Encyclopedia of Chart Patterns' is a book written by Thomas N. Bulkowski in 1999. This is a very exhaustive book on Chart Pattern.
Thomas N. Bulkowski is a graduate from Syracuse University with an engineering degree. He started his professional career soon after graduation switched many companies for better opportunity. At last he found a company and he thought he could spend his life serving that company.
But after ten and half years of service he was removed from the job. He was 36 years of age then. Before quitting his day job he had served as a hardware design engineer at Raytheon, a senior software engineer for Tandy Corporation, and a software manager for Tracor-Westronics.
He started investing in stocks early in his life. He would make elaborate study of stocks by fundamental analysis and invest. He was making good profit in the beginning. His account was growing in leaps and bounds. But later he noticed that his investments were going no where for years. Or still worse the price tumbled down immediately after purchase of stocks. Many times he would sell stocks early leaving behind lot of profit on the table.
All this directed his interest towards technical analysis. More and more he studied charts, his respect for technical analysis grew more and more. Although the fundamentals were still unchanged the charts were clearly showing weakness and signs of change in the trend. Charts were showing something which numbers were not revealing.
So he dived deeper in to technical analysis. After studying many books he noticed that most of the statistics relating to chart patterns were vague. For example he observed the statement 'A head and shoulder formation works most of the time' in many books. What does that mean? Does it mean that they are successful 51% of the time or 90% of the time? No book had the answer.
As an engineer he wanted hard, cold facts, not fuzzy platitudes. So he researched thousands of charts of 500 stocks and indexes for a period of five years. Then he came out with clear cut, hard, facts. It is hen he wrote this book 'Encyclopedia of Chart Patterns'.
Thomas N. Bulkowski writes:
"In your study of chart patterns, If you suspect your stock is making a chart pattern but do not know what to call it, then the Index of Chart Patterns given at the back of the book is the first place to look. Page numbers beside each pattern direct you to the associated chapter."
"The chapters are arranged alphabetically in two sections; chart patterns and event patterns. Within each chapter, you are first greeted with a “Results Snapshot” of the major findings followed by a short discussion. Then, a “Tour” invites you to explore the chart pattern. “Identification Guidelines,” in both table form and in-depth discussion, make selecting and verifying your choices easier."
"No work would be complete without an exploration of the mistakes, and the “Focus on Failures” section dissects the cause of failures. The all-important “Statistics” section follows. How do you trade a chart pattern? That is what the “Trading Tactics” and “Sample Trade” sections explore. The “For Best Performance” section includes a list of tips and observations on how to select better performing patterns."
"I cannot give you the experience needed to make money in the stock market using chart patterns. I can only give you the tools and say, “Go to work on paper first.” That is the first step in developing a trading style that works for you, one you are comfortable with, one that improves as you do. If you review your paper trades, you will understand why a stop-loss order is more than a tool for the professionals. You will improve your ability to predict support and resistance levels that will, in turn, allow you to tighten your stops and get out near the top, cut your losses short, and let your profits run. You will understand why the statistics in this book are useful for comparison purposes, but your trading results may fall short. You may discover that your girlfriend loves diamonds, but as a chart pattern, they are a lousy investment."
One word says it all. Experience.
From Inside the book - Encyclopedia of Chart Patterns
To knowledgeable investors, chart patterns are not squiggles on a price chart; they are the footprints of the smart money. The footprints are all they need to follow as they line their pockets with greater and greater riches. To others, such as Tom, it takes hard work and pavement pounding before they dare take a position in a stock. They are the ones making the footprints. They are the smart money that is setting the rules of the game—a game anyone can play. It is called investing.
Whether you choose to use technical analysis or fundamental analysis in your trading decisions, it pays to know what the market is thinking. It pays to look for the footprints. Those footprints may well steer you away from a cliff and get you out of a stock just in time. The feet that make those footprints are the same ones that will kick you in the pants, waking you up to a promising investment opportunity.
What does this book - Encyclopedia of Chart Patterns contain?
Encyclopedia of Chart Patterns has the following chapters:
PART ONE Chart Patterns
1 Broadening Bottoms
2 Broadening Formations, Right-Angled and Ascending
3 Broadening Formations, Right-Angled and Descending
4 Broadening Tops
5 Broadening Wedges, Ascending
6 Broadening Wedges, Descending
7 Bump-and-Run Reversal Bottoms
8 Bump-and-Run Reversal Tops
9 Cup with Handle
10 Cup with Handle, Inverted
11 Diamond Bottoms
12 Diamond Tops
13 Double Bottoms, Adam & Adam
14 Double Bottoms, Adam & Eve
15 Double Bottoms, Eve & Adam
16 Double Bottoms, Eve & Eve
17 Double Tops, Adam & Adam
18 Double Tops, Adam & Eve
19 Double Tops, Eve & Adam
20 Double Tops, Eve & Eve
22 Flags, High and Tight
24 Head-and-Shoulders Bottoms
25 Head-and-Shoulders Bottoms, Complex
26 Head-and-Shoulders Tops
27 Head-and-Shoulders Tops, Complex
28 Horn Bottoms
29 Horn Tops
30 Island Reversals
31 Islands, Long
32 Measured Move Down
33 Measured Move Up
35 Pipe Bottoms
36 Pipe Tops
37 Rectangle Bottoms
38 Rectangle Tops
39 Rounding Bottoms
40 Rounding Tops
41 Scallops, Ascending
42 Scallops, Ascending and Inverted
43 Scallops, Descending
44 Scallops, Descending and Inverted
45 Three Falling Peaks
46 Three Rising Valleys
47 Triangles, Ascending
48 Triangles, Descending
49 Triangles, Symmetrical
50 Triple Bottoms
51 Triple Tops
52 Wedges, Falling
53 Wedges, Rising
PART TWO Event Patterns
54 Dead-Cat Bounce
55 Dead-Cat Bounce, Inverted
56 Earnings Surprise, Bad
57 Earnings Surprise, Good
58 FDA Drug Approvals
59 Flag, Earnings
60 Same-Store Sales, Bad
61 Same-Store Sales, Good
62 Stock Downgrades
63 Stock Upgrades
Glossary and Methodology
Index of Chart and Event Patterns
"The most complete reference to chart patterns available. It goes where no one has gone before. Bulkowski gives hard data on how good and bad the patterns are. Encyclopedia of Chart Patterns is a must-read for anyone that's ever looked at a chart and wondered what was happening."
— Larry Williams, trader and author of Long-Term Secrets to Short-Term Trading
"Trading Classic Chart Pattern along with Encyclopedia of Chart Pattern, the first real progress since the basic work that has been done by Edwards and Magee more than 50 years ago. —The Active Trader, No. 10, October 2002
”If I were to be deprived of all the trading books in my collection but one, that would be The Encyclopedia of Chart Patterns. Unlike other literature on the patterns, in this book you will not find clauses like "most of the time", "usually", "seldom". All the information as it's related to the pattern trading is thoroughly backtested.
Few words about the author are due here. I do not believe you will find more ethical individual in the trading community than Mr. Bulkowski is. Unlike others who use their books as an advertising medium to lure you into subscription to their services and seminars, the author simply does not do that. His web site is FREE and he sells nothing but his book.
I can't even say that this book is highly recommended or you should buy this book... Nothing like that. I believe you owe yourself having this book on your desk 24/7 if you are to trade chart patterns. If you do not trade chart patterns then... you should not trade at all as all the "indicators" are nothing but derivatives of the price and volume behavior. Turn of all that noise and focus on patterns and volume and that's what this book is teaching you to do.”
I have always wondered - how reliable are chart patterns? Now I know. Tom gives you every statistic necessary to give you the confidence needed to trade these patterns. If you want to know what each pattern should look like, what the average rise or decline is, what the success rate is of each pattern, how to deal with failed patterns and strategies for maximizing profit and minimizing risk - then this Encyclopedia of Chart Patterns 2nd edition is a must.
I have been trading for 25 years and Encyclopedia of Chart Patterns is the first book I have read that gives me the confidence to take action.
Bravo Tom. —Vincent F. Simione
Many years ago, when I was a college student in China, one of my most enjoyable moments was to sit in library reading Encyclopedia Britannica, which always gave me new perspectives for the world. It was natural that the title of this book attracted my attention and I bought it immediately. What a wonderful reference book to add to my trading library! I only wish I had it before the market crashed in 2000, when I lost all my trading accounts.
This Encyclopedia of Chart Patterns which is a reader-friendly book consists of Part One Chart Patterns (53 chapters) and Part Two Event Patterns (10 chapters). Each chapter focuses on a specific chart pattern with informative details. The RESULTS SNAPSHOP and TOUR are very useful to give readers a general idea of each chart pattern. The IDENTIFICATION GUIDELINES and TRADING TACTICS give readers a practical trading guide. The STATISTICS shows the author's new approach to analyze each chart pattern scientifically. The SAMPLE TRADE is a fictitious story to illustrate a trading circumstance. The FOCUS ON FAILURES provides necessary warnings for each chart pattern. All the technically complicated information is smartly rendered in layperson's language. I think if every trader (day traders, swing traders, position traders, and buy-and-hold investors) reads this book, we will be on the same page and will act similarly. Then, our trading will become more consistently profitable.
Of course, Encyclopedia of Chart Patterns is not a book to read from cover to cover. Instead, it is a must-have reference book. Any time I found a chart pattern showing a potential for profits, I checked it with this encyclopedia and designed a proper plan to trade with the pattern. This way, I learned while I earned. However, this book is not a crystal ball, but a great trading tool, which you should master. Should we ask more from a book?