251, 259characterized, 194identification of, 95performance and rank, 281
IndexDescending triangles, 97–102breakout location, 288characteristics of, generally, 47, 54performance and rank, 283yearly price range, 275Diamond bottoms, 138–142breakout location, 287busted, 223case study, 142–144characteristics of, 54identification of, 170, 172performance and rank, 281yearly price range, 274Diamond tops, 138–142breakout location, 287busted, 223, 224case study, 142–144identification of, 60, 61performance and rank, 281Diamond patterns, see also Diamond bottoms;Diamond topsbusted patterns, 223–224, 226–227characteristics, generally, 159Diversification, 271–272Dome-shaped volume, 101, 167Double bottoms, 107–111Adam & Adam, 281Adam & Eve, 281breakout location, 287Eve & Adam, 109, 274, 281Eve & Eve, 281identification of, 213yearly price range, 274Double tops, 144–148Adam & Adam, 281Adam & Eve, 144breakout location, 287case study, 148–151characteristics of, 35Eve & Adam, 144–147, 274, 282Eve & Eve, 144Dow Jones Industrials, 110, 251, 269Dow Jones Transportation index, 110, 259Dow Jones Utility index, 70, 110Downsloping flag, 152Downsloping necklines, 160, 191Downsloping pennant, 152, 153Downsloping trendlines, implications of, 18,22–23, 24, 25, 29–31, 47, 77, 90, 98, 101,117, 118, 159, 180, 225–226, 230, 232Downtrends, 82, 89, 93, 113Downward breakout, 29–31, 40–41, 61, 67, 69–70,97–98, 105, 126–128, 132, 134–137,141–142, 144, 153, 156, 161, 175–178, 182,194–195, 207, 210–212, 216–221, 224–226,231–235, 243, 258, 273–276, 280–282
303
Downward spike, 62Dual CCI (DCCI), 64–65, 242–243, 289Earnings announcementsbad news, 193–197, 276, 284good news, 197–201, 276, 284impact of, 132, 192, 253Earnings flags, 201–203case studies, 203–205, 252–253characteristics of, 142identification of, 204performance and rank, 284yearly price range, 276EMC, case illustration, 249–252Emotional trading, 14, 74, 271, 278Encyclopedia of Chart Patterns, Second Edition(Bulkowski), 130, 132, 147, 270Eve & Adamdouble bottoms, 109, 274, 281double tops, 144–147, 274, 282Event decline, 187Event patternsbad earnings surprise, 193–197, 276dead-cat bounce, 185–189earnings flag, 201–205, 276good earnings surprise, 197–201, 276inverted dead-cat bounce, 189–193performance and rank table, 284stock downgrades, 205–209, 276stock upgrades, 209–214, 276Exit strategy, 84, 88, 95. See also Sell signalsExternal trendlines, 17–19, 31Failure rates, 273. See also specific chart patternsFailure swing, 265, 269Falling markets, 277Falling wedge, 16, 54, 153, 166, 168Fibonacci retracement, 36–38, 48, 58–59, 66, 134,181, 222Flagpole, 253Flagsbreakout location, 287case study, 156–157characteristics of, generally, 38, 46, 47, 61, 115, 151earnings, 201–205, 284earnings announcements, 194development of, 190high, tight, 46–47, 54, 74, 79, 241, 244–246,275, 282, 287identification of, 172performance and rank, 282tight, 161yearly price range, 274–275Flat base, 96, 110, 115–116, 153, 289Flat bottoms, 40Flat tops, 40
304
INDEX
Gaps, generallybreakout day, 100, 122busted patterns, 223defined, 289Giant Industries, case illustration, 243–246Good earnings surprisescase study, 199–201identification of, 198performance and rank, 284trading/trading tips, 199Half-staff formation, 38, 115, 140, 151–152, 154,257, 289Head-and-shoulders bottoms, 119–122busted, 223, 228characteristics of, generally, 39–40, 54, 69head, 120identification of, 120, 189, 191Head-and-shoulders patternsbottoms, 39–40, 54, 69, 119–122, 189, 191,223, 228, 275busted, 223, 225–227busted bottom, 223, 228busted tops, 223, 225–226, 229complex bottoms, 275complex tops, 275, 287tops, 41, 138, 143–144, 157–160, 223,225–226, 229, 275, 287Head-and-shoulders top, 157–160breakout location, 287busted, 223, 225–226, 229case study, 160–162characteristics of, generally, 41identification of, 67, 70performance and rank, 138, 282Higher lows, 56–57High velocity, 140, 159, 182High-volume breakout, 68–69Horizontal consolidation regions, 39–42, 48, 71,172, 259, 289Horizontal flag, 152Horizontal pennant, 152Horn bottoms, 80IMC Global, case illustration, 239–243Industry relative strength, 262Industry trends, 150, 198, 234, 268, 270Insider sales, 5–6, 194Inside weeks, 83Intermediate-term, generallydeclines, 116, 121defined, 289downtrends, 82rise, 126, 130, 136, 159trendlines, 21Internal trendlines, 18–19, 31, 55
Intraday, generallydefined, 289high, 30, 62, 198high–low trading range, 195low, 62scale, 271trading range, 207, 211Inverted and ascending scallops, 84–88breakout location, 287characteristics of, 19, 275performance and rank, 283yearly price range, 275Inverted dead-cat bounce, 189–190case studies, 191–192characteristics of, 61performance and rank, 284Investment banks, 207Island reversals, 69JLG Industries, case illustration, 255–258Lam Research, case illustration, 246–249Late entry, 272–273Left shoulder, in head-and-shoulders patterns,119, 120, 144, 158, 160, 161Limit orders, 117, 289Linear regression, 150, 156, 289Long spikes, 81Long-term, generallychart, 46decline, 116, 121, 141, 147defined, 289downtrends, 82holders, 82rise, 126, 130, 136, 159trades, 10, 38trendlines, 21Loose flag, 154, 155, 244Lower highs, 56–57Low velocity, 140, 159Market correction, 277Market downturn, 94, 143Market orders, 41, 63, 205Market risk, 118Market trends, 150, 234, 269Measure ruleapplications, see specific chart patternsimplications of, 84, 208, 289trendlines, 23–25, 31Measured moves down, 162–168breakout location, 287case study, 169, 183characteristics of, 30, 47, 131simple ABC correction, 164
IndexMeasured moves up, 162–168breakout location, 287case studies, 168, 254–255characteristics of, 30earnings announcements and, 197identification of, 166, 198implications of, 197simple ABC correction, 163–164Median, 68, 289Megaphone price trend, 125Mental stop, 200Momentumimplications of, 29, 56–57, 205, 242–243relative strength index (RSI) indicator, 128, 290Moving average convergence/divergence (MACD),128, 149–150Mutual funds, 38, 74, 157Narrow patterns, implications of, 77, 86, 91–92,96, 100, 105, 110, 148, 182NASDAQ Composite, 64, 110, 246, 248, 251, 269Necklinebusted head-and-shoulders bottom, 228defined, 289head-and-shoulders bottoms, 119–120, 121,122, 191head-and-shoulders formation, generally, 39–41head-and-shoulders tops, 158, 160, 162On-balance volume, 149–1501-2-3 trend change, 25–28, 31, 90, 268Opening price, 62Outside weeks, 84Overhead resistance, implications of, 39, 40, 64, 69,77, 82, 90, 96, 111, 116, 121, 154, 166, 199,208, 250, 269Overtrading, 277Paper trading, 12Partial decline, 42, 103, 127, 131, 134–136, 140,231, 256, 289Partial rise, 45, 103–105, 126–127, 132, 134–136,180, 290Peak(s), see also specific chart patternshighest, 78, 83implications of, 38–39, 47lower, 56support and resistance zones, 42–46V-shaped, 179Pennants, 151–156breakout location, 287case study, 156–157characteristics of, 61, 64, 69, 75–76, 78, 142development of, 190performance and rank, 282–283yearly price range, 275
305
Pipe bottoms, 80–84breakout location, 287case studies, 84, 248–250identification of, 54, 83, 170, 172performance and rank, 283yearly price range, 275Pipe tops, 169–171breakout location, 287case study, 171–172yearly price range, 275Position traders/investors, strategies for, 82, 110,116–117, 190, 290Premature breakout, 99, 100Price behavior, focus on, 10–11Price bump, 29Price movement trends, 25–29, 273Price reversal, 19, 29, 41, 44, 89–90, 91, 273Price targetdetermination of, 101, 196, 199, 208, 268importance of, 272measure rule computation, 24setting, 14Profit(s), generallybarriers, 13–14ignoring, 10opportunities, 82-taking guidelines, 203target, 14Progressive stops, 252Pullbackscase illustrations, 243–244, 258–259characteristics of, 24–25, 29–30, 269, 279defined, 290earnings announcements and, 196implications of, generally, 67–69,126–127, 136,148, 154–155, 159, 171, 174, 182, 217–221,224–225, 230–235, 237, 269, 273, 279stock downgrades, 208stock upgrades, 212Rectanglesbusted patterns, 230, 231characteristics of, 153tops, 54, 122Relative Strength Index (RSI), 128, 200–201, 205,242–243, 290Resistance, see Support and resistanceRetrace, defined, 36, 290Retracementcase illustration, 242high, tight flags, 77implications of, 36–38, 46, 48, 63–64, 163,257, 268triple bottoms, 116Reversal chart patterns, 31, 89–90, 91, 105, 140,144, 151, 203, 217, 220, 234, 270, 273, 290
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INDEX
Right-angled and ascending broadening formations,133–137busted, 216, 218–219case study, 137–138characteristics of, 45, 90performance and rank, 280yearly price range, 274Right-angled and descending broadeningformations, 133–137busted, 216, 221case studies, 137–138, 252, 257, 259characteristics of, 59, 180performance and rank, 280yearly price range, 274Right shoulder, in head-and-shoulder patterns,119, 120, 122, 144, 158, 160, 161, 191, 228Riseaverage, 82–83, 203, 212, 279high velocity, 182intermediate-term, 130, 136, 159long-term, 130, 136, 159moderate, 77partial, 57–60, 103–105, 126–127, 132,134–136, 180, 290quick, 60–61, 138–139short-term, 130, 136, 148, 159Rising wedge, 153Rohm and Haas, case illustration, 252–255Rounding bottoms, 92–97breakout location, 287case illustration, 248performance and rank, 283yearly price range, 275Rounding tops, performance and rank, 283Rounding turns, 10, 93–96, 98, 249Round number support and resistance, 41–42, 45, 48Scallops, see Inverted and ascending scallopsScenario trading, 13Security review checklistsbefore buying, 262–267how to sell, 267when to sell, 267–269Selling checklistshow to sell, 267when to sell, 267–269Selling pressure, 63, 209Sell signalsascending broadening wedge, 104–105busted ascending broadening wedges, 218busted head-and-shoulders bottom, 228case illustrations, 242–243, 246, 255characteristics of, generally, 7, 11–12curved trendlines, 19dead-cat bounce, 188, 190descending broadening wedge, 132, 221double tops, 147
earnings flags, 204Eve & Eve double bottoms, 110flags, 156–157good earnings announcements and, 199–200head-and-shoulders tops, 160–161inverted and ascending scallops, 86–87pennants, 156–157stock downgrades, 207symmetrical triangles, 193, 197trendlines, generally, 25triple bottoms, 116, 118Shark-32 pattern, 250Short, defined, 290Short Course in Technical Trading, A (Kaufman), 65Shorting a stock, 70, 170, 183, 195, 207, 217–218,221, 232, 235, 249, 273Short patterns, implications of, 82–83, 91, 96,105, 110, 127, 131, 136–137, 159, 171,175, 182, 290Short-term, generallydecline, 116, 121, 141defined, 290downtrends, 82rise, 126, 130, 136, 148, 159trendlines, 21Shoulder lows, head-and-shoulder formation, 39Sideways price movement, 39, 76Simple ABC correctioncharacteristics of, 163–164trading tips, 165Southwest Airlines, case illustration, 258–260Spikesimplications of, 62–65one-day, 179pipe bottoms, 81, 83pipe tops, 169–171Standard & Poor’s 500, 46, 70, 109, 178, 183, 201,241, 242–243, 244, 245, 246, 247, 249, 251,253, 255, 256, 257, 258, 259, 260, 269Stock downgrades, 205–208case study, 208performance and rank, 284yearly price range, 276Stock market crash of 1987, 38Stock splits, 142Stock upgrades, 209–212case study, 213–214performance and rank, 284yearly price range, 276Stop-loss orders, implications of, 7, 14, 22, 38, 41,123, 177, 200, 271, 290. See also specificchart patternsStop running/stop gunning, 41, 63Stops, types ofprogressive, 252trailing, 66–67, 84, 252volatility, 65, 67, 242, 246
IndexStraight-line runs, 38, 57, 88, 111, 115, 139,163–164, 183, 188, 202, 230Support and resistanceascending triangles, 174, 177busted broadening patterns, 223busted falling wedge, 234busted patterns, generally, 237busted rising wedge, 235busted symmetrical triangle, 235–236channels, 42–44, 48chart pattern, 35–36defined, 34descending triangles, 100double tops, 147–148Fibonacci retracements, 36–38, 48, 66good earnings announcements, 199, 200head-and-shoulders tops, 162horizontal consolidation regions, 39–42, 48peaks, 38–39, 44–48pipe tops, 171round number, 41–42, 45, 48short sale, 70–71symmetrical triangles, 174, 177trendlines, 42–44, 48triple bottoms, 118triple tops, 181–182utilization in trades, 44–47valleys, 38–39, 45, 48volume and, 42, 44, 48weekly scales, influence on, 268Swing high/low, 78Swing traders, strategies for, 68, 82, 86, 96,100, 104, 110, 116, 126, 130, 132, 151,156, 162, 212Swing trading, defined, 290Symmetrical triangles, 173–177breakout location, 288busted, 173, 192case studies, 177–179, 192characteristics of, generally, 11–12, 54, 153,160, 271development of, 197identification of, 35, 36–38, 161, 193, 198,200performance and rank, 283sell signals, 197shark-32 pattern, 250yearly price range, 275Tails, characteristics of, 62Tall patterns, implications of, 82–83, 86, 91–92,96, 100, 105, 126–127, 131, 136–137, 148,159, 171, 175–176, 182, 196, 198–199, 203,208, 212, 270, 290Technical Analysis For Dummies (Rockefeller), 30
307
30-day average volume, 68, 77, 80, 87, 90, 101,130, 136, 154, 176Three rising valleys, 88–92breakout location, 287case illustration, 247performance and rank, 283yearly price range, 275Throwbackscase illustrations, 251–252defined, 290implications of, 29–30, 35, 36, 66, 67–69,77, 82, 92, 95, 96–97, 99, 111, 115,117, 121, 126–127, 131, 141,154–155, 174, 199, 208, 212,217–220, 224–228, 231–235, 260,269, 273, 279Tight flags and pennants, 154, 155, 161Trader Vic: Methods of a Wall Street Master(Sperandeo), 27Trading Classic Chart Patterns (Bulkowski), 19, 63,161, 191Trading diary, 271Trading plan, 12–13. See also Trading system;Winning systemTrading psychologychecklist of, 276–278comfort zone, 10–11, 277impact of, 6–7negative thoughts, 9–10profit barriers, 13–14research, 8–9sell signals, 11–12stop/stop-loss orders, 7trading plan, 12–13, 277winning system, 8, 270–273, 277–288Trading range, 30, 63, 144, 195Trading systemfollowing, 8, 277refinement of, 13, 271–272selection factors, 8sell signals, 12–13Trading tips, generally, 270–273. See also specificchart patternsTrailing stop, 66–67, 84, 252Trend changes, 31, 56, 197, 290Trend channels, 150, 155, 156Trending down/up, 23Trendline(s) see also Downsloping trendlines;Upsloping trendlinescharacteristics of, 17, 31–32, 55, 761-2-3 trend change method, 25–28, 31sample trade using, 28–29, 32support and resistance zones, 42–44, 48touches, 21, 31, 104–105, 125, 140, 174touch spacing, 19–20, 31
308
INDEX
Trend reversal, 56. See also Reversal chart patternsTrend start, 75, 78, 290–291Trianglesascending, 52, 54–55, 65, 66, 170, 173–179,240–241, 275, 283, 288busted ascending, 230, 231–232busted descending, 230, 232–233busted symmetrical, 230, 233–234descending, 47, 54, 97–102, 176, 275, 283, 288symmetrical, 54, 59, 60, 153, 1