Technical Analysis of Stock Trends 9th

Chapter 1 The Technical Approach to Trading and Investing .............3

Technical vs. Fundamental Theory — Philosophy of

Technical Approach — Drawbacks of Fundamental

Approach

Chapter 2 Charts .............................................................................................9

Different Types of Charts — Data Required —

Arithmetic and Logarithmic Scales

Chapter 3 The Dow Theory .......................................................................13

The Forerunner of All Technical Theories — Use of

Market Averages — Basic Tenets of Dow Theory —

Characteristic Phases of Bull and Bear Trends

Chapter 4 The Dow Theory in Practice ...................................................25

Applying Dow Theory to the Averages through 1941 —

The 1942 Action — The Bull Market Signal — The

Secondary Correction of 1943 — Bull Market

Reaffirmed — The Spring of 1946 — Third Phase

Symptoms — The Bear Market Signal

Chapter 5 The Dow Theory’s Defects......................................................41

Second Guessing — The “Too Late” Criticism — The

Fifty-Year Record of Results — Little Help in

Intermediate Term Trading

Chapter 5.1 The Dow Theory in the 20th and 21st Centuries...............45

Updating the Record of the Dow — Results to 2005 —

Reconsidering Dow Theory

Chapter 6 Important Reversal Patterns....................................................55

Divergence between Individual Stocks and Averages —

Definition of Reversal and Reversal Formation — Time

Required to Build — How Insiders Distribute — The

Head-and-Shoulders Top Pattern — Volume

Characteristics — Breaking the Neckline — Symmetry

and Variations — Measuring Formula

Chapter 7 Important Reversal Patterns — Continued..........................75

Head-and-Shoulders Bottoms — Volume and Breakout

Differences — Multiple Head-and-Shoulders Patterns —

Rounding Tops and Bottoms — Trading Activity on

Rounding Turns — Dormant Bottoms — Patterns on

Weekly and Monthly Charts

Chapter 8 Important Reversal Patterns — The Triangles ....................99

Triangles — The Symmetrical Form — Volume — How

Prices Break Out — A Theoretical Example — Reversal

or Consolidation — Right Angle Triangles, Ascending

and Descending — Measuring Implications — On

Weekly and Monthly Charts

Chapter 9 Important Reversal Patterns — Continued........................129

Rectangles — Pool Tactics — Relation to Dow Line —

Double and Triple Tops and Bottoms — Important

Recognition Criteria — Completion and Breakout —

Triple Tops and Bottoms

Chapter 10 Other Reversal Phenomena...................................................151

Broadening Formations — The Broadening Top —

Right-Angles Broadening Patterns — Diamonds —

Wedge Formations — The Falling Wedge — Rising

Wedges in Bear Market Rallies — The One-Day

Reversal — Selling Climax

Chapter 10.1 Short-Term Phenomena of Potential Importance.............181

Key Reversal Days — Spikes — Runaways

Chapter 11 Consolidation Formations .....................................................189

Flags and Pennants — Pennant vs. Wedge — Measuring

Formula — Reliability Tests for Flags and Pennants —

On Weekly and Monthly Charts — Head-and-

Shoulders Consolidations — Scallops and Saucers —

Modern vs. Old-Style Markets

Chapter 12 Gaps............................................................................................ 211

Which Gaps Are Significant? — Common or Area

Gaps — Breakaway Gaps Continuation or Runaway

Gaps — Measuring Implications — Exhaustion Gaps —

Island Reversals — Gaps in the Averages

Chapter 13 Support and Resistance..........................................................231

Definition of Support and Resistance Levels — How

They Reverse Their Roles — Reasons for

Support/Resistance Phenomena — Tests for

Determining Potential — Importance of Volume —

Rules for Locating — Implications of a Breakthrough —

Round Figures — Historical Levels — Panic Moves and

Recoveries — Pattern Resistance — Support-Resistance

in the Averages

Chapter 14 Trendlines and Channels.......................................................253

Basic Trendlines — How They Form — Arithmetic vs.

Logarithmic Scale — Intermediate Uptrends — Tests for

Trendline Authority — Validity of Penetration —

Throwback Moves — Amendment of Trendlines —

Double Trendlines — Trend Channels — Practices to

Avoid — Consequences of Penetration — Intermediate

Downtrends — Corrective Trends — The Fan Principle

Chapter 15 Major Trendlines .....................................................................281

Different Forms of Major Uptrends — Arithmetic and

Logarithmic Scaling — Tests for Significance — Major

Downtrends — Major Trend Channels — Trendlines in

the Averages

Chapter 15.1 Trading the Averages in the 21st Century .........................295

Power of Trendlines in Trading the Averages —

Redrawing the Trendlines as Markets Accelerate

Chapter 16 Technical Analysis of Commodity Charts .........................301

Theoretical Application — Commodity Markets of the

20th (and 21st) Century Suitable for Technical Trading

— Intrinsic Differences Between Stocks and

Commodities as Trading Mediums

Chapter 16.1 Technical Analysis of Commodity Charts, Part 2 ............307

A 21

st

Century Perspective

Chapter 17 A Summary and Some Concluding Comments................319

Philosophy of Technical Approach — Review of

Technical Methods — Need for Perspective — Patience

Chapter 17.1 Technical Analysis and Technology in the 21st

Century: The Computer and the Internet, Tools

of the Investment/ Information Revolution ......................325

The Computer and the Internet — Tools of the

Investment/Information Revolution — Separating the

Wheat from the Chaff

Chapter 17.2 Advancements in Investment Technology.........................333

Options and Derivatives — Quantitative Analysis —

Futures on Indexes — Options on Futures and

Indexes — Modern Portfolio Theory — Importance to

the Private Investor

Part 2: Trading Tactics

Midword ..............................................................................................................355

Chapter 18 The Tactical Problem ..............................................................359

Characteristics of Desirable Speculative Stocks

Chapter 18.1 Strategy and Tactics for the Long-Term Investor .............367

What’s a Speculator, What’s an Investor? — Strategy of

the Long-term Investor (Hypothetical) — Rhythmic

Investing

Chapter 19 The All-Important Details.....................................................375

Source of Data — Suggestions on Chart Keeping —

Using Computer Technology

Chapter 20 The Kind of Stocks We Want — The Speculator’s

Viewpoint..................................................................................379

Leverage — Swing Habit — Volatility

Chapter 20.1 The Kind of Stocks We Want — The Long-Term

Investor’s Viewpoint...............................................................383

Changing Opinions about Conservative Investing —

Index Shares and Similar Instruments — Importance of

Modern Trading Instruments

Chapter 21 Selection of Stocks to Chart..................................................391

Character and Habits — Number — Advantages of

Listed Issues

Chapter 22 Selection of Stocks to Chart — Continued ........................395

Diversification — Price Range — Swing Power within

Groups — Slow-Moving Groups

Chapter 23 Choosing and Managing High-Risk Stocks: Tulip

Stocks, Internet Sector, and Speculative Frenzies............401

Managing Speculative Frenzies and Runaways

Chapter 24 The Probable Moves of Your Stocks...................................419

Choosing Stocks which Have the Potential to Move —

Volatility

Chapter 25 Two Touchy Questions...........................................................425

Use of Margin — Short Selling

Chapter 26 Round Lots or Odd Lots? ......................................................433

Extra Cost of Odd Lots — Occasional Advantages —

Determining Trade Size and Risk

Chapter 27 Stop Orders...............................................................................435

Protective Stops — Computing Stop Levels — Table of

Stop Distances — Progressive Stops

Chapter 28 What Is a Bottom — What Is a Top?...................................441

The Three Days Away Rule — Basing Points — Volume

Signals

Chapter 28.1 Basing Point Case Analyzed, Illustrated............................446

Chapter 29 Trendlines in Action ...............................................................451

Buying Stock — Selling Long Stock — Selling Stock

Short — Covering Short Sales — Additional Suggestions

Chapter 30 Use of Support and Resistance ............................................461

Formulating a Rule for Buying — When a Support Fails

— Placing Stop Orders — Software for Determining

Support-Resistance

Chapter 31 Not All in One Basket............................................................467

Diversification — Its Cost and Benefits — Trading Index

Shares

Chapter 32 Measuring Implications in Technical Chart Patterns......469

Reactions vs. Primary Moves

Chapter 33 Tactical Review of Chart Action ..........................................473

Dow Theory — Head-and-Shoulders — Multiple Headand-

Shoulders — Rounding Tops and Bottoms —

Triangles — Broadening Tops — Rectangles — Double

Tops and Bottoms — Diamonds — Wedges — One-Day

Reversals — Flags and Pennants — Gaps — Support

and Resistance — Trendlines

Chapter 34 A Quick Summation of Tactical Methods .........................501

When to Get Out — When to Get In

Chapter 35 Effect of Technical Trading on Market Action .................505

Many Types of Investors — Technicians a Minority

Group — Persistence of Ingrained Evaluative Habits

Chapter 36 Automated Trendline: The Moving Average ....................507

Sensitizing Moving Averages — Crossovers and

Penetrations

Chapter 37 “The Same Old Patterns” ......................................................513

Repetitive Character of Market Behavior Over the

Years — Additional Chart Examples Covering Market

Action up through 2005

Chapter 38 Balanced and Diversified.......................................................577

The “Not All” Principle — The Evaluative Index —

Reducing Risk and Anxiety — Identifying Bull and Bear

Market Tops and Bottoms with the Magee Evaluative

Index

Chapter 39 Trial and Error..........................................................................585

Putting Experience to Work

Chapter 40 How Much Capital to Use in Trading ................................587

Chapter 41 Application of Capital in Practice .......................................591

Using Composite Leverage According to the Market’s

Condition — Overall Strategy

Chapter 42 Portfolio Risk Management..................................................597

Finding the Sensible Risk Posture — Overtrading and

Undertrading — Controlling Risk per Trade — Risk of

a Single Stock — Risk of a Portfolio — Pragmatic

Portfolio Theory

Pragmatic Portfolio Risk

Measurement — Pragmatic Portfolio Analysis — The

Magee Method of Controlling the Risk

Chapter 43 Stick to Your Guns..................................................................609

APPENDIX A Chapters A–D

Chapter A The Probable Moves of Your Stocks

(Chapter 24 from the Seventh Edition) .............................. 611

Relative Sensitivity — The Market Reciprocal — Normal

Range-for-Price-Volatility

Chapter B A Discussion of Composite Leverage

(Chapter 42 from the Seventh Edition) ..............................613

Overtrading and a Paradox — The Composite Leverage

Index of a Single Stock — Composite Leverage of a

Portfolio — Investment Account Policy — Negative

Composite Leverage

Chapter C Normal Range-for-Price Indexes

(Appendix B, Fifth Edition) ..................................................619

Chapter D Sensitivity Indexes of Stocks

(Appendix C, Fifth Edition) ..................................................621

Appendix B .........................................................................................................629

Section 1: The Mechanics of Building a Chart

(Chapter 23 from the Fifth and Seventh Editions)

Section 2: TEKNIPLAT Chart Paper

Appendix C Technical Analysis of Futures Charts

(Chapter 16 from the Seventh Edition

by Richard McDermott) .........................................................639

Applications for the Use of Chart Patterns and Other

Indicators in the Trading of Futures/Derivatives —

Moving Averages, Bollinger Bands, Stochastics, and

Others

Appendix D Resources...................................................................................669

Important Internet Sites — References for Further Study

— Investment Oriented Sites — The Sharpe Ratio —

Calculating Volatility — Gambler’s Ruin — Essence of

Fundamental Analysis — Useful Software and Specific

Internet Technical Analysis Sites