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INDEX Page numbers followed by n indicate note numbers. A Arnott, Robert, 391 Ascending triangle pattern, 140–141 AB model. See Abreu-Brunnermeier model Asks (offers), 8 Abreu-Brunnermeier (AB) model, 481–482 Aspray, Thomas, 223 Absolute breadth index, 327–328 ATM. See Automated teller machine Absolute difference, 327–328 ATR. See Average trading range; Average Accelerated trend lines, 65–66 true range Acceleration factor, 88, 89 At-the-money, 418 Accumulation, 213 Average range, 79–80 ACD method, 186 Average trading range (ATR), 113 Achelis, Steven B., 214n1 Average true range (ATR), 79–80 Active month, 401 Ayers-Hughes double negative divergence AD. See Chaikin Accumulation Distribution analysis, 11 Adaptive markets hypothesis, 12, 503 Ayres, Leonard P. (Colonel), 319–320 implications of, 504 ADRs. See American depository receipts ADSs. See American depository shares B 631 Advance, 316 Bachelier, Louis, 493 Advance-decline methods Bailout, 159 advance-decline line moving average, 322 Baltic Dry Index (BDI), 386 one-day change in, 322 Bands, 118–121 ratio, 328–329 trading strategies and, 120–121, 216, 559 that no longer are profitable, 322 Bandwidth indicator, 121 to its 32-week simple moving average, Bar chart patterns, 125–157. See also Patterns 322–324 behavioral finance and pattern recognition, ADX. See Directional Movement Index 129–130 Alexander, Sidney, 494 classic, 134–149, 156 Alexander’s filter technique, 494–495 computers and pattern recognition, 130–131 American Association of Individual Investors learning objective statements, 125 (AAII), 520–525 long-term, 155–156 American depository receipts (ADRs), 317 market structure and pattern American FinanceCOPYRIGHTED Association, 479, 493 MATERIALrecognition, 131 Amplitude, 348 overview, 125–126 Analysis pattern description, 126–128 description of, 300 profitability of, 133–134 fundamental, 473 Bar charts, 38–39 Andrews, Dr. Alan examples of, 38–39 pitchfork, 72, 73 Baruch, Bernard, 577 Apex, 139, 181 Base, 139 Appel, Gerald, 227 Base currency, 413–414 Arithmetic moving average, 100 Bearish resistance lines, 70–71, 249, 256 Arithmetic scale, 42 Bear markets, 20 Arms, Richard W., Jr., 206, 331 cyclical, 570 Arms Index, 331–332 trade setups, 304 Behavioral finance, 502–503 failure of, 128 contrary opinion and, 592–594 false and premature, 136 financial news and, 473 learning objective statements, 75 folklore of Wall Street traders, 470–472 level of, 76 forerunners to, 469–473 overview, 75, 76 human nature and, 584–585 risk/return ratio for, 95–96 learning objective statements, 469 specialist, 91, 92 overview, 469–470 stops and, 90 pattern recognition and, 129–130 stops for false breakout, 91 value investing and, 472–473 using price to set price targets, 134 Benchmarks volatility of, 79–80 detrending market data, 565–566 Breakout trading, 62 use in rule evaluation, 561–567 Broadening pattern, 143–146 Beta, 79, 465 Broad ranging days, 269 description of, 467 Bubbles, 453–454, 482 Biggs, Barton, 576 models of, 479n6 Binary rules Buffett, Warren, 574, 591 from multiple thresholds, 558–560 Bullish support lines, 70, 249, 256 thresholds and, 557–558 Bull markets, 20 Black, Fischer, 479–481, 493 trade setups, 304 Bloomberg Barclays U.S. Aggregate Bond Index, Busted rectangles, 137 387 Buy signals, 256 Bogle, John, 578 compound point-and-figure, 256, 257 632 Bollinger, John bands, 118, 119, 216, 559 Bonds, 386–387, 391 C INDEX debt securities, 391 Cadbury, Chris, 582–584 fixed income securities, 391 Calahan, Edward, 30 issuers of, 392–393 Call option, 418, 426–428 Bounded, 202 Candlestick charts, 40–41, 242–251 Bounded/unbounded, 323 advantages of, 243 Bowles, Samuel, 15 basic market strategies, 247–251 “Bowl” pattern, 149–151 charting instructions, 245–247 “Box” pattern, 135–136 constructing, 246 Box range, 251 example of, 41 Box size learning objective statements, 242 based on a fixed percentage of price, origination of, 243 274–275 overview, 242–244 based on a multiple of the average true range, real body of, 40 275–276 shadows, 40 examples of, 261, 262, 263 wick, 40 in point-and-figure charting, 259–263 Candlestick patterns, 187–198 variable, 274–277 one- and two-bar, 189–194 Breadth indicator, 316, 608–609 results from, 197–198 characteristics of, 320 Candlevolume charts, 208 Breakaway gaps, 163 Capital asset pricing model (CAPM), Breakouts, 60, 76–83 463–468 anticipation of, 82–83 as an accepted theory, 467–468 buy signal, 119, 120 equation, 464–465 confirmation of, 76–82 interpretation of, 465–467 bindex 632 November 8, 2019 2:42 PM CAPM. See Capital asset pricing model CMT Association, 474 Case studies about, ix of gaps and classic patterns, 167–169 curriculum, xiii of successful investors, 580–584 exam topics and question weightings, Cboe NASDAQ-100 Volatility Index xvi–xvii as economic indicator, 608 Level I content selections, xiii Cboe Volatility Index. See Volatility index Level I exam, xv CCI. See Commodity Channel Index program, xi CDs. See Certificates of deposit “Coil” pattern, 141–142 Central tendency, 533–534 Commitments of Traders (COT), 402 CFE. See Cboe Futures Exchange Commodities Research Bureau (CRB), 317, CFTC. See Commodity Futures Trading 385, 611 Commission Commodity Channel Index (CCI), 235–236 Chaikin, Marc, 213 Commodity Futures Trading Commission Chaikin Accumulation Distribution (AD), 213 (CFTC), 222, 511 Chaikin Money Flow, 215 Commodity Price Index, 611 Chaikin Oscillator, 216 Composite chart, 361 “Chandelier Exit,” 87 Composite model, 612–613 Chang, Kevin, 476 Computers. See also Software Change of polarity principle, 251 pattern recognition and, 130–131 Channels, 61, 68–69, 121–122 Confirmation, 200–241 description of, 147 analysis methods, 201–204 Donchian, 121, 122 classic patterns, 204 Charles H. Dow Award, 333 concept of, 22–23 633 Charting crossovers, 204 INDEX point-and-figure charting, 252–277 divergences, 203 of stock prices, 473–474 examples of, 24 Charts failure swings, 202 benefits of, 28–29 learning objective statements, 200 candlevolume, 208 open interest, 221–224 computer programs for, 31 overbought/oversold, 202 data construction and, 32–34 overview, 200–201 description of, 27–28 price confirmation, 224–239 development and analysis of, 1 reversals, 203 Equivolume, 206–208 trend ID, 203–204 example of prices, 31 volume confirmation, 205–221 history and construction of, 27–44 Congestion area, 53. See also Trends history of charting, 29–32 Connors, Larry, 182–183, 184 learning objective statements, 27 Consolidation, 53. See also Trends overview, 27–29 Consumer Price Index (CPI), 357 scale for, 42–44 as economic indicator, 605 types of, 34–41 versus S&P 500 Index, 576 Chicago Board of Trade, 254 Continuous contract, 33–34, 401 Chicago Mercantile Exchange, 254, 577 Contracts Citigroup, 33 expiration date of, 432 Classic patterns, 204 linked, 33–34 Climax pattern, 146–149, 16, 172 Contrary opinion, 592–594. See also Consensus Close filter, 76–78 and commitment indicators Closing price, 161 Convergence, 224–225 Cluster, 160, 296–298 Convertible bonds, 379 bindex 633 November 8, 2019 2:42 PM Cootner, Paul, 630 Directional Movement Index (ADX), 300 Coppock, Edwin “Sedge,” 340 line, 115–116, 236–239 Coppock curve, 340–341 Directional movement indicator (DMI), 108 Corrective waves, 287–292 Directional trends, 62–70 combination, 292 description of, 62–63 flat, 289 uptrends, 63–68 triangle, 289–292 Divergences, 203, 224–225 zigzag, 288 description of, 315 Countertrends double, 321 identifying, 301 double negative, 319–322 Cowles, Alfred III, 16 negative, 315 C P. See Commercial paper positive, 315 CPI. See Consumer Price Index ranks, 620–621, 626–629 Crabel, Toby, 174, 176–177, 183 DJIA. See Dow Jones Industrial Average Cradle, 139 DJTA. See Dow Jones Transportation Average CRB. See Commodities Research Bureau DMI. See Directional movement indicator Crossings, 607–610 Dodd, David, 472 “Cross-Section” paper (Fama and French), 467 DOE. See Department of Energy “Cup” pattern, 149–151 Doji pattern, 189 Cryptocurrencies, 415–416 Doji star, 194 Cycle harmonics, 349 Donchian, Richard, 121 Cycle theory, 347–356 breakout method, 62 definition, 348 channel, 122 634 types, 347 Dormier, Buff, 220 Cyclicality, 349 Double divergences, 321 Double top and double bottom pattern, INDEX 134–135 D Dow, Charles H., 10, 11, 15, 200, 252 Daily price ratio, 566–567 Dow Jones Industrial Average (DJIA), 3–4, 10, Dark cloud cover pattern, 193–194 317, 329, 588–589 Data filters, 375 gaps and, 162 Davis, Robert E., 256, 258 Dow Jones Transportation Average (DJTA), Davis’ Law, 588 588–589 DCB. See Dead cat bounce pattern Downs, Walter, 181–182 Dead cat bounce (DCB) pattern, Downtrend, 5–6 169–171, 220 Dow theory, 15–26. See also Trends Decelerated trend lines, 66 confirmation concept, 22–23 Decline, 316 criticisms of, 25 DeMark, Tom, 82, 55 ideal market picture, 18 Derivatives, 131 learning objective statements, 15 Descending triangle pattern, 139–140 minor trend, 21–22 Desmond, Paul F., 333 overview, 15–18 DeVillers, Victor, 252–253 primary trend, 20 Diamond top pattern, 144–146 secondary trend, 21 trading, 146 theorems, 18–25 Diffusion indicator, 569n8 trends in price motion, 19–20 Directional movement, 113–116, 559–560 trend types, 20–25 constructing indicators for, 113 volume importance, 23–25 description of, 113 Drop-off effect, 228–229 using indicators for, 114–116 Druckenmiller, Stan, 576 bindex 634 November 8, 2019 2:42 PM E Equivolume, 206–208 charts, 206–208 Ease of movement (EMV), 219 Errors Edison, Thomas, 30 minimum risk of, 48 EFFAS. See European