where one new
share is issued for some multiple number of old shares.
STOP—A contingency order placed above the current market price if it is to buy, or below
the current market price if it is to sell. A stop order becomes a market order only when the
stock or commodity moves up to the price of the buy stop, or down to the price of a sell
stop. A stop can be used to enter a new position or exit an old position. (See also Protective
or Progressive Stop.)
STOP LOSS—See Protective Stop.
SUPPLY—Amount of stock available at a given price.
SUPPLY LINE—See Resistance.
SUPPORT LEVEL—The price level at which a sufficient amount of demand is forthcoming
to stop, and possibly turn higher for a time, a downtrend.
SYMMETRICAL TRIANGLE—Also called a Coil. Can be a Reversal or Continuation
Pattern. A sideways congestion in which each Minor Top fails to attain the height of the
previous rally and each Minor Bottom stops above the level of the previous low. The result
is upper and lower boundary lines that converge, if extended, to a point on the right. The
upper boundary line must slant down and the lower boundary line must slant up, or it
would be a variety of a Wedge. Volume tends to diminish during formation. Minimum
Formula: add the widest distance within the Triangle to its breakout point.
TANGENT—See Trendline.
TAPE READER—One who makes trading decisions by watching the flow of New York
Stock Exchange and American Stock Exchange price and volume data coming across the
electronic ticker tape.
TEKNIPLAT™ PAPER—A specially formatted, two-cycle, semilogarithmic graph paper,
with sixth-line vertical accents, used to chart stock or commodity prices. Check h t t p : //
www.edwards-magee.com.
617Glossary
TEST—A term used to describe the activity of a stock or commodity when it returns to, or
“tests,” the validity of a previous trendline, or Support or Resistance Level.
THIN ISSUE—A stock with a low number of floating shares and is lightly traded.
THREE-DAYS-AWAY RULE—An arbitrary time period used by Edwards and Magee in
marking suspected Minor Tops or Bottoms.
THROWBACK—Return of prices to the boundary line of the pattern after a breakout to the
upside. Return after a downside breakout is called a Pullback.
TOP—See Broadening Top, Descending Triangle, Double Top, Head-and-Shoulders Top,
Rounding Top, and Triple Top.
TREND—The movement of prices in the same general direction, or the tendency or
proclivity to move in a straight line. (See also Ascending, Descending, and Horizontal
Parallel Trend Channels, Convergent Trend, Divergent Trend, Intermediate Trend, Major
Trend, and Minor Trend.)
TREND CHANNEL—A parallel probable price range centered about the most likely price
line.
TRENDING MARKET—Price continues to move in a single direction, usually closing
strongly for the day.
TRENDLINE—If we actually apply a ruler to a number of charted price trends, we quickly
discover the line most often really straight in an uptrend trend is a line connecting the
lower extremes of the Minor Recessions within these lines. In other words, an advancing
wave in the stock market is composed of a series of ripples, and the bottoms of each of
these ripples tend to form on, or very close to, an upward-slanting straight line. The tops
of the ripples are usually less even; sometimes they also can be defined by a straight line,
but more often, they vary slightly in amplitude, and so any line connecting their upper
tips would be more or less crooked. On a descending price trend, the line most likely to
be straight is the one that connects the tops of the Minor Rallies within it, while the Minor
Bottoms may or may not fall along a straight edge. These two lines—the one that slants up
along the successive wave bottoms within a broad up-move and the one that slants down
across successive wave tops within a broad down-move—are the Basic Trendlines. You
draw an Up Trendline by drawing the line on the inner side. You draw a Down Trendline
by drawing it on the outside. You draw a Sideways Trendline on the bottom.
TRIANGLE—See Ascending Triangle, Descending Triangle, Right-Angled Broadening
Triangle, and Symmetrical Triangle.
TRIPLE BOTTOM—Similar to a flat Head-and-Shoulders Bottom, or Rectangle, the three
Bottoms in a Triple Bottom.
TRIPLE TOP—An Area Pattern with three Tops widely spaced and with quite deep, and
usually rounding, reactions between them. Less volume occurs on the second peak than the
618 Glossary
first peak, and still less on the third peak. Sometimes called a “W” Pattern, particularly if
the second peak is below the first and third. The Triple Top is confirmed when the decline
from the third Top penetrates the Bottom of the lowest valley between the three peaks.
200-DAY MOVING A VERAGE LINE—Determined by taking the closing price over


lume occurs on the second peak than the
618 Glossary
first peak, and still less on the third peak. Sometimes called a “W” Pattern, particularly if
the second peak is below the first and third. The Triple Top is confirmed when the decline
from the third Top penetrates the Bottom of the lowest valley between the three peaks.
200-DAY MOVING A VERAGE LINE—Determined by taking the closing price over the
past 200 trading days and dividing by 200, then repeating the process each succeeding day,
always dropping off the earliest day.
UPTICK—A securities transaction made at a price higher than the preceding transaction.
UPTREND—See Ascending Trendline and Trend.
UTILITY A VERAGE—See Dow–Jones Utility Average.
V /D VOLUME—Is the ratio between the daily up-volume to the daily down-volume. It is a
50-day ratio determined by dividing the total volume on those days when the stock closed
up from the prior day by the total volume on days when the stock closed down.
V ALIDITY OF TRENDLINE PENETRATION—The application of the following three tests
when a trendline is broken to determine whether the break is valid or whether the trendline
is still basically intact: (1) the extent of the penetration, (2) the volume of trading on the
penetration, and (3) the trading action after the penetration.
V ALLEY—The V-shaped price action that occurs between two peaks. (See also Double Top
and Triple Top.)
VINCE, RALPH—Author of Handbook of Portfolio Mathematics where optimal f is
described as a quantitative way to achieve optimal allocation and leverage of a portfolio.
The Leverage Space Model achieves optimal bet sizing for maximizing gains while
minimizing risk.
VOLATILITY—A measure of a stock’s tendency to move up and down in price, based on
its daily price history over the latest 12-month period. (See Appendix B, Resources, for the
formula.)
VOLUME—The number of shares in stocks or contracts in commodities traded over a
specified period of time.
“W” FORMATION—See Triple Top.
WEDGE—A chart formation in which the price fluctuations are confined within converging
straight (or practically straight) lines.
WILDER RELATIVE STRENGTH INDICATOR (RSI)—Although relative strength,
comparing a security price to a benchmark index price, has been around for some time, this
indicator was developed by J. Welles Wilder, as explained in his 1978 book, New Concepts
in Technical Trading.
619Glossary
Relative Strength is often used to identify price Tops and Bottoms by keying on specific
levels (usually “30” and “70”) on the RSI chart, which is scaled from 0 to 100. The RSI can
also be useful to show the following:
 1. Movement that might not be as readily apparent on the bar chart.
 2. Failure Swings above 70 or below 30, warning of coming Reversals.
 3. Support and Resistance Levels appear with greater clarity.
 4. Divergence between the RSI and price can often be a useful Reversal indicator.
The RSI requires a certain amount of lead-up time to operate successfully.

621
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623
Index
A
ABC Vending Corp., 455, 576, 579
Absolute certainty, 275
Accelerating Downward Trend, 68
Accumulation, 14, 17, 43, 44, 107, 157, 159, 168, 184, 241,
245, 265, 327, 538, 542, 595
Pattern, 73, 401
Action Industries, 472, 576, 579
Activity, see Volume
Acts of God, 12, 248
Acute Triangle, 79–80
Advisors, 252, 268, 310
ADXR Indicator, 595
Agricultural commodity, 247–248
AIQ Trading Expert Pro, 531–532
Amazon, 27, 335–336, 358, 477, 563, 573, 579
AMD, 475, 577, 579
American Locomotive, 63, 163, 433, 566, 570, 575, 580
American Stock Exchange (AMEX), 271, 309, 311, 312,
316, 349, 494, 524
, 616
Apex, 80, 83, 84, 87, 88, 94, 97, 99–100, 122, 128, 142,
145, 153, 201, 203–205, 209, 398–400, 404, 408,
412, 423, 440, 443, 596
Apex of Symmetrical Triangle, 414
Appel, Gerald, 542
Apple Computer Inc (APPL), 135, 366, 478–479, 577
Appreciated portfolio, protecting profits in, 285 –286
Arbitrage, 344, 596
Area Gap, see Common Gap
Area Pattern, 8, 90, 145, 176, 184, 186, 198, 202, 221, 261,
264, 319, 423, 439, 596, 601, 604, 605, 611–614,
617–618
Area Reversal Pattern, 599
Arithmetic paper, 8, 229
Arithmetic scale, 8 , 58, 69, 143, 211–216, 596
Arms CandleVolume charting, 551–553
Arms Index, 545, 548–549
Aroon, 538, 542
Aroon Down, 538, 542
Aroon Oscillator, 538
Aroon Up, 538, 542
Ascending Channel, 596
Ascending Formation, 99
Ascending Pattern, 98 –99
Ascending Trend Channels, 596 , 599, 613
Ascending Trendline, 596, 618
Ascending Triangle, 84 –89, 94–95, 97–98, 114–115,
122, 135–136, 141, 147, 161, 166, 177–178, 189,
204, 294, 373–375, 395, 399, 408, 428, 434,
439–441, 465, 472, 596, 613–614
Asset allocation, 275, 278, 280–282, 491
Astrodata Inc. (ADA), 46


Up, 538, 542
Ascending Channel, 596
Ascending Formation, 99
Ascending Pattern, 98 –99
Ascending Trend Channels, 596 , 599, 613
Ascending Trendline, 596, 618
Ascending Triangle, 84 –89, 94–95, 97–98, 114–115,
122, 135–136, 141, 147, 161, 166, 177–178, 189,
204, 294, 373–375, 395, 399, 408, 428, 434,
439–441, 465, 472, 596, 613–614
Asset allocation, 275, 278, 280–282, 491
Astrodata Inc. (ADA), 467, 576, 581
At-the-money, 283, 596
Automated trendline, 421–425, 540
Average(s), 4, 17, 19, 26, 41, 50, 99, 106, 112, 135, 145,
151, 181, 313, 347, 393–394, 428, 436, 445, 459,
481, 482, 596, 600
discount, 12
Dow, see Dow averages
gaps in, 187
investor, 192
moving, see Moving averages
support and resistance in, 206
trendlines in, 243
Average Directional Index (ADX), 538, 542, 595
Average True Range (ATR), 358–359, 538
Averaging Cost, 442, 485, 596–597
Avnet Electronics Corp., 448, 459, 575, 581
Axis, 196, 205, 597
B
Balanced program, 481–486, 597
Bandwidth, 538, 598
Bar Chart, 31, 266, 304, 531, 532, 545, 550, 552, 554,
558, 597
Baruch, Bernard, 265
Basic Trendlines, see Trendlines
Basing Points (BP), 31–40, 198, 239, 256, 258, 260,
299–300, 308, 314, 326, 328, 340, 357–359,
362–366, 368–370, 404, 414, 480, 504, 506,
574, 581, 597
Basket Trades, 389–390, 597
Bearish Move, 391, 451
Bearish Trend, 310, 482
in Industrial Rayon, 446
in Lorillard, 447
624 Index
Bear Market, 13, 15, 225, 242, 264, 293, 299, 386, 413,
481, 509, 511–512, 597, 602, 611
signal, 519–521
Bear Market Bottom in Socony–Vacuum, 89, 109
Bear Market Rallies, 61, 63
rising wedges in, 144
Bear Market Selling Climax, 608
Bear Raiding, 168
Bent Neckline, see Neckline (NL)
Bent neckline, 138, 444, 597
Beta, 310, 321, 322, 342–343, 346, 597
coefficient, 597
Bitcoin, 326–328
Black Scholes model, 266, 273, 531
Block Trades, 97–99, 105, 597
Blow-Off, see Climactic Top
Blue Chips, 41, 280, 301, 320, 353, 437, 598
Blue Parallel, 373–374, 378–380, 410, 598
Blue Trend, 373, 375–379
Blue Trendline, 373–378, 578, 598
Bollinger Bands (BB), 266, 267, 537, 561–563, 598
Bollinger, John, 533, 561
Bona fide breakout, 600
Bond
futures for asset allocation, 280 –282
traders and investors, 496
Book value, 4, 5, 175, 599
Bottom, 599
Kilroy, see Head-and-Shoulders Bottom
Patterns, 57, 58, 117, 161, 458
Trendlines, 224, 273, 414
Bou ndar y, 54, 78, 599
Bowl Pattern, see Rounding Bottoms
Bracketing, 599
Breakaway gaps, 47, 63, 91, 142, 162, 173–174, 177–182,
186, 202, 254, 258, 410, 412, 417, 423, 470, 599,
607
Breaking neckline, 47–49
Breakout failure, 603
Breakout Gap, 126, 175, 184
signals,
185
“Breakout of dormancy,” 73
Breakouts, 88, 108, 161, 418, 551, 599
decisive, 221, 377, 378
downside, 95, 99, 398, 408
premature, 85, 108
pullbacks, 224
from Right-Angle Triangles, 100
upside, 89, 99, 402, 408
Broadening Bottoms, 135
Broadening Formations, 121–122, 599, 608–609
volume during, 122–128
Broadening Pattern, 604
Broadening Price Formation, 130 –131
Broadening Price Patterns, 121, 122, 126, 131, 136
Broadening Tops, 122, 124, 125, 129, 133, 309, 400, 404,
408, 617
in Dow–Jones Industrial Average, 444 –445
Orthodox, see Orthodox Broadening Top
Broad market, 243
Broad market background, 264
Broad Market Trend, 243
Brokerage firms, 270
Brokerage houses, 526–527
Brokers, 145, 146, 268, 269, 313, 347
Brooker, Brian,
27
Brunswick Corporation, 450 , 575, 581
Bullish Market, 321, 460, 481, 483
Bullish Move, 391, 406
Bull Market, 13–19, 23, 70, 226, 241, 264, 293, 299,
396–397, 481, 492, 493, 514, 518, 595, 599, 602
in commodities, 260
dynamic phase of, 157
Primar y, see Primary Bull Market
Publicker, 116
Bull Market Advance, 159, 225, 294
Bull Market Concomitants, 159
Bull Market High, 52
Bull Market Peaks, 114
Bull Market Reaction, 219
Bull Market Top, 53, 86, 240
of Head-and-Shoulders Form, 50
Symmetrical Triangle Bottom, 80
Symmetrical Triangle Reversal, 78
in U.S. Steel, 127
in Westinghouse, 96
of Westinghouse Electric, 47
Bull Market Trend, 237
of General Motors, 230
Bull Market Trendlines, 229
Bull signal, 513–514
Bull trap, 139, 148, 326, 327, 420, 473
Bull Trend reaffirmation, 515 –516
Burndy Corporation, 449, 575,
582
Buy-and-Hold investor, 26, 27
Buying at the top, 487
C
Call option, 599, 611
Candlestick charts, 7, 8, 182, 266, 267, 553
Candlesticks, 551, 599
Canny investor, 278
CANSLIM system, 316
Capital, 489
application in practice, 491–494
to use in trading, 489 –490
Cash, differences with future transactions, 277
Catastrophic Risk, 503
“Cats and dogs,” 15, 320, 493, 517, 599
Caveats, 330–331
of Moving Averages, 422
CBOT
® DJIASM Index futures, 276, 282
Cerro Corporation, 456, 576, 582
Chaff, 270
Chaikin Money Flow (CMF), 538
Chaikin Oscillator, 538
Chandelier Exit, 359, 537
625Index
Chande Trend Meter (CTM), 538
Channel, 599
Chart(s), 157, 197, 261, 267, 269, 304, 505, 599, 605
Ascending Triangle, 399
associated dry goods winds up, 396
Broadening Tops, 400, 408
candlestick, 7, 8, 182, 266, 267, 553
Complex or multiple Head-and-Shoulders, 403
daily chart in Northern Pacific, 412
daily chart of Lehigh Valley R. R, 407
decorating graphic charts, 304
Diamond, 409
Diamond Pattern in American Can, 404
Double Tops and Bottoms, 409
Dow Theory, 393–399
Flags and Pennants, 410–411
Gaps, 411–413
Gulf, Mobile, and Ohio builds beautiful Wedge,
405
Head-and-Shoulders Bottom, 401–403
Head-and-Shoulders Top, 400–401
of New York Central, 175
One-Day Reversals, 410
Pennant in Martin–Parry, 406
Rectangles, 408 –409
Rectangles in Remington Rand, 401
Right-Angled Broadening Formations, 409
Right-Angle Triangles, 408
rounding Bottom in 1945, 397
Rounding Tops and Bottoms, 403 –406
Spiegel’s Bear Market, 262
of stocks, 163
Support and Resistance, 414
Symmetrical Triangle in allied stores, 398
Symmetrical Triangles, 406 –408
Trendlines, 414
trendlines in American steel foundries, 413
types of scales, 8 –9
Wedges, 409–410
wide Descending Triangle of, 262
Chart analysis, 304, 539–540
computer for, 304–305
Chart analysts, 259, 266
Commodity Research Bureau Ind


Bottoms, 403 –406
Spiegel’s Bear Market, 262
of stocks, 163
Support and Resistance, 414
Symmetrical Triangle in allied stores, 398
Symmetrical Triangles, 406 –408
Trendlines, 414
trendlines in American steel foundries, 413
types of scales, 8 –9
Wedges, 409–410
wide Descending Triangle of, 262
Chart analysis, 304, 539–540
computer for, 304–305
Chart analysts, 259, 266
Commodity Research Bureau Index, 254
trading futures, 259 –260
Chicago Board of Trade (CBOT
®), 271
Chicago Board Options Exchange (CBOE), 273, 494
Chicago Mercantile Exchange, 276 –277, 312
Chicago, Milwaukee, St. Paul and Pacific, 440
Chrysler, 436
Classical technical analysis, 4
Clean-cut Triangle, 82
Clean-Out Day, see Selling Climax
Climactic Top, 597, 600
Climax Day, see One-Day Reversal
Climax, Selling, see Selling Climax
Close-only charts, 267
Closing gap, 171–173
Closing prices, 18, 600
Closing the gap, 600, 601
Cloud, 269
Coil, see Symmetrical Triangle
Colby, Robert, 21
Commission, 600
Commitments, 417–418
Commodity, 276
agricultural, 247–248
market, 615
traders, 298
Commodity Channel Index (CCI), 538
Commodity charts, technical analysis of
application of Edwards and Magee’s methods,
252–259
chart analyst trading futures, 259 –260
rocket scientists, 249 –250
Turtles, 250–252
21st-century perspective, 249
variety of methods, 259
Common Gap, 175–177, 184, 596, 600
Comparative relative strength, 600
Complete Basing Points Procedure,
368–370
Complex Formations, 59
Complex Head-and-Shoulders Pattern, 59, 403, 600,
602, 610
EN, 60
ragged Kilroy Bottom, 61
strong movement toward lower interest rates
evident, 60
Composite Average, 600
Composite Leverage, 498, 600
Composite Leverage Index, 492, 493
Compound Annual Growth Rates (CAGR), 32
Computer, 265
for charting analysis, 304 –305
technology, 267–268
Computer software packages, 267
Conant, James Bryant, 289
Confirmation, 16–19, 600–601
Congestion, 151, 601
Congestion Formations, 115, 175–176
Conservative investing, 310–311
Consolidating, 151
Consolidation Formation, 110, 151
a, 156
Bull Flag in February and Bear Flag in April 1936
compact type of price “Congestion,” 158
Consolidation Pattern, 167
down-sloping, converging price formation, 157
flag pictures on weekly and monthly charts,
158–159
Flags and Pennants, 151–153
Flag seemed for several weeks, 163
“Half-Mast” Pattern, 161
Head-and-Shoulders Consolidations, 160–162, 164
measuring formula, 154 –156
modern vs. old-style markets, 168–169
rectangular Consolidations, 159
reliability of Flags and Pennants, 156 –157
626 Index
Consolidation Formation (Continued)
scallops, 162–167
series of Flag-type Consolidations, 159
stock make long series of small Consolidation
Patterns, 155
Consolidation Head-and-Shoulders, see Head-And-
Shoulders Pattern
Consolidation Pattern, 79, 94–97, 156, 161, 167, 190, 392,
600, 601, 604
Consolidations of Rectangle, 159
Construction of index shares and similar
instruments, 311–312
Continuation Formation, see Consolidation
Formation
Continuation Gap, see Runaway Gap
Continuation-of-Trend Pattern, 137
Continuation Pattern, see Consolidation Pattern
Control Data Corp (CDA), 462, 576, 583
Controlling risk, 351, 499, 503
Convergent Pattern (Trend), 601
Copper Range Co., 452, 576, 583
Coppock Curve, 538
Correction, 601
Corrective trends, 226 –227
Correlation Coefficient, 500, 538
“Cost of carry,” 276–279
Costs, 390
Covering the gap, see Closing the gap
“Cradle,” 205, 601
“Cradle point,” 440, 456
Crossovers, 422–424
Crucible Steel Co. of America, 457, 576, 583
Cyber trader, 316
Cyclical approach, 3
D
Daily Range, 148, 173, 508, 601
Dampened risks, 313
Danaher Corp., 558
Day-to-day chart analysis, 196
“Day traders,” 31, 166, 168, 298, 302
Day trading, 168, 298
DecisionPoint Price Momentum Oscillator (PMO),
538
Definite warning, 428
Degree of fluctuation, 283, 345
Delaware, Lackawanna And Western, 432
“Delivery,” 276
Dell, 473–474
Delphic Options Research, 523 , 529
Demand, 70, 86, 98, 112, 117, 601
Demand Line, 98, 104, 176, 202
Descending Channel, 601
Descending Trend, 603
Descending Trend Channel, 374 –375, 599, 601, 613, 619
Descending Trendline, 601, 603
Descending Triangle, 92 , 97–99, 122, 136, 175, 294, 408,
601–602, 613–614, 617
Detrended Price Oscillator (DPO), 538
Diagonal Movements, 423
Diamond, 74, 127, 129, 130, 137–
139, 602
Pattern, 610
Reversal Formation, 128, 137–138, 409
DIAMONDS™ (DIA), 271, 274, 299, 312, 317, 323,
350, 351, 390
Directional tendency, 110
Discipline, 260, 287, 501, 542
Dissecting Dow Theory, 499
“Distance away” criteria, 194, 203
Distribution, 43, 44, 117, 136, 168, 602
f requency, 500
Line, 538, 542
Pattern, 90
planned, 98
Distribution period, 15, 17
Divergence, 4, 99, 212, 510, 511, 513, 600–602
definite, 166
negative, 610
Divergent Pattern, 206, 602
Divergent Trend, 617
Divergent Trend Channel, 376, 377, 379
Diverging boundary lines, 100
Diversification, 41, 298, 313, 319, 389, 390, 481–486, 602
Dividends, 23, 194, 277, 294,
297–298, 307, 310–311, 315,
341, 345, 348, 361, 419, 469, 602
Donchian system, 251
Dormant Bottom, 72–74, 602
Double Bottoms, 113–115, 118, 409, 602
Double Top, 103–105, 113–115, 118, 409, 602, 617
at Primary Trend Reversals, 118
Double trendlines, 222 –223, 603
Dow averages, 12
basic tenets, 12–14
major trend phases, 14–16
principle of confirmation, 16 –19
tide, wave, and ripple, 14
Dow Index futures, 277, 287
Dow Industrial Average (DIA), 481
Dow interpretation, 507–508
Dow–Jones Industrial Average (DJIA), 6, 41, 146, 311,
444–445, 454, 486, 600, 603, 606
Dow–Jones Industrial Index
differences between cash and futures, 277
Dow Index futures, 277
exercising option, 284
exploiting market reversals, 285
fungibility, 276–277
futures and options, 275 , 284
investment and hedging strategies, 276
investment uses of Dow Index futures, 279 –282
marking-to-market trading, 276
option premiums, 283
options on Dow Index futures, 282 –283
option spreads in high-or low-volatility markets,
286–287
perspective, 287
portfolio yields improvement,


ures, 277
exercising option, 284
exploiting market reversals, 285
fungibility, 276–277
futures and options, 275 , 284
investment and hedging strategies, 276
investment uses of Dow Index futures, 279 –282
marking-to-market trading, 276
option premiums, 283
options on Dow Index futures, 282 –283
option spreads in high-or low-volatility markets,
286–287
perspective, 287
portfolio yields improvement, 286
627Index
profits in rising markets, 284 –285
protecting profits in appreciated portfolio,
285–286
settlement of futures contracts, 276
stock index futures to control exposure to market,
277–278
volatility, 283–284
Dow–Jones Stock Composite, 12
Dow–Jones Transportation Average, 603, 612
Dow–Jones Utility Average, 600, 603, 618
Down Channel, see Descending Channel
Down-slanting boundary line, 79 –80
Downtick, 603
Downtrends, 143, 202, 242, 423, 429
Intermediate, see Intermediate downtrends
Major, see Major downtrends
Primar y, see Primary downtrends
Dow principles, 16, 17, 23–24
Dow Theory, 3, 11, 18, 21–23, 28–29, 31, 41, 77, 207, 259,
264, 313, 365, 381, 393–399, 507, 533, 600, 601
in 20th and 21st centuries, 26 –27
Bear Market signal, 519 –521
bull signal, 513
–514
Bull Trend reaffirmation, 515 –516
closing price levels of Dow–Jones Industrial and
Rail averages, 509, 510, 511, 512, 514
failure to confirm, 510 –511
final up-thrust, 519
first correction, 514–515
first severe test, 508 –510
five years of Dow interpretation, 507–508
intermediate trend investor, 23 –26
leaving investor in doubt, 23
Rails falter, 516–517
signs of major turn, 511–513
spring of 1946, 517–518
utilization, 507
Dow Theory Line, 151
Dow Theory replacement with John Magee’s Basing
Points Procedure
Dow-Jones Industrials (1924–1934), 39–40
fractal nature of market, 31
interesting charts ever made of Dow-Jones
Industrials, 40
trades made by Magee Basing Points Procedure,
33–37
2008 top in industrials, 38
Drawdown, 498–499, 603
Dreman, David, 280, 496
Dunn and Hargitt, 251
E
Eagle-Picher Lead, 436
“Earnest money,” see Futures “margins”
Ease of Movement (EMV), 538
Economic tide, 264
Edwards and Magee’s methods, 252–258
stops, 258–259
Electronic marketplaces, 269
Electronic portfolio, 270
Elliott Wave Theory, 6, 528–531
Emotion-driven markets, 266
End Run, 83, 204, 205, 603
Equilibrium Line, 609
Equilibrium Market, 603
Equivolume charting, 550
result,
551–553
technique, 551
Evaluative Index, 397, 448, 482–483
Ex-Dividend, 90, 173, 175, 361, 443, 603
Ex-dividend gaps, 174, 603
breakaway gaps, 177–182
common or area gap, 175–177
continuation or runaway gaps and measuring
rule, 182–184
exhaustion gaps, 185–186
two or more runaway gaps, 184–185
Exaggerated leverage, 272
Exception, 381
Exchange-traded fund (ETF), 271 , 317, 322, 603
Exchange Traded Notes (ECNs), 268, 321
Execution of buys, 376–377
Exercise, 283, 325, 603
exercising option, 284
price, 272, 282, 494
Exhaustion Gap, 184, 185–186, 258, 410, 603–604, 607
Experimental lines, 224
Expiration, 271, 284, 604
Exponential Moving Average (EMAs), 422, 537, 542,
609
Exponential Smoothing, 604
“Extent of decline” criterion, 193
Extent of penetration, 221
Extraordinary Risk, 503
F
Facebook, 332
Fact chart analysis, 266
Failure to confirm, 510–511,
513–514, 515
Faith, Curtis, 251
Falling Wedge, 132, 139, 142–143, 410, 604
False Breakout, 604, 612
False moves, 48, 66, 81, 89, 108, 179, 487
False Signal, 66, 88, 129, 149, 266, 479, 604
Fan lines, 217, 218, 220, 227, 309, 604
Fan principle, 226–227
Fansteel Metallurgical, 434 , 448, 585
Filling the gap, see Closing the gap
Final up-thrust, 519
Finance theory and practice
developments in, 271
futures on indexes, 273 –274
MPT, 275
options, 271–272
options on futures and indexes, 274
options pricing models and importance, 273
628 Index
Finance theory and practice ( Continued)
quantitative analysis, 272 –273
wonders and joys of investment technology, 275
Fin de siècle, 139
First correction, 514–515
First severe test, 508 –510
Five-Point Reversal, see Broadening Pattern
Flag-type Consolidation, 411
Flag, 151–159, 258, 410–411, 604
Flag Consolidation, 157, 179, 392, 465
Flag of mid-April, 175
Flat-Topped Broadening Formation, 136–137, 163
Flat-Topped Broadening Pattern, 151
Flat-Topped Price Formation, 177
Floating Supply, 73, 107, 117, 145, 315, 341, 604
Flying Tiger Corp, 471, 586
Force Index, 538
Forecasting methods, 11, 176, 421, 604
Formation, see Area Pattern
Formula measurement, 154 –156, 160, 164, 596, 608
Fractal nature of market, 31
Dow-Jones Industrials (1924–1934), 39
interesting charts ever made of Dow-Jones
Industrials, 40
trades made by Magee Basing Points Procedure,
33–37
2008 top in industrials, 38
Front-Month, 605
Fundamental analysis, 3, 6, 91, 266, 328, 605
essence of, 528–531
Funds tracking indexes, 603
Fungibility, 276–277
Futures “margins,” 277
Futures contract, 274, 276–277, 282, 283, 349, 494
Futures options, 283, 287, 313
to participate in market movements, 284
price of, 283
Future transactions, differences between cash and, 277
G
Gains and losses, percentage, 496
Galbraith, John Kenneth, 326
Gamblers Anonymous, 302
Gaps, 171, 411–413, 423, 605
April–June Rectangle on 1945 chart of “ AW,” 172
in averages, 187
closing gap, 171–173
daily chart of Blaw–Knox, 176
ex-dividend gaps, 174–186
Island “shakeouts, 181
Island in “PA,” 183
Island Reversal, 186–187
monthly chart of Zenith Radio, 175
Panic Declines produce large Runaway Gaps, 178
small Island in right shoulder of Head-and-
Shoulders Top, 180
SMC, 180
TLT, 183
Gates, Bill, 244
General Motors, 41, 99, 229, 230, 586, 598
straight-line Bull Market Trend, 230
General Semantics of Wall Street, The, 269
General Steel Industries, Inc. (GSI), 459, 586
Gilt-edged securities, 598
Gimlet-eyed investor, 270
Google, 321, 331, 339, 340, 343, 389, 586
Granite City Steel, 430 –
431, 586
Graph, see Chart
“Graphic Stocks,” 437
Great Crash, The (1929), 326
Greenspan, Alan, 248 , 281
H
“Hair splitting” theory, 521
“Half-Mast” patterns, 154, 161, 604, 608
Handbook of Por


neral Semantics of Wall Street, The, 269
General Steel Industries, Inc. (GSI), 459, 586
Gilt-edged securities, 598
Gimlet-eyed investor, 270
Google, 321, 331, 339, 340, 343, 389, 586
Granite City Steel, 430 –
431, 586
Graph, see Chart
“Graphic Stocks,” 437
Great Crash, The (1929), 326
Greenspan, Alan, 248 , 281
H
“Hair splitting” theory, 521
“Half-Mast” patterns, 154, 161, 604, 608
Handbook of Portfolio Mathematics (Vince), 618
Head-and-Shoulders Bottom, 55, 57–59, 61–63, 161,
336, 395, 401–403, 587, 605, 607, 608
Head-and-Shoulders Consolidation, 160–162, 164, 605
Head-and-Shoulders Formation, 48, 88, 373
Head-and-Shoulders formula, 100, 162
Head-and-Shoulders Pattern, 47, 137, 241, 392, 414,
454, 605–606, 608, 610, 615
Head-and-Shoulders Reversal Pattern, 211
Head-and-shoulders to Dow Theory, 55
Head-and-Shoulders Top, 44, 45, 46, 48, 54, 57–59, 63,
75, 77, 103, 108, 118, 160, 161
, 180, 198, 202,
241, 247, 294, 357, 394, 400–401, 449, 454, 455,
466, 602, 605, 606, 608, 617
Daily chart of Chicago, 46
hypothetical daily stock chart, 45
starting in March, “HUM,” 46
variations in, 49 –52
Heavy Volume, 355, 356, 363, 398, 402, 435, 605, 606
Hedging, 137, 240, 246, 276, 279, 287, 312, 606
Hedging strategies using CBOT
® DJIASM futures
contract, 276
High-risk stocks
hope springs eternal, 332 –340
managing tulipomanias and internet frenzies and
Bitcoin, 326–328
multitudinous lessons in Microsoft, 326
techniques for management of runaway issues,
328–332
High-volatility markets, option spreads in, 286 –287
Higher priced stocks, 353
Historical Data, 606
Hook Day, 606
Horizontal Channel, 213, 606
Horizontal Congestion Pattern, 178, 189
Horizontal Line Formations, 103 , 207
Horizontal Movements, 423
Horizontal pattern boundary, 177
Horizontal Trendline, 256, 333,
606
Hull, Blair, 267, 531, 611
Hybrid Head-And-Shoulders, 606
629Index
I
Ichimoku Cloud, 537
I C Industries (ICX), 49
“Ideal” trend, 197
“Implied volatility,” 284
In-the-money, 283
Indexes, 7, 19, 243, 261, 271, 310, 312, 314, 341, 343
funds tracking, 603
futures on, 273 –274
options on futures and, 274
Index funds, 299, 390
Index futures for asset allocation, 280 –282
“Indexing,” 310–311
Index Shares, 302, 310–312, 313, 390, 447
Individual stocks, 26, 41, 55, 112, 145, 146, 206, 243,
342, 447, 454, 484, 493, 495
Industrial Average, 11, 12, 13, 16, 18, 20, 23, 393, 444,
446, 454, 514, 515, 518, 600, 603
Industrial Rayon Corporation, 446 , 587
Inflationary and deflationary movements, 481 , 587
Information revolution,
265–266, 268, 270–271
Initial public offering share (IPO share), 327 –328, 607
Inside Day, 606
Insiders, 41–42, 168, 322, 327, 606
Inspiration Copper, 429
Intel, 319, 474, 475, 587
Intermediate Bottom, 64 , 87, 193, 202, 294, 384, 386, 414
Intermediate downtrends, 225 –226
Intermediate Reversals, 59, 200, 206
Intermediate Support, 197, 198, 226, 384, 385
Intermediate Support Range, 198
Intermediate Swing, 13, 507, 508
Intermediate Tops, 200, 211, 294, 361, 386, 414, 513
Intermediate Trend, 14, 41, 216, 224, 296, 380, 515, 519,
590, 606, 614
investor, 23–26
Intermediate Trendlines, 208 , 226, 229
Intermediate Uptrend, 194, 212,
213, 219, 222, 225
Intermediate Up Trendline (IUT), 52 , 176, 211, 212, 217,
220–221, 224
Internet-age markets, 351
Internet, 265, 268–269, 532
Internet Age, 269, 351, 393, 494
Internet frenzies and Bitcoin, 326 –328
Internet technical analysis sites, 305 , 531–533
Intraday gaps, 173
Inverted Bowl, see Rounding Top
Inverted Triangles, 100, 121, 135–136
Investment
advancements in investment technology, 271
bond and index futures for asset allocation,
280–282
developments in finance theory and practice,
271–275
finance theory and practice, 271 –275
futures and options on Dow–Jones Industrial
Index, 275–287
increasing exposure with futures, 280
investment-oriented sites, 524–527
investment/information revolution tools, 265
portfolio protection, 279 –280
strategies using CBOT
® DJIASM futures contract,
276
uses of Dow index futures, 279
Investor, 297–298, 332, 351
cyber, 270
experienced, 268
gimlet-eyed, 270
long-term, 310–311
modern, 244
private, 312
sophisticated, 302
iPod, 479
Island Congestion,
186
Island Pattern, 147, 186, 187
Island Reversal, 182, 186–187, 607, 611
J
Johns-Manville’s Primary Trend Reversal, 79
Jorion, Philippe, 500, 502, 524
July–August Flag, 158–159
K
Kaufman’s Adaptive Moving Average (KAMA), 537
Kelly Criterion, 534, 535
Keltner Channels, 537
Key Reversal Days, 147–149
Kilroy bottom, 57–59, 63, 309, 336, 401, 587, 607
Kovner, Bruce, 357, 365
Kresge (S.S.) Co., 196, 437, 588, 591
L
Laddering, 607
Lane, George, 615
Lane theorizes, 615
Leisurely pattern, 65 –66
Leverage, 258, 315, 607
Leverage factor, 534–535
Leverage Space Model, 351, 504, 618
Leverage Space Portfolios (LSP), 533–536, 607
Libby, McNeill And Libby, 436
Limit Move, 258, 607
Limit Order, 391, 607, 611
Limit Up, Limit Down, 607
Linear Moving Averages, 422
Line Chart, see Bar Chart
Line in Dow Theory, 17–18, 607
Liquidating, 378
–379
Livingston Oil Company (LVO), 464, 588
Logarithmic scale, 211–216, 229, 607
Long-term charts, 9
Long-term investment problem, 293
Long-term investor, 293, 297, 299, 313, 314, 389
strategy and tactics for, 297–298
630 Index
Long-term investor (Continued)
strategy of, 299–300
viewpoint, 310–311
“Long side” of market, 41
Lorillard, 447, 588
Low-volatility markets, option spreads in, 286 –287
Lower-priced stocks, 353
“Lunatic fringe,” 3
M
MacKay, Charles, 325
“M” Formation, 119, 602
Magee-type technical analysts, 266
Magee analyst, 267, 268, 270
Magee chart analysis, 266 , 270, 595
Magee Evaluative Index (MEI), 19, 300, 485–486, 491,
495, 503–504
Magee methodology, 260
Magee’s admonitions, 316
Magee’s Composite Leverage, 499
Magee’s concept of “sensitivity,” 342
Magee’s method, 252–259, 343, 497
Magee’s Sensitivity Index, 342, 354, 497
Magee’s simple-as-pie method, 32
Major Bear Market signal, 393
Major Bear Moves, 159
Major Bear Trend, 157, 226
Major Bull Market, 225
Major Bul


e Evaluative Index (MEI), 19, 300, 485–486, 491,
495, 503–504
Magee methodology, 260
Magee’s admonitions, 316
Magee’s Composite Leverage, 499
Magee’s concept of “sensitivity,” 342
Magee’s method, 252–259, 343, 497
Magee’s Sensitivity Index, 342, 354, 497
Magee’s simple-as-pie method, 32
Major Bear Market signal, 393
Major Bear Moves, 159
Major Bear Trend, 157, 226
Major Bull Market, 225
Major Bull trendlines, 241
Major charts, 9
Major Double Tops, 114
Major Downtrend, 242, 428–429, 439, 511–512, 519, 576,
579, 592
Major Market Turn, 60
Major Reversal, 106, 114, 123, 132
–133, 139, 158, 180,
491, 510, 513–514, 604–605
Major Reversal Formation, 66, 114, 123, 186
Major Reversal Patterns, 44, 605
Major Signals, 394
Major Trend, 17–18, 22, 97, 198–199, 212, 225, 229, 242,
296, 314, 356, 380–381, 384, 386, 393, 398,
430, 446, 449, 456, 482, 491, 493, 510, 512, 515,
607, 612
general outline of policy for trading in, 380 –381
of market, 410–411
Major Trend Channels, 242–243
Major trendlines, 227
accelerating uptrend of common stock, 231
Bull Market tops, 240
conservative investment-type utility stock, 232
decurving Major Bull Trend of high-grade
preferred stock, 231
high-grade food issues, 236
low-priced building stock, 235
Major Bull Trend, 234
Major Downtrends, 242
Major Trend Channels, 242–243
primary Bear Market, 238
S&P long-term perspective,
239
S&P Reagan Crash, 239
speculative oil stock, 233
steel stocks, 234
straight-line uptrends in investment oil, 233
tobacco stocks, 236
trading Averages in 21st century, 244
trendlines in averages, 243
up-curving trend of speculative motors stock, 230
Major Turn, 121, 167, 226, 242, 290, 483, 487
signs, 511–513
Margin, 88, 108, 145, 147, 221, 223, 274, 276, 342, 345,
367, 445, 492, 495, 535, 607–608
decisive, 48, 57–58, 118, 128
transaction, 346 , 349
use, 345–346
Market, 3, 6, 11, 19, 27, 31, 42, 77, 82, 104–105, 121, 139,
143, 147, 192, 207, 256, 259, 264, 270, 274, 280,
285, 289, 297, 299, 312, 315, 327, 383, 427, 487,
493, 505, 507
Dow-Jones Industrials (1924–1934), 39
exploiting market reversals, 285
fractal nature, 31
indicator, 609
interesting charts ever made of Dow-Jones
Industrials, 40
marking-to-market, 269 –270
marking-to-market trading, 276
technical trading effect on market action,
419–420
trades made by Magee Basing Points Procedure,
33–37
2008 top in industrials, 38
Market on Close, 608
Market Order, 297, 328, 608, 611, 616
Market Reciprocal, 497, 608, 612
Market Technicians Association, 499
Market Technicians Association of New York
(MTANY), 6
Masonite, 431, 575, 588
Mass Index, 538
Mast, 152, 217, 392, 411, 604, 608
move, 410
Maximum drawdown, 27, 32, 502, 527, 603
Maximum retracement, 502
McClellan Oscillator, 608
McDermott, The Redoubtable Richard, 325 , 528
Measuring Formulae, 608
Measuring Gap, see Runaway Gap
Measuring or Half-Mast Patterns, see Flag
Measuring rule, 55, 65, 100,
154–155, 182–184, 392
Mechanical Dow Theory, 299
Mechanical systems, 250 , 252, 260, 296, 423
Megaphones, 608, 613
Melon, 194, 609
Memorex Corp. (MRX), 470
Metastock 9.0, 531–532
Mike Moody, 545, 556–561
Mining engineers, 326
631Index
Minor Bottom, 88, 91–92, 122–123, 193, 198, 208, 210,
222, 354, 362–363, 373, 378–379, 386, 403, 413,
414, 417, 517, 608–609, 616–617
Minor Bottoms, 123, 208, 222, 361, 363, 373, 386,
413–414, 617
Basing Points, 362–365
Basing Points paradigm, 365 –366
complete Basing Points Procedure, 368 –370
narrative of events in chart, 367–368, 371–372
representative case fully analyzed using wave
lows and new highs, 370–371
Variant 2 procedure, 370
Minor Correction, 209, 363, 386
Minor Fluctuations, 13, 74, 77, 99, 129–130, 138, 151,
186, 190
process, 153
Minor phenomena, 202
Minor Reaction, 95 –96, 115, 172, 181, 186, 362, 397, 407,
440, 605
Minor Reversal, 122–123, 155–156
Minor Reversal Areas, 157
Minor Setback, 17, 216, 432, 517
Minor Swings, 186
Minor Top, 79–80, 122, 198, 206, 354–355, 361, 363,
373–374, 378, 385, 414, 439, 444, 513, 616
Basing Points, 362–365
Basing Points paradigm, 365 –366
complete Basing Points Procedure, 368 –370
narrative of events in chart, 367–368, 371–372
representative case fully analyzed using wave
lows and new highs, 370–371
Variant 2 procedure, 370
Minor Trend, 13–14, 82, 144, 229, 290, 386, 410, 507, 609
Minor Wave Pattern, 197
Minor Waves, 13, 223, 509
Misconceptions, 198 –200
Model-driven market, 266, 272
“Models,” 266–267, 273
Modern-style markets, 168 –169
Modern era development, 271
Modern Portfolio Theory (MPT), 275, 499
Momentum, 43, 49, 184, 326, 539, 611, 614
Momentum Indicator, 538, 542, 609
Money, 41, 249, 253, 265–266, 270, 272, 283, 299, 332,
348, 489–490, 608
management procedures, 503 –504
management rules, 258
Money Flow Index (MFI), 538
sophisticated risk and, 504
Monthly chart gaps, 171
Moving Average, 421, 424, 537, 539, 609, 610
150-Day Moving Average, 424
200-Day Moving Average Line, 31, 267, 299, 300,
317, 422, 423, 484, 618
50-Day Moving Average Line, 316, 422, 484, 604
crossovers and penetrations, 422 –424
PENTAD Moving Average system from formula
research, 424 –425
Sensitizing Moving Averages, 422
Moving Average Convergence/Divergence (MACD),
538,
542–544, 609, 610
Histogram, 538
Moving Average Crossovers, 609
Moving Average Envelopes, 537
Moving Average Line, 422–423, 541, 598, 604,
609, 618
Multicolincarity, 598, 610
Multiple Bottoms, 414, 434
Multiple Formations, 66, 68
Multiple Head-And-Shoulders Pattern, see Complex
Head-and-Shoulders Pattern
Multiple Tops, 364, 403, 409, 414
Mutual funds, 43, 268, 390, 495
N
Narrow Range Day, 610
NASA, 249
National Association of Securities Dealers
Automated Quotations (NASDAQ), 19, 316
NASDAQ 100, 312, 480
Natural Hedge, 485, 610
Natural mechanical systems, 260
Natural method, 359, 610
NDX, 480, 577
Near progressive stops, 139
Neckline (NL), 47–49, 57, 597, 610
on multiple head-and-shoulders formations, 61
Ned Davis Research, Inc. (NDR), 424
Negative divergence, 610
Negative Volume Index (NVI), 538
Ne


onal Association of Securities Dealers
Automated Quotations (NASDAQ), 19, 316
NASDAQ 100, 312, 480
Natural Hedge, 485, 610
Natural mechanical systems, 260
Natural method, 359, 610
NDX, 480, 577
Near progressive stops, 139
Neckline (NL), 47–49, 57, 597, 610
on multiple head-and-shoulders formations, 61
Ned Davis Research, Inc. (NDR), 424
Negative divergence, 610
Negative Volume Index (NVI), 538
Nelson Freeburg of Formula Research, 424
New commitments, 418
New Concepts in Technical Trading (Wilder), 618
“New Haven Investor,” 298
New York Stock Exchange (NYSE), 4, 269, 300, 311,
313, 316, 341
, 349, 615, 616
NOKIA (NOK), 475
Normal Range for Price, 344 , 346, 354, 497, 610
Normal Uptrend Channel, 141–142
Northrop Aircraft, 438 –439
Number-driven systems, 259 –260
Number-driven technical analysis, 4, 267, 610
Number-driven technical analysts, 266
O
Odd lots, 351, 610
Old-style markets, 168–169
Old-time “plunger,” 168
On Balance Volume (OBV), 538, 610–611
One-Day Island Reversal, 607
One-Day Reversal, 42, 144–145, 410, 600, 615
One-Week Reversal, 147, 450, 589
Operational Risk, 501–504
Opportunity vs. Security, 308
Optimal formula, 534, 535
Optimization, 275
632 Index
Options, 271–272, 611
on Dow index futures, 282–283
exercising, 284
on futures and indexes, 274
pricing models and importance, 273
spreads in high-or low-volatility markets, 286 –287
as strategic investment, 273
traders, 272
trading, 272
Options Research, Inc, 611
Oracle Corporation, 332, 468, 573, 576, 579
Order, see Limit Order; Market Order; Stop Order
Orthodox Broadening Top, 123, 130–135
“Orthodox” investors, 419
Oscillator, 4, 7, 304, 419, 600, 611
Aroon, see Aroon Oscillator
Chaikin, see Chaikin Oscillator
Out-and-out boardroom gamblers, 168
Out-of-the-money, 283
strike price, 285
Overbought, 611
Oversold market, 486, 611
“Oversold-overbought” indicator, 485, 611
Overtrading, 351, 493, 496–498
P
Pacific Coast Options Exchange, 531
Packard–Bell Electronics Corp (PKB), 465
Palm Computing, 327
Panic, 611
decline, 145, 157, 159, 171, 178, 192,
201
phase, 15, 147, 380
Panic Bottom, see Selling Climax
Parabolic SAR, 359, 537
Paradigm-setting model, 271
Paradox, 496–498
Parallel Trend Channel, see Descending Trend
Channel
Parke, Davis and Company (PDC), 466
Passive Indexer, 611
Patience, 265
Pattern
analysis, 357
bou ndar y, 203
gaps, 176, 184
resistance, 202–205
Peak, see Top
Penetration(s), 422–424, 611
validity, 220–222
Pennant(s), 151–154, 410–411, 611
consolidations, 157
and flags, 608
reliability, 156–157
Pennant Consolidation, 392
PENTAD Moving Average system from formula
research, 424 –425
%B Indicator, 538
Percentage Price Oscillator (PPO), 538
Percentage Volume Oscillator (PVO), 538
Performance measurement, 275
Personal body digital assistants (PBDAs), 268
Philosopher’s Stone, 249, 265, 275, 539
Pivot Points, 537, 543
Plain scale, 8
Planned distribution, 98
Point and figure (P&F), 392, 532, 545
analysis, 543
charting, 267, 532, 545, 612
technical analysis by Mike Moody, 556 –
561
Polaroid Corporation, 451
Polymath, 31
Pool operations, 105–112
Portfolio ordinary or operational risk, 502 –503
Portfolio protection, 279–280
Portfolio Risk Analysis screen, 529 , 530
Portfolio Risk Factor (PRF), 502
Portfolio risk management
controlling risk, 503
measuring maximum drawdown, 502
overtrading, 496 –498
risk and money management procedures, 503 –504
risk and trend, 499
risk of portfolio, 499
risk of single stock, 498 –499
sophisticated risk and money management
procedures, 504
VA R, 499–500
Portfolio Risk Strategy, 496, 497
Portfolio valuation, 275
Portfolio yields improvement, 286
Pragmatic analysts, 275
Pragmatic portfolio analysis, 502
portfolio extraordinary or catastrophic risk, 503
portfolio ordinary or operational risk, 502 –503
portfolio risk over time, 503
Pragmatic portfolio risk measurement, 500
determining risk for portfolio, 501 –502
risk of one stock, 500 –501
Pragmatic portfolio theory, 500
Premature breakouts, 108, 612
Preparatory buying signals, 375 –376
Preparatory selling signals, 379
Price Congestion Formation, 177
“Price–earnings ratio” index, 469 , 612
Price Relative/Relative Strength, 538
Price(s), 196
channels, 537
fluctuation, 261
of futures option, 283
line, 423
pattern, 52, 57, 70, 127, 135, 138, 614
Primary Bear Market, 238 , 242, 243, 507–
508
Primary Bull Market, 21 , 22, 41, 86, 122, 242
Primary Direction, 13 , 355, 363, 380, 381, 383, 385,
386, 391
Primary Downswing, 202 , 242
Primary Downtrends, 15
633Index
Primary Market Trend, 26
Primary Reversal phenomenon, 118
Primary trends, 12 –14, 16
Pring’s Know Sure Thing (KST), 538 –539
Pring’s Special K, 539
Probable moves of stocks, 341–344
Profit-taking patterns, 168
Profit analysis, 530
Profits in rising markets, 284 –285
Program Trading, 311, 612
Progressive stop, 328, 355–357, 359, 370, 379, 612
Protective stop(s), 295, 353, 355, 356, 358, 361, 612, 616
Proxy markets, 278
Psychological grounds, 117
Psychological handicap, 293
Public Service Electric and Gas (PEG), 469
Pullback(s), 110, 202, 205, 224, 612, 617
Pullback Rallies, 58
“Pure investor,” 294–295
Put option, 272, 284, 285, 312, 611, 612
Q
QID, 350
QQQ, 244, 271, 312, 313, 490
Quantitative analysis, 272 –273
Quantitative analysts, 266
R
Rail Average, 513, 603
Rails falter, 516–517
Rally, 612
Rally Tops, 612
Range, 612
Rate of Change (ROC), 539
Reaction, 612
Reciprocal, Market, see Market Reciprocal
Recover y, see Rally
Recovery Trends, 202
Rectangle(s), 18, 151, 159, 173, 189, 373, 408–409, 606,
608, 613
to Dow Line, 112–113
patterns, 378
from Right-Angle Triangles, 113
in Socony–Vacuum, 106
tops, 103–105
Rectangular Consolidations, 159
Red Parallel, 373, 378, 379, 613
Red Trend, 373, 375, 376, 379, 380
Red Trendline, 373, 376, 377, 613
Relative Strength, 619
Relative Strength Index (RSI), 539, 598, 613, 618–619
Relative Strength Indicator, see Relative Strength
Index (RSI)
Reliability of flags and pennants, 156 –157
Repeated saucers, 162–167
Resistance, 189, 603, 616
Level, 155, 1


6
tops, 103–105
Rectangular Consolidations, 159
Red Parallel, 373, 378, 379, 613
Red Trend, 373, 375, 376, 379, 380
Red Trendline, 373, 376, 377, 613
Relative Strength, 619
Relative Strength Index (RSI), 539, 598, 613, 618–619
Relative Strength Indicator, see Relative Strength
Index (RSI)
Reliability of flags and pennants, 156 –157
Repeated saucers, 162–167
Resistance, 189, 603, 616
Level, 155, 184, 189, 194, 198, 202, 206, 226
, 246, 613
Lines, 99, 196
Range, 189, 193, 196, 197
Zones, 192, 194, 197, 200, 206
Resources, 523
essence of fundamental analysis, 528 –531
important and indispensable sites, 523
investment-oriented sites, 524–527
leverage space portfolio model, 533 –536
references for further study, 524
Sharpe Ratio, 527
software packages and internet technical analysis
sites, 531–533
volatility calculation, 527–528
Retracement, 118, 172, 603, 613
Return Line, 223, 225, 596, 601
Reversal
Broadening Bottoms, 135
Broadening Formations, 121–122
The Diamond, 137–139
Falling Wedge, 142–143
Key Reversal Days, 148–149
One-Day Reversal, 144–145
Orthodox Broadening Top, 130–135
Right-Angled Broadening Formations, 135 –137
Rising Wedges common in Bear Market
Rallies, 144
Runaway Days, 148
Selling Climax, 145–147
short-term phenomena of potential importance,
147–148
Spikes, 147–148
typical example, 128 –130
volume during broadening formations, 122 –128
wedge formations, 139–142
wedges on weekly and monthly charts, 143 –
144
Reversal Area, 42, 55, 158
Reversal Days, see Key Reversal Days
Reversal Formation, 42, 50, 155, 168, 198
Reversal Gap, 613
Reversal Levels, 190
Reversal Pattern(s), 41, 42, 77, 132–133, 493, 602, 613
ADM turned sharply lower, 64
breaking neckline, 47–49
Descending Triangles, 98 –99
distinguishing characteristics, 115 –118
Dormant Bottom variation, 73 –74
Double and Triple Tops and Bottoms, 113–115
Double Bottoms, 118
Dow Theory, 41
fine Symmetrical Triangle Reversal Formation, 78
Head-and-Shoulders Bottoms, 57–59
Head-and-Shoulders to Dow Theory, 55
Head-and-Shoulders Top, 44, 45, 46, 63
“ideal” multiple top made by Budd in (1946), 62
intermediate bottom of complex class, 64
Johns-Manville’s Primary Trend Reversal
(1942), 79
leisurely pattern, 65 –66
long multiple head-and-shoulders top, 63
634 Index
Reversal Pattern(s) (Continued)
MCA enjoyed 62excellent advance from
(1980–1986), 62
measuring implications of Triangles, 100
multiple head-and-shoulders patterns, 59 –61
planned distribution, 98
pool operations, 105–112
price action confirmation, 52–55
prices break out of Symmetrical Triangle,
88–90
Rectangles, double and triple tops, 103 –105
Rectangles from Right-Angle Triangles, 113
relation of Rectangle to Dow Line, 112–113
reversal or consolidation, 94 –97
Right-Angle Triangles, 97–98
Rounding Tops and Bottoms, 66 –70
Rounding Turns affect trading activity, 70 –73
Sears Roebuck made Symmetrical Triangle
Reversal, 78
slide in Amdahl occupied Bears, 65
Symmetrical Triangles, 79 –88
tendency to symmetry, 61
time to reverse trend, 42 –44
Triangles on weekly and monthly charts, 100
Triangular formations, 100 –101
Triple Tops and Bottoms, 118–120
typical Triangle development, 90 –94
variations in head-and-shoulders tops, 49 –52
volume, 44–45, 47, 74–75, 99–100
Rhythmic investing, 300 –302
Rhythmic Trading, 485
Richard Arms work, 545
Arms CandleVolume charting, 551–553
Arms Index, 545 –548
calculation, 548
Equivolume charting, 550 –551
using index, 548 –549
reasoning, 548
Right-Angled Broadening Formations, 135 –137,
409
Right-Angled Broadening Triangle, 606 , 613
Right-Angle Triangle(s), 97–98, 103, 139, 173, 408,
596, 601
chart, 99
rectangles from, 113
Ripple, 14
Rising Channel, 413
Rising Wedge(s), 139, 141, 143, 614
common in Bear Market Rallies, 144
Risk
analysis, 529
management, 495–504
measurement, 502–503
and money management procedures, 503 –504
sophisticated, 504
“Risk-free” interest rate, 273
Rocket scientists, 249 –250
Round-trip costs, 389
Rounding Bottom(s), 66–70, 403–406, 599, 614
Rounding Top(s), 66–70, 403–406, 606, 614, 617
Rounding Turn(s), 66, 68
affecting trading activity, 70 –73
picture, 70
Round lots, 351, 614
RRG Relative Strength, 539
Runaway Days, 147, 148
Runaway Gap, 177, 182–186, 202, 258, 601, 608, 614
Runaway issues, 327
techniques for management of, 328 –332
Runaway or Continuation Gap, 392
Running Market, 614
S
Saucer-Like Reaction Pattern, 99
Saucer Pattern, see Rounding Bottoms
Scales, types of, 8 –9
Scallops, 162–167, 614
Schadenfreude, 326
Schannep, Jack, 21, 26
Scholes, Myron, 271
Schwager, Jack
Secondary Reaction, 13, 18, 357, 493, 515, 516, 517, 519
Secondary Recovery swing, 508
Secondary Trend, see Intermediate Trend
Secondary trends, 12 , 13, 17
Secular Trend, 614
“Self-correction,” 197
Selling Climax (SC), 138, 145–147, 190, 201, 600,
611, 615
Selling Climax Day, 615
Selling stock short, 379
Semilogarithmic paper, 8
Semilogarithmic Scale, 8 , 144, 220, 242, 607, 615
Sensitivity, 341, 342, 346, 354, 422, 495, 600, 615
Sensitivity Index, 322 , 342, 345, 346, 353, 492, 497
Sensitizing Moving Averages, 422
Settlement
of futures contracts, 276
price,
276, 600
“Settlement date,” 276
Shakeout, 89, 145, 181, 221, 264, 505, 615
Sharpe Ratio, 499, 527
Short-term phenomena of potential importance,
147–148
Short-term profits, 297
Short-term trader, 190, 297, 389, 419
Shorting stocks, 284
Short Interest, 7, 348, 615
Short sale(s), 379–380, 400, 409, 615
Short selling, 145, 346–350, 485
“Short side” of market, 41
Shoulder, see Head-and-Shoulders Pattern
“Sideways” chart pattern, 151
Sideways Movements, 423
Simple Moving Averages (SMAs), 422, 537, 549
Single stock risk, 498 –499
Sites, important and indispensable, 523
“Skullduggery,” 168, 169
635Index
Skyrocket, 184, 185, 196, 321, 401, 493
effect, 71
run-up of Willys–Overland, 179
Slauson, John, 387
Slope, 539
“Smart money,” 265
Smoothing, 615
Software packages, 305, 531–533
“Special Opening Quotation,” 276
Speculative aims, 245
Speculative blow-offs, 326
Speculative stock, 345, 492


, 537, 549
Single stock risk, 498 –499
Sites, important and indispensable, 523
“Skullduggery,” 168, 169
635Index
Skyrocket, 184, 185, 196, 321, 401, 493
effect, 71
run-up of Willys–Overland, 179
Slauson, John, 387
Slope, 539
“Smart money,” 265
Smoothing, 615
Software packages, 305, 531–533
“Special Opening Quotation,” 276
Speculative aims, 245
Speculative blow-offs, 326
Speculative stock, 345, 492
Speculator(s), 3, 145, 149, 274, 286, 293, 297–298, 300
agile, 148
com modit y, 246
psychology, 245
Spiegel’s Bear Market, 262
Spike(s), 147–148, 615
Spring of 1946, 517–518
SPY, see Standard & Poor’s Depositary Receipts (SPDRs)
Standard & Poor (S&P), 274, 310–311, 482
Standard & Poor’s Depositary Receipts (SPDRs), 271,
274, 299, 317, 323, 351, 390
Standard Deviation, 539
Statistical approach, 3
Statistical driven technical analysts, 266
Statistics fundamentalists, 4
“Stepping off” point, 417
Stick to guns, 505 –506
Stochastic(s), 542, 615–616
Stochastic Indicator, 615
Stochastic Oscillator, 539, 615
StochRSI, 539
Stock(s), 12, 307, 353, 356, 414, 417, 482
alphabetic index of stock charts, 579 –593
averages, 483
chart, 7
construction of index shares and similar
instruments, 311–312
at different times, 427–479
index futures to control exposure, 277 –278
instruments, 313s
kinds of stocks long-term investors want, 311
long-term investor’s viewpoint, 310–311
Major Downtrends, 428 –429, 439
NDX, 480
opportunity vs . security, 308
options, 494
prices, 42, 266, 505
probable moves, 341–344
S & P, 308
S&P 500 in glory and tragedy, 309
selection of stocks to chart, 315 –323
SPY. for illustration, 309
trends, 218
StockCharts Technical Rank (SCTR), 539
Stock Exchange vigilance, 168
Stock market(s), 3, 189, 266
fundamentalist, 3
to newcomer, 427
Support–Resistance Level, 430
Stock Split, 616
Stop, 616
Stop Loss, see Protective Stop
Stop orders, 353, 611
ATR, 358–359
natural method using by Turtles, 359
progressive stop, 355–357
SAR, 359
stop distances, 354
stop systems and methods, 357–358
survey of stop methods, 358
target stops, 359
Street, 3
Street firms, 325
“Strike” price, 282
Superior Oil Co (SOC), 458
Supply, 616
Supply and demand, 77
balance, 245
equation, 42
relation, 175
Supply Line, see Resistance
Support, 189, 603
significance of support failure, 197 –198
Support and Resistance, 383 –387, 410, 414
in averages, 206
estimating support–resistance potential, 194–196
explanation, 191–193
levels, 198, 200, 264
locating precise levels, 196 –197
normal trend development, 190
pattern resistance, 202 –205
popular misconceptions, 198 –200
predictions, 189–190
principle, 189
repeating historical levels, 200 –202
round figures, 200
significance of support failure, 197 –198
t heor y, 202
volume on breaks through support, 205 –206
Support Level, 151, 189, 192, 198, 206, 210, 364, 383,
386, 391, 414, 417, 616
Support Line, 598
Support Range, 189, 192
Support–Resistance Level, 266, 430
Support–Resistance Theory, 224
“Swing” power, 307
, 345
Symmetrical Triangle, 80 , 600
Symmetrical Triangles, 79 –88, 103, 121, 151, 168,
203–205, 406–408, 609, 616
pattern, 603
prices break out, 88–90
T
Tactical methods
making new commitments, 418
636 Index
Tactical methods (Continued)
present commitments, 417–418
quick summation, 417
Tactical problem
Hudson Motors, 295
long-term investor, 299
rhythmic investing, 300 –302
strategy and tactics for long-term investor,
297–298
strategy of long-term investor, 299–300
“Tangents,” 208
Tape Reader, 9, 166, 616
“Tape watchers,” 163, 166
Target stops, 359
Tax, 313
consequences, 277
selling, 517
Technical analysis, 4–6, 419, 478, 537
Bollinger Bands, 561–563
number driven tools, 537–545
Point & Figure technical analysis by Mike Moody,
556–561
Richard Arms work, 545 –553
and technology, 265–266
Technical chart patterns, measuring implications in,
391–392
Technical data, 6, 227, 528
Technical indicators, 538 –539
Technical Magee analyst and investors, 268
chaff, 270
information revolution, 270 –271
internet, 268–269
marking-to-market, 269 –270
separating wheat from chaff, 270
Technical overlays, 537–538
Technical regularity, 313
Technical trading effect on market action, 419 –420
“Teenie,” 272
TEKNIPLAT
chart paper, 305, 443, 616
semilogarithmic chart sheet, 219 –220
Tenets,
12–14, 207, 507, 517
Test(s), 617
of authority, 216–220
Text diagrams, 565–578
Textron, 435, 575, 592
“Theoretical value” of future, 277
Thin Issue, 174, 356, 617
3COM, 319, 327, 331, 579
“Three-days-away” rule, 300 , 328, 361, 369, 414, 617
Throwback(s), 99, 110, 181, 202, 203, 221, 224–225, 612,
617
Tide, 14
Time
requiring to reverse trend, 42 –44
scale, 8, 31
TLT chart, 258
Top, 611, 617
Broadening, see Broadening Top
Double, see Double Top
Head-and-Shoulders, see Head-and-Shoulders Top
Rounding, see Rounding Top
Triple, see Triple Top
Top of Ascending Triangle, 177
Top Price Chart Formation, 598
Top Trendlines, 414, 598, 613
Total Capital (TC), 307, 492
, 498, 502, 503, 504
Total Composite Leverage, 297
Trader(s), 251, 284, 293, 296, 300, 315, 505
Traders, 358
Trades, 33–37, 409
Tradestation 2000i, 532
Tradestation 8, 532
Trading, 4
act ivit y, 17, 44–45, 80, 91, 122, 163, 185, 221, 316, 441,
511, 614
area, 103, 121, 151, 175, 423, 613
averages in 21st century, 244
costs, 390
opportunities, 42 , 163, 266, 475
range, 73, 79, 149, 186, 286, 599, 607, 609, 616
Transportation Average, 596, 600, 603
Treasury bonds, 253, 281
Trend(s), 12, 13, 14, 223, 229, 617
consolidation, 151
ranges, 222–223
and trendline studies, 264
Trend Channels, 214, 215, 223, 242–243, 356, 392, 617
in Bethlehem Steel, 213
Parallel Trend Channel, 373 –375, 378
Rising Trend Channel, 225
Trending Market, 252, 253, 286, 423, 595, 617
Trendline(s), 207–209, 209–211, 414, 429, 597, 616, 617
in action, 375
additional suggestions, 380
amendment of trendlines, 222
analysis, 357
arithmetic vs . logarithmic scale, 211–216
buying stock, 375–377
consequences of Trendline penetration, 224 –225
corrective trends, 226 –227
covering short sales, 379–380


373 –375, 378
Rising Trend Channel, 225
Trending Market, 252, 253, 286, 423, 595, 617
Trendline(s), 207–209, 209–211, 414, 429, 597, 616, 617
in action, 375
additional suggestions, 380
amendment of trendlines, 222
analysis, 357
arithmetic vs . logarithmic scale, 211–216
buying stock, 375–377
consequences of Trendline penetration, 224 –225
corrective trends, 226 –227
covering short sales, 379–380
double trendlines and trend ranges, 222 –223
experimental lines, 224
intermediate downtrends, 225 –226
liquidating, or selling long position, 378 –379
policy for trading in Major Trend, 380 –381
selling stock short, 379
tests of authority, 216–220
validity of penetration, 220 –222
Triangular Price Formations, 103
Triangular/Triangle(s), 79–80, 423, 608, 617
development, 90–94, 98
formations, 100–101
measuring implications, 100
patterns, 378
on weekly and monthly charts, 100
Triple Bottom(s), 113–115, 118–120, 617
637Index
Triple Top, 103–105, 113–115, 118–120, 504, 568, 617–618
TRIX, 539
True Range, 358, 595
True Strength Index, 539
Tulipomania, 61, 308, 325, 331, 332, 339, 577, 593, 607
managing, 326–328
PALM, 329
Tulips, 241, 325, 329, 331, 339
“Turbulent period,” 485, 486
Twain, Mark, 26–27, 304, 365, 532
Turtle(s), 250–252, 259
natural method using by, 359
system, 258–260
U
Ulcer Index, 539
Ultimate Oscillator, 539
United Artist Corporation (UNA), 460
Unnatural method, 610
Up-slanting
bottom boundary, 92–93
line, 79–80, 91
Up Channel, 596
Uptick, 349, 350, 618
Up trendline, 208, 209, 210, 211, 216–217, 221, 596
, 617
Uptrends, 14, 104, 153, 158, 208, 212, 219, 225, 233,
422–423, 429, 432
U.S. Securities and Exchange Commission (SEC), 105 ,
145, 168, 390
U.S. Smelting, Refining and Mining Co, 453 , 463
a, 428
Head-and-Shoulders Top in (1952)
U.S. Steel, 4, 5, 79, 105, 127, 131, 147, 200, 201, 569
Utah–Idaho Sugar Co. (UIS), 461, 576, 593
Utility Average, see Dow–Jones Utility Average
V
Validity of Trendline Penetration, 618
Valley, 116, 118, 119, 176, 618
Value-at-risk procedure (VAR procedure), 499–500
Variance, 212, 311, 344, 501, 527, 536
Variant 2 procedure, 368, 370
Variations in head-and-shoulders tops, 49 –52
V /D volume, 618
“Vertical” Panic Declines, 157
“Vested interest,” 186, 199, 200, 201, 202
Vigor, 95, 144
, 197, 516
Vince, Ralph, 504, 533, 607, 618
Volatility, 283–284, 343, 354, 498, 500, 501, 528, 539, 618
calculation, 527–528
Volume-Weighted Average Price (VWAP), 538
Volume, 44–45, 47, 108, 193, 194, 264, 595, 616, 618
on breaks through support, 205 –206
during broadening formations, 122 –128
characteristics same as symmetrical type, 99 –100
confirmation, 398, 401, 407, 408, 432, 449
pattern, 46, 47, 57, 59, 63, 64, 67, 74–75, 137, 161, 196,
207, 216, 605, 614
by Price, 537–538, 543
of trading, 67, 193, 197, 221, 618
Vortex Indicator, 539
“Voyeur” feature, 532
W
Wall Street investment banks, 325
Wall Street Journal, 11, 12, 243, 312
“Wash sales,” 107
Wave, 14
Wave analysis methods, 260
Wedge(s), 139, 409–410, 618
formations, 139–142
on weekly and monthly charts, 143 –144
Weighted Moving Averages, 422
West Indies Sugar, 437, 575, 593
Westinghouse Electric, 47, 237, 437, 442, 566, 568, 572,
575, 593
“W” Formation, see Triple Top
Wide-Ranging Days, see Runaway Days
Widening Channel effect, 243
Wilder Relative Strength Index (Wilder RSI), 595 , 610,
618–619
Wieckowicz, R.T., 307
Williams, Larry, 420, 531
Williams %R, 539
World Equity Benchmarks (WEBs), 312
World War II, end of, 515, 516
“W” Pattern, see Triple Top
Wright, Charlie, 494
Wyckoff, Richard, 259, 392, 550
Wyckoff’s charts, 531
Y
Yahoo! (YHOO), 330, 476, 477, 526, 577, 593
Z
Zen, 269
ZigZag, 197, 383, 538
Zone, Resistance, 189, 192–194, 196, 197, 199–200, 202,
206, 387


Robert D. Edwards John Magee W.H.C. Bassetti
Routledge
Taylor & Francis Croup
A PRODUCTIVITY PRESS BOOK
Technical Analysis of Stock Trends Eleventh Edition
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Technical Analysis of Stock Trends Eleventh Edition Robert D.
Edwards John Magee W. H. C. Bassetti
Routledge
Taylor & Francis Group
A PRODUCTIVITY PRESS BOOK
Routledge
Taylor & Francis Group
711 Third Avenue, New York, NY 10017
© 2019 by Taylor & Francis Group, LLC
Productivity Press is an imprint of Taylor & Francis Group, an Informa
business No claim to original U.S. Government works
Printed on acid-free paper
International Standard Book Number-13: 978-1-138-06941-1 (Hardback)
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Library of Congress Cataloguing-in-Publication Data Names: Edwards,
Robert D. (Robert Davis), 1893- author. | Magee, John, 1901-author. |
Bassetti, W. H. C., author.
Title: Technical analysis of stock trends / Robert D. Edwards, John Magee,
W.H.C. Bassetti.
Description: Eleventh Edition. | New York : CRC Press, [2018] | Revised
edition of the authors' Technical analysis of stock trends, c2013. | Includes
bibliographical references and index.
Identifiers: LCCN 2018010151 | ISBN 9781138069411 (hardback : alk.
paper) Subjects: LCSH: Investment analysis. | Stock exchanges--United
States. | Securities--United States.
Classification: LCC HG4521 .E38 2018 | DDC 332.63/20420973--dc23
LC record available at https://lccn.loc.gov/2018010151
Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com
and the Productivity Press site at http://www.ProductivityPress.com
24800.35
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Figure 0.1 DOW 25000! What a birthday present for the 11th edition! The
Dow continues to set records since March of 2009, as vividly illustrated by
this chart.
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Contents
Preface to the tenth edition
Preface to the ninth edition
Preface to the eighth edition
In memoriam
Preface to the seventh edition
Preface to the fifth edition
Preface to the fourth edition
Preface to the second edition
Foreword
The Dow Theory is not infallible
Replacing Dow Theory with John Magee's Basing points
Procedure
Important Reversal Patterns
Important Reversal Patterns: continued
Important Reversal Patterns: the Triangles
More important Reversal Patterns
Other Reversal phenomena
Wedges on weekly and monthly charts
Which gaps are significant?
Support and Resistance
Trendlines and Channels
Major Downtrends
A summary and concluding comments
Perspective
The all-important details
Selection of stocks to chart
The probable moves of your stocks
What is a Bottom and what is a Top?
Use of Support and Resistance
Symmetrical Triangles
Automated trendline: the
Figure 37.26 Weekly, July 1961 through June 1962. This
chart shows the Head-and-Shoulders Top Formation in the
Industrial Average that preceded the collapse of April, May,
and June 1962. Normally, especially in the charts of
individual stocks, there would tend to be heavier volume on
the left shoulder. The price pattern alone is sufficient to mark
the pattern as a dangerously toppy situation. During the
entire period in which this formation took shape, many
individual stocks representing important companies were
showing Top Reversal symptoms, as might be expected.
Note, so far as this Head-and-Shoulders Pattern is
concerned, the Reversal Signal is not definite until the
neckline has been penetrated.
Balanced and diversified
Portfolio risk management
Appendix A: The Dow Theory in practice
Appendix B: Resources
Appendix C: Technical Analysis beyond Edwards & Magee
09 10 11 12 13 14 IS It 17
List of Illustrations and Text Diagrams
Alphabetic Index of Stock Charts
Glossary
Bibliography
Index
Range, 189, 193, 196, 197
Contents
Preface to the eleventh edition
Beyond Edwards & Magee
I would be remiss if I did not note the passing of two important figures in
the discipline of technical analysis—Richard Arms Jr. and Professor Hank
Pruden of Golden Gate University. Well liked and admired they leave large
gaps in the community. The article here by Arms is literally his last
contribution to the field. Long the central figure in San Francisco, Hank
Pruden, much loved and admired leaves the

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


e remiss if I did not note the passing of two important figures in
the discipline of technical analysis—Richard Arms Jr. and Professor Hank
Pruden of Golden Gate University. Well liked and admired they leave large
gaps in the community. The article here by Arms is literally his last
contribution to the field. Long the central figure in San Francisco, Hank
Pruden, much loved and admired leaves the entire field with an enormous
gap. He was my particular friend and mentor. He will be infinitely missed.
The reader is advised to read the prefaces to previous editions. They are of a
piece with the internal text and some practices—of notation and treatment
may not make sense otherwise. Those who think gender should be catered
to will find my previous comments on that issue. Why repeat it here?
Let me address the central question focused on by this new edition: This
book has studiously ignored an entire field of technical analysis—number
driven and statistical analysis. This has left previous new readers without
the guidance they need if they are uneasy with the qualitative method as
invented (or discovered) by Edwards & Magee. That lack is resolved by
Appendix C. There the new reader will find number-driven material
presented from the point of view of an Edwards & Magee analyst. There
also the reader will find presentations of tools by their creators—a very
special treat, and extremely educational. I venture to say any analyst will
have his field of vision broadened by Mike Moody's presentation of Point
and Figure charting and the tools of Richard Arms, two prominent analysts
for whom many of us, especially we chartists, have not given their work the
study it deserves.
The list of acknowledgments is as long as a Hollywood awards night. I will
shorten it by pointing out previously acknowledged colleagues, assistants,
and supporters in previous prefaces. Generally speaking, it is the usual
suspects. Some especially merit additional mention here: Nehemiah Brown
III, my much-valued and sometime graduate student helps me keep my
spreadsheets rational and accurate. My old friend Mark Wainwright (a Tuck
graduate) helps me solve technological problems. Part of the pleasure of
preparing a new edition comes from interacting with these bright and
capable people.
I have not mentioned Ralph Vince (a formidable figure) or Chris Glon,
Richard Arms, and Mike Moody.
My efforts have been made easier by the support of Chip Anderson of
stockcharts.com, an invaluable resource. I am also indebted to thinkorswim.
If I mention them often it is a measure of their importance to my work—
and not a paid promotion.
W. H. C. Bassetti San Francisco, California June 15, 2018
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Preface to the tenth edition
A 10th milestone
Sixty-three years. Sixty-three years and Technical Analysis of Stock Trends
still towers over the discipline of technical analysis like a mighty redwood.
An evergreen sequoia. And now a 10th edition. It is a propitious moment to
refresh it for the new millennium, to prune its solecisms and obsolescence,
and to further develop the sometimes prescient work of its originators.
With this premise in mind, I have attempted to make the book shorter,
simpler, and more usable in the modern context. I know there are still
manual chartists out there. Occasionally they are ecstatic when they find
that—as a profit-losing service—I still have TEKNIPLAT™ chart paper in
my attic. Like travelers in the desert finding an oasis.
But they are the 1%. Everyone else uses software, desktop or internet to do
his charting (See note “About Gender” in the Preface to the eighth edition.).
So, I have excised the material on manual charting from the new edition.
Budding manual chartists may always turn to the eighth and ninth editions.
I have also deleted Magee's chapters on “Composite Leverage” (Chapter 42
in the seventh edition, Appendix A in the eighth) as they are abstruse and
cumbersome in the modern context—not to mention being rooted in manual
chart analysis. I have made every attempt to summarize and replace
Magee's work, as I believe it has intellectual validity. Primarily this is done
in the present Chapter 42. I repeat, Magee's thinking and practical work
predated much modern portfolio management and volatility theory.
Additionally, Modern Portfolio Theory has still not caught up to his work
on trend analysis and risk. All this material is available in previous editions.
I have moved, perhaps, the most difficult chapter in the book, Chapter 4, to
Appendix A. Edwards' chapter on the minutiae of the operation of Dow
Theory has stopped more than one reader cold. Now it is available to the
detail scholar, and the general reader is relieved of the necessity of slogging
through it.
Many critics deplored Chapter 16 from the seventh edition, which I
relegated to an appendix in the ninth edition. This chapter covered an
analysis of futures and derivatives using number-driven analysis. Critics
said it was shallow. More important, it was completely extraneous to the
theme of the book, chart analysis, not the exploration of statistical routines
and indicators, which is a different branch of technical analysis. There are
numerous books on the subject, starting with Murphy, Kirkpatrick, and
Kaufman. I have deleted it along with other material in the book that was
not compatible with Edwards and Magee's original intent.
I quote here appropriate remarks from the preface to the eighth edition:
About apparent anachronisms
Critics with limited understanding of long-term trading success may think
that discussions of “what happened in 1929” or “charts of ancient history
from 1946” have no relevance to the markets of the present millennium.
They will point out that AT&T no longer exists in that form, that the New
Haven has long since ceased to exist as a stock, that many charts are records
of long-buried skeletons. This neglects the value of the charts as metaphor.
It ignores their r


y think
that discussions of “what happened in 1929” or “charts of ancient history
from 1946” have no relevance to the markets of the present millennium.
They will point out that AT&T no longer exists in that form, that the New
Haven has long since ceased to exist as a stock, that many charts are records
of long-buried skeletons. This neglects the value of the charts as metaphor.
It ignores their representations of human behavior in the markets which will
be replicated tomorrow in some stock named today.com or
willtheynevergetit.com. Even more important, it ignores the significance of
the past to trading in the present. I cite here material from Jack Schwager's
illuminating book, The New Wizards of Wall Street. Schwager, in
conversation with Al Weiss: “Precisely how far back did you go in your
chart studies?” Answer: “It varied with the individual market and the
available charts. In the case of the grain markets, I was able to go back as
far as the 1840s.” “Was it really necessary to go back that far?” Answer:
“Absolutely. One of the keys in long-term chart analysis is realizing that
markets behave differently in different economic cycles. Recognizing these
repeating and shifting long-term patterns requires lots of history. Identifying
where you are in an economic cycle—say, an inflationary phase versus a
deflationary phase—is critical to interpreting the chart patterns evolving at
that time.
Identification of original manuscript and revisions
True believers (and skeptics) will find here virtually all of the original
material written by Edwards and Magee, including their charts and
observations on them. Changes and comments introduced by editors since
the fifth edition have been rearranged and, when appropriate, have been
identified as a revision by that editor.
Maintaining this policy, where updates to the present technological context
and market reality were necessary, the present editor has clearly identified
them as his own work by beginning such annotations with “EN” for Editor's
Note. (The eighth edition was the first to use editor's notes. Editor's notes
for the ninth edition are identified as EN9, and notes added for the present
edition are identified as EN10).
So, we have here a simpler, shorter, clearer edition of the famous book—
easier to read, easier to understand, and easier to use. None of the
considerable virtues of the book have been affected. I have attempted to add
to these virtues with my work on Magee's Basing Points Procedure (see
Chapter 28, 28.1, and 28.2) and portfolio control and risk (see Chapter 42).
In spite of my remarks, I have listened to critics of the hand-drawn charts in
this book. These charts are the glory of the book and of the discipline of
technical analysis. Their application to modern markets seems ridiculously
obvious to me—and I am perhaps a dinosaur. So, I have decided to take a
number of examples of the manual charts and post them at
http://www.edwards-magee.com along with the same data charted by
computer so skeptics can compare the two methods. These will be found at
http://www.edwards-magee.com/manualcharts.html.
The internet so extends one's capabilities and is so easy to use that it would
be irresponsible not to avail oneself. In Figures 9.2 and 9.3, I have printed
charts that demand— scream—to be viewed in a larger format. These will
be found at http://www.edwards-magee.com/supercharts.html.
The reader is urged to read the prefaces to the eighth and ninth editions. I
have not repeated here all the editorial conventions detailed in those
prefaces.
W. H. C. Bassetti San Francisco, California
Acknowledgments for the tenth edition
So many colleagues and friends contribute to a book like this that one is in
danger of getting into the Academy Awards syndrome—endless thank yous
and acknowledgments until they bring out the hook and pull you off stage.
So, I will not thank my parents and aunts and uncles and wife and family,
although they should be and by this mention are thanked.
More particularly, acknowledgments are due to my editorial and research
assistant, Carlos Bassetti.
My colleagues at Golden Gate University (GGU) are an invaluable source
of advice, wisdom, and support, particularly Professor Henry Pruden. It is
no mystery why he is internationally known and respected—besides being a
world authority on Wyckoff. GGU has also furnished me with an unending
supply of bright, formidable graduate students who have made major
contributions to my work and to my thinking. Nehemiah Brown does his
best to keep me semi-organized as to spreadsheets. Matt Mullens and Brian
Brooker have assisted me with many of the Basing Point studies herein.
Stergios Marinopoulos has stimulated and challenged me in my systems
work. All these people are members in the local technical analysis fraternity
and our much-valued organization, the Technical Securities Analysts
Association of San Francisco.
More remote colleagues have also assisted me in many invaluable ways—
Jack Schannep with Dow Theory data, Robert Colby, also with Dow data;
Tim Knight with Prophet data (now part of http://www.thinkorswim,
http://www.tdamertrade.com), Chip Anderson at
http://www.stockcharts.com, and Scott Brown of Metastock for support
with charting software.
I am indebted to Ralph Vince and Nelson Freeburg for material found
herein that increases the value of this book.
And finally, amigo Frangaise, and fellow chart enthusiast Chris Glon at
http://www. publicharts.com, for his charts, assistance, and friendship. He
has supplied some of the most interesting charts in this book.
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Preface to the ninth edition
Warp speed universe. Warp speed financial markets. The eighth edition of
this classic book appeared when it seemed the millennium and paradise had
been achieved and that, like Mackay's Tulipomania, the price of stocks
would rise forever and men would rush from the world over and pay
whatever price was asked for what-was


aylor & Francis Group
http://taylorandfrancis.com
Preface to the ninth edition
Warp speed universe. Warp speed financial markets. The eighth edition of
this classic book appeared when it seemed the millennium and paradise had
been achieved and that, like Mackay's Tulipomania, the price of stocks
would rise forever and men would rush from the world over and pay
whatever price was asked for what-was-its-name.com, internet groceries, or
ihype.com or icon.com or gotcha.com. and, feature this, Dow 36,000. The
bubble was just in the process of bursting, of course. Before it burst,
fabulous fortunes were made by roller blader and scooter tycoons and by
young geeks with nothing but chutzpah and a laptop. One of my favorite
stories is of the young entrepreneur who said, “Why don't I deserve it (the
$100 million he made in the IPO)? I've devoted three years of my life to this
project.” He is now dead.
Now, many of those people are in prison and the hangover lingers on along
with lying, cheating, and stealing on all sides. From Enron to Arthur
Anderson, billions, if not trillions, fell into a black hole. As all this
developed, I warned of the impending collapse in the John Magee
Investment Letters on the web. There was nothing magical or brilliant about
seeing what was going on; perspective and perception came from applying
the lessons taught in this book by Edwards and Magee. Like Benedict XVI
(in a different area), I am a humble worker in their vineyard.
I press on attempting to modernize (where necessary) and extend their
work, fit it to the modern situation, and make it even more useful to current
day traders and investors.
In this ongoing labor of love, I have been immeasurably assisted by my
graduate students and colleagues at Golden Gate University in San
Francisco. In constant interaction with them I have been stimulated to see
important aspects of Edwards and Magee's work and develop and
emphasize these elements in my teaching and in this new edition.
Specifically, both long-term and short-term traders will find important new
material in this edition. In my graduate seminars, I have seen the power of
what Magee called the “Basing Points Procedure” and so have extended the
treatment of this material. My interest in, and respect for, Dow Theory has
recently increased as the result of a paper done with Brian Brooker for the
Market Technicians Association (“Dissecting Dow Theory”). Material from
that paper will be found in this edition. Short-term traders and futures
speculators will appreciate extensive new material on commodity trading.
These traders have been entirely too influenced by mechanical number-
driven systems of recent years and need to restore perspective by mastering
the material of this book.
It was never the intent of this book to forecast or analyze current markets;
rather, its purpose was, and is, to learn from history and the past to better
deal with the present and the future. Current markets are analyzed (and
forecast?) at the John Magee website. Nonetheless, the very process of
keeping current involves picturing issues and instruments in play. The
major indexes themselves in 2005 are in play, along with gold, silver, and
oil. We don't know how they will pan out, but we can make an analysis with
the data we have, for this is the situation the analyst is faced with every day.
He doesn't know how it will turn out, but, by following the methods and
principles taught in this book, he can put himself on the right side of the
probabilities.
This is no idle remark. The power and effectiveness of classical chart
analysis can be seen by examining how it performed in the past at critical
times. At the John Magee Technical Analysis website, the following
comment was made in January 2000:
Dow: The Dow can expect to find support at 10000 and is buyable, but in
small commitments or portions of a portfolio or additions thereto. We
expect to see it in a very large see saw from 9-12000 for some time and
would hedge at the high end and increase commitments and lift hedges on
oversold conditions at the low end.
In November 2000, the following comment was made:
November 18, 2000
There is really only one chart pattern of significance in these markets, and
that is the big one, more than 12 months long now, and the pattern is a big
serpent, whipping back and forth and, as Shakespeare said, signifying
nothing. Nothing that is but more of the same. How will we know when it
signifies something? Well, we won't really know till we know, but we'll let
you know when we know. So, we would continue to pick likely shorts and
employ short term trading strategies for traders, and hedge at interim tops
and lift the hedges at bottoms. Based on the chart picture and last week's
anemic behavior, we would not trade for bounces in the NASDAQ. If
anything, it is a short, but a risky one.
These past letters, dramatically illustrating the effectiveness of the methods
of this book, may be found online through links at the address specified
below. Your editor, personally, is not a genius for having made these
analyses. It is the method which is to credit, and any number of my
graduate students can make the same analyses, as can any alert chart
analyst.
The reader should not skip the prefatory material to the eighth edition. The
same practices outlined there have been followed in this edition. Magee
said the reader should not skim through this book and put it on his library
shelf. Instead, it should be read and reread and constantly referred to and so
the reader should, yes, so he should.
Richard Russell, the dean of Dow Theory Analysts, has reportedly said the
price of the Dow and the price of gold will cross in coming years. He has
also remarked that the S&P appears to evince a 10-year head-and-shoulders
pattern. Robert Prechter believes we are at the crest of the tidal wave and
the tsunami cometh.
Dow 36,000. Dow 3,000. This book contains the best tools to cope with
whatever the future holds.
W. H. C. Bassetti San


ry Analysts, has reportedly said the
price of the Dow and the price of gold will cross in coming years. He has
also remarked that the S&P appears to evince a 10-year head-and-shoulders
pattern. Robert Prechter believes we are at the crest of the tidal wave and
the tsunami cometh.
Dow 36,000. Dow 3,000. This book contains the best tools to cope with
whatever the future holds.
W. H. C. Bassetti San Francisco, California May 1, 2005
A special note concerning resources on the Web
In the age of instant and easy (and free) access to information on the
internet, it would be foolish to ignore the opportunities available to interact
with the material of this book. The reader will find free materials that
augment the book at http://www.edwards-magee. com. For example, when
the reader learns in Chapter 28 of the Basing Points Procedure, he will be
able to go to the website and print out a PDF of material that he can place
beside Figure 28.1 for instant and easy cross-reference, instead of having to
turn pages constantly back and forth from the chart to the keys and
commentary or having to bend the book into pretzels at a copy machine. In
general, wherever references are made in the text to the website, it is for
this purpose, to give the reader easy and flexible usage of the material. And,
likewise, at this address the reader will find links to past letters that show
how the method functioned in real time in real markets.
A special note about Dow Theory
Senator Everett Dirkson said one time that trying to get U.S. senators
herded together and moving in one direction was like trying to transport
bullfrogs in a wheelbarrow. Trying to synchronize the signals of the various
Dow Theory analysts is a similarly challenging proposition. No Ayatollah
exists to issue the final fatwa as to whether the signal is valid. Always one
to abhor a vacuum, I have organized a committee at Golden Gate University
to evaluate pronouncements of signals and opine as to whether the signals
are valid. This committee died an unnatural death, unfortunately, for lack of
demand as to its expertise.
Acknowledgments for the ninth edition
For professional assistance: Jack Schannep, Robert W. Colby, Curtis Faith,
Greg Morris, John Murphy, Tim Knight, and Chi Huang.
For assistance at Taylor and Francis: Richard O'Hanley, Raymond
O'Connell, Pat Roberson, Andrea Demby, and Roy Barnhill.
For research assistance and manuscript preparation: Brian Brooker and
Grace Ryan, my fearsomely bright and efficient teaching and research
assistants. And my inimitable technical assistant, Samuel W. D. Bassetti.
At Golden Gate University for ongoing support and assistance: Professor
Henry Pruden, Barbara Karlin, Janice Carter, Tracy Weed, and Cassandra
Dilosa.
Special appreciation goes to makers of software packages and their
supportive executives for software used in the preparation of this and
previous editions:
John Slauson Adaptick 1082 East 8175 South Sandy, UT 84094
http://www.adaptick.com
Steven Hill AIQ Systems P.O. Box 7530 Incline Village, NV 89452 702-
831-2999 http://www.AIQsystems.com
Alan McNichol Metastock Equis International, Inc.
3950 S. 700 East, Suite 100 Salt Lake City, UT 84107 http://www.equis.com
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Preface to the eighth edition
Here is a strange event—a book written in the mid-20th century retains its
relevancy and importance to the present day. In fact, Technical Analysis of
Stock Trends remains the definitive book on the subject of analyzing the
stock market with charts. Knock-offs, look-alikes, and pale imitations have
proliferated in its wake like seagulls after a productive fishing boat. But the
truth is they have added nothing new to the body of knowledge Edwards
and Magee originally produced and Magee refined up to the fifth edition.
What accounts for this rare occasion of a book's passing to be a classic? To
be more, in fact, than a classic, to be the manual or handbook for current
usage?
To answer this question, we must ask another: What are chart formations?
Chart formations identified and analyzed by the authors are graphic
representations of unchanging human behavior in complex multivariate
situations. They are the depiction of multifarious human actions bearing on
a single variable (price). On price, converge a galaxy of influences: fear,
greed, desire, cunning, malice, deceit, naivete, earnings estimates, broker
need for income, gullibility, professional money managers' need for
performance and job security, supply and demand of stocks, monetary
liquidity and money flow, selfdestructiveness, passivity, trap setting,
manipulation, blind arrogance, conspiracy and fraud and double dealing,
phases of the moon and sun spots, economic cycles and beliefs about them,
public mood, and the indomitable human need to be right.
Chart formations are the language of the market, telling us that this stock is
in its death throes; that stock is on a rocket to the moon; that a life and death
battle is being waged in this issue; and in that other, the buyers have
defeated the sellers and are breaking away.
They are, in short, the inerasable fingerprints of human nature made graphic
in the greatest struggle in human experience, next to war.
As Freud mapped the human psyche, so have Edwards and Magee mapped
the human mind and emotions as expressed in the financial markets. Not
only did they produce a definitive map, they also produced a methodology
for interpreting and profiting from the behavior of men and markets. It is
difficult to imagine further progress in this area until the science of artificial
intelligence, aided by yet unimaginable computer hardware, makes new
breakthroughs.
If it is definitive, why offer a new edition?
Unlike Nostradamus and Jules Verne (and many current investment
advisors), the authors did not have a crystal ball or a time machine. Magee
did not foresee the electronic calculator and made do with a slide rule. And
while he knew of the computer,