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Contents
Preface to the Ninth Edition ...............................................................................v
Preface to the Eighth Edition .............................................................................ix
In Memoriam .................................................................................................... xxiii
Prefaces to Previous Editions..........................................................................xxv

Part 1: Technical Theory

Chapter 1

The Technical Approach to Trading and Investing .............3

Technical vs. Fundamental Theory Philosophy of
Technical Approach Drawbacks of Fundamental
Approach

Chapter 2

Charts .............................................................................................9
Different Types of Charts Data Required
Arithmetic and Logarithmic Scales

Chapter 3

The Dow Theory .......................................................................13

The Forerunner of All Technical Theories Use of
Market Averages Basic Tenets of Dow Theory
Characteristic Phases of Bull and Bear Trends

Chapter 4

The Dow Theory in Practice ...................................................25

Applying Dow Theory to the Averages through 1941
The 1942 Action The Bull Market Signal The
Secondary Correction of 1943 Bull Market
Reaffirmed The Spring of 1946 Third Phase
Symptoms The Bear Market Signal

Chapter 5

The Dow Theorys Defects......................................................41

Second Guessing The Too Late Criticism The
Fifty-Year Record of Results Little Help in
Intermediate Term Trading

Chapter 5.1

The Dow Theory in the 20th and 21st Centuries ...............45

Updating the Record of the Dow Results to 2005
Reconsidering Dow Theory

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Chapter 6

Important Reversal Patterns....................................................55

Divergence between Individual Stocks and Averages
Definition of Reversal and Reversal Formation Time
Required to Build How Insiders Distribute The
H e a d - a n d - S h o u l d e r s To p P a t t e r n Vo l u m e
Characteristics Breaking the Neckline Symmetry
and Variations Measuring Formula

Chapter 7

Important Reversal Patterns Continued ..........................75

Head-and-Shoulders Bottoms Volume and Breakout
Differences Multiple Head-and-Shoulders Patterns
Rounding Tops and Bottoms Trading Activity on
Rounding Turns Dormant Bottoms Patterns on
Weekly and Monthly Charts

Chapter 8

Important Reversal Patterns The Triangles ....................99

Triangles The Symmetrical Form Volume How
Prices Break Out A Theoretical Example Reversal
or Consolidation Right Angle Triangles, Ascending
and Descending Measuring Implications On
Weekly and Monthly Charts

Chapter 9

Important Reversal Patterns Continued ........................129

Rectangles Pool Tactics Relation to Dow Line
Double and Triple Tops and Bottoms Important
Recognition Criteria Completion and Breakout
Triple Tops and Bottoms

Chapter 10

Other Reversal Phenomena...................................................151

Broadening Formations The Broadening Top
Right-Angles Broadening Patterns Diamonds
Wedge Formations The Falling Wedge Rising
Wedges in Bear Market Rallies The One-Day
Reversal Selling Climax

Chapter 10.1 Short-Term Phenomena of Potential Importance.............181

Key Reversal Days Spikes Runaways
Chapter 11

Consolidation Formations .....................................................189

Flags and Pennants Pennant vs. Wedge Measuring
Formula Reliability Tests for Flags and Pennants
On Weekly and Monthly Charts Head-andShoulders Consolidations Scallops and Saucers
Modern vs. Old-Style Markets

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Chapter 12

Gaps............................................................................................ 211
Which Gaps Are Significant? Common or Area
Gaps Breakaway Gaps Continuation or Runaway
Gaps Measuring Implications Exhaustion Gaps
Island Reversals Gaps in the Averages

Chapter 13

Support and Resistance..........................................................231

Definition of Support and Resistance Levels How
They Reverse Their Roles Reasons for
S u p p o r t / R e s i s t a n c e P h e n o m e n a Te s t s f o r
Determining Potential Importance of Volume
Rules for Locating Implications of a Breakthrough
Round Figures Historical Levels Panic Moves and
Recoveries Pattern Resistance Support-Resistance
in the Averages

Chapter 14

Trendlines and Channels.......................................................253

Basic Trendlines How They Form Arithmetic vs.
Logarithmic Scale Intermediate Uptrends Tests for
Trendline Authority Validity of Penetration
Throwback Moves Amendment of Trendlines
Double Trendlines Trend Channels Practices to
Avoid Consequences of Penetration Intermediate
Downtrends Corrective Trends The Fan Principle

Chapter 15

Major Trendlines .....................................................................281

Different Forms of Major Uptrends Arithmetic and
Logarithmic Scaling Tests for Significance Major
Downtrends Major Trend Channels Trendlines in
the Averages

Chapter 15.1 Trading the Averages in the 21st Century .........................295

Power of Trendlines in Trading the Averages
Redrawing the Trendlines as Markets Accelerate
Chapter 16

Technical Analysis of Commodity Charts .........................301

Theoretical Application Commodity Markets of the
20th (and 21st) Century Suitable for Technical Trading
I n t r i n s i c D i ff e re n c e s B e t w e e n S t o c k s a n d
Commodities as Trading Mediums

Chapter 16.1 Technical Analysis of Commodity Charts, Part 2 ............307

A 21st Century Perspective

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Chapter 17

A Summary and Some Concluding Comments................319

Philosophy of Technical Approach Review of
Technical Methods Need for Perspective Patience

Chapter 17.1 Technical Analysis and Technology in the 21st

Century: The Computer and the Internet, Tools
of the Investment/ Information Revolution ......................325
The Computer and the Internet Tools of the
Investment/Information Revolution Separating the
Wheat from the Chaff
Chapter 17.2 Advancements in Investment Technology.........................333
Options and Derivatives Quantitative Analysis
Futures on Indexes Options on Futures and
Indexes Modern Portfolio Theory Importance to
the Private Investor

Part 2: Trading Tactics

Midword ..............................................................................................................355
Chapter 18

The Tactical Problem ..............................................................359

Characteristics of Desirable Speculative Stocks

Chapter 18.1 Strategy and Tactics for the Long-Term Investor .............367
Whats a Speculator, Whats an Investor? Strategy of
the Long-term Investor (Hypothetical) Rhythmic
Investing
Chapter 19

The All-Important Details.....................................................375

Source of Data Suggestions on Chart Keeping
Using Computer Technology

Chapter 20

The Kind of Stocks We Want The Speculators

Viewpoint..................................................................................379
Leverage Swing Habit Volatility

Chapter 20.1 The Kind of Stocks We Want The Long-Term

Investors Viewpoint...............................................................383
Changing Opinions about Conservative Investing
Index Shares and Similar Instruments Importance of
Modern Trading Instruments

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Chapter 21

Selection of Stocks to Chart..................................................391

Character and Habits Number Advantages of
Listed Issues

Chapter 22

Selection of Stocks to Chart Continued ........................395

Diversification Price Range Swing Power within
Groups Slow-Moving Groups

Chapter 23

Choosing and Managing High-Risk Stocks: Tulip

Stocks, Internet Sector, and Speculative Frenzies............401
Managing Speculative Frenzies and Runaways

Chapter 24

The Probable Moves of Your Stocks...................................419

Choosing Stocks which Have the Potential to Move
Volatility

Chapter 25

Two Touchy Questions...........................................................425

Use of Margin Short Selling

Chapter 26

Round Lots or Odd Lots? ......................................................433

Extra Cost of Odd Lots Occasional Advantages
Determining Trade Size and Risk

Chapter 27

Stop Orders...............................................................................435
Protective Stops Computing Stop Levels Table of
Stop Distances Progressive Stops

Chapter 28

What Is a Bottom What Is a Top?...................................441

The Three Days Away Rule Basing Points Volume
Signals

Chapter 28.1 Basing Point Case Analyzed, Illustrated............................446

Chapter 29

Trendlines in Action ...............................................................451

Buying Stock Selling Long Stock Selling Stock
Short Covering Short Sales Additional Suggestions

Chapter 30

Use of Support and Resistance ............................................461

Formulating a Rule for Buying When a Support Fails
Placing Stop Orders Software for Determining
Support-Resistance

Chapter 31

Not All in One Basket............................................................467

Diversification Its Cost and Benefits Trading Index
Shares

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Chapter 32

Measuring Implications in Technical Chart Patterns......469

Reactions vs. Primary Moves

Chapter 33

Tactical Review of Chart Action ..........................................473

Dow Theory Head-and-Shoulders Multiple Headand-Shoulders Rounding Tops and Bottoms
Triangles Broadening Tops Rectangles Double
Tops and Bottoms Diamonds Wedges One-Day
Reversals Flags and Pennants Gaps Support
and Resistance Trendlines

Chapter 34

A Quick Summation of Tactical Methods .........................501

When to Get Out When to Get In

Chapter 35

Effect of Technical Trading on Market Action .................505

Many Types of Investors Technicians a Minority
Group Persistence of Ingrained Evaluative Habits

Chapter 36

Automated Trendline: The Moving Average ....................507

Sensitizing Moving Averages Crossovers and
Penetrations

Chapter 37

The Same Old Patterns ......................................................513

Repetitive Character of Market Behavior Over the
Years Additional Chart Examples Covering Market
Action up through 2005

Chapter 38

Balanced and Diversified.......................................................577

The Not All Principle The Evaluative Index
Reducing Risk and Anxiety Identifying Bull and Bear
Market Tops and Bottoms with the Magee Evaluative
Index

Chapter 39

Trial and Error ..........................................................................585

Putting Experience to Work

Chapter 40

How Much Capital to Use in Trading ................................587

Chapter 41

Application of Capital in Practice .......................................591

Using Composite Leverage According to the Markets
Condition Overall Strategy

Chapter 42

Portfolio Risk Management ..................................................597

Finding the Sensible Risk Posture Overtrading and
Undertrading Controlling Risk per Trade Risk of
a Single Stock Risk of a Portfolio Pragmatic

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Portfolio Theory Pragmatic Portfolio Risk

Measurement Pragmatic Portfolio Analysis The
Magee Method of Controlling the Risk
Chapter 43

Stick to Your Guns..................................................................609

APPENDIX A Chapters AD
Chapter A

The Probable Moves of Your Stocks

(Chapter 24 from the Seventh Edition) .............................. 611
Relative Sensitivity The Market Reciprocal Normal
Range-for-Price-Volatility

Chapter B

A Discussion of Composite Leverage

(Chapter 42 from the Seventh Edition) ..............................613
Overtrading and a Paradox The Composite Leverage
Index of a Single Stock Composite Leverage of a
Portfolio Investment Account Policy Negative
Composite Leverage

Chapter C

Normal Range-for-Price Indexes

(Appendix B, Fifth Edition) ..................................................619

Chapter D

Sensitivity Indexes of Stocks

(Appendix C, Fifth Edition) ..................................................621

Appendix B .........................................................................................................629
Section 1: The Mechanics of Building a Chart
(Chapter 23 from the Fifth and Seventh Editions)
Section 2: TEKNIPLAT Chart Paper
Appendix C

Technical Analysis of Futures Charts

(Chapter 16 from the Seventh Edition
by Richard McDermott) .........................................................639
Applications for the Use of Chart Patterns and Other
Indicators in the Trading of Futures/Derivatives
Moving Averages, Bollinger Bands, Stochastics, and
Others

Appendix D Resources...................................................................................669
Important Internet Sites References for Further Study
Investment Oriented Sites The Sharpe Ratio
Calculating Volatility Gamblers Ruin Essence of
Fundamental Analysis Useful Software and Specific
Internet Technical Analysis Sites

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Appendix E

Example of Trading Manual: Original Turtle

Trading Systems and Procedures .........................................681

List of Illustrations and Text Diagrams ........................................................703

Index of Charts by Stock Name .....................................................................722
Glossary ...............................................................................................................743
Bibliography .......................................................................................................769
Index .....................................................................................................................773