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Getting Started in CHART PATTERNS 01_727660 ffirs.qxd 9/15/05 5:56 PM Page iii Getting Started in CHART PATTERNS Thomas N. Bulkowski John Wiley & Sons, Inc. 01_727660 ffirs.qxd 9/15/05 5:56 PM Page vi 01_727660 ffirs.qxd 9/15/05 5:56 PM Page i Getting Started in CHART PATTERNS 01_727660 ffirs.qxd 9/15/05 5:56 PM Page ii The Getting Started In Series Getting Started in Online Day Trading by Kassandra Bentley Getting Started in Asset Allocation by Bill Bresnan and Eric P. Gelb Getting Started in Online Investing by David L. Brown and Kassandra Bentley Getting Started in Investment Clubs by Marsha Bertrand Getting Started in Internet Auctions by Alan Elliott Getting Started in Stocks by Alvin D. Hall Getting Started in Mutual Funds by Alvin D. Hall Getting Started in Estate Planning by Kerry Hannon Getting Started in Online Personal Finance by Brad Hill Getting Started in 401(k) Investing by Paul Katzeff Getting Started in Internet Investing by Paul Katzeff Getting Started in Security Analysis by Peter J. Klein Getting Started in Global Investing by Robert P. Kreitler Getting Started in Futures by Todd Lofton Getting Started in Financial Information by Daniel Moreau and Tracey Longo Getting Started in Emerging Markets by Christopher Poillon Getting Started in Technical Analysis by Jack D. Schwager Getting Started in Hedge Funds by Daniel A. Strachman Getting Started in Options by Michael C. Thomsett Getting Started in Real Estate Investing by Michael C. Thomsett and Jean Freestone Thomsett Getting Started in Tax-Savvy Investing by Andrew Westham and Don Korn Getting Started in Annuities by Gordon M. Williamson Getting Started in Bonds by Sharon Saltzgiver Wright Getting Started in Retirement Planning by Ronald M. Yolles and Murray Yolles Getting Started in Online Brokers by Kristine DeForge Getting Started in Project Management by Paula Martin and Karen Tate Getting Started in Six Sigma by Michael C. Thomsett Getting Started in Rental Income by Michael C. Thomsett Getting Started in Chart Patterns by Thomas N. Bulkowski 01_727660 ffirs.qxd 9/15/05 5:56 PM Page iii Getting Started in CHART PATTERNS Thomas N. Bulkowski John Wiley & Sons, Inc. 01_727660 ffirs.qxd 9/15/05 5:56 PM Page iv Copyright © 2006 by Thomas N. Bulkowski. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. 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. Bulkowski, The Encyclopedia of Chart Patterns, Second Edition (Hoboken, NJ: John Wiley & Sons, 2005). Reprinted with permission. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Bulkowski, Thomas N., 1957- Getting started in chart patterns / Thomas N. Bulkowski. p. cm. Includes index. ISBN-13: 978-0-471-72766-8 (pbk.) ISBN-10: 0-471-72766-0 1. Stocks—Charts, diagrams, etc. 2. Commodity futures—Charts, diagrams, etc. 3. Investment analysis. I. Title. HG4638.B853 2006 332.63’2042—dc22 2005017555 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 01_727660 ffirs.qxd 9/15/05 5:56 PM Page v To Mary Schramski I found the answer to your question, “What is creative nonfiction?” 01_727660 ffirs.qxd 9/15/05 5:56 PM Page vi 02_727660 ftoc.qxd 9/15/05 5:59 PM Page vii Contents Preface ix Acknowledgments xi Chapter 1 The Smart Money’s Footprints 1 Chapter 2 Trading Psychology 5 Chapter 3 The Truth about Trendlines 15 Chapter 4 Support and Resistance:The Most Important Chart Patterns 33 Chapter 5 Special Situations 49 Chapter 6 The Top 10 Performing Bottoms 73 Chapter 7 Common Patterns for the Toolbox 123 vii 02_727660 ftoc.qxd 9/15/05 5:59 PM Page viii viii CONTENTS Chapter 8 Event Patterns:What They Are and How to Trade Them 185 Chapter 9 Busted Patterns: Making Money by Trading Failure 215 Chapter 10 More Trades: Putting It All Together 239 Chapter 11 The Art of Trading: Checklists 261 Chapter 12 Crunching the Numbers 279 Epilogue/Closing Position 285 Glossary 287 Index of Chart and Event Patterns 293 Index 301 03_727660 fpref.qxd 9/15/05 6:02 PM Page ix Preface read that a chartist becomes world class after he views a million chart patterns. If you analyze one pattern per chart on 250 stocks each trad- Iing day, it’ll take fifteen 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 be- cause of it, that money will be well spent. That’s cheap education, but I’m going to give you much more. Chart patterns are the footprints of smart money. The smart money leaves false trails. So if you’re like a close friend who looked at everything but the road when driving, you’re going to pick up bad habits. Those habits may cause you to freeze when trading so that you get in late or exit early. The million bucks you dream about will be just that—a dream. My chapter on trading psychology keeps your eyes focused on the road ahead. After that, we make music discussing chart patterns, one by one, start- ing with the basics: trendlines, support and resistance, special situations— all geared to the beginning investor or trader, but it comes with tips and techniques that will delight and inform professionals, too. I show you the top 10 bullish performers and then discuss the band members. Those band members are the chart patterns everyone knows. They are your backup vocals. Together, they help you perform like a rock star. No per- formance would be complete without an audience, and that’s where event patterns come in. They are the audience, and I show you how to make money from them. When fans scale the fences trying to get into the concert free, I dis- cuss tactics to handle the busted chart patterns. Often, they represent the best profit opportunities. Once you have met your band members and the stage is ready, then it’s time for rehearsal. I discuss trades that I made throughout this book, ix 03_727660 fpref.qxd 9/15/05 6:02 PM Page x x PREFACE but I dedicate an entire chapter to them. Study them. Learn what I did and consider what you would have done differently. Pull up the charts on your own computer so that the patterns become familiar to you. The statistics I mention throughout this book are not guesses but the results of studies that I conducted on over 38,500 chart and event patterns. Each statistic represents the performance of hundreds of pat- terns traded perfectly, without commissions or fees. You won’t be able to achieve those returns, but these numbers provide a basis for compari- son. I’ve included a table of performance statistics at the back of the book with the chart and event pattern’s performance rank—so pick the patterns you like. I also provide an index of chart patterns to help with identification. Let’s meet Jake. He’s a character all right, but a fictional one. I use him as a literary device to highlight actual trades, the points I want to make, or just to keep things lively. If his trade mentions specifics— shares traded and the cost—then it is an actual trade that I made with my own money in the stock market. When the crew comes to pack up the gear for the next gig, I provide trading checklists so that you won’t forget anything.
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