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Encyclopedia of Chart Patterns Hardcover – May 2, 2005
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“The book is called an ‘Encyclopedia’ for a reason. In roughly 1000 pages, it contains 53 chart patterns plus 9 more event patterns which will pretty much cover you for any chart you come across…. if you take technical trading seriously, it is a book that should be on your shelf.”
—Alan Battista, Stockineer.com Book Review
From the Inside Flap
The Encyclopedia of Chart Patterns, recognized as the premier reference on chart pattern analysis, extends its lead with this Second Edition. This definitive text includes new bull and bear market statistics, performance sorted by volume shape and trend, more than a dozen additional chart patterns, and a new section covering ten event patterns. Significant eventssuch as earnings announcements, stock upgrades and downgradesshape today's trading, and Bulkowski gives readers the best information on what happens after those events occur. He also shows you how to trade them and uses reliable statistics to back it all up.
In each chapter of Encyclopedia of Chart Patterns, Second Edition you'll learn the following about each pattern:
- Results SnapshotA statistical summary of pattern behavior, including its performance rank, breakeven failure rate, average rise or declineall separated by breakout direction and market type (bull or bear)
- TourA broad introduction to the pattern
- Identification Guidelines Characteristics to look for
- Focus on FailuresWhat failed patterns look like, why they failed, and how to avoid them
- StatisticsThe numbers and what they tell you, separated into bull/bear markets and breakout direction, including average rise or decline, failure rates, volume shapes, performance by size, and busted pattern performance
- Trading TacticsStrategies to increase profits and minimize risk
- Sample TradePuts it all together, showing the chart pattern in action, with hypothetical or actual trades using real data
- For Best PerformanceA table of selection tips to boost performance
Encyclopedia of Chart Patterns, Second Edition also includes summary tables ranking chart- and event-pattern performance for easy reference; a glossary; a chapter on methodology explaining what each statistical table entry means and how it was calculated; and a visual index to make chart pattern identification a snap.
The result is today's most comprehensive and valuable technical analysis referenceone that will save you critical time in identifying chart patterns and increase your likelihood of buying near the price bottom and selling near the top.
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This is not a book to read from cover to cover (I read the entire book though), but a reference to become very familiar with the patterns you want to trade.
After trading the same patterns for a while you become very familiar with the patterns and become second nature, however I recommend you read the pattern section every so often to make sure you are not overlooking anything.
The knowledge you will acquire here will pay for the book several times over and over.
I also own "Trading Classic Chart Patterns" from the same author. This book comes with a scoring system for patterns which is also available on his website.
So his book can be used as a real time reference, he presents a unique visual pattern index in the back. Find as close as possible a match to what you are confronted with on screen. Then look it up to see if his past study and commentary sheds useful light.
All very interesting. There is no question that Bulkowski has done an absolutely EXHAUSTIVE amount of work here. The mere ATTEMPT deserves appreciation. Many authors promote the patterns that support their pet trading plan in an idealized context with only vague qualifiers ("of course sometimes", "often"). Not something you should bank on in the messier real world without much testing and/or very careful risk management.
The most valuable insight from ALL his stats? More proof that there is no free lunch to be had. Even the best and most "reliable" of patterns have mere slightly better odds of prices going the one way instead of sideways or worse, the other. In "edge finding" that is, after all, about as good as it gets. But it is sobering (and oh so important) to know just HOW thin such edges usually are. That is why the word "edge" itself is so darn accurate. In the often razor thin sense of the word!
Alas his stats, welcome for the reason given, are not very bankable either. No standard deviation or Monte Carlo stimulation results are given to provide a firmer sense of the robustness of the findings.
Moreover this entire APPROACH to TA: gathering and trying to catalog follow-up results, suffers from it's own abstraction. He furthers a long tradition. But as a foundation for ACTION it is an incomplete approach that lends itself to the unjust charges that liken TA more to astrology or palm reading than science. The huge subjectivity is at once it's failure AND it's alibi against the charge of failure! "Didn't you notice that classic squiggle on the higher time frame?" "There it was a lower right shoulder you twit not an ascending triangle!" No wonder. This is just like "you knew darn well she was a Leo when you proposed but, sigh, you failed to note Mars was in the ascendancy on the day she was born." No wonder. Silly you.
Don't get me wrong. Give me a chart over fundamental number crunching or talking heads any day. Familiarity with reoccurring or unusual patterns on those charts absolutely helps. Of deeper value than cataloguing however is a focus on what does the observed action likely MEAN? What might it be saying about the supply/demand balance in the (limited) context of the time? What are the (always several) main possibilities going on underneath to create such a pattern? This is an alternate way of approaching TA. One that stands more on the shoulders of the likes of Wyckoff and is reflected today by such TA authors as Adam Grimes. While interpretation and decision is STILL inevitably more subjective art more than solved science (and has to be or there would be no one on the other side of the order books), to me THAT approach to TA has more promise and practical value than this book's.
Having said all this, the two approaches are not mutually exclusive. Bulkowski's work on patterns is still head and shoulders over going it alone with no point of reference. Going well beyond agnostic reporting, he also presents generous insight and tactical trading advice throughout. It remains to be seen how "handy" the reference is in the heat of battle.
Here you have enough named pattern variations to last a life time. For me most of them can likely be reduced to just a half dozen major themes. One could get mislead by random noise by reading too much into the near limitless variations. In connecting dots, like much else in trading, simple broad strokes are better. Yet at a thousand large sized, NOT large font, pages, the book will get far more credit for thorough than simple.
Still Bulkowski deserves applause. There is obviously a life's work reflected here. Yes more unassailable, well grounded probability and results studies are badly needed to carry such work further. They can be applied to the sacred tenants of FUNDAMENTALS more objectively than to invariably PERCEPTION biased chart patterns. Likely to even more devastating effect. At the end of the day you still won't have a crystal ball. But at least you will know it and hopefully will act accordingly.
Bulkowoski's bulk effort will long stand as a weighty, genuine contribution to the quest. Sail on!