Long-Term Bar Chart Patterns with the Best Performance and the Lowest Risk of Failure

We have selected several patterns to highlight based on their combination of high gains and minimum failure rates. Other patterns can also be successful if monitored closely, but the “edge” appears to be in these patterns. According to Bulkowski (2015), the best-performing patterns, considering gain and risk, are the high-and- tight upward breaking flag,

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What Is Different About a Point and Figure Chart?

I should say that if anybody has a good enough memory to recall thousands of changing figures, in hundreds of stocks, in a dozen averages, over a period of years, he can absolve himself from the labor of keeping charts. (DeVilliers, 1933, p. 16) 1. Time and Volume Omitted Point and figure charts appear

History of Point and Figure Charting

We briefly discussed the history of the point and figure method in Chapter 3, “History of Technical Analysis.” Unfortunately, there are only a few written references to the method—mostly books and pamphlets. Academic references are few and generally unfavorably disposed, being still caught in the old finance theory cult and not understanding how point

One-Box Reversal Point and Figure Charts

Like bar chart patterns, patterns in one-box point and figure charts are not precise and require an experienced analyst to interpret. This is likely another reason why they have lost their popularity to the three- box version. Being imprecise also means that performance figures for patterns are almost impossible to determine. No one has

Three-Point (or Box) Reversal Point and Figure Charts

The interpretation of one-box charts is obviously difficult and takes considerable skill and experience. A more user-friendly method is the three-box reversal chart. It had the advantages of being plotted from prices in the newspaper and required the knowledge of only a few basic patterns. It appealed to academia because the patterns could be

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Pattern Construction and Determination in Technical Analysis

The principal data used in short-term patterns—both traditional and candlestick, regardless of bar time—is open, close, high, and low. The opening price is traditionally considered the price established from any news, emotion, anticipation, or mechanical signals that have built up overnight. Most professional day traders, scalpers, and even swing traders prefer to avoid it.

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Traditional Short-Term Patterns in Technical Analysis

Let us look at some of the short-term patterns and their trading implications. These are patterns in use today that by themselves are warnings, at best, but not necessarily action patterns, that should be followed without a cluster of other evidence. You will notice that none of the patterns includes moving averages. Over short

Summary of Short-Term Patterns Candlestick Patterns in Technical Analysis

Although there appears to be value in short-term patterns, they are not immediate sources of wealth without study, experience, and trial-and-error testing. We have only touched the edge of methods being used. Others include performance around national holidays, days of the week, time during the day, and even the new moon. There seems to

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Analysis Methods of Trend Confirmation

The methods for analyzing confirmation rely on two main tools: indexes and oscillators. Indexes are similar to the breadth line described in the market indicators discussion in Chapter 8, “Measuring Market Strength.” They are cumulative sums of data, usually some variation of volume and price that continuously measure supply and demand over time rather

Volume Confirmation

Volume is the classic confirming indicator. Volume measures are often portrayed on stock charts, and volume statistics are incorporated in a number of indexes and oscillators. 1. What Is Volume? Volume is the number of shares or contracts traded over a specified period, usually a day, but can be one trade (called tick volume)

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Open Interest

The volume-related indexes and oscillators we have just discussed are based, in part, on the number of shares or contracts traded over a specific period of time. In the futures market, the total number of contracts outstanding is another important factor. The number of outstanding futures contracts is called open interest. 1. What Is

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Price Confirmation

Confirmation is concerned with determining whether a price trend is continuing or coming to an end. One group of indicators uses measures based upon the movement of price itself to confirm the trend. Generally, these indicators are based on the concept of momentum. 1. What Is Momentum? Momentum deals with the rate at which

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What Are Cycles?

In mathematical terms, the cosine (and sine) function describes a cycle. Figure 19.2 shows a right-angle triangle (one with a 90-degree angle). The side across from the 90-degree angle is the hypotenuse, labeled (H). A cosine of an angle is the ratio of the adjacent side to the hypotenuse. For example, in Figure 19.2,

Translation

The reason that we study lows in cycle analysis is because longer and shorter cycles tend to synchronize at lows. Peaks, on the other hand, almost never synchronize. Peaks, ideally, should occur at the halfWay period of the cycle. A 20-day cycle, for example, should have a peak 10 days from its last low.

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How Can Cycles Be Found in Market Data?

Conventional wave-filtering mathematics has gone through tremendous growth and development in the past 50 years. Data transmission, voice and image transmission, electronic signaling, and other developments in the electronic age necessitated more sophisticated mathematics to recognize and understand waveforms. Now we have bandpass filters, digital signal processing (DSP), wavelet modeling, nonlinear spectral analysis, higher

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Projections

We have looked at methods to determine cycles in market data. We now look at how we can use the knowledge about cycles in the data to project the next low and perhaps the next high. 1. Projecting Period To project the time for the next low, we need three facts: the period length

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Elliott Wave Theory (EWT)

Devised by Ralph Nelson Elliott, the Elliott Wave Theory (EWT) is an attempt to define a structure to the stock market, and, by implication, other trading markets. EWT is based on the notion that the market behaves in an irregular cyclic manner. Proponents of EWT believe that this cyclic structure is classifiable and predictable.

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The Fibonacci Sequence

Certain numbers and number sequences are of special interest in wave theory. Of particular importance are the Fibonacci sequence and the related golden ratio. 1. Fibonacci Leonardo Pisano, better known by his nickname Fibonacci, was born in 1170 in Pisa, Italy. Fibonacci’s father, Guilielmo Bonacci, was a public notary, working for the interests of

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Which Issues Should I Select?

Investment requires a certain aspect of the investor’s time and energy, not to mention knowledge and psychological makeup, to profit. Investing, including trading, breaks down into four general categories: 1) buy- and-hold, 2) position trading, 3) swing trading, and 4) day trading. The amount of time and skill necessary increases as you go down

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Which Issues Should I Select for Investing?

When investing, the universe of potential investments is enormous. This means that some method must be used to cull out the investments, determining those most likely to outperform the markets. Usually, the investor only goes long investments or in cash, rarely short, although in the commodities markets, long one currency, for example, may be

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