Technical Analysis of Stock Trends (Robert D. Edwards, John Magee, 1948)

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What is technical analysis?
  • It refers to the study of the action of the market itself as opposed to the study of the goods in which the market deals. 
  • The science of recording, usually in graphic form, the actual history of trading (price changes, volume of transactions, etc.) in “the Averages” and then deducing from that pictured history the probable future trend.
Basic Tenets (and Dow Theory)
  1. The Averages Discount Everything (except “Acts of God”).
  2. The Three Trends.
  3. The Primary Trends.
  4. The Secondary Trends.
  5. The Minor Trends.
  6. The Bull Market.
  7. The Bear Market.
  8. The Two Averages Must Confirm.
  9. “Volume Goes with the Trend”.
  10. “Lines” May Substitute for Secondaries.
  11. Only Closing Prices Used.
  12. A Trend Should Be Assumed to Continue in Effect Until Such Time as Its Reversal Has Been Definitely Signaled.
Head and shoulder with complex head

Right angle triangle = continuation

Boardening top = reversal

The importance of the spike is highlighted by
  1. The strength and length of the action which preceded it.
  2. The close of the day, whether up on a Bottom or down on a Top.
  3. Its prominence when compared to the days before and after it.
Reliability of Flags and Pennants
  1. The Consolidation (Flag or Pennant) should occur after a “straightline” move. 
  2. Activity should diminish appreciably and constantly during the pattern’s construction, and continue to decline until prices break away from it. 
  3. Prices should break away (in the expected direction) in not more than 4 weeks. A pattern of this type which extends beyond 3 weeks should be watched with suspicion.
Double Trendlines


Trendlines in action

Watch for the sensitivity of the ticker.

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