Friday, October 20, 2000
Encyclopedia of Chart Patterns
Technicians, the name given the crowd that follows the bumps and grinds of stock prices, believe that all information in the market is accurately reflects in chartable price moves. Indeed, for widely followed stocks, this is probably true. The extrapolation from this view is, however, precarious, for the wobbles technicians like to interpret depend critically on the graph scale and period. Turn a convention day by day price line into one that is minute by minute and it appears to be wildly random. Plot the same stock on a moving average of 26 weeks and it can appear smoothly rational.
Given the caveat the price movement interpretation is both subjective and in need of a great deal of experience, Mr. Bulkowski, a software engineer turned professional investor, provides rich interpretations of such patters as cup-with-handle, bump-and-run reversal tops, head-and-shoulders bottoms and so on. Each pattern is characterized by a description of its visual pattern, its interpretation, success and failure rates, average movement it characterizes, validity as a price predictor, and synonyms for the name of movement are listed. Mr. Bulkowski then discusses the genesis and significance of each pattern and takes the reader on a tour of its trading implications.
Technical analysis is not every investor's chosen methodology, but for the investor who wants to consider trading patterns as well as fundamentals in buy and sell decisions, the Encyclopedia of Chart Patterns is a superbly intelligent, thorough source.