Trading Systems and Methods, 6th Edition

CHAPTER 4Charting Systems

The automation of charting techniques can be seen on most quote equipment. With a single click, you can change a line chart into a candlestick or a point-and-figure chart. More sophisticated programs can identify Elliott Waves and Gann angles and projections. Granted, there will always be analysts who disagree with the positioning of these points and lines, but they make charting simpler and bring standardization to what was considered a combination of art and skill.

The systems and techniques included in this chapter are those that might be used by traditional chartists. Many of them are classic methods by famous analysts. In some of these charting systems, the time that it takes for a price to move from one level to the next is not important; it is only the extent of the move that is used. The common ground in this chapter is that the methods can be automated. At the end of the chapter is a summary of Bulkowski's work, a study and ranking of most popular chart patterns.

We begin with a review of a few of the earliest attempts at systematic trading. Of course, we have come much further in the 70 years since Dunnigan, and markets have expanded and changed. Yet they are still driven by investors with the same objectives. Given our wide range of techniques, tools, and technology, deciding on the most profitable path may be difficult. These first developers struggled with basic concepts and, in many ways, they are the same concepts that we try to resolve ...