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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Frequently Asked Questions

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Industrials (^DJI):
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S&P500 (^GSPC):
As of 08/19/2014
16,920 80.85 0.5%
8,415 9.26 0.1%
555 6.48 1.2%
4,528 19.20 0.4%
1,982 9.86 0.5%
YTD
2.1%
13.7%
13.1%
8.4%
7.2%
Tom's Targets    Overview: 08/14/2014
17,150 or 16,500 by 09/01/2014
8,700 or 8,000 by 09/01/2014
560 or 525 by 09/01/2014
4,600 or 4,300 by 09/01/2014
2,000 or 1,880 by 09/01/2014

Written by Thomas N. Bulkowski and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.

Books and Magazines

Forex

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Money

Software, Patternz, Chart Pattern Indicator (CPI)

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See Also

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Do I make more money from my books than from trading?
As I write this in December 2010, 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 still not amount to 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 than trading is just false.

Where can I read your articles?
I have written for several magazines including Active Trader (www.activetradermag.com); Stocks, Futures and Options; 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).

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Which of your books should I buy/read first?

The short answer is this:

  1. Visual Guide to Chart Patterns. This teaches you how to find chart patterns.
  2. Getting Started in Chart Patterns. This gives an overview of how to make money using chart patterns.
  3. Trading Basics. Discusses trading basics like money management, stops, support and resistance.
  4. Fundamental Analysis and Position Trading. Teaches you about value investing and trading buy and hold positions.
  5. Swing and Day Trading. Discusses shorter term trading techniques and setups.
  6. Trading Classic Chart Patterns. Find chart patterns more likely to work using a scoring system.
  7. Encyclopedia of Chart Patterns. A reference book that contains everything you need to know about almost all chart patterns.
  8. Encyclopedia of Candlestick Charts. A reference book that contains everything you need to know about almost all candlesticks

The longer answer is below.

The Visual Guide to Chart Patterns is a color paperback loaded with illustrations (almost 200). Whether you are a professional trader, money manager, or retired school teacher seeking to boost the inheritance for the grandchildren, this book is for you. From the expert to the novice, there is information about chart patterns that you do not know or may have forgotten. This book will provide a visual guide to learning about chart patterns in a manner that is simple and easy to understand.

Consider this book an instruction manual for recognizing chart patterns, discovering why they behave as they do, and learning what it means when you see one. You will learn to see not squiggles on price charts, but footprints of the smart money, not a mountain range, but double tops, rectangles, and head-and-shoulders.

The basics come first so that we speak the same language. What you learn in this section may surprise you. The basics provide a foundation for what follows.

Then we cover the most important and popular chart patterns. This is where you discover that not every peak or valley is a chart pattern. What to look for and why they form are in this section. Completing the book are buy and sell signals. I do not offer mechanical trading systems, but visual ones that can help make you money or avoid losing it.

For more information, see the link. It shows a detailed table of contents.

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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.

 

 

The series, Evolution of a Trader explores four trading styles that people use when learning to invest in the stock market. Often, beginners enter the stock market by

  1. Buying and holding onto a stock. That works well until a bear market begins. Then they try
  2. Position trading. This seeks to exit positions before a significant trend change occurs.
  3. Swing trading follows when traders try to catch short-term swings. Finally, people try
  4. Day trading by completing their trades in a single day.

This series takes a detailed look at each of the four styles by offering numerous tips, sharing discoveries, and discussing specific trading techniques to help the reader be successful as they journey through each style.

The first book, Trading Basics, takes an in-depth look at money management, stops, support and resistance, and offers dozens of tips every trader should know.

 

 

The second book, Fundamental Analysis and Position Trading, explains value investing and tests fundamental factors such as book value, price-to-earnings and price-to-sales ratios, to see how important they are to stock selection and performance. Chapters such as "How to Double Your Money," "Finding 10-Baggers," and "Trading 10-Baggers" put the fundamentals to work. Position trading introduces market timing to help remove the risk of buying and holding a stock for years.

The third book in the series, Swing and Day Trading, explains how to use chart patterns to swing and day trade. It reviews the basics including the home office setup, the cost of day trading, and drills down into specific trading strategies such as the opening range breakout, and the opening gap setup. It introduces new research on major reversal times and the time most likely to set the day's high and low. That is valuable information to a day trader.

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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.

 

 

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. This is also the book that "made my name" in the industry. It's why many call me the leading expert on chart patterns.

 

 

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.

For more information on my books, click here.

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Where can I buy your books?
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.
What other books do I recommend?
I have a page dedicated to my favorite books. Click here to visit them.
Would you tell me how to trade the Forex market?
Based on the number of emails asking about the Forex market, it sounds like many of you are losing money or at least getting into trouble. I don't trade the Forex market so the only help I can offer is to say that many of the techniques described on this website (such as chart patterns and candlestick patterns) are applicable to the Forex and other markets.
Do chart patterns in the Forex market work?
This is the most asked question I receive, probably because I wrote a book review on the Forex market. The question is a good one but I do not know the answer. I do not trade the Forex market and don't think I can even get quotes from my broker on it.

The reports from other traders that ply the Forex market suggests that technical analysis is well suited to Forex because it tends to trend. Chart patterns appear and can be used as buy and sell signals. However, false breakouts from both chart patterns and congestion regions are common, as in any market. Thus, you need to take care when using any trading technique.

I have read that Fibonacci retracement levels and extensions work especially well, so bone up on those subjects. Look into moving averages, oscillators, candlesticks, and Bollinger bands. All of those indicators tell a story and once you know how to read the story, the message becomes clear. And I don't know if candlesticks work better or worse in the Forex market, either.

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Why don't I write a book on patterns in the commodities or Forex markets?

Writing a book, especially the kind I write because of the intensive research required, takes a long time and requires a lot of effort, much of it boring mouse clicking.

I wrote my first book, Encyclopedia of Chart Patterns, not for the money but to discover how chart patterns work and to share that information with others. Having been published, it is now a question of motivation. I can use my website to share information, which I do -- for free -- so why write a book? I don't have a business to peddle that would benefit from the publicity, and I do not want to be famous, so what remains is money.

But how much money can you make writing a finance book? My book editor gave the following guidance (this is for hard cover, non fiction. Paperbacks and the fiction world are different, so keep that in mind).

  • An unsuccessful book will sell 1,200 copies.
  • A moderately successful book will sell 5,000 copies.
  • A successful book will sell 10,000 to 12,000 copies.

All of those numbers are net sales over 3 years. In other words, after your book hits the shelves, three years later you will have sold from 0 to 12,000 copies. I have found these numbers to be accurate and also tough to achieve.

A first-time author will receive a royalty of about 10% on the wholesale price of the book. The wholesale price is a bit less than half the list price. If your book has a list price of $50, you will earn royalties based on a price of about $24.

Let's say that your book is "moderately successful" and you sell 5,000 copies after three years of being published. Your earnings will be about 10% x $24 x 5,000 or $12,000. Since that represents three years of sales, you will have made $4,000 per year or about $1.92 per hour, assuming you worked on writing the book for 40 hours per week for a year.

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Let's say you have a successful book and sell 10,000 copies, your hourly rate doubles to $3.84, well short of federal minimum wage of $6.55 per hour (or whatever the current rate is). To earn minimum wage, you'd have to sell over 17,000 books, and that would only make you as much money as flipping burgers.

The higher the price of the book, the fewer sales you will have. The broader the audience for your book, the more sales you are likely to see. A book about making money in the stock market has a higher sales potential than one about chart patterns in the Forex market. The more esoteric the topic, the fewer the sales. If you have a well-known name like Suzie Orman or Oprah Winfrey, you can put your name on sticks of used chewing gum and they would sell, but who ever heard of "Bulkowski?"

If I cannot make minimum wage by selling a book about chart patterns in the stock market, what makes you think I can make more by targeting a smaller audience, such as the commodity or Forex markets? It is not worth the effort to write such a book because the money just isn't there. When you factor in the poor customer reviews on Amazon.com that even the best authors get, why bother? I can mow people's lawns and make more money with less stress.

Where can I get your industry list?
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.

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How do I assign stocks to an industry?
When I first started building the list of stocks I follow daily, I used Value Line to assign stocks to an industry. Now, I use yahoo. After selecting the stock in a yahoo industry, I will read the profile (also an option on yahoo!finance) and even visit the company's website to verify that they are a big player in the industry. Sometimes, brokerage reports will list competitors, so you can find stocks for an industry that way.

Yes, there are industry codes that help with the assignment of a stock to a particular industry, but you will find that the composition of an industry varies from source to source. Over time, the company will sell assets or buy new ones, shifting the focus of the company and the industry that best represents them. Some sources may not have the latest information and companies compete in many industry segments anyway, so often it is difficult to assign stocks to just one industry.

How much money do I need to get started trading?
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.
How much money can I make trading?
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.
How can I "retire" from my day job by 36 like you did?
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.

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Why do chart pattern indicator signals appear one day and disappear the next?
Before I explain this, be sure to read the WARNINGS for the indicator. Too many people are trying to trade using the signal and that's a mistake.

I use the NR7 chart pattern, but wait up to 7 days for a breakout to occur from that pattern for each stock. Let's say that the chart pattern indicator (CPI) says that the market is bearish on Wednesday with 150 Nr7s completed but price has not broken out upward or downward yet (closed above the highest high or lowest low during the past 7 days). On Friday, let's also say that the market makes a huge move up, say 150 points. Most of those 150 Nr7s waiting to breakout will do so on Friday when their stocks close above the highest high posted by the Nr7. Thus, the bullish and bearish counts for the prior 7 days will be adjusted accordingly and that may well cause a bearish signal to disappear. That's why signals can appear or disappear for up to 7 days from the current day. It happens when the markets make large price swings either up or down.

Why do daily CPI readings not match those from the spreadsheet?
Before I explain this, be sure to read the WARNINGS for the indicator. Too many people are trying to trade using the signal and that's a mistake.

The daily chart pattern indicator readings are posted on most pages, at the top right of the screen as a date (clickable hotspot) under "Test Portfolios and CPI". If you click on the date, you'll see the bullish, bearish and waiting for breakout numbers. The waiting for breakout numbers are the key. If those waiting on the sidelines decide to breakout, then they can change the HISTORICAL CPI values. That means the daily totals will differ from those in the spreadsheet.

Simply put, the CPI totals can change for up to 7 days. That means the daily readings are snapshots for that day but those numbers will change as more Nr7s breakout. The new totals appear in the spreadsheet and even those will change (the most recent 7 days, that is. Ones older than that should be solid).

The more complex answer is the same as to why signals appear or disappear. I use the NR7 chart pattern, but wait up to 7 days for a breakout to occur from that pattern for each stock. Let's say that the chart pattern indicator (CPI) says that the market is bearish on Wednesday with 150 Nr7s completed but price has not broken out upward or downward yet (closed above the highest high or lowest low during the past 7 days). On Friday, let's also say that the market makes a huge move up, say 150 points. Most of those 150 Nr7s waiting to breakout will do so on Friday when their stocks close above the highest high posted by the Nr7. Thus, the bullish and bearish counts for the prior 7 days will be adjusted accordingly. The new totals will be reflected in the spreadsheet (and will not change if they are older than 7 days), but they will no longer match those posted daily.

How do I calculate the chart pattern indicator (CPI)?
My answer is this: Why would you want to? I update the website daily with the reading and also provide charts of the indicator each Friday. Plus, Patternz will calculate it for you at the touch of a button. If you want to use the indicator as a trading vehicle, you're making a mistake. If you don't understand why, or want to try building it anyway, then consult the following resources, arranged in order of importance.
  1. This is the main indicator construction page along with warnings about trading it.
  2. Here is the current list of symbols used in construction of the indicator.
  3. NR7 chart pattern. Understanding this will help.
  4. Download the Patternz program. You don't need to install it, just read the manual on the CPI section.
  5. CPI update page has pictures of the indicator results.
  6. If you want to use the indicator in non US markets using Patternz, then create your own list of stocks to include. Place them in the folder where Patternz resides. Keep the quote data to about 1 year in length or even shorter (3 to 6 months will do) to keep the processing speed up. You will have to update the quote data for each file yourself. Patternz won't do that. The more stock files you process, the better the results. Before downloading every stock symbol in your markets, try downloading 400 or so. Check how long it takes Patternz to process that many. Then add more as needed and time allows (if it takes 45 minutes to process 400 files, do you really want to add more?).

Others that have tried to replicate the indicator have had success, but it's not an easy gig (nor terribly hard). Most trip over the "backfilling" of counts between the Nr7's end and the breakout. Pay special attention to that. If you read the Patternz manual and the above construction page, you should understand how I count the patterns.

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I want to trade using your chart pattern indicator.
I specifically warn against this because signals can change for 7 days. Usually, they are stable after 3 days but that is an observation.
Why aren't my Patternz patterns the same as the setups reported each Friday?
For Friday's blog post ("Patterns Trading Setups for the Weekend"), I manually find and catalog each pattern during the week and those are reported each Friday. Patternz finds patterns automatically. I may discard Patternz's patterns and add more of my own to the mix.
Does Patternz accept data from Metastock?
Patternz cannot read Metastock files. Patternz can only read data files ending in .csv (comma separated values) or .txt (text), and only one security should appear in each data file. Thus, use the Metastock program to covert the files into .csv format and then use the File Format page in Patternz to make sure the format is what the program expects. Or you can use one of the down loaders to get data from other websites and use that. Again, you should visit the File Format page in Patternz to configure the program correctly for the data files.

I have no intention of making Patternz compatible with Metastock data. Why? Because I don't use Metastock and trying to verify that the files work can be troublesome. Plus, if they change their format, Patternz will break. Lots of users will be upset and blame me. Then they'll want me to fix it. NOW! And they will want it done for free. Why should I bother with the hassle?

Why don't I charge for Patternz, the free program that finds chart patterns and candlesticks?
  • 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.

Can I have the Patternz algorithms?
No. They are too valuable to just give away. And promising you will not share them with anyone will not work either.

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How does Patternz work?
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 providing you keep the data files short (a year or two long).

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.

Can you recommend trading software?
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. Read the next FAQ below.
How can I get Patternz to work with Vista?
My computers run Windows XP and not Vista, so I am of little help. However, check the Patternz page which shows some of the operations that users have been forced to undergo to get Patternz to work with Vista. If none of the solutions offered works, then visit the Microsoft website and see if they have another solution. If you do find a solution to your problem not listed, then please email the problem and solution to:
Will I get Patternz to work with Vista or Windows 7?
One user of Windows 7 said that to get it to work with Patternz, they partitioned their hard disk for Windows XP. Here's the link that tells what's involved and how to do it. http://windows.microsoft.com/en-us/windows7/products/features/windows-xp-mode

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Will I get Patternz to work on a MAC?
I have no plans to make Patternz compatible with non-Windows machines. That would be too expensive and too time consuming. Sorry.
Will you be my mentor?
No. Why not? Because it takes too much time, and I have too many people asking for help.

That's why I wrote my books, and why I have a free website. The books are easy to read and understand. They are a lot less expensive than paying for a coach or mentor.

The Evolution of a Trader series of books explains the four trading styles and how I tried them all. It's a good place to start to get tips on buy and hold, position, swing, and day trading.

The Getting Started in Chart Patterns and Visual Guide to Chart Patterns are wonderful entry-level books for people new to chart patterns. However, they are not primers on how to buy a stock for those that know nothing about equities.

Visit the research page and tutorials on my website. Read my books. If you can't find your answer there, then contact me.

I tested your chart pattern/candle/whatever and got different results. Why?
The question is often phrased like this: "I tested your chart pattern or candlestick pattern and got different results. Bulkowski, you must be wrong." When I was a hardware engineer, I used to blame software for all of my problems. When I turned into a software engineer, I blamed hardware. Either way, the fault was nearly always mine. As I matured, I decided to quit blaming others for my own mistakes and first assumed that the cause was my doing.

Here are the reasons why you can't reproduce my results.

  1. Different data. I dislike using one security like the QQQQs for my tests. Thus, my tests often involve hundreds of stocks (from 500 to thousands) and years of daily price data. If you don't use the same data, you'll get different results. Depending on how thorough your tests are, your results may or may not be close to mine.

    This is a problem with Patternz when users try to reproduce my chart pattern indicator. Their stock symbol list is different than mine and they get slightly different results. No kidding! If you use a lot of symbols, then the results should be close enough. I tested my 650 symbol database and another trader who used the entire stock market, over 5000 symbols. The results were not the same, but very close.

  2. Different methods. If you use a different testing method than the one I use, then expect different results. If you decide to use stops and I choose to measure performance at selected intervals (how far price moves a day later, 3 days later, a week later, and so on), then yes, the results will be different. You should expect that. Think of it as you choosing to race a Honda Civic and I choose a Corvette. Both are cars, but don't expect your Civic to win every race.
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  4. Different testing times. Frequently, I split the results into bull and bear markets because I think it better helps traders determine what will work best under different market conditions. If you combine bull and bear markets together, in one test, then your results will be different than mine.
  5.  
  6. Different time scales. I use end-of-day data for my tests because that's what I have available. If you test using intraday data or weekly data then that may explain the different results.
  7.  
  8. Different markets. My tests use securities based in the United States. I have seen a chart of the same stock from the US and another country, in which the charts look different enough that I could see a pattern in his chart, but not in mine. Even comparing end-of-day quote data finds that yahoo!finance and google finance often disagree. Imagine what a candlestick on the one-minute scale will look like if your chart and mine are off by one second. In that one second, price can move dramatically, changing the shape of the candle. I found this out when day trading with another trader that lives 30 miles from me. He used a different data source and his candles were sometimes different than mine.
  9.  
  10. Automated v. manual. For chart patterns, I prefer quality over quantity and that means I manually looked at each of more than 38,500 chart patterns when I wrote my book, Encyclopedia of Chart Patterns (2nd Edition). If you use an automated service, then recognize that they will not be as accurate as your eyes in locating chart patterns.

    I use the engine behind my Patternz program to help find patterns, and use other technology to help catalog the various features of a chart pattern, but I make up to six passes on each pattern to verify that it is valid and to make sure that all features are accurately represented in my data collection.

Before you blame me for any difference in testing results, consider how difficult it is to verify that aspirin can reduce heart attacks. Some studies indicates that it works, others say it doesn't, and the rest found no meaningful benefit. If any of the above listed items apply to your tests, then you can expect different results. It's possible that both of our tests are correct, but are specific to our situation.

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How many stocks do I follow daily?
I have about 700 securities which I review periodically. Among them are the major indices, over 100 ETFs (exchange traded funds), and lots of stocks (560).

What chart patterns are the most reliable and which do I like?

You can find them ranked here. I like descending triangles, symmetrical triangles, double bottoms, and head-and-shoulders bottoms.
What indicators do I use in my trading?
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.

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How do I use the measure rule?
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.
Portfolio: How do I pick stocks to follow?
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).

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Why don't I short stocks?
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!

How do I know when the S&P 500 index (the market) has bottomed?
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.

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How do I set price targets for the indexes?
I check the direction of the chart pattern indicator. A trend in motion tends to remain in motion, so my guess will follow the direction of the CPI. Once I have the direction, then I look for the nearest support or resistance area. Those will be prior peaks or valleys, trendlines setup by prior peaks/valleys, and horizontal consolidation regions. I look for the nearest round number, but that's less important for an index because it's based on component parts. Finally, I estimate how long it will take price to reach the target. If the target is close, it should take less time providing the index is trending. If it is moving horizontally or if the target is farther away, then I will give it more time. All of this is just guess work. Once I arrive at an estimate then I announce the numbers so they appear under "Tom's Targets" in the grid at the top most website pages.
Do I have any preference in charting services?
No. I use my own charting package that I wrote.
Do I have a consulting service?
Nope. And I am not looking to start one either.
Do I take phone calls?
Let's just say I enjoy my privacy. Send an email instead to . I'll be able to give you a more thoughtful answer. The best time to write is on the weekends. I have the most free time then.

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Can you help me find a job?
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.
How can I check on a broker?
The NASD offers a free check of any NASD-registered brokerage showing the background, business practices, and conduct. Here's the link: www.nasd.com/brokercheck.
How can I check on a registered advisor?
An article in Technical Analysis of Stocks & Commodities magazine, June 2009, by L. A. Little says that every registered advisor has a Centralized Registration Depository number (CRD). The number uniquely identifies the advisor and you can use it to check the history of the advisor using a database jointly administered by the North American Security Dealers (NASD) and state regulators. If the advisor refuses to give you the number, they could be hiding something in their past. If they don't have a CRD, then they may be operating illegally. Read more at the following link: http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx.

-- Thomas Bulkowski

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Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Warning: I have gas and I know how to use it!