Technical Analysis and Stock Market Profits

Study I TECHNICAL APPROACH TO STOCK TRADING 1

Definition of a Stock Chart · Technical vs. Fundamental Factors · Technical Position

of Market Most Important · Sources for Chart Data · Advantages of Making Your

Own Charts · Which Stocks to Chart and How Many · Method of Constructing

Charts · Price, Volume and Time Scales · Major, Intermediate and Minor Movements

Study II IMPORTANT REVERSAL FORMATIONS 29

Public vs. Insiders · Detecting Professional Operations · Determining Major Turning

Points or Reversals · Volume Signs at Reversals · The One-Day Reversal ·

Comparative Volume at Tops and Bottoms · Price and Volume Must be Considered

Together · The Head and Shoulders Formation · Volume Action on Head and

Shoulders · Importance of Neck-Base Line · Varying Width of Shoulders · The Time

to Act on Head and Shoulders · Ascending and Descending Neck-Base Lines · Flat

Shoulder Variants of Head and Shoulders Formation · Reliability of Head and

Shoulders Formation · Logic of Chart Patterns

Study III IMPORTANT REVERSAL FORMATIONS CONTINUED 65

The Common or Rounding Turn · Volume Action on Rounding Turns · The

Symmetrical Triangle as a Reversal Formation · The Break-away Move from

Triangle Patterns · Volume Action on Break-Outs · Comparative Reliability of Early

and Late Break-Outs · Relation of Price Move to Patterns Size · Wave Movement

Following Apex · The Right-Angle Triangle as Reversal · The Descending Triangle ·

Volume on Break-Out From Descending Triangle · Effect of General Market on

Individual Stocks · Ascending Triangles as Reversals · The Wedge Formation ·

Action Following Up-Turned and Down-Turned Wedges Compared · Strict

Definition Required for Wedge Patterns · Probable Causes for Triangles

Study IV IMPORTANT REVERSAL FORMATIONS CONTINUED 105

The Double Top and Double Bottom · Requirements for Valid Double Reversal

Formations · Multiple Tops and Bottoms · Illustration of a False Double Top ·

Double Tops and Bottoms on Long-Range Charts · “M” and “W” Formations ·

Complex Reversal Formations · Relation to Multiple Formations and Head and 

Shoulders · Varieties of Complex Patterns · Volume Indications in Complex

Reversals · The Broadening Top Reversal · Analysis of Broadening Top · Broadening

Top Ending Bull Market · Rally Following Completion of Broadening Top ·

Broadening Formations Which Fail · Possible Explanation for Broadening Top

Study V MINOR REVERSAL FORMATIONS 143

The Inverted Triangle · Differences Between Inverted and Normal Triangle ·

Inverted Right-Angle Triangle · The Diamond Formation · The Rectangle as a

Reversal · Break out of Dormancy · Relative Dormancy in an Active Stock · The

Island Reversal · Strict Requirements for Island Formation · The One-Day Island

Study VI MAJOR CONTINUATION FORMATIONS 177

Logic of the Intermediate Area Patterns · The Symmetrical Triangle as a

Continuation · Volume Action in Continuation Triangles · Right-Angle Triangles as

Continuations · The Ascending Triangle in Up-Trends · The Descending Triangle in

Down-Trends · Inverted Triangles as Continuations · The Rectangle as a

Continuation · Volume Action in Rectangle Continuations · The Flags and Pennants

· Various Flag Aspects and Interpretations · Flags in Up and Down-Trends ·

Relation of Pennant to Wedge Pattern · The Head and Shoulders Continuation

Pattern · Review of Continuation Patterns · Formations Which Change Their

Nature

Study VII MISCELLANEOUS INTERMEDIATE PATTERNS

AND PHENOMENA 219

Patterns with Drooping Bottom · Patterns with Accelerating Peaks · Trading on the

Accelerating Patterns · The Horn Formation · The Inverted Horn · Out-of-Line Price

Movements · Interpretation of Out-of-Line Action · The Zig-Zag Movement ·

Recurrent Patterns of Price Action · Warning Given by Recurring Movements · The

Price Gap – General Description · Classification of Gaps · The Common Gap · The

Break-Away Gap · Interpretation of the Break-Away Gap · Continuation Gaps · The

Exhaustion Gap · The Interpretation of the Exhaustion Gap · Variants of the Island

Formation · Gaps on Ex-Dividend and Ex-Rights Days

Study VIII TREND LINE ACTION 263

Definition of the Trend Line · The Theory of Trend Lines · Practical Uses of Trend

Lines · Methods of Establishing Trend Lines · Practicing on the Chart · Patterns

Appearing Within Trends · Trading on the Primary Trend Line · The Double Trend

Line or Trend Channel · Playing the Major Trend · Relative Profits With and Against

the Major Trend · Trend Lines Signaling Reversals · Horizontal Trading Areas ·

What Constitutes a Significant Break · Volume Action on Breaking of Trend Line ·

Fanning Trend Lines and Flattening Trends · The Throw Back After a Trend is

Broken · Estimating the Extent of Probable Movement by Trend Lines · Logarithmic

vs. Arithmetic Scales

GENERAL REVIEW OF VOLUME: Volume as an Indication of Reversal · Volume Action

at Temporary Halts in Trends · Declining Volume During Patterns Formulation ·

Volume as an Indication of Continuation · Relation of Volume to Price Movement ·

Relation of Volume Action to Basic Trends

THE DOW THEORY: Its Major Tenets · Limitations of Dow Theory in Practical Trading

Study IX SUPPORT AND RESISTANCE LEVELS 301

Definition of Support and Resistance Levels · Logical Explanation for Reversal

Levels · Reliability of Support and Resistance Levels · Bottoms Become Tops and

Tops Become Bottoms · Value of Weekly Charts in Forecasting · The Volume Factor

in Estimating Future Influence · Practical Application of Support and Resistance

Study to Current Charts · Resistance and Support Levels in Minor Fluctuations ·

Resistances Set Up by Trend Lines · The Cradle Formation · Resistance and Support

Levels Set Up by Head and Shoulders Formation · Support and Resistance Levels

Set Up by Multiple Formations · Support and Resistance Levels Set Up by

Rectangles and Right-Angle Triangles · Support and Resistance Levels Set Up by

Symmetrical Triangles · Support and Resistance at Gaps · Practical Uses of Pattern

Resistance Study · The Longevity of Support and Resistance Levels · 50 and 100 as

Critical Levels · The Half-Way Intermediate Movement Theory · Price Action at

Support or Resistance Levels

Study X MEASURING RULES AND FORMATIONS 333

Use of Support and Resistance Factors in Measuring · Trend Lines as Measuring

Indications · Measuring Implications of Patterns in Bull and Bear Markets ·

Measuring Implications of Head and Shoulders Formation · Measuring

Implications of Triangle · Flags and Pennants as Measuring Patterns · The Half-

Mast Congestion Pattern · Measuring Theories Applied to Gaps · The Single Gap

Measuring Theory · The Multiple Gap Measuring Theory · Dependability of Gap

Theories · The Time Element in Measuring

FALSE MOVES AND SHAKE-OUTS: Definition of False Move and Shake-Out · Triangles

Most Susceptible to False Moves · Volume Action on False Moves · False Moves From

Right-Angle Triangles · False Moves out of Rectangles · False Move vs. Out-of-Line

Movement · False Moves Follow Head and Shoulders Formations · Defense Against

False Moves · Strict Construction of Break-Out Rules · Use of Stop-Loss Orders

Against False Moves · The Bright Side of False Moves · The End Run Price Action

STOP-LOSS ORDERS: The Mechanics of Stop Orders · When to Place Stop Orders ·

Where to Place Stop Orders · The 5% Allowance Rule · Shifting the Stop Order · The

“Two Days Away” Rule · Stop-Loss Orders in Short Selling · Judgment in Placing

Initial Stop · Use of “Mental” Stops · Stop Orders Not Recommended Within

Patterns · Doubling or Switching Stops · Use of Stops to Make New Commitments

Study XI USE OF LONG-TERM CHARTS, AVERAGES AND GROUPS 377

Monthly Charts · Average Charts · Group Charts · Shorter Time Intervals in Charts ·

Hourly Charts · The Ticker Chart · Minor Move Chart · Minor Trend Line Chart ·

Point or Figure Charts

CHARTING BONDS AND COMMODITIES: The Bond Market · Commodity Charts · The

Wheat Market · Formations Appearing on Wheat Charts · The Cotton Market

Study XII TRADING TACTICS 405

Selection of Operating Stocks · Swing Power Studies · Poor Stocks for Charting ·

Necessity for Patience · Limited vs. Market Orders · Advice to the Too Conservative

· Danger of Stubborness · Weighing Risks in Advance · Paper Trading

SUMMARY AND REVIEW: Chart Science a Catalog of Experience · Chart Deception

Engineered by Operators · A Program for the Beginner · Making Up the List ·

Starting the Charts · Studying the Patterns · The Final Test