Stocks & Commodities V. 31:5 (8-9): Letters To S&C by Technical Analysis, Inc.

Letters To S&C by Technical Analysis, Inc.

Head & Shoulders, Algorithmically

Editor,

Though it is my belief that all who go to the effort to advance or even attempt to advance their knowledge should be applauded, I must nonetheless deplore author Giorgos Siligardos’ inappropriate use of the term “head & shoulders” in his April 2013 S&C article (“Head & Shoulders, Algorithmically, Part 1”).

That term, adopted a number of years ago by his predecessors, was intended to apply to a specific chart formation identified according to certain rules. Those rules were set down in detail by early writers in the field of technical analysis, such as the writings of Robert Edwards & John Magee most famously, dating, if memory serves, from the 1940s. The charts displayed in Siligardos’ article do not fit those rules, at least as I recall them (unfortunately, I do not have a copy of the book). I must apologize in advance if your own investigation shows my memory to be faulty in some respect.

I do recall, however, that there was general agreement among technicians of the 1950s–60s that the neckline must be level or downsloping to the right, and that volume declination across the three peaks was also required. Volume is nowhere mentioned in his piece, and the necklines of all his figures are upsloping.

It should be further noted that there were good and valid reasons for those requirements, which reasons I presume do not require specification here (though I do not resist discussion if Siligardos feels it appropriate).