Chart Your Way To Profits: The Online Trader's Guide to Technical Analysis with ProphetCharts (Wiley Trading)

530 Pages·2010·17.65 MB·English

by  Timothy Knight

( c o n t i n u e d f r o m f r o n t f l a p ) $75.00 USA
KNIGHT $90.00 CAN
No matter what you trade, technical analysis can Technical analysis is the study of past price
make you a better and more profi table trader. Praise for the First Edition of movement for the purpose of predicting
Price charts will consistently provide the most future price movement. If done correctly, it can
complete representation of the supply and Chart Your Way to Profi ts lead to substantial trading profi ts. But making
demand behind any fi nancial instrument be- money in the market isn’t easy. No one knows
cause everything that can be publicly known this better than author Tim Knight, who has
or speculated is already built into the graph. “As a former pit trader and a technical ‘newbie,’ I have found Tim’s new book to been charting and trading the fi nancial mar-
Through the ups and downs of fi nancial markets, be the best resource I’ve seen for the everyday trader. With its fun and informa- CHART kets for more than twenty years. The com-
technical criteria and charting allow traders to tive style, it has allowed me to understand and appreciate the professional world pany he founded, Prophet Financial Systems
be completely objective in their assessment of technical analysis.” (now owned by TD Ameritrade), was ranked
of price action, while leaving emotion out of —Tom Sosnoff, cofounder and CEO, thinkorswim, Inc. for years as the number-one site for technical
the decision-making process. Chart Your Way to
YOUR WAY TO analysis by both Barron’s and Forbes.
Profi ts, Second Edition can help you do the same,
as it shows you how to combine technical “Tim Knight is a chartist’s chartist—I can’t recommend his work highly enough.
In the fi rst edition of Chart Your Way to
analysis with powerful online tools to achieve
Few people have done as much as he has in providing the sort of quality online Profi ts, Knight showed how to use the power-
trading success.
resources technical traders need in order to make money in the fi nancial markets. ful technology available online in conjunction
Chart Your Way to Profi ts is a twenty-fi rst-century blueprint on how to use with technical analysis to analyze markets and
technical tools to achieve trading and investing success.” PROFITS make the most profi table trading decisions
TIM KNIGHT is a hedge fund money man- possible. Now, in this revised Second Edition,
ager and the founder of Prophet Financial Sys- —David Penn, Editor, Technical Analysis of Stocks and Commodities magazine he offers many new technical tools for track-
tems (now owned by TD Ameritrade), rated by ing individual stocks and also shows you how
Forbes magazine and Barron’s as the number-one S E C O N D E D I T I O N to use ProphetCharts® to do advanced inter-
online site for technical analysis. He also writes “Tim has written the best guide to leveraging ProphetCharts and technical analy- market technical studies to identify the best
the popular blog, slopeofhope.com. Prior to sis in the market today. This is a complex subject and can leave new and old in- opportunities.
starting Prophet.net, he was vice president of vestors buried in too much data or impossible learning curves. Tim breaks these The Online Trader’s Guide to
products for Montgomery Securities, where he complex ideas down into actionable ideas and strategies. I would recommend this ®
helped develop PC-based trader workstations book to anyone that wants an education in the latest and best tools and methods Technical Analysis with ProphetCharts Written in a straightforward and acces-
sible manner, Chart Your Way to Profi ts, Second
before the development of Web trading. Knight professional technicians are using today.”
Edition introduces the ProphetCharts® ap-
has traded for over twenty years, primarily
—John Jagerson, Vice President of Content, Investools plication (accessible to anyone with Inter-
using technical analysis and price charts.
author of Profi ting with Forex net access and an account), which allows
you to perform your own analysis with the
help of hundreds of real-world examples.
Jacket Illustration: iStockphoto Along the way, you’ll also become familiar
with some of the most important rules of
sound trading. The author examines a variety
of chart types, highlights essential indicators,
S E C O N D E D I T I O N explores numerous analysis methods, and
offers a wealth of in-depth insight and practi-
cal advice throughout the book.
TIM KNIGHT (con t i n u e d o n b a c k f l a p )
CHART The Online Trader’s Guide
to Technical Analysis
YOUR WAY TO
®
with ProphetCharts
PROFITS
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Chart Your
Way to
Profits
The Online Trader’s Guide
to Technical Analysis
with ProphetCharts
Second Edit ion
TIM KNIGHT
John Wiley & Sons, Inc.
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To Alexander Dobrovolski, who made it all possible
Copyright ⃝C 2010 by Tim Knight. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in
any form or by any means, electronic, mechanical, photocopying, recording, scanning, or
otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright
Act, without either the prior written permission of the Publisher, or authorization through
payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222
Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at
www.copyright.com. Requests to the Publisher for permission should be addressed to the
Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201)
748-6011, fax [phone], or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created
or extended by sales representatives or written sales materials. The advice and strategies
contained herein may not be suitable for your situation. You should consult with a
professional where appropriate. Neither the publisher nor author shall be liable for any loss of
profit or any other commercial damages, including but not limited to special, incidental,
consequential, or other damages.
For general information on our other products and services or for technical support, please
contact our Customer Care Department within the United States at [phone], outside the
United States at [phone] or fax [phone].
Wiley also publishes its books in a variety of electronic formats. Some content that appears in
print may not be available in electronic books. For more information about Wiley products,
visit our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Knight, Tim, 1966–
Chart your way to profits : the online trader’s guide to technical analysis with
ProphetCharts / Tim Knight. – 2nd ed.
p. cm. – (Wiley trading series)
Includes bibliographical references and index.
ISBN 978-0-470-62002-1 (cloth)
1. Stocks–Charts, diagrams, etc. 2. Investment analysis. 3. Electronic trading
of securities. I. Title.
HG4638.K55 2010
′
332.63 2042–dc22
2010005946
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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Contents
Introduction v
About the Author vii
CHAPTER 1 Technical Analysis 1
CHAPTER 2 Fundamentals of Chart Creation 26
CHAPTER 3 Modules and Preferences 44
CHAPTER 4 Watch Lists and Chart Styles 70
CHAPTER 5 Market and Data Types 83
CHAPTER 6 Indicators in Action 111
CHAPTER 7 Multiple Studies and Comparisons 137
CHAPTER 8 Trendlines and Reversals 164
CHAPTER 9 Expansion and Channels 225
CHAPTER 10 Rounded Tops and Saucers 240
CHAPTER 11 Cup with Handle 271
CHAPTER 12 Multiple Tops and Bottoms 293
CHAPTER 13 Head and Shoulders 318
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iv CONTENTS
CHAPTER 14 Pattern Recognition 387
CHAPTER 15 Fibonacci Drawings 408
CHAPTER 16 Power Features 446
CHAPTER 17 For Bears Only 466
CHAPTER 18 A Practical Guide to Trading 481
APPENDIX A The Kirk Report Interview 492
APPENDIX B MarketMatrix 507
Index 515
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Introduction
ne of my favorite photographs was taken by my wife on our hon-
eymoon. We were on the second leg of our trip, the first of which
O was in Dubrovnik, Croatia (part of the former Yugoslavia), and the
second in central Italy. The photo shows me in bed, apparently asleep. The
title of the book I am holding across my chest is clearly legible: Technical
Analysis of Stock Trends, by Edwards and Magee.
Charting the financial markets has been my passion for over 20 years.
The very first trade I ever placed in my life was on Black Monday, the crash
of 1987—hardly a propitious start. But the markets and their vagaries have
fascinated me ever since.
In 1992, I took my three main areas of interest—computers, trading,
and business—and combined them to create Prophet Financial Systems.
That was before the commercial Internet even existed (we used dial-up
modems in those days for daily data updates). Over the years, we built
a wide array of tools, all with the purpose of trying to help people make
better trading decisions.
To be honest, I personally find books about technical analysis kind of
boring. They are full of indicators, formulas, tables, and numbers. By and
large, they put me to sleep (witness the honeymoon photo). I set out to
make this book different. I wanted you to enjoy learning from this book,
and I wanted to use as many real-life examples as possible. Hypothetical
charts mean little, in my opinion. So you will find this book packed with
hundreds of examples drawn from real trading in U.S. equity markets. This
should give you a practical way to see how to apply the ideas presented in
these pages.
SOME HISTORY
In 1998, we at Prophet took the first small steps toward creating a chart-
ing applet, which we called JavaCharts. My philosophy in product develop-
ment has always been the same: have my engineers create a product that
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vi INTRODUCTION
I love to use. This had the happy side effect of attracting a lot of traders,
because they liked what they saw, too.
JavaCharts became the foundation of the business in many ways. It
was very popular on our own web site, Prophet.net, and we licensed it to
a wide variety of brokerages and other businesses. The quality and reputa-
tion of the product was an important reason behind our securing the “Best
of the Web” awards from both Barron’s and Forbes, beginning in 1999 and
continuing for years.
Over a nearly four-year period—from the beginning of 2003 to the end
of 2006—we focused on our next generation of charting. Originally refer-
ring to this as simply JavaCharts 2, we later christened it ProphetCharts.
Although this book will prove helpful to anyone interested in technical
analysis, it will be especially instructive to ProphetCharts users.
HOW TO REACH ME
I would love to hear from you! I enjoy being in touch with other people
interested in charting, so feel free to drop me a line with your questions
and comments. My e-mail address is
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About the Author
im Knight was the founder of Prophet Financial Systems, an online
software company that was acquired by INVESTools in January 2005,
T which in turn was acquired by Ameritrade in the summer of 2009. He
currently is an active trader and professional money manager.
Tim founded Prophet in 1992 to provide market data to self-directed
investors using stand-alone technical analysis software. With the ad-
vent of the World Wide Web, he envisioned combining the power of
these expensive software packages with browser-based convenience—
enabling traders to focus on their analysis, instead of worrying about soft-
ware upgrades and database issues. His online technical analysis suite at
Prophet.Net delivered on this vision.
In his trading today, Tim relies on technical analysis as the primary
basis for his investment decisions. He is the managing partner for the Tim
Knight Organization, a money management firm, and writes the popular
Slope of Hope blog.
Before starting Prophet, Tim was Vice President of Technology Prod-
ucts at Montgomery Securities in San Francisco, where he led the devel-
opment of an institutional online-trading platform. Additionally, he held
various positions in marketing management at Apple Computer and is the
author of 20 computer books. Tim is a graduate of Santa Clara University’s
honors program and holds a bachelor’s degree in business management.
He lives in Palo Alto, California, with his wife, children, dog, and three
pampered chickens.
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