An entry‐level guide to chart patterns, in color, including buy and sell signals, quizzes, and more.
Preface to the Third Edition
I receive a lot of emails from people wanting to know the fastest way to lose money. They don't phrase it like that, of course. “I want to trade Forex full time,” using massive leverage. “I need to make money because I quit my job, I have $10 in trading capital, and I'm in debt up to my eyeballs. Can you help?”
One trader, let me call her Lisa, found success using this book. In just over a year, she made $5 million. On paper. Then she used real money, funded in part by help from her parents.
What happened?
Lisa made over a thousand percent and bought her dad a boat.
Can I adopt her?
For some, like Lisa, this book is a shortcut to making money. I've done the heavy lifting by researching and cataloging chart patterns for more than two decades. I packaged that research and experience into this book. It's a thick book. It's an expensive book. And it's worth every cent as Lisa found out.
All of my books sell well because I do one thing which few authors do: I prove what I write. I don't just copy the ideas of others who copied them from someone else. My books break new ground. I'm the person others are stealing their ideas from. You'll find my ideas between the covers of this book in easy‐to‐understand language. There, I share performance details on 75 chart patterns. Some patterns work. Some are best left untouched. And some that don't work turn into money makers when they bust their downward breakouts.
This Book
This book has information that will give you an edge to put you ahead of other traders. But information is only one ingredient to success. You have to understand how to use it.
In the Glossary near the back of this book, I have listed the Results Snapshot followed by nine statistics tables, the same ones used in most chapters. There, I explain each table entry. If you're ever confused about the meaning of a table entry or how I measured performance, then check the Glossary.
Following the Glossary is terminology. It explains important terms used in this book.
There's also a Visual Index of chart patterns hidden back there. If you can't make sense of the squiggles on your price chart, then maybe the visual index can help identify the pattern.
This book is a reference tool, not a novel where you discover the butler did it, and it's not a book you'll want to read from cover to cover. I tried to lighten up the prose in this edition. You may find my humor misses the mark. At least I woke you up.
What's New?
Maybe you already own the first or second edition. Why buy the book again? The first edition was like owning a horse. The second edition was like owning a model T. This edition is like owning the DeLorean time machine from the movie Back to the Future.
I added chapters covering 23 new chart patterns.
Additional samples. This edition reports on 150,000 samples, ten times the first edition (15,000) and almost four times the second edition (38,500).
New tables. All tables are still easy to understand. The new tables are:How often stops hit (provides guidance for placing stop loss orders)Performance and failures over time (do chart patterns work as well today as they did 30 years ago?)Busted patterns (can you make more money trading failed patterns?)Special features (shows statistics unique to some chart patterns)
Experience section. If I have traded a chart pattern, I discuss my experience with it, including lessons learned.
Easy to use. Bold table references (example: Table 34.1), chart references (example: Figure 27.5), and descriptive table entries (example: Days to ultimate high) help make finding your place in the text and locating the discussion for a table entry or figure easier.
About the Statistics
With four times as many samples as in the second edition, and with performance drifting over the 15 years since I updated this book, many statistics will have changed, sometimes substantially.
Don't be alarmed.
The statistics in this book allow you to compare the performance of one chart pattern to another (which I make easy in the Statistics Summary at the back of the book). The performance results are not meant to suggest you can make 55% trading bump‐and‐run reversal bottoms (the best performing chart pattern with an average rise of 55%). You can make 55%, but only if you trade the chart pattern perfectly, and do so 1,099 times. Is that going to happen?
No.
You can do better.
If you're serious about trading the stock market, or investing for the long haul, this book might be the answer to your dreams. And if not, then each night read one of the Sample Trades to your children as a bedtime story. Most won't give them nightmares, and they are too young to care anyway.
But they might grow up to be traders like Lisa who'll buy you a boat.
Thomas N. Bulkowski
January 2021
Preface to the Second Edition
On 24 March 2000, the financial world changed. No, that was not the date this book first hit the store shelves, but the beginning of a bear market that lasted 2.5 years. Finally, I had bear market data to use for finding chart patterns!
After spending nearly 5 years recovering from the work needed to complete the first edition, I decided to undertake an update. I changed the editorial content of the book in small ways, but made substantial improvements in others. Here is the list of the important changes:
Bull and bear market statistics for complete coverage.
Expanded statistics, all in a similar format:Results Snapshot, at the start of each chapter, shows the most important numbers and surprises.General statistics, including the average rise or decline, busted pattern performance, and benchmark performance.Failure rates, a list of ten breakpoints to show how often a pattern fails.Breakout and post‐breakout statistics, showing performance over the yearly price range, pullback rates, and performance after a gap.Frequency distribution of days to the ultimate high or low, showing when the trend is likely to end.Size statistics, describing how performance varies for pattern height, width, and combinations of both.Volume statistics, including volume trend, a new concept I call volume shapes, and breakout day volume.For best performance, a list of trading tips and where to find them in each chapter.
More chart patterns. I added 14 new chart patterns.
Event patterns. I added 9 new types of patterns, which I call event patterns. These include earnings surprises, drug approvals, store sales, and stock upgrades and downgrades.
More samples. I found over 38,500 chart pattern samples, more than double the
