ebook img

Encyclopedia of Chart Patterns PDF

345 Pages·2000·7.22 MB·english
Save to my drive
Quick download
Download
Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.

Preview Encyclopedia of Chart Patterns

Encyclopedia of Chart Patterns WILEY TRADING ADVANTAGE Trading without Fear I Richard W. Arms, Jr. Neural Network Time Series Forecasting of Financial Markets / E. Michael Azoff Option Market Making I Alan J. Baird Genetic Algorithms and Investment Strategies I Richard J. Bauer, Jr. Technical Market Indicators I Richard J. Bauer, Jr., and Julie R. Dahlquist Seasonality /Jake Bernstein Encyclopedia The Hedge Fund Edge I Mark Boucher Encyclopedia of Chart Patterns I Thomas N. Bulkowski Macro Trading and Investment Strategies I Gabriel Burstein of Beyond Technical Analysis I Tushar Chande . SK ryoelllnatS dna ednahC rahsuT ! redarT lacinhceT weTNhe Trading the flan I Robert Deel New Market Timing Techniques I Thomas R. DeMark Chart Patterns The New Science of Technical Analysis / Thomas R. DeMark Point and Figure Charting I Thomas J. Dorsey Trading for a Living I Dr. Alexander Elder Study Guide for Trading for a Living I Dr. Alexander Elder The Day Trader's Manual I William F. Eng The Options Course I George A. Fontanills The Options Course Workbook I George A. Fontanills Pattern, Price & Time /James A. Hyerczyk Profits from Natural Resources I Roland A. Jansen The Trading Game I Ryan Jones Trading Systems <b Methods, Third Edition I Perry Kaufman Trading to Win I Ari Kiev, M.D. Thomas N. Bulkowski The Intuitive Trader I Robert Koppel Nonlinear Pricing I Christopher T. May McMillan on Options I Lawrence G. McMillan Trading on Expectations I Brendan Moynihan Intermarket Technical Analysis I John J. Murphy The Visual Investor I John J. Murphy Beyond Candlesticks I Steve Nison Cybernetic Trading Strategies I Murray A. Ruggiero, Jr. The Option Advisor I Bernie G. Schaeffer Fundamental Analysis I'Jack Schwager Study Guide to Accompany Fundamental Analysis I'Jack Schwager Managed Trading I Jack Schwager The New Market Wizards I Jack Schwager Technical Analysis /Jack Schwager Study Guide to Accompany Technical Analysis /Jack Schwager Schwager on Futures I Jack Schwager Gaming the Market I Ronald B. Shelton The Dynamic Option Selection System I Howard L. Simons Option Strategies, Second Edition I Courtney Smith oednr aerdVeapriSTe r oItcIiVI Campaign Trading/]ohn Sweeney The Trader's Tax Survival Guide, Revised Edition I Ted Tesser The Mathematics of Money Management I Ralph Vince The New Money Management I Ralph Vince Trading Applications of Japanese Candlestick Charting I Gary Wagner and Brad Matheny Trading Chaos I Bill Williams New Trading Dimensions I Bill Williams Long-Term Secrets to Short-Term Trading I Larry Williams John Wiley & Sons, Inc. Expert Trading Systems I John R. Wolberg New York • Chichester . Weinheim • Brisbane • Singapore • Toronto o hw ,sctnerap oym oTntedaimemnoh ym uretfa neeve em devol ot rocket set the lawn on fire, and to my four-legged best friend, Rusty, who saved my life; it grieves me that I couldn't save yours. This book is printed on acid-free paper. © Copyright © 2000 by Thomas N. Bulkowski. All rights reserved. d ehsilbuPb.cnI ,snoS y& yeliW nhoJ .adanaC ni ylsuoenatlumis dehsilbuP ni dettimsnart ro metsys laveirter a ni derots ,decudorper eb yam noitacilbup siht fo trap oN any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright hguorht noitazirohtua ro ,rehsilbuP eht fo noissimrep nettirw roirp eht rehtie tuohtiw ,tcA doowesoR 222 ,retneC ecnaraelC thgirypoC eht ot eef ypoc-rep etairporppa eht fo tnemyap rof rehsilbuP eht ot stseuqeR .4474-057 )879( xaf ,0048-057 )879( ,32910 AM ,srevnaD ,evirD permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, @ W IQLEERYM.EC-ORMMEaiP.l: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in eht ,deriuqer si ecnatsissa trepxe rehto ro ecivda lanoisseforp fI .secivres lanoisseforp gniredner .thguos eb dluohs nosrep lanoisseforp tnetepmoc a fo secivres Library of Congress Cataloging-in-Publication Data: -s 7aN5m9o1.h, T ,ikswokluB Encyclopedia of chart patterns / Thomas N. Bulkowski. p. cm.—(Wiley trading advantage) .xedni sedulcnI ISBN 0-471-29525-6 (alk. paper) 1. Stocks—Charts, diagrams, etc. 2. Commodities—Charts, di.seiraeS .IIg .eltiTr .I .asisylanma lacinhceTs .3 .,cte HG4638.B85 2000 332.63722—dc21 99-15789 .aciremA fo setatS detinU eht ni detnirP 10 9 8 7 6 5 4 3 Preface When I was a little tyke I decided the easiest way to riches was to play the stock market. It was, after all, a level playing field, a zero-sum game with somebody winning and somebody losing (hint: The winner is always the broker). All one had to do to win was pick the stocks that went up and avoid the stocks that went down. Easy. na htiw ytisrevinU esucaryS morf detaudarg I nehw dnim ni siht tpek I engineering degree and showed up early for my first professional job. Eacl morning I cracked open the newspaper and plotted my stock picks on a piec\ of paper taped to the wall. Bob, my office mate, used the same newspaper to -nemadnuf gnitsuahxe dna tcirts gnisu snoitceles ym esohc I .skcots sih tceles tal research, but Bob simply closed his eyes, twirled his hand around, and devomer dna seye sih denepo eh nehW .repapswen eht otni regnif sih degnulp .kcip rehtona decnuonna eh ,regnif sih After several months of tracking both our selections, I made a startling rat eht gnitaeb erew snoitcel .edBse mmoaoedbrnca' sgr nitteg saw I :yrevocsid out of my carefully researched choices. I also discovered something else: I was learning a lot by paper trading. With the hesitancy and distrust inherited from my parents, I studied two a denepo I :esahcrup tsrif dna noitceles lanif ym gnikam erofeb smrif nezod money market account. The timing was excellent; I was earning over 17% on my cash. At first glance, the return might imply a very risky investment but it was not. The prime rate was, after all, at 21%. Flush with success, I gathered my courage and opened a brokerage gnimit eht ,niagA .devas I seinnep wef eht htiw gnitsevni nageb dna tnuocca was excellent as I caught the beginning of a major bull market. I bought a stock o t r oag4e nti3 deh6c!ta/w 2 dlna/ i—.rmeggab-nety tsrif yM .deneppah tahw redisnoc ,ysae saw gnihtyreve taht kniht uoy tseL stock portfolio was growing by leaps and bounds, but my professional career naht netfo erom sreerac gnihctiws retfA .esrow eht rof nrut a ekat ot tuoba saw y llanifc dluoc I yanapmoc al htiw bloj a ta dednal I ,timda ot ekil semitemos I ecaferP iiiv Preface ix home—a job that would last a lifetime, or so I thought. Almost six months after The chapters are arranged alphabetically, making it easy to locate the my 10-year anniversary with the company, I received a letter from the chair- chart pattern of interest. Within each chapter, you are first greeted with a drawrof dekool dna ynapmoc eht htiw edaced ym no em detalutargnoc eH .nam ,nehT .noissucsid trohs a yb dewollof sgnidnif rojam eht fo "tohspanS stluseR" to even more success for me in the coming years. Six weeks later "I,s ewnileadisuG l naoiitadci fiotnfedfI." .nrettap trahc eht erolpxe ot uoy setivni "ruoT" a daf h3o d6eag,h1a eht ta ,taht dediced dna noitautis eht fo kcots koot I gynoiy-•f-irev dna gnitceles ekam ,noissucsid htped-ni dna mrof elbat htob ni seno eht era eW .noilliM gnissiM ehT em ekil syug mret srepapsweN .hguone d n"aId "erunotTif"ic eahtti ,snrettap trahc relpmis roF .reisae seciohc who, for whatever reason, leave their jobs and decide not to go back into the .noitces eno otni denibmoc neeb evah "senilediuG workforce. We retire. Everyonea, a,snedk Ia tmsieman eehvte froyo nneo i(twaritohl pthxee n noata tbuleo hexticwep e-telpmoc eb dluow krow oN tion of my cousin Mary Ann—bless her heart), thinks we are nuts. They are the "Focus on Failures" section dissects the cause of failures. The all-import; !esruoc fo ,thgir "Statistics" section follows. Once you can identify a chart pattern, know how it For the longest time, I have been fascinated with technical analysis of is likely to perform, and are alert to possible failure indications, how do you stocks. In the early years, I considered the little squiggles to be nothing short trade it? That is what the "Trading Tactics" and "Sample Trade" sections -rih erew sesuoh egarekorb rojam eht yhw ot sa suoiruc saw I ,llitS .oodoov fo explore. - / '-'.> - ing technical analysts in droves. But I did not dare take my eye off the funda- If you have ever worked on a car or done some woodworking, then you I nehT .slacinhcet eht tuoba gnihtyna wonk ton did I esuaceb ylpmis slatnem u woYou .lbdoj eht rof loot thgir eht gnitceles fo ecnatropmi eht ezingocer lliw discovered Technical Analysis of Stocks and Commodities magazine. During my not want to use a flat-head screwdriver when a Phillips works better. Both do .seussi kcab daer dna yrarbil eht ot nwod rotavele eht erkeavt idrlduowwe Ir c,rsu oah htocnnu lsi ti semitemoS .elbaegnahcretni yldrah era yeht tub boj eht Although I had seen chart patterns in the stocks I bought, I never really you should be using, but a chisel. Selecting the proper tools and knowing how attached much significance to them. As some of my selections went sour, I eht tros ot gnipleh ,taht ekil tol a si koob sihT .elttab eht flah si meht esu ot t yaht hguone gninethgirf si nrettapsyawla slatnemadnuf ehT .tcepser ertom htiw snrettapr trahc weiv ot nagebahc a semitemoS .ffahc eht morf taehw looked good, but the technsiic aelksa mwe nrea cs iugonya ltianhgt ae dtarretn tds ecbh eahntg e,s ejumsitt aresh It ow taAs .stiforp ekat ot tnaw lliw about to pull the trigger. The stocks I bought either lost money outright or I none at all. sold them too soon and cut my-r parmof kitcso sths oerht.t ni yenom ekam ot dedeen ecneirepxe eht uoy evig tonnacI Perhaps this has happened to you. You do your fundamental research on ket using chart patterns. I can only give you the tools and say, "Go to work on ,esrow nevE .erom ro raey a rof erehwon og ti hctaw ot ylno ti yub neht ,kcots a rof skrow taht elyts gnidart a gnipoleved ni pets tsrif eht si tahT ".tsrif repap saw rewsna eht trahc eht ta dekool uoy daH .selbmut kcots eht ,ni teg uoy ecno you, one you are comfortable with, one that improves as you do. If you review always there. Prices pierced a trendline, a head-and-shoulders topa naahpt eproem asir reedrdo sosolu-ptots a yhw dnatsrednu lliw uoy ,sedart repap ruoy of nowhere, the relative streng-ptuhs itncdideexr ps oigt nyatilleidba a rnu ooyv eevrobropumgih ltli wsi tuuoaYti o.lno.o tI nlufesu a si tI :live yrassecen won yub a taht gnimaercs erew srotacidni lacinhcet fo rebmun yna ,trohs dna spots ruoy nethgit ot uoy wolla ,nrut ni ,lliw taht slevel ecnatsiser dna trop ruoy dah uoy esuaceb sngis eht was reven uoy tuB .trihs ruoy uoy tsoc dluow .elpmiS .edir stiforp ruoy tel dna ,trohs sessol ruoy tuc ,pot eht raen tuo teg .desolc seye You will discover why the measure rule is so important, especially in tur- You are not alone; I did the same thing for years. I eventually got so frus- bulent markets. Unless you are willing to suffer a 20% drawdown, you will trated with the performance of my st-otscekb sae elebc ytaiomn ks otohba ts iIh td neic nidetefdo toos ddeot omuqy noiwagn egareva eht yhw dnatsrednu research on technical analysis. I went to the library and read the same thing in case scenario and will come to grips with why you are still struggling to make tahW .emit eht fo tsom skrow noitamrof sredluohs-dna-daeh A :skoob ynam -aid sevol dneirflrig ruoy taht revocsid yam uoY .niag ylekil tsom eht evoba ti fo %09 ro emit eht fol u%5f1s seccus era yeht naem ti seoD ?naem taht seod drow enO .yap meht ekam ot mees tonnac uoy ,nrettap trahc a sa tub ,sdnom -lod denrae drah ym ksir ot gnilliw ton saw I .rewsna eht dah eno oN ?emit eht .ecneirepxE .lla ti syas lars on simple bromides. As an engineer I wanted hard, cold facts, not fuzzy .kcul dooG .koob siht etorw I ,oS .sedutitalp At the back of the book is an Index of Chart Patterns. If you suspect your THOMAS N. BULKOWSKI fo xednI eht ,ti llac ot tahw wonk ton od tub nrettap trahc a gnikam si kcots December 1999 Chart Patterns is the first place to look. Page numbers beside each pattern direct you to the associated chapter. Acknowledgments noitcerid eht sretla taht sneppah gnihtemos ,efil ruoy ni semit lareves spahreP I nbehwr aogas srhaeyl- lbyaurse ves em ot deneppah tahT .gnikat si efil ruoy ot hcuM .seitidommoC dna skcotS fo sisylanA lacinhceT ot elcitra tsrif ym dettim my surprise and delight, the editor at the time, Thorn Hartle, published the work. That single event sent me spinning off in a new direction. Nearly a dozen articles later, I called Thorn and chatted with him about an idea for a book. He steered me to Pamela van Giessen, senior editor for ot aedi ym fo liam-e elgnis A .koob siht fo rehsilbup ,.cnI ,snoSn W h&iloey J her put a new set of wheels in motion. Simple words cannot express my thanks to these two outstanding indi- viduals. Of course, there are many others such as my younger brother, Jim, the troppus ym demrof ,dnah gnipleh a em evag semitemos taht seoreh gnusnu .nettogrof ton era yehT .ttub eht ni kcik tfiws ,doog a em evag ro ,puorg T. N. B. Contents 1 Introduction smottoB gninedaorB 1 12 2 Broadening Formations, Right-Angled and Ascending 27 3 Broadening Formations, Right-Angled and Descending 40 spoT gninedaorB 4 5; 5 Broadening Wedges, Ascending 72 gnidnecseD ,segdeW gninedaorB 6 87 7 BsummottpoB-a lnasdr-eRveuRn 100 8 Bump-and-Run Reversal Tops 119 9 Cup with Handle 135 ecnuoB taC-daeD 01 153 11 Diamond Tops and Bottoms 165 12 Double Bottoms 182 spoT elbuoD 31 197 14 Flags and Pennants 213 thgiT dna hgiH ,sgalF 51 227 16 Gaps 240 17 Hanging Man 252 18 Head-and-Shoulders Bottoms 262 19 Head-and-Shoulders Bottoms, Complex 276 spoT sredluohS-dna-daeH 02 290 xiv Contents 21 Head-and-Shoulders Tops, Complex 305 22 Horn Bottoms 320 23 Horn Tops 332 syaD edisnI 42 343 Encyclopedia 25 Island Reversals 356 of nwoD evoM derusaeM 62 369 pU evoM derusaeM 72 382 Chart Patterns 28 One-Day Reversals 394 syaD edistuO 92 404 smottoB epiP 03 417 31 Pipe Tops 429 smottoB elgnatceR 23 439 33 Rectangle Tops 453 34 Rounding Bottoms 466 spoT gnidnuoR 53 477 36 Scallops, Ascending and Descending 487 37 Shark-32 501 38 Triangles, Ascending 511 39 Triangles, Descending 529 40 Triangles, Symmetrical Bottoms 545 spoT lacirtemmyS ,selgnairT 14 560 42 Triple Bottoms 576 spoT elpirT 34 590 44 Wedges, Falling 603 gnisiR ,segdeW 54 617 46 Weekly Reversals, Downside 631 y RlkeeeveWedrissap 7Uls4, 642 Statistics Summary 654 Index of Chart Patterns 663 xednI tcejbuS 669 Introduction Jim is struggling. si nwot ssorca rotitepmoc sih dna serotsrepuS BCJ fo renwo eht si eH beating him up; there is blood all over Jim's ledger. He decides it is time to take off the gloves: JCB goes public. He uses the money from the initial public offering to buy his competitor and add a few more stores around town. With a growing sales base, Jim's clout allows him to negotiate lower prices for the office supplies he is retailing. He passes on part of the savings to kcab stiforp eht swolp dna ,nediw snigram sih gnihctaw elihw ,sremotsuc sih into building more stores. -arepo eht dnapxe ot snalp sih fo mih sllet dna ,moT ,dneirf sih sllac miJ tion statewide. They chat for a while and exchange business tactics on how best to manage the expansion. When Tom gets off the phone, he decides to con- :gniht emas eht sees dna serots lareves stisiv eH .BCJ no hcraeser nwo sih tcud senil dna ,strac gnippohs lluf htiw dnuora gniltsub elpoep ,stol gnikrap dekcap eht fo esnes a teg ot sremotsuc wef a snoitseuq eH .sretnuoc tuokcehc eht ta rieht daolnu yeht sa sreilppus htiw stahc nevw seto eerfeh sa , tA .scihpargomed e fhindtann cfaioal s sisylana hguoroht a seod eh ,eciffo eht ta kcaB .seraw looks at the competition. Everything checks out so he orders his trading part- n ah1t re0hg.ih on ta kcots eht yub ot sren When news of the expansion plan hits the wires, the Street panics. It is, after all, a soft economy and expanding willy-nilly when a recession looms is daft, maybe even criminal, according to them. The stock drops below 10 and tuohtiw nac yeht sa hcum sa yub ylteiuq yehT .evom sti sekam werc s'moT do nta p 1,u2 1k1 cnaebh ,ts eog tI .yawyna sesir kcots ehT .noicipsus gnisiar rounds over at 13 before heading back down. i 2 Introduction The Database 3 Several months goe cbiyff oan ldle tsh eo te yctoinnoumtroicp poou telohot ktu ios baas dbeletiackx ea ss ie veeHr. .TtehneretnI eht dellac tpecnoc stock eases down to 9. After Tom checks in with Jim for the latest public news, supplies on-line without the need for bricks and mortar. There is some risk Tom's team buys more. It is an easy score because investors are willing to because the on-line community is in its infancy, but Jim predicts it will quickly dump the stock especially as year-end tax selling approaches. s i moT i.dnapxme pre-ysub noos ssi dna kroweemoh sih dgniod strats ,eh os era yeht ;BCJ rof srebmun selas eht sesaeler ynapmoc eht retal skeew xiS ing the stock again. better than expected. The stock rises 15% in minutes and closes at 10%. And reven saw ymonoce eht raelc s'ti ,retal shtnom xiS .sretrats rof tsuj si taht ehT .daeha semit moob sees enoyreve dna noissecer a gniretne fo regnad ni Investment Footprints stock hits 20. Years go by, the stock splits a few times, and the holiday season looms. dluohs uoy ,serotsrepuS BCJ fo noitca ecirp eht dnim ruoy ni erutcip uoy fI Tom interviews a handful of customers leaving JCB Superstores and discovers tac-daed a dna ,pot elbuod a ,mottob elbuod a :snrettap trahc eerht ezingocer that they are all complaining about the same thing: The advertised goods are bounce. To knowledgeable investors, chart patterns are not squiggles on a missing. Tom investigates further and discovers a massive distribution prob- price chart; they are the footprints of the smart money. The footprints are all lem, right at the height of the selling season. JCB has overextended itself; .sehcir retaerg dna retaerg htiw stekcop rieht enil yeht sa wollof ot deen yeht erots wen eno fo noitidda eht troppus ot ereht ton ylpmis si erutcurtsarfni eht To others, such as Tom, it is hard work and pavement pounding before they each week. yehT .stnirptoof eht gnikam seno eht era yehT .kcots a ni noitisop a ekat erad Tom realizes it is time to sell. He tells his trading department to dump nac e ehgnt aofoym nsaeel eu—mr eahgat gnittes si taht yenom trams eht era the stock immediately but for no less than 2814. They liquidate about a third of .gnitsevni dellac si tI .yalp their large holdings before driving the stock down below the minimum. Whether you choose to use technical analysis or fundamental analysis in Since it is the holidays, everyone seems to be in a buying mood. Novice ot syap tI .gnikniht si tekram eht tahw wonk ot syap ti ,snoisiced gnidart ruoy egarekorb rojam ehT .ecirp niagrab a redisnoc yeht tahw ta ni pmuj srotsevni look for the footprints. Those footprints may well steer you away from a cliff houses climb aboard and tout the stock, but Tom knows better. When the era stnirptoof esoht ekam taht teef ehT .emit ni tsuj kcots a fo tuo uoy teg dna rieht fo redniamer eht lles srentrap gnidart sih ,hgih dlo sti ot srevocer kcots the same ones that will kick you in the pants, waking you up to a promising holdings. The stock tops out and rounds over. During the next month and a investment opportunity. hsur a eb ot raeppa ton seod erehT .yllausac ,ylwols ,nwod stfird kcots eht ,flah This book gives you the tools to spot the footprints, where they predict for the exits—just a slow trickle as the smart money quietly folds up shop. the stock is heading, how far it will travel, and how reliable the trail you are fol- Then news of poor holiday sales leaks out. There is a rumor about distri- era yeht tuB .od ylerar sloot ;hcir uoy ekam ton lliw sloot ehT .si yllaer gniwol egarekorB .smelborp wolf hsac dna ,sekatsim gnisidnahcrem ,smelborp noitub .ylesiw meht esU .htlaew retaerg ot stnemurtsni ot stneilc rieht esivda won kcots eht gnituot erew erofeb skeew ylno taht smrif sell. The stock plummets 39% overnight. One or two analysts say the stock is oversold; it is a bargain and investors should add to their positions. Many bottom fishers follow their brokers' rec- The Database ommendation and buy the stock. Big mistake. The buying enthusiasm pushes the price up briefly before a new round of selling takes hold. Each day the stock If you want to discover how much you do not know about a chart formation, nI .dnas fo eltsac a tsniaga gnihsaw sevaw ekil yawa gnilbbin ,rewol tib a spord try teaching a computer to recognize one. I spent several months doing that .%03 rehtona nwod si kcots eht ,emit 'shtnom 2 llew gol dna ,ezylana ,etacol em depleh margorp ehT .koob siht rof gniraperp tsTuhje ,fnolilaorwbin ygm qu raort esre JyCeB ySmup reorsfto eretsu taintsnbouunsc eas ttohant seiar tnIin g.ssn woiiltlamrof 000,51 revo likely come in well below consensus estimates. The stock drops another 15%. another tool to augment my talent. Consider it another set of dispassionate Th aeb c usom'mtpIp- aa.nnedyr- eish tr yeinngo to s ciohrrte tcat thkeo doisLtri"b u,tgionni pyraosb ledmn,a b uut oit yis ngont siogmdeu-n dneirf a ,seye eht no etartnecnoc ot dna gnidnapxe pots ot ediced yehT .dexif ylisae gniht run reversal." .esab erots gnitsixe rieht fo ytilibatiforp When the starting gun went off, I selected 500 stocks, all with durations rof talf neeb sah god ehT .trahc kcots eht pu sllup moT ,retal sraey owT of 5 years (each from mid-1991 to mid-1996) of daily price data on which to col- so long it looks as if its heartbeat hhtiaws ssetompapne rda.i liHmea fc danllas sJliamir tasunddn ic hseantos J awbooDu t0 t3h eeht dedulcni I .scitsitats tcel outlook for JCB Superstores. Jim gushes enthusiastically about a new retailing varying market capitalizations. Stocks included in the study needed a heartbeat

See more

The list of books you might like

Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.