Frequently Asked Questions

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Written by Thomas N. Bulkowski and copyright © 2005-2008 by Thomas N. Bulkowski. All rights reserved.

I wrote my own trading software, which I do not distribute to the public. Since I have what I need to trade, I have not shopped around for other software. I have no recommendations. The bonus issue of the Technical Analysis of Stocks & Commodities (www.traders.com) magazine has a reader survey ("Readers’ Choice Awards") that covers software. I would check there to see what other traders are using.

As I write this in March 2008, I have never made more money from anything in my life than trading. That includes my annual earnings as a hardware design engineer, senior software engineer, and software manager. If you add up the earnings from all of my books, and the 100 articles that I have had published to date, they would amount to only a fraction of what I earned from trading just one stock: Michaels Stores.

I retired at 36 in 1993 after working as an engineer and trading in my off hours. My first book was published 7 years later, in 2000, so saying I earned more from my books that trading is just false.

The list of industries (for industry relative strength) and stock list can be accessed from the home page. Currently, you will find it in a spreadsheet format (.xls), middle bottom of the page, called Industry performance detail (.xls). Just above that link on the home page, you will find "Industry relative strength." From that page, you can find the industry, stock, and other downloads. All of those pages are updated weekly and they do not change much anyway.

I started with $2,000 and bought shares in stocks valued between $5 and $20. Over time, I added more capital and increased the buy range to stocks valued up to $60 and trade in lots of at least $20,000. Stocks valued below $5 tend to go bankrupt or are in financial difficulty and make poor trading candidates.

Your annual income can be unlimited, but don’t be deceived. An article in the September 2005 issue of Active Trader magazine discusses an accounting firm that handled the tax returns for over 1,000 stock traders. In 2004, 36% of the traders showed a profit and just 4% made over $50,000. If you expect to make $100k in your first year, you had better think again or start with a very large portfolio.

Save your money and become debt free, invest wisely, and get lucky. That’s what I did. If that doesn’t work for you, marry wealth or inherit! Buy low and sell high. If a stock doesn’t go up, don’t buy it.

No. I use my own charting package that I wrote.

I have about 600 securities which I review each day. Among them are the major indices, about 40 ETFs (exchange traded funds), and lots of stocks.

What chart patterns are the most reliable?

You can find them ranked here. I like descending triangles, symmetrical triangles, double bottoms, and head-and-shoulders bottoms.

Price is the best indicator!

I use three additional indicators: Wilder’s relative strength index (RSI), commodity channel index (CCI), and Bollinger bands (BBs). For the RSI, I look for divergence (price moves one way and the indicator goes the other way), over bought/over sold signals, and failure swings.

I use CCI for divergence and for confirmation of short term trades.

For BBs, when price nears a horizontal band, it tends to bounce off it. Also, when the bands narrow, expect a breakout from congestion.

The measure rule varies from chart pattern to pattern, but it usually involves finding the pattern’s height and adding it to (upward breakouts) or subtracting it from (downward breakouts) the breakout price. The result is the target price. A better method is to compute the height as just described and multiply it by the " Percentage meeting price target." Click here to view the measure rule formulas and details.

I write for several magazines including Active Trader (www.activetradermag.com); Stocks, Futures and Options (www.SFOmag.com); Technical Analysis of Stocks & Commodities (www.traders.com). Some of them offer my articles for sale.

I’ve also written for Traders’ ( www.traders-mag.com) and The Technical Analyst (www.technicalanalyst.co.uk).

Getting started in chart patterns is for people new to chart patterns and ones that want to learn how I make money trading patterns. It contains many useful trading tips and it is an easy read. Even if you are well versed in chart patterns, you will still learn much that you never knew from this book. It is the least expensive of the set, and is a paperback.

 

 

Encyclopedia of chart patterns (get the second edition, shown here), is a reference book packed with statistics and information on scores of chart patterns. If you are a serious trader that wants to know what others see in the markets, then this is the book. This is a hard cover book.

 

 

Encyclopedia of Candlestick Charts has the same format as my Encyclopedia of chart patterns book, but it discusses candlesticks. I review over 100 candles, for both bull and bear markets, tell how to identify them, how they behave, review performance statistics and highlight trading tactics. Just as my Encyclopedia of chart patterns became the classic for chart patterns, I am confident that this book will become the standard for candlestick books. This is a hard cover book.

Trading classic chart patterns has several chapters that discuss the basics, but it is mostly a reference book. It tells how to use a simple scoring system for chart patterns that helps pick patterns that work. This is a hard cover book.

 

 

There is almost no overlap between books, except for Getting started in chart patterns. The G.S.I.C.P. book pulls a few statistics from my E.O.C.P. book but covers new ground like busted patterns and such. For more information on my books, click here.

The larger bricks and mortar stores carry them when they are first released. After that, you can order them from the store. The e-retailers such as Amazon.com and others carry them. Click here for more information on my books.

I have a page dedicated to my favorite books. Click here to visit them.

Nope. And I am not looking to start one either.

Let’s just say I enjoy my privacy. Send an email instead: . I’ll be able to give you a more thoughtful answer.

• I do not want to be in the business of selling software.
• I do not want to worry about people ripping me off by selling my software on the Internet and pocketing the money.
• I do not want to pay $0,000 to upgrade my software development tools.

If you want to contribute to the Bulkowski Fund, buy Amazon.com items through this website, click on any ad that interests you, and spread the word about this website. Post ThePatternSite.com references on your favorite group, chat room, or blog. If you have purchased one of my books, then post a customer review on Amazon.com or other e-retailer that supports such things.

No. They are too valuable to just give away. And promising you will not share them with anyone will not work either. You will have to fork over big bucks in a licensing deal if you want them.

First I identify the peaks and then I find the valleys in a historical price series. Once I have those, then it is just a matter of stitching them together. A triple top is just three peaks near the same price. The algorithms are simple ’if-then-else’ constructs but the package is quite accurate and very fast.

If you want a more technical approach, then create a software package (genetic algorithm) that when given a date range where a known-good chart pattern appears, it will determine the recognition rules and then find other examples, learning from its mistakes. That will take longer to build than the 3 months or so it took to write Patternz.

I have two stock lists. One is a list of stocks I own or am thinking of owning (my portfolio). The other list is a watch list. The stocks in the watch list are the ones I pull from and put in my portfolio. I don’t go trolling for stocks in the general market. Rather, I just scan my watch list each day and stop on anything that interests me. Reviewing the same stocks each day means you get to know both the stock and industry well. You know when a stock is cheap and when it is expensive. This entry describes how I build the watch list, not my portfolio list.

When I built the original list years ago, I used Value Line (available free in most libraries) and picked companies that I knew were solid fundamentally. I looked for price to have a heartbeat, meaning up and down movement over the years. I looked at the yearly price range. If it was just a few points wide, I moved onto the next stock. I wanted to see the low price was half the high price in at least two of the past 5 years. In other words, the stock doubled in at least two years.

I avoided selecting companies too expensive or too cheap. The preferred price range was about $10 to $ 20. That meant I could buy many shares without worrying about them heading for bankruptcy (like penny stocks trading near $0). I selected stocks with a positive price to earnings ratio (if Value Line shows NMF in the P/E ratio box at page top, I skipped the stock). I also selected stocks with a large 3-5 year price appreciation potential.

I build a list of at least five stocks in each industry, just to be sure I had good representation. If the stock was a utility, I looked at the yield first then safety rating and read about how safe the dividend was in their view. I looked at the payout ratio, debt load, and other fundamental factors before adding it to my watch list.

That was then. Since my list is built, when I want to fatten up an industry (by adding a company) or if I am adding a new industry to the list, I will look at yahoo!finance and scan their industry list. I will read the profile of the company to be sure that it fits into my definition of the industry (in other words, if it mines gold and has a small subsidiary that makes concrete, I do not want to put it into the cement industry.

I will look at market cap because I want to have the big boys (large caps) represented and will add many stocks to the industry providing they are above about $100 million in market cap. Below that and their existence gets dicey. Also, I avoid thinly traded stocks, say, below 100k to 250k shares daily (available on the "Key statistics" page on yahoo).

Because there is no money in it. Years ago I paper traded using chart patterns on the short side and found that I could not make money trading them. Recently, I proved that it is always best to stay on the long side, even in a bear market. Click here to view the study.

When you short a stock, you have to pass on any dividends received and since you do not own the stock, your broker will charge you interest (if not day trading). I hate paying interest on anything!

On the way down, bullish chart patterns disappear. For example, you do not see a double bottom confirming (price rising above the peak between the two bottoms) when a stock continues making new lows. When the market bottoms, bullish chart patterns appear, but that is not the time to buy. Those patterns will have upward breakouts, sure, but many will fail soon after when price reverses (heads back down). The market has not begun trending, and it is a dangerous time to trade. Bad news pushes the market lower, almost daily.

Eventually, price will level out. You will see many basing patterns, such as rectangles. Bad news that used to drive the market down by hundreds of points in a single day hardly budges it now. You will see many bullish chart patterns forming, such as double bottoms, head-and-shoulders bottoms, and triple bottoms, as if individual issues are just begging to move higher, but there is still some hesitation. Those with upward breakouts will have price continuing to rise in a nervous stair step move. Before, one low followed another but now, price makes higher valleys and higher peaks in many securities. That is the time to buy.

Remember that the market looks ahead six months, so even though you hear bad news, the market may move up anyway, shrugging off the news and bursting upward on good news.

No. That is because I have never worked in the securities industry. I'm a self-taught investor that does not lecture, peddle useless but expensive tapes and other junk to unsuspecting novices. I don't have personal contacts that I can share because my world revolves around email. Sorry.

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