Technical Analysis of Stock Trends

Technical Analysis of Stock Trends
ninth version
1. Preface
It was never the intent of this book to forecast or analyze current markets.
Rather it’s purpose was, and is, to learn from history and the past so as to
be better able to deal with the present and the future.
The reader will find numerous free materials that
augment the book at www.edwards-magee.com/nf05/ninthedition.html
Chart formations are the language of the market.
They are, in short, the inerasable fingerprints of human nature made
graphic in the greatest struggle, next to war, in human experience.
As Freud mapped the human psyche, so have Edwards and Magee
mapped the human mind and emotions as expressed in the financial markets.
Not only did they produce a definitive map, they also produced a methodology
for interpreting and profiting from the behavior of men and markets.
Throughout his technical work, John Magee
emphasized three principles: stock prices tend to move in trends; volume
goes with the trend; and a trend, once established, tends to continue in force.
You will certainly
be exposed to advice, suggestions, offers of help from all sides. Unless
you are able to develop some market philosophy of your own, you will not
be able to tell the good from the bad, the sound from the unsound.

Chapter 1 The Technical Approach to Trading and Investing
Technical Analysis refers to the study of the action of the market itself as opposed to the study of the goods in which the market deals.
The fact is that the real value of a share is determined at any given
time solely, definitely, and inexorably by supply and demand, which are
accurately reflected in the transactions consummated on the floor of the New
York Stock Exchange.
In brief, the going price, as established by the market itself, comprehends all the fundamental
information which the statistical analyst can hope to learn (plus some that
is perhaps secret from him, known only to a few insiders) and much else
besides of equal or even greater importance.
prices move in trends and trends tend to continue until something happens to change the
supply–demand balance.

Chapter 2 Charts

Chapter 3 The Dow Theory P3/58 
The Minor Trend is the only one of the three trends which can be “manipulated”
A Trend Should Be Assumed to Continue in Effect Until Such Time
as Its Reversal Has Been Definitely Signaled. Entering the 21st century, the American and Global. economy require more sophisticated econometrics than the Dow alone.

Chapter 4 The Dow theory in practice is skipped

Chapter 5 The Dow theory's defects
In brief, an investment of $100 in 1897 would have become $11,236.65
in 1956 simply by buying the Industrial Average stocks each time the Dow
Theory announced a Bull Market and holding them until the Dow Theory
announced a Bear Market. During this period, the investor would have made
15 purchases and 15 sales, or about 1 transaction every 2 years on average.

buying shares only once at the lowest price
recorded by the Industrial Average during these entire 50 years and selling
them only once at the highest. $100 invested at the all-time low, 29.64 on
August 10, 1896, would have become only $1,757.93 at the all-time high,
521.05, 60 years later on April 6, 1956, as against the $11,236.65 derived from
the straight Dow Theory program.

The Dow Theory Does Not Help the Intermediate
Trend Investor
This is perfectly true. The theory gives little or no warning of changes in
Intermediate Trend.

By contrast, the investment of $100, if bought at the low, 29.64, and sold at
the historic high, 11762.71, in January 2000 would have grown to $39,685.03.
In brief, an investment of $100 in 1897 would have become $345,781.94
simply by buying the Industrial Average stocks each time the Dow Theory
announced a Bull Market and holding them until the Dow Theory
announced a Bear Market, then selling.
Clearly the way to reduce market risk to zero is to be out of the market.

NOTES: the tenets of Dow theory and the shortage of Dow theory.   the comparison of Dow and Index profits
Chapter 6 Important Reversal Patterns  
Head-and-Shoulders Top Formation is one of the more common and, by
all odds, the most reliable of the Major Reversal Patterns.

Chapter 7 Important Reversal Patterns Head-and-Shoulders Bottom
Chapter 10 Other Reversal Phenomena
Therein lies one answer to the
problem of what to do about a Broadening Formation

Chapter 12 Gap
A gap, in the language of the chart technician, represents a price range at
which (at the time it occurred) no shares changed hands。
Must a gap be closed before prices move very far away from it? Certainly
not! Will it be closed eventually? Probably yes.

Page 256/301 The whole Minor Uptrend we have described
Stocks — most of them, at least — do not
change their habits and their technical characteristics much from one Bull
and Bear cycle to the next.