Charting and Technical Analysis PDF
Preview Charting and Technical Analysis
© Copyright – all rights reserved Fred McAllen No part of this book may be reproduced in any form or by any means - electronic or mechanical - including information storage and retrieval systems, without the written permission of the author. Reviewers may, however, quote brief passages in a review. Introduction Every investing mistake is a result of one thing. Either the wrong investment was purchased, or the investment was purchased at the wrong time. Historically, in good market times most every investment advances with the market. Even purchasing a bad investment during a strong bull market can sometimes be profitable. Yet during market declines, and especially in bear markets, the opposite holds true. During bad market times more than 80% of all stocks and funds decline in value. Therefore, purchasing any investment at the wrong time is most always the recipe for loss. Prior to every market decline, and particularly leading up to the last two bear markets in 2000 and 2007, unsuspecting and uninformed investors were continually sold investments that would certainly hand them a loss. Unfortunately, this is always a reoccurring tragedy. Since 1900 there has been a bear market on the average of every 3.5 years with an average decline of 29%. Investing and trading can be profitable for the informed investor, but very costly for the uninformed. One of the inspirations that led to writing this book came from a good friend with whom I had shared some of the techniques and strategies used in technical market analysis. He later sent me the following message. “Before I learned technical analysis, I was happy in my ignorance. I was not very profitable… but happy. But after learning the predictive value of charting, I could never feel safe in the market again without charts. It would be like driving cross- country without a road map. Charts really can tell you where to buy or sell and they have saved me from losses more times than I can count.” Many in this generation have been led to believe that buy-and-hold is the ultimate in market knowledge. But, in today’s markets, you need charting methods that have stood the test of time, and helped the uninformed investors navigate the treacherous trading and investing environment. Throughout this book you will discover the difference between being informed and uninformed. You will become informed and learn to avoid making costly investing and trading mistakes. ~Fred McAllen Contents Preface. 9 Chapter 1. 27 The Dow Theory. 27 The Three-Trend Market 31 CHAPTER 2. 36 The Three Phases of Primary Trends. 36 Chapter 3. 45 The Laws of Charts. 45 Chapter 4. 55 Candlesticks Defined. 55 Chapter 5. 64 Formations. 64 Chapter 6. 76 More Formations. 76 Chapter 7. 86 Support, Resistance, and Trends. 86 Chapter 8. 94 Trend Lines. 94 Chapter 9. 105 Chart Patterns. 105 Reversal Patterns. 107 Chapter 10. 120 Inverted Head and Shoulders Pattern. 120 Double Tops and Bottoms. 124 Double Top. 124 Chapter 11. 137 Saucers and Spikes. 137 Chapter 12. 148 Continuing Patterns. 148 Flags and Pennants. 156 Bull Flag. 158 Chapter 13. 161 Price Gaps. 161 Chapter 14. 173 The Key Reversal Day. 173 Chapter 15. 184 Reversals. 184 Percentage Retracements. 190 The Interpretation of Volume. 192 Chapter 16. 196 Moving Averages. 196 My Personal Favorite. 197 Popular Moving Averages. 208 Chapter 17. 209 Stop Losses. 209 Trailing Stop Loss. 214 Chapter 18. 219 Putting it all Together 219 Chapter 19. 235 Trading the Declines. 235 Know the Difference. 241 Conclusion.. 245 _______________________________________ U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. ______________________________________ PREFACE Fire your Financial Advisor! Yes, that is a bold statement. The primary objective in this book is to prepare you to take charge of your investment decisions by learning charting and technical analysis in detail. But first, you need to know the cold-hard truth about investment firms and financial advisors. Only by understanding the truth, can you appreciate the importance of making your own investing decisions. So let’s start there. In today’s world, the term ‘Financial Advisor’ means little or nothing. Unlike in years past when your investments were advised, made, and handled by a Stock Broker with years of experience under his belt, that is no longer the case. The ‘Modern Day Financial Advisors’ are being recruited from job posting sites like Monster and Hot Jobs by the investment firms in need of sales personnel. Yes, the major investment firms compete for what is referred to as “Assets under Management.” And in order to increase these assets, investment money must be placed with their firms, your money. To accomplish this all-important goal the investment firms
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