Edwards and Magee’s Technical Analysis of Stock Trends

This is (and must be) the first book review posted on Trading What I See. It’s the first technical analysis book I ever bought, and from its condition it is obviously my most-used book. Besides continually pulling it out for reference, I read it from cover to cover every few years.I won’t tell you how long I’ve had it, but I started with hand-drawn charts using colored pencils for drawing trendlines. There weren’t any personal computer trading programs back then.This is the book that taught me how to draw and interpret trendlines, and although at the time it was written a daily or weekly chart was about all anyone used, almost everything in the book can apply all the way down to trade-by-trade tick charts.

The book is written in two sections: Part One – Technical Theory, written by Robert Edwards, and Part Two – Trading Tactics, written by John Magee.

In Part One, Edwards gives a detailed look at all the various patterns that appear in markets, from triangles to wedges to head and shoulders reversal patterns and everything in between. You’ll find out the volume requirements of the patterns, and information on support and resistance, trendlines and channels.

In Part Two, Magee shows you how to make use of the theory from Part One in actual trading. If you’ve wondered which bottoms or tops to use when drawing trendlines, he covers this in his “three-days-away” rule. (For Intraday charts just substitute bar for day.) Want to know how far a breakout from a pattern will probably carry? He has a chapter titled “Measuring Implications of Chart Patterns.”

But to me, the most valuable section is “Trendlines in Action.” Every pattern is made up of trendlines, and if you have a set of rules to follow, you don’t even need to know the pattern names. Here are the signals to follow when price breaks up through a rising trendline. Or when price breaks up through a flat or falling trendline.

What is your plan of action when you see converging trendlines forming a triangle? What do you do if you already have a position, and then trendlines start converging? This section covers the parts of trading where too many authors stop writing – Magee gives you the answers.

Then he gives you a tactical review of the different types of chart patterns, what to do if you see one, what to do if the pattern forms in a position you already hold. There is even a short chapter giving a quick summary of what to do in different situations.

There is a reason why this book is called “the bible” of Technical Analysis. Many authors assume you have read this one before you pick up their book. This is not a quick read, but with some study it will give you the best education in charting you can find. Highly recommended.

For More Information:
Edwards and Magee’s Technical Analysis of Stock Trends

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