When I was a little tyke I decided the easiest way to riches was to play the stock
market. It was, after all, a level playing field, a zero-sum game with somebody
winning and somebody losing (hint: The winner is always the broker). All one
had to do to win was pick the stocks that went up and avoid the stocks that went
down. Easy. I kept this in mind when I graduated from Syracuse University with an engineering degree and showed up early for my first professional job. Each
morning I cracked open the newspaper and plotted my stock picks on a piech
of paper taped to the wall. Bob, my office mate, used the same newspaper to
select his stocks. I chose my selections using strict and exhausting fundamental research, but Bob simply closed his eyes, twirled his hand around, and plunged his finger into the newspaper. When he opened his eyes and removed his finger, he announced another pick.

After several months of tracking both our selections, I made a startling
discovery: I was getting creamed. Bob's random selections were beating the tar
out of my carefully researched choices. I also discovered something else: I was
learning a lot by paper trading. With the hesitancy and distrust inherited from my parents, I studied two dozen firms before making my final selection and first purchase: I opened a money market account. The timing was excellent; I was earning over 17% on my cash. At first glance, the return might imply a very risky investment but it was not. The prime rate was, after all, at 21%.

Flush with success, I gathered my courage and opened a brokerage account and began investing with the few pennies I saved. Again, the timing was excellent as I caught the beginning of a major bull market. I bought a stock near 3 1/2 and watched it go to 46 1/2—my first ten-bagger. Lest you think that everything was easy, consider what happened. My stock portfolio was growing by leaps and bounds, but my professional career was about to take a turn for the worse. After switching careers more often than I sometimes like to admit, I landed at a job with a company I could finally call home—a job that would last a lifetime, or so I thought. Almost six months after my 10-year anniversary with the company, I received a letter from the chairman.

He congratulated me on my decade with the company and looked forward
to even more success for me in the coming years. Six weeks later I was laid off.
I took stock of the situation and decided that, at the age of 36,1 had had
enough. Newspapers term guys like me The Missing Million. We are the ones
who, for whatever reason, leave their jobs and decide not to go back into the
workforce. We retire. Everyone, and I mean everyone (with the notable exception
of my cousin Mary Ann—bless her heart), thinks we are nuts. They are
right, of course!

For the longest time, I have been fascinated with technical analysis of
stocks. In the early years, I considered the little squiggles to be nothing short
of voodoo. Still, I was curious as to why the major brokerage houses were hiring
technical analysts in droves. But I did not dare take my eye off the fundamentals
simply because I did not know anything about the technicals. Then I
discovered Technical Analysis of Stocks and Commodities magazine. During my lunch hour, I would take the elevator down to the library and read back issues. Although I had seen chart patterns in the stocks I bought, I never really
attached much significance to them. As some of my selections went sour, I
began to view chart patterns with more respect. The fundamentals always
looked good, but the technicals were signaling a trend change just as I was
about to pull the trigger. The stocks I bought either lost money outright or I
sold them too soon and cut my profits short.

Perhaps this has happened to you. You do your fundamental research on
a stock, then buy it only to watch it go nowhere for a year or more. Even worse,
once you get in, the stock tumbles. Had you looked at the chart the answer was
always there. Prices pierced a trendline, a head-and-shoulders top appeared out of nowhere, the relative strength index signaled an overbought situation. In
short, any number of technical indicators were screaming that a buy now would cost you your shirt. But you never saw the signs because you had your eyes closed. You are not alone; I did the same thing for years. I eventually got so frustrated with the performance of my stock selections that I decided to do my own research on technical analysis. I went to the library and read the same thing in many books: A head-and-shoulders formation works most of the time. What does that mean? Does it mean they are successful 51 % of the time or 90% of the time? No one had the answer.

I was not willing to risk my hard earned dollars on simple bromides. As an engineer I wanted hard, cold facts, not fuzzy platitudes. So, I wrote this book.
At the back of the book is an Index of Chart Patterns. If you suspect your stock is making a chart pattern but do not know what to call it, the Index of Chart Patterns is the first place to look. Page numbers beside each pattern direct you to the associated chapter. Preface ix The chapters are arranged alphabetically, making it easy to locate the chart pattern of interest. Within each chapter, you are first greeted with a "Results Snapshot" of the major findings followed by a short discussion. Then, a "Tour" invites you to explore the chart pattern. "Identification Guidelines," in both table form and in-depth discussion, make selecting and verifying your choices easier. For simpler chart patterns, the "Tour" and "Identificati Guidelines" have been combined into one section.

I cannot give you the experience needed to make money in the stock market
using chart patterns. I can only give you the tools and say, "Go to work on
paper first." That is the first step in developing a trading style that works for
you, one you are comfortable with, one that improves as you do. If you review
your paper trades, you will understand why a stop-loss order is more than a
necessary evil: It is a useful tool. You will improve your ability to predict support
and resistance levels that will, in turn, allow you to tighten your stops and
get out near the top, cut your losses short, and let your profits ride. Simple.
You will discover why the measure rule is so important, especially in turbulent
markets. Unless you are willing to suffer a 20% drawdown, you will
understand why the average gain quoted so often in this book may be a bestcase scenario and will come to grips with why you are still struggling to make it above the most likely gain. You may discover that your girlfriend loves diamonds, but as a chart pattern, you cannot seem to make them pay. One word
says it all. Experience.

Good luck.