Stocks & Commodities V. 24:4 (10-15): Charting The Market: Swing Rule by David Penn
What do the measuring rule for double bottoms, head & shoulders tops and bottoms, cups with handles, double tops, rectangle bottoms and tops, ascending and descending triangles, and a host of other chart patterns have in common?
All of these patterns rely on the size of the pattern to help determine the minimum extent of a breakout or breakdown. In doing so, these measurement rules actually invoke a principle written about years ago
by Stan Weinstein in his classic investment primer, "Secrets For Profiting In Bull And Bear Markets":
"Over the years, technicians have come up with all sorts of fancy theories and games that are supposed to predict where a stock is headed. Believe me, Iíve dabbled with them all, from the simplest to the most complex. Iím not going to burden you with them because itís not worth the effort. But there is one simple concept that you should be aware of that does have a high degree of accuracy. When you add it to your arsenal of trading tools, youíll really be ready for the firing line."
What is it? The envelope, please:
"This trading measurement is called the swing rule. It doesnít appear often, but when it does, it can give you real insight into where an advance is likely to end. Itís often so accurate that itís almost like reading next weekís newspaper today!"