A w cohen three point reversal method of point figure stock market trading

6nt HOWTO USETHE Three-Point Reyersal Method of Pof,mt6 Sfock Market Trading BY A W GOHE]I onraruAt rnte ) ffi@ffiM' ilETH0D 0Fp0tXT & FIOURE TRADITO PUBL'ST]ED AV} GHARTCRAFT, IJIG LARGHM||JIT, JI.Y FOR SALE & EXCHANGE www.trading-software-collection.com Subscribe for FREE download more stuff Mirrors: www.forex-warez.com www.traders-software.com Contacts andreybbrv@gmail.com andreybbrv@hotmail.com andreybbrv@yandex.ru Skype: andreybbrv ICQ: 70966433 ) ) I I t t, r I It ) I t HOW TO USE THE Three-Point ReversalMethod of I I' Pof,nt{P -(d-(L? Sfock Market Trading BY A W COHE]I A TECIIIIICAI APPR(IACH I|l ST(ICT ilARI(IIIRIIIIIIG P U B T I S HBEYDC H A R T C R A I iF l CT ,T A R C H I I ( l 1} II T.Y,.I 1968,1978,1982,& 19&4by Chartcraft,[nc Copydght nrUtisneaby Chartcraft,Inc., Larchmont,NY Number:68-54093 Catalogue Libraryof Congress EIGHTH REVISED EDITION The material containedherein is not to be taken as advice to buy or sell specific securities The information presented is based on sources we and Ultieveto be reliableand hasbeencarefullycheckedfor completeness guaranteed be accuracy,but cannot TABLE OF CONTENTS Page Foreword D Introduction Section One - The Poj.nt & Figure Chart and Construction The Point & Figure Chart Charting A Very Low-Priced Stock Chart Construction The Double Top & Double Bottom Formation (# 1) The Double Top & Double Bottom Formation (#2) The Bullish Signal Formation The Bearish Signal Formation The Bullish & Bearish Symmetrical TriangLes The Triple Top Formation The Triple Bottom Formation Formations In Combination Variations On The Triple Top & Triple Bottom Formations The Broadening Formation The Spread Triple Top & Bottom Formations Bullish & Bearish Cataputt Formations The Bearish & Bullish Signal Reversed F'ormations Section Three - Trend Lines The Bullish Support Line The Bullish Resistance Line The Bearish Resistance Line The Bearish Support Line n a B 11 L2 15 16 18 20 22 24 26 2B 30 32 34 36 3B 40 43 44 48 50 53 Section Four - Price Objectives The Horizontal Count The Vertical Count The Horizontal & Vertical Count 5B 60 Section Five - Relative Strength 61 Section Six - Industry Groups 65 Section Seven - The Dow-Jones Industrial Average 69 Section Eight - Trading Tactics Establishing The Trade Profitability Tables The Pu]lback Profitability Tables Stoploss Orders Taking Profits 73 74 74 75 76 77 78 55 Db SectionEight (continued) StocksWith A High Short Interest Volume 80 80 SectionNine - ConvertibleBonds E1 SectionTen - Over-The-Counters 85 SectionEleven - TechnicalIndicators The CumulativeDaily Advance-DeclineLine The High-Low Index The On-BalanceVolumeIndex The Odd-Iot BalanceIndex The Odd-Lot Short Saleslndex The 10-DayAdvance-DeclineRatio The 10-DayUpside-DownsideVolume Ratio The 200-DayDJIA Momentum Index The DJIA One-YearToChart The Index of SpeculativeConfidence The Gold Mining Disparity lndex The Short Interest Ratio The % of NYSE StocksAbove Their 10-WeekMoving Average ' The lO-WeekMost Active StocksRatio The NYSE Bullish Percentage The DJIA Bullish Percentage GeneralMotors as a Bellwether Stock 89 90 91 92 93 94 95 96 97 98 99 100 101 r02 103 104 105 106 SectionTwelve- Puts and Calls 107 SectionThirteen - Commodities 113 SectionFourteen- Adjusting a Chart for a StockSplit 125 SectionFifteen - The S-PointReversalChart 126 -4- FORWARD The basicprinciples of "How to Use the Three-PointReversalMethod of Point & Figure StockMarket Trading" were ftrst published in 1947under the trtle "StockMarket Timing " When the Chartcraft Weekly Service was started in 1948,the name of the book was changedto "The ChartcraftMethod of Point & Figure Trading." In August 197E,we publishedthe sixth revisededitionof this bookwhich includedrevisedchaptersdealingwith the Dow'JonesIndustrial Average, Over-The-Counter Stocks,and TechnicalIndicators.In March 1980,the Seventheditionwaspublishedcontaininga revisedchapteron OptionTrading This is the eighth revisededition It containsrevisedsectionson Price Objective,RelativeStrength,Technical Indicators,Options,and Commodities Althoughfuture editionsare constantlyin the planning,the basicprinciplesremainthe same Specialacknowledgment is made to ProfessorRobertEarl Davisof PurdueUniversity.He was kind enough to let us read his lengthy manuscript, "Proft and hobability-Technical Analysis of the Price Fluctuations of ' CommonStocks,' and haspermittedus to usehis figureson the profit potentialof the varioustrading formations containedin this book All the formationswere programmedfor an IBM 7094computerand the results were obtainedon the basisof tradingfrom buy signalto sellsignal,and sell signalto buy signal,with trend lines taken into account, A W Cohen July 1982 INTRODUCTION - THE TWO APPROACHES ar companycanbeapproached T h e p r o b l e m o f t h e p u r c h a s e o f s t o c k i n a n y p a r t i c u l"should I buy the stock of problem as: pose the to is way in either of two ways One "When shall I buy the stock theXyZ Companyi" The other is to pose the problem as: of the XYZ ComPanY?" "Should I?" is taking the fundamental approach The person who asks the question "When shall I?" is to the stock market analysis The person who asks the question taking the technical approach to stock market analysis' The fundamental analyst concerns himself with financial statements, history, position quality of management, earnings, dividends, popularity of products, relative in the industry, etc The technical analyst concerns himself with suppiy and demand, accumulation have substantial moves at one time or another' and distribution Practicaliy all stocks "blue chip" as of a "cat and dog " No stock goes up Fluctuation in price is as true of a goes up it goes through a period of accumuin price of its own accord Before a stock "insiders, rr it is passing from "weak hands" into "strong hands" until demand trtio.r by Bef.ore a stock drops in price' is greater than supply and the upward move is on its.way' "insiders " It is passing from it goes through " p""ioA of distribution by the same "slrong handi" into "weak hands " When support is withdrawn, supply overcomes is concerned with demand and the panicky downward move is on The tecbnical analyst to determine the the right time to Uuy and the right time to sell short He attempts situation He is an moment when either supply or demand has taken control of the "insiders" are doing' ,,outsider" making ,r"" oi various techniques to determine what the a When should a stock be bought? The broad answer to this question is that stocks egeneralmarketisinanuptrend,(2)theindustry group of which it is a member is in an uptrend, and (3) the stock itself is in an uptrend - the price of a market average, the price of ffptrlnO, as used herein, refers to price cash the industry group index, the price of tne stock It does not refer to earnings, the fJ.ow, growth, etc.; such factors may answer the question what to buv but never question when to buY' When should a stock be sold short ? The broad answer to this question is that astockslrouIdu.@thegenera]marketisirradowntrend,(2)the (3) the stock itself is industry group of which it is a member is in a downtrend, and side of the market short in a downtrend The trader or investor who does not like the should at Ieast be out of stocks in such a situation Here again, downtrend refers only to.price and nothing else The tools used by the technical analyst in nraking such determinations are of primarily charts - charts of a particular stock, charts of an industry group, charts a market Average or Index There are three types of charts: line, bar, and Point and Figure This book is devoted to Point and Figure charting and interpretation It is the oldest form of charting used in the stock market, it is indigenous to and grew out of the stock market, and once n:astered and understood it is also the simplest and clearest method of determining the right tinre to buy and the right tiure to sell The Point and Figure chart shouts where other charts merely stutter -6- SECTION ONE THE POINT AND FIGURE CHART AND ITS CONSTRUCTION In Figure # 1, we have a Point and Figure chart "under the aspect of eternity " By this, we mean that both vertical and horizontal coordinates are based on price changes In the usual line or bar chart, the vertical coordinate is based on price and the horizontaL coordinate is based on time (day, week, or monttr) This is not the case in a Point and Figure chart Chronology has no significance in it The only thing it concerns itself with is a stockrs price changes independent of the time in which these changes take place The chart patterns that this chart develops are independent of the time it takes for their eoming into being, whether it is a matter of days, weeks, months, or years Their significance for the future remains the same Although we will include chronological data in the body of the Point and Figure chart, as wiLl be seen in the ensuing pages, this wilL be done merely to establish a frame of reference THE POINT AND FIGURE CHART Figure # is a reproduction of a Point and Figure chart of Bucyrus-Erie us examine it closely and learn how it is constructed' Let Each square ( not line) on the chart represents a unit of price Under 20, each square stands for |-point or one-half dollar From 20 to 100, each square stands for 1-point or one dollar When the price of a stock is going up, we use Xs to indicate the price changes When the price of a stock is going down, we use 0s to indicate the price chatrges Vertical columns of Xs and 0s alternate We n.roveone colutrln to the right each time there is a change in direction - from up to down or from dorvn to up Xs and 0s never appear in the same column Each colun.tn represents either an upnlove or a downmove, it cannot represent both (Daily highs and lo'tls ale used fol determining upmoves and downmoves and not closing prices) -8- GRAINS COBN OATS SOYBEANS t r l l l 5+/box SOYBEANMEAL SOYBEAI| (IL GOLD coLD ( cl4x ) DECEMBER 1982 LIFE OF CONTRACT " - _ r :/ / E@ oqo €i7{, 54/box Gold and other precious metals make substantial moves, both up and down, and, as a result, have attracted a big following among speculators -I16- METALS PLATINUM HOGS J U N E1 ( cB T ) LIFE OF CONTRACT : :=+3/I/81 r#JTtrading _ _ fb e g i n s1 , - ' - + r - + ! l l 2tlbox1r-'-: , .lT- Hogs and other meatshave had spectacularbull and bear marketswhich have turned quickly Note the small length of time it took to completethe bottom formation FROZEN PORK BELLIES CATTLE FROZEN ORANGE JUICE FROZENORANGE JUICE Thesecontractshavehad more "weather-related" movesthan anv other commoditv, COFFEE cocoA POTATOES f-flt]*ff-]_1-fi zazufi ll*ll*ft*f U.S TREASURYBILTS BY ILLS S TREASUR ( r M r i ) JUNET9B2 LIFE OFCONTRACT Financial futures are a recent addition to commoditiesmarkets, but their popularity was immediate I n _ t CHANTCRAFTCOMMODTIES SERVICE Explanationof Chart Scales Commodity Corn Oats Soybeans Soybean Meal Soybean Oil Wheat Sugar Frozen Pork Bellies Cattle Hogs Copper Platinum Silver Lumber Plywood Gold Cocoa Coffee Cotton Frozen Orange Juice Potatoes British Pound Canadian Dollar JapaneseYen Swiss Franc W GermanMark HeatingOil U.S T-Bonds G.N.M.A U.S T-Bils Bank C.D.s Value Line Composite Index S & P 5fi)Index N.Y.S.E CompositeIndex South African Gold Stocks Value/Box 2A l0 5c $2 '2A 2a 2a '2a 2A '2A Y2A $4 20a $r $1 s4 $20 2a %a lc '2a 1C 2A 00002a '2Q 2A 2e %pt Y, pt .l pt .l pt %pt '/, pt V, pt $1 over S20 50c btwn S5 & S20 -L24- Tradinglncremente c/bu a/bu a/bu S/ton aAb a/bu aAb anb aAb aAb aAb $/oz $/oz $/1000bd fr S/1000sq ft 8/oz S/ton a/tb aAb onb anb $/Pound S/Can $ $/Yen (.00) $/Franc $/Mark S/gal Voof.l00vo 7o ol l007o Voof lNVo Voof,LffiVo $/Box $ 100 50 250 200 t20 100 224 76 80 60 t25 200 2N 130 76 400 2N 750 250 r50 r00 250 2m 250 250 250 84 500 500 1000 1000 250 250 250 SECTION FOURTEEN ADJUSTING A CHART FOR A STOCK SPLIT In Figure # 54 we have the chart of a stock that has announced a two for onc sTffL The original price sdale appears on the left hand side of the chart The first thing to & when you want to adjust a chart for the split is to draw the new scale on the right haqd side of the chart In the case of a2 for split, you simply cut the.price of each squarc in half Using the right hand price scale, you now have a chart in f -point units witb a 1] point reversal both below and above the 20 price leveI The next step is to draw a new and correct price scale in j-point units belor 2O and in 1-point units above 20 This is illustrated in Figure # 55 Working with the |point units in the old chart you draw your new chart according to the correct units Thi6 has been done in Figure # 55 If you will trace each movement on the new chart and compare it with the old chart you will soon learn how this is done Do not adjust a chart for less than a 10% stock dividend If a stock has been split for 2, each square is multiplied by 2/3rds, if it has been split for 1, then each square is multiplied by 1/Srd, etc In adjusting a chart, it should always be borne in mind that many of the chart patterns in the old chart will disappear in the new chart Sometimes, an adjustment will even change a chart from bullish to bearish and vice versa -L25- SECTION FIFTEEN THE 5.POINT REVERSAL CHART On the facing page we have two charts of Natomas covering the same time period The upper one is a 3-point reversal chart and the lower one is a S-point reversal chart The 3-point reversal chart is spread over forty-four columns while the 5point reversal chart is condensed into eighteen columns The 3-point reversal chart gave ten buy and sell signals; the 5-point reversal chart gave only five such signals The 3-point reversal chart has four Bearish Resistance Lines; the 5-point reversal chart has only one Bearish Resistance Line which is still in effect It is obvious, even at a glance, that the S-point Natomas chart is superior to the 3-point reversal chart in that it is subject to much fewer whipsaws Also, if one follows the Bearish Resistance Line on the 5-point chart, one would never have gone long of Natomas during this period Although the 3-point reversal chart works very well about 90% of the time, there are some stocks which should be charted on a 5-point reversal These are usually the higher priced stocks, the very active stocks, and the so-called "glamour" stocks In such stocks the 3-point reversal method still shows minor moves; it takes a 5-point reversal chart to eliminate them The long-term investor might also use the 5-point reversal chart on almost all stocks, while the short-term trader must use the 3-point reversal chart The 5-point reversal chart is constructed from the 3-point reversal chart by eliminating all moves under points T h e N A T I O N A L L YF A M O U S O R G A N I Z A T I O NO F F E R ST H E S E E I G H T O B J E C T I V E SF O R E V E R Y I N V E S T O R "For over 30 years, CHARTCRAFT, the innovator in POINT AND FIGURE CHARTING, hassupplied the investor with charting toolsfor his every need." A W Cohen l? l6 l5 Keephis owngtocksunderconstantsupervision Ir Spot"buy forrnations"andsignalsin otherstocks r: "sell signals"in otherstocks Watchtor L2 price Formulate objectives lt Beforewarn€dof resistanceareas Foreseesupportar@s MonitortheoveralI trendof the market,OJIA,etc L Possess a visual historyof every NYSE,ASE and all popularOTC stocks,alongwith rnanytchnical indicato6, andoptions commodities, "Chartcraft Point and Figure Method" can help the investorattain th€so eight importantobjetivesThe becauseit is adaptableto manyapplications.Belowis a thumbnailsketchof the availableP&F materialsyoucan use Act now-while the marketis sovolatile.Ordera low-pricedtrial subocriptionto oneof to trademoreknowledgeably our servic€s,or try oneof our informativebooks POINTAND FIGUREMETHOO BOOK- Our 128pagemanudexplainshow to applyth€ Chartcraftmethod to your invctmentarsenal,vla P& F charts.Chaptersdeal with: Chartconstruction(forstocks,options,commodities, and indicators),interpretingpatterns,confirming your lindings with markst indicators,and much more There are ovsr 160,000copies of this book in print You can receiveyoursfor just $6.95,or as a BONUSwlth any trial subscriptionfor the Serviceslistedbelow WEEKLY SERVICEON NYSE/ASE-Anaccurate,upto-the-minutersport that coversall NYSEand ASE stocks and mostpopularoTC stocks as well as featureson:'92 industry groupswith one group and its componentsanalyzed eachweek with trend and RSchart, DJIA analydis, Bullish percentagereport, recentlysplit charts,Technical IndiqgtorReview,and LondonGold P&F chart Computer programmedto give you complete"3-box reversal" P&F Informationfor your own chart updating.Includes:full name of stock,referencepoint (last entry), new entries, buy and sellsignals,priceoblectives,stop-losspoints,relative strength figures, and more Introductory 4-week Trial, plusBonusManual(a$6.96value)-bothonly$15.00 WEEKLY OPTIOI{S SERVICE- The Chartcraft Options Serviceprovidesa computer printout on every underlyingoption stock All price changes,buy and sell signals, stop-losspoints, price objectives,and relative strength figuresare recorded.A chart printout is shown on every stod( that has hd a treM reversal (upolcle/ downdde) durlng the unek Featureoa market comrnont, stocks with highest upslde and lowest downside prlce objectives,a featuredstock of the week with a P&F relative strengthchart and anatysiaprovided,and Technlcal Indicators.This technicaldata on the underlyingissues can help youtremondously with putsand calls-and many other usefulfealurssare lncluded Optionscould be your field Just $15 will bring you a 4-weekTrlal, to see for yourself(includes BonusManual) WEEKLY COMMODITYSERVICE- P&F chartscan act as a sensitivebarometerof buying and selling pressures in commoditiesfutures as they build to a "breakout"-bulligh or bearish.You can now recelve4 weekly issues(maileclon Fridays)that cover100Pointand Figure Charts on the following contracts:@rn, oats, soybeans, -oil, -meal,wheat,sugar, frozgnpork bellies,cattle,hogs, coppgr,platinum,silver,T-Bonds,T-Bills,GNMAs,oocoa, coffeg,@tton, frozenorangejuice, potatoes,lumber, plywood, bank C.D.s, Value Line, gold charts (CMX and IMM), London Gold, foreign currencies,palladium, Value Line Composite,NYSE Gomposite,S&P 500, and South African Gold Stock ADRs A Commodlty of the Week ls discusgedIn detall with prlce oblectlv€,stoplos point, and analysis.Trlal offer of weeksls only E15.00 and lncludesBonusManual (a06.95value) TECHI{ICAL INDICATORREVIEW- This bt-weeHy servicegivesyou commentson the generalmarketdlro tion as well as a classificationof lndustry groups (frill which you can tell whether to buy or sell your lavortb stocks) Includes: an Indicator rundown, AilA drl analysis and interpretation,34 P&F charts on the md popular market indicators, plus a composlteindlcE chart, momentumratingson g2 induslry groups,odd fl data, and a specialtechnicalindicatoi e*h'lssue Ga I three-month trlal offer (6 fuil issues) for onty lt2.l (includesBonusManual) MONTHLYP&F CHARTBOOKOF NYSE/ASEvolumeIncludesP&F chartson A big 7'x 10', 330-page '180 OTC stocks-all all NYSE/ASEcommonstocks,and printedby electronic computer.All chartspostedthrough th€ last Tuesdayof the month, and rushed to you viq First ClassMail the followlngThursday.Includesaccurat€ and latest price history so you can quickly visualize ths trendsof eachstock-its direction,buy/sell signals, supportand resistancoaroas,trendlinespenelrated,etc Alsofestures"lndlcatorRundown"with chartsandexplaandtrendchartsof 92 S&P nationsof 27 popularindicators IndustryGroups.Currentedition-E25(includespostage) One yearsubscription(12 issues)-$240(includesBonus Manual) - This OUARTERLY OPTIONSP&F CHARTBOOK large 8' x 11', 1@-page Chartbookis invaluablefor ogtion traders.lf usedalono,or in conjunctionwith the WeeklyOptioneService(to posttf 3charts),the Chartcraft canillustrateimportanttrendsto underOptionChartbook lyangstocks.With two big chartsto a page,all the data is easily interpreted.Each issueig just $20, or get issues (l year)for just$72 OUARTERLY RELATIVE STRENGTH CHART EOOK - This 37-page Chartbookcontains a Point & Figure RelativeStrengthChart on everyexchangetraded underlying optlon stock These charts identify MAJOR trendsin individualstockswhichusuallylast manyyears They may helpeliminatewhipsawsand pick out the leading stocksof the day Signalson RS charts frequently precedetrend (prlce)chartsand confirmor refute buy or sell signals.ln an 81h" x 11n format,thereare chartsto a page wlth space lelt for months of uodating Current issue-$20.00,or quarterlyissues-$72.00 BI-MONTHLYWEEKLY BAR CHARTS BOOK Chartcraft's 55-page bi-monthly Ghartbook conlains weekly bar charts on all underlyingstocks.The charts are specificallydesignedfor use by people who trade options.Theseare functionalcharts:easy to keep,upfrom Barron's,and providingthe investorwith a currenltiming guide In lhe tradlng of optlons.Brlefly,we bellevethat calls could be purchasedon stockswhich have bullish RelativeStrengthwhich havedeclinedtoorbelowthe 3G week moving average in an oversoldmarket which has startedto turn up Puts should be purchasedon stocks whichhavebearishrelativestrengthand haveralliedto or above th€ 3O-weekmoving average in an overbought marketwhichhasstartedto turn down.We alsobelievein closingout a call posltlonin a stock,.whichhas a buylng climaxor a put in a stockwhlchhasa selllngclimax.Both of thesesituationscan oftenbe identifiedwith thesetypes of charts.Currentissue$20.00,or issuesfor $100.00 10 OUARTERLYOTC P&F CHARTBOOK- This 17& pageChartbook,issuedfourtimesayear,coversover 1,000 OTCstocks.ln an 81/z'x 11' format,thereaie nineclearly presentedP&F chartsto a page-each2' x 3' Loose-leaf and 3-hole punchedfor easy accessand updating The OTG Chartbookcoversissuessuchas ADR's, insurance, banks,industrials,NASDQcomposites, etc Most charts go back to 1978and cover to years Current issue$20.00,or quarterlyissues-$72.00 DOW-JONES TNDUSflRTAT AyEnAcE (r0 x 30) SHOWN ON THE LEFT IS A CHART OF THE DOW JONES INDUSTRIALAVERAGE ON A 10 POINT x 30 P O I N T R E V E R S A LB A S I S X ' s A R E U S E D W H E N T H E C H A R T l S R I S I N GA N D O ' s W H E N T H E C H A R T l S FALLING BOXES,OR 30 POINTSARE NEEDED TO REVERSE FROM AN UP COLUMN TO A DOWN COLUMN, OR FROM A DOWN COLUMN TO AN UP COLUMN OVER 2% YEARS OF INFORMATION IS SHOWN WITH "SUPPORT" AND "RESISTANCE" AS WELL A S B U Y A N D S E L L S I G N A L SC L E A R L YD E F I N E D A L L O F O U R S E R V I C E SC O N T A I N S I M I L A R P & F CHARTS ON STOCKS, COMMODITIES, AVERAGES, O R T E C H N I C A LI N O I C A T O R ST H E S E A R E I N V A L U ABLE AIDS TO BOTH TRADERSAND INVESTORS, CHARTCRAFT,INC l WctAvenue lrrchrmnt, NY 105t18 Pleasesendrnethe ChartcraftaldsIndlcetedbelow Book yr orTrial Sub tr Point& FlgureMethodBook i 6.95 O WeeklyNYSE/ASEService 15.000180.@ 15.00 84.00 a WeeklyOptionsService i D WeeklyOommodltyServioe 15.@ 180.00 t-) TechnlcalIndlcatorRwlew 12.00 /4.00 ! MonthlyNYSETASE Chartbook 25.00 2&.6 O QuarterlyOptionsChartbook 20.00 72.6 ! QuarterlyOptionsRSChtrtbook 20.00 72.@ ! Bi-MonthlyWeekly 20.00 1@.m Bar ChartsBook O QuarterlyOTCP&FChartbook 20.00 72.@ O year NYSE/ASEWeeklyService& Monthly ChartbookCombination $360.00 for$ in full payment ) lencloseacheck ) Pleasechargemy Visaor Mastercharge(at right) for $ PLEASE PRINT NAME ADDRESS CITY, STATE,ZIP P&F2tU Visa or MasterCard