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 It was 52 years after its publication in 1948 before any author challenged John Magee’s seminal work, Technical Analysis of Stock Trends. Move over John Magee and make room for Thomas Bulkowski, author of Encyclopedia of Chart Patterns (originally published in 2000 and a revised, expanded and updated edition published in 2005).
For years, I wished for an alternative educational source for beginners other than Magee’s textbook, written in a “guaranteed to make you yawn” writing style. Aside from being more reader friendly than Technical Analysis of Stock Trends, Bulkowski’s book is also more comprehensive and better organized. For ease of use, chapters are arranged alphabetically according to chart patterns. Each chapter follows the same format beginning with a “Results Snapshot” and ending with a “Sample Trade”, making it a handy reference tool.
The 47 chapters correspond to 47 distinct chart patterns, a tad more than you might remember from Technical Analysis of Stock Trends. Included in the roster are patterns called Pipe Tops, Scallops, Shark-32, Diamond Bottoms and Horn Tops -- names that seemed alien to a purist like me, but perfectly legitimate.
Each chapter is divided into seven well-defined sections that begin with a chart illustration followed by a “snapshot” review of both downside and upside breakouts. The second and third portions of the chapter, the “Tour” and “Identification Guidelines,” provide more in-depth coverage of each pattern and its individual peculiarities.
The self-explanatory “Focus on Failures” part of the chapter is accompanied by a graph depicting points on the chart where the pattern fails; an inevitable risk with technical analysis, but, at least with Bulkowski’s warnings, the reader knows what to look for. The “Statistics” section is one of the most valuable aspects of the book, especially from a trading standpoint. Using a database of 500 stocks over 5 years, the author has determined the statistical probability of success and failure of breakouts for all 47 patterns.
To my knowledge, no other source provides such comprehensive and detailed statistical information on the subject as this book does. The chapters conclude with “Trading Tactics”, incorporating the use of the measure rule and various stops, and a “Sample Trade”, which ties everything together.
By the end of the book, one appreciates the long hours of research and effort that went into the finished product. Because of the book’s length, (it clocks in at a mind-boggling 1,012 pages, doubtless a record length for any trading book), it is the author’s written intent that the book be used as a reference rather than read cover-to-cover.
For novices looking for an entry-level book and readers with no previous experience on the subject of charting, Encyclopedia of Chart Patterns may present a bit of a challenge. Bulkowski’s recently published Getting Started in Chart Patterns is also an excellent book and a perfect choice as a lead-in to this more comprehensive and in-depth work.
For die-hard Magee fans and veteran technicians, buy Encyclopedia to use as a reference. The statistical probability sections alone make it a valuable addition to any library. Given my technician’s penchant for forecasting, I predict that the Encyclopedia of Chart Patterns is destined to become the new “bible” of technical analysis for the 21st Century.
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