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All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. The first edition of Getting Started in Chart Patterns was published by John Wiley & Sons, Inc, in 2006. Published simultaneously in Canada.
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The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. The Index of Chart and Event Patterns reproduced from Thomas N.
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Stocks—Charts, diagrams, etc. Commodity futures—Charts, diagrams, etc.63’2042—dc23 2013047227 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 To Mary Schramski Contents Preface to First and Second Editions ix Acknowledgments xi Chapter 1 Introduction to Chart Patterns 1 Chapter 2 Identifying Chart Patterns 7 Chapter 3 The Truth about Trendlines 17 Chapter 4 Support and Resistance 35 The Most Important Chart Patterns Chapter 5 Ten Buy Signals 53 Chapter 6 Ten Sell Signals 119 Chapter 7 Special Situations 191 Chapter 8 Busted Patterns 225 Making Money by Trading Failure vii viii Contents Chapter 9 More Trades 255 Putting It All Together Chapter 10 The Art of Trading 285 Checklists Chapter 11 Crunching the Numbers 323 Glossary 327 Visual Index of Chart Patterns 333 About the Author 339 Index 341 Preface to First and Second Editions I read that a chartist becomes world class after viewing a million chart patterns. If you analyze one pattern per chart on 250 stocks each trading day, it’ll take 15 years to reach a million. Fifteen years! We don’t have that much time.
I’m asking for only a few hours. Before we go any further, look at the cover of this book. See where it lists the price? If you buy this book and make one profitable trade because of it, that money will be well spent. That’s cheap education, but I’m going to give you so much more.
Chart patterns are the footprints of the smart money, but the dumb money is mixed in as well. Together their footprints leave a trail. I’ll help you follow that trail so that your dream of earning a million can become reality. One investor did it.
She read this book, made a million. It took her a year. But she’s the outlier. You won’t be that lucky.
So let’s begin by discussing chart patterns, starting with the basics: trend- lines, support, and resistance. Then let’s discuss the buy and sell signals, the spe- cial situations, and the busted patterns. I’ll sprinkle the text with actual trades that still teach valuable lessons. Near the end of the book, I’ll include a trading checklist and a list of things we’ve learned along the way.
Don’t overlook the visual index of chart patterns. It’ll make identification easy. Throughout the book, I gear the presentation to the beginning investor or trader, but it comes with tips and techniques that will delight and inform the professionals, too. What differentiates my books from others is that I prove what I say.
The statistics mentioned throughout this book are not guesses nor are they copied from others, but are the results of studies I conducted using tens of thousands of chart patterns that I found. This edition updates most of the statistics. Each statistic represents the performance of hundreds of patterns traded perfectly, without commissions or fees. You won’t be able to achieve those returns, but these numbers provide a basis for comparison, they provide a foundation for dreams.
ix x Pr efac e to Firs t and Second Edition s Let those dreams carry you away. And when you return to earth, let’s get to work on that million. Begin with this book. Thomas Bulkowski March 2014 Acknowledgments F or the first edition, I would like to thank the talented efforts of Pamela van Giessen, Mary Daniello, and Jennifer MacDonald from John Wiley & Sons.
These three make publishing a book easy and fun. Thanks to Bernice Pettinato at Beehive Production Services for proofreading the book. I am indebted to Colonel James Bulkowski for acting as my support group. Other Books by Thomas Bulkowski Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns, Second Edition Fundamental Analysis and Position Trading: Evolution of a Trader Swing and Day Trading: Evolution of a Trader Trading Basics: Evolution of a Trader Trading Classic Chart Patterns Visual Guide to Chart Patterns Regarding Serious Inquiries Visit my website at www.
The site contains over 650 articles I have written on price patterns and trading; it’s free, and there is no registration. If you would like to contact me, e-mail me at tbul@hotmail. xi 1 Chapter Introduction to Chart Patterns A n investor I’ll call Gina e-mailed me her story. She had saved $100,000 in her IRA.
Then she bought this book and used its teachings to grow her account. She bought exchange-traded funds that tracked the metals. A year later, her account was worth $1. She made a million in one year.
I had a hard time believing her story so I talked to my brother. “She’s an outlier.” She’s the exception to the rule, the one person in the world that makes it to the very top. She was in the right place at the right time and did everything right to make a bundle. If Gina can do it, why not you? What Are Chart Patterns? Have you ever strolled into the woods and found footprints in the soil? If it’s muddy, you may see bird tracks.
You may also find larger tracks from cats, dogs, and even deer. You don’t see the actual animal, just their tracks. If you follow the tracks, perhaps you can discover a beautiful creature. When people trade a stock, they leave behind a footprint.
The price bar printed on the chart may also change. String enough of those price bars together and they form patterns, which we call chart patterns. 1 2 Gettin g Started in Chart Pattern s I used to think that chart patterns were the foot- chart patterns prints of the smart money. I think the dumb money chart patterns steers the feet, too.
What does that mean? are recurring Imagine that you sell office supplies to a retailer formations called BOSS (Best Office SupplieS, a fictional company), that appear on which, in turn, sells them to the public. Your business price charts. is prospering because BOSS is buying lots of your prod- They reflect ucts. With that knowledge, you purchase their stock.
the trading Six months later, you notice that the rate of their behavior of purchases has slowed. It could be a seasonal fluc- professional tuation. Fewer people need office supplies when they are traders, on vacation during the summer. But the slowdown per- companies, sists.
You decide to sell the stock. and Imagine another scenario when you meet your individuals. good friend Barry, the CEO of BOSS. He is looking glum, as if someone spit into his cereal.
He shakes his head and remarks, “We’re being sued. If they win, we’re sunk. If we win, we still take a big hit from legal fees.” “Your stock is going to take a pounding.” “No kidding,” he says. The next day you dump your holdings in BOSS.
Enter the Retail Investor It’s not only the smart money leaving footprints on the stock charts. What about people without inside information, the so-called retail investors? Anyone can drive by BOSS and see vacant parking lots. If people inside the store are pushing around empty carts with no one waiting in line at the cashier, then that can’t be good for business. That scenario happens with apparel retailers all the time.