Table Of Content© Copyright – all rights reserved
Fred McAllen
No part of this book may be reproduced in any form or by any means
- electronic or mechanical - including information storage and retrieval
systems, without the written permission of the author.
Reviewers may, however, quote brief passages in a review.
Introduction
Every investing mistake is a result of one thing. Either the wrong
investment was purchased, or the investment was purchased at the
wrong time. Historically, in good market times most every investment
advances with the market. Even purchasing a bad investment during a
strong bull market can sometimes be profitable. Yet during market
declines, and especially in bear markets, the opposite holds true.
During bad market times more than 80% of all stocks and funds
decline in value.
Therefore, purchasing any investment at the wrong time is most
always the recipe for loss.
Prior to every market decline, and particularly leading up to the last
two bear markets in 2000 and 2007, unsuspecting and uninformed
investors were continually sold investments that would certainly hand
them a loss. Unfortunately, this is always a reoccurring tragedy. Since
1900 there has been a bear market on the average of every 3.5 years
with an average decline of 29%.
Investing and trading can be profitable for the informed investor,
but very costly for the uninformed.
One of the inspirations that led to writing this book came from a
good friend with whom I had shared some of the techniques and
strategies used in technical market analysis.
He later sent me the following message.
“Before I learned technical analysis, I was happy in my
ignorance. I was not very profitable… but happy. But after
learning the predictive value of charting, I could never feel safe in
the market again without charts. It would be like driving cross-
country without a road map. Charts really can tell you where to
buy or sell and they have saved me from losses more times than I
can count.”
Many in this generation have been led to believe that buy-and-hold
is the ultimate in market knowledge. But, in today’s markets, you need
charting methods that have stood the test of time, and helped the
uninformed investors navigate the treacherous trading and investing
environment.
Throughout this book you will discover the difference between
being informed and uninformed. You will become informed and learn
to avoid making costly investing and trading mistakes.
~Fred McAllen
Contents
Preface. 9
Chapter 1. 27
The Dow Theory. 27
The Three-Trend Market 31
CHAPTER 2. 36
The Three Phases of Primary Trends. 36
Chapter 3. 45
The Laws of Charts. 45
Chapter 4. 55
Candlesticks Defined. 55
Chapter 5. 64
Formations. 64
Chapter 6. 76
More Formations. 76
Chapter 7. 86
Support, Resistance, and Trends. 86
Chapter 8. 94
Trend Lines. 94
Chapter 9. 105
Chart Patterns. 105
Reversal Patterns. 107
Chapter 10. 120
Inverted Head and Shoulders Pattern. 120
Double Tops and Bottoms. 124
Double Top. 124
Chapter 11. 137
Saucers and Spikes. 137
Chapter 12. 148
Continuing Patterns. 148
Flags and Pennants. 156
Bull Flag. 158
Chapter 13. 161
Price Gaps. 161
Chapter 14. 173
The Key Reversal Day. 173
Chapter 15. 184
Reversals. 184
Percentage Retracements. 190
The Interpretation of Volume. 192
Chapter 16. 196
Moving Averages. 196
My Personal Favorite. 197
Popular Moving Averages. 208
Chapter 17. 209
Stop Losses. 209
Trailing Stop Loss. 214
Chapter 18. 219
Putting it all Together 219
Chapter 19. 235
Trading the Declines. 235
Know the Difference. 241
Conclusion.. 245
_______________________________________
U.S. Government Required Disclaimer -
Commodity Futures Trading Commission Futures and Options trading
has large potential rewards, but also large potential risk. You must be
aware of the risks and be willing to accept them in order to invest in
the futures and options markets. Don't trade with money you can't
afford to lose. This is neither a solicitation nor an offer to Buy/Sell
futures or options. No representation is being made that any account
will or is likely to achieve profits or losses similar to those discussed
on this web site. The past performance of any trading system or
methodology is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS
HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD,
SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE
TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER
COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS
LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO
SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF
HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS
LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
______________________________________
PREFACE
Fire your Financial Advisor!
Yes, that is a bold statement.
The primary objective in this book is to prepare you to take
charge of your investment decisions by learning charting and
technical analysis in detail.
But first, you need to know the cold-hard truth about
investment firms and financial advisors. Only by understanding
the truth, can you appreciate the importance of making your own
investing decisions. So let’s start there.
In today’s world, the term ‘Financial Advisor’ means little or
nothing. Unlike in years past when your investments were
advised, made, and handled by a Stock Broker with years of
experience under his belt, that is no longer the case.
The ‘Modern Day Financial Advisors’ are being recruited from
job posting sites like Monster and Hot Jobs by the investment
firms in need of sales personnel. Yes, the major investment firms
compete for what is referred to as “Assets under Management.”
And in order to increase these assets, investment money must be
placed with their firms, your money.
To accomplish this all-important goal the investment firms
