Table Of Content

Technical Analysis of Stock Trends Eleventh Edition Technical Analysis of Stock Trends Eleventh Edition Robert D. Edwards John Magee W. H. C. Bassetti A PRODUCTIVITY PRESS BOOK Routledge Taylor & Francis Group 711 Third Avenue, New York, NY 10017 © 2019 by Taylor & Francis Group, LLC Productivity Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Printed on acid-free paper International Standard Book Number-13: 978-1-138-06941-1 (Hardback) This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. 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CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloguing-in-Publication Data Names: Edwards, Robert D. (Robert Davis), 1893- author. | Magee, John, 1901- author. | Bassetti, W. H. C., author. Title: Technical analysis of stock trends / Robert D. Edwards, John Magee, W.H.C. Bassetti. Description: Eleventh Edition. | New York : CRC Press, [2018] | Revised edition of the authors’ Technical analysis of stock trends, c2013. | Includes bibliographical references and index. Identifiers: LCCN 2018010151 | ISBN 9781138069411 (hardback : alk. paper) Subjects: LCSH: Investment analysis. | Stock exchanges--United States. | Securities--United States. Classification: LCC HG4521 .E38 2018 | DDC 332.63/20420973--dc23 LC record available at https://lccn.loc.gov/2018010151 Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the Productivity Press site at http://www.ProductivityPress.com d e at r st u y ill dl vi vi s a 9, 0 0 2 of h c r a M e c n si s d r o c e r t e s o t s e u n nti o c w o D e h T n! o diti e h 1t 1 e h t r o f nt e s e r p y a d h t r bi a at h W 0! 0 0 5 2 W O Dt. r 1 ha 0.c ure his igy t Fb Contents Preface to the eleventh edition ....................................................................................................xv Preface to the tenth edition .......................................................................................................xvii Preface to the ninth edition .......................................................................................................xxi Preface to the eighth edition .....................................................................................................xxv In memoriam ............................................................................................................................xxxv Preface to the seventh edition ..............................................................................................xxxvii Preface to the fifth edition ..........................................................................................................xli Preface to the fourth edition .....................................................................................................xliii Preface to the second edition .....................................................................................................xlv Foreword ....................................................................................................................................xlvii Part I: Technical theory Chapter 1 The technical approach to trading and investing ..............................................3 Definition of technical analysis.....................................................................................................4 Chapter 2 Charts .........................................................................................................................7 Different types of scales .................................................................................................................8 Chapter 3 The Dow Theory.....................................................................................................11 The Dow Averages ........................................................................................................................12 Basic tenets .....................................................................................................................................12 Tide, wave, and ripple ..............................................................................................................14 Major trend phases ...................................................................................................................14 Principle of confirmation ........................................................................................................16 Chapter 4 The Dow Theory’s defects ....................................................................................21 The Dow Theory is too late .........................................................................................................21 The Dow Theory is not infallible ................................................................................................23 The Dow Theory frequently leaves the investor in doubt .................................................23 The Dow Theory does not help the Intermediate Trend investor .....................................23 The Dow Theory in the 20th and 21st centuries .......................................................................26 Chapter 5 Replacing Dow Theory with John Magee’s Basing points Procedure ........31 The fractal nature of the market .................................................................................................31 vii viii Contents Chapter 6 Important Reversal Patterns ................................................................................41 Important Reversal Patterns ........................................................................................................42 Time required to reverse a trend ................................................................................................42 The Head-and-Shoulders Top Formation ..................................................................................44 Volume is important .....................................................................................................................44 Breaking the neckline ...................................................................................................................47 Variations in Head-and-Shoulders Tops ....................................................................................49 Price action following confirmation: the measuring formula ................................................52 Relation of Head-and-Shoulders to Dow Theory .....................................................................55 Chapter 7 Important Reversal Patterns: continued ............................................................57 Head-and-Shoulders (EN: or Kilroy) Bottoms ..........................................................................57 Multiple Head-and-Shoulders Patterns .....................................................................................59 Tendency to symmetry .................................................................................................................61 A leisurely pattern ........................................................................................................................65 Rounding Tops and Bottoms .......................................................................................................66 How Rounding Turns affect trading activity ...........................................................................70 The Dormant Bottom variation ...................................................................................................73 Volume pattern at Tops ................................................................................................................74 Chapter 8 Important Reversal Patterns: the Triangles ......................................................77 Symmetrical Triangles..................................................................................................................79 Some cautions about Symmetrical Triangles ............................................................................82 How prices break out of a Symmetrical Triangle .....................................................................88 A typical Triangle development .................................................................................................90 Reversal or Consolidation ............................................................................................................94 The Right-Angle Triangles ...........................................................................................................97 A planned distribution .................................................................................................................98 Descending Triangles ...................................................................................................................98 Volume characteristics same as the Symmetrical type ...........................................................99 Measuring implications of Triangles .......................................................................................100 Triangles on weekly and monthly charts ................................................................................100 Other Triangular formations .....................................................................................................100 Chapter 9 More important Reversal Patterns ...................................................................103 The Rectangles, Double and Triple Tops .................................................................................103 Pool operations ............................................................................................................................105 Relation of rectangle to Dow Line ............................................................................................112 Rectangles from Right-Angle Triangles ...................................................................................113 Double and Triple Tops and Bottoms .......................................................................................113 Distinguishing characteristics ..................................................................................................115 Double Bottoms ...........................................................................................................................118 Triple Tops and Bottoms ............................................................................................................118 Chapter 10 Other Reversal phenomena ................................................................................121 The Broadening Formations ......................................................................................................121 Volume during Broadening Formations ..................................................................................122 A typical example .......................................................................................................................128 Contents ix The Orthodox Broadening Top .................................................................................................130 Why no Broadening Bottoms?...................................................................................................135 Right-Angled Broadening Formations .....................................................................................135 The Diamond ...............................................................................................................................137 Wedge Formations ......................................................................................................................139 The Falling Wedge ......................................................................................................................142 Wedges on weekly and monthly charts...................................................................................143 Rising Wedges common in Bear Market Rallies ....................................................................144 The One-Day Reversal ................................................................................................................144 The Selling Climax .....................................................................................................................145 Short-term phenomena of potential importance ....................................................................147 Spikes ............................................................................................................................................147 Runaway Days .............................................................................................................................148 Key Reversal Days.......................................................................................................................148 Chapter 11 Consolidation Formations ..................................................................................151 Flags and Pennants .....................................................................................................................151 The Pennant: a pointed Flag ......................................................................................................153 The measuring formula .............................................................................................................154 Reliability of Flags and Pennants .............................................................................................156 Where they may be expected ....................................................................................................157 Flag pictures on weekly and monthly charts .........................................................................158 Rectangular Consolidations: an early phase phenomenon ..................................................159 Head-and-Shoulders Consolidations .......................................................................................160 Scallops: repeated Saucers .........................................................................................................162 Modern versus old-style markets .............................................................................................168 Chapter 12 Gaps ........................................................................................................................171 Which gaps are significant? .......................................................................................................171 Closing the gap ............................................................................................................................171 Ex-dividend gaps.........................................................................................................................174 The common or area gap .......................................................................................................175 Breakaway gaps ......................................................................................................................177 Continuation or runaway gaps and the measuring rule ..................................................182 Two or more runaway gaps ..................................................................................................184 Exhaustion gaps .....................................................................................................................185 The Island Reversal .....................................................................................................................186 Gaps in the Averages ..................................................................................................................187 Chapter 13 Support and Resistance .......................................................................................189 Normal trend development .......................................................................................................190 The explanation ...........................................................................................................................191 Estimating Support–Resistance potential ...............................................................................193 Locating precise levels ...............................................................................................................196 Significance of Support failure ..................................................................................................197 Popular misconceptions .............................................................................................................198 The round figures .......................................................................................................................200 Repeating historical levels .........................................................................................................200