Book Review: Bulkowski, Getting Started In Chart Patterns

Thomas Bulkowski is probably the best known chart pattern researcher. Among his credits are the Encyclopedia of Chart Patterns and the three-volume Evolution of a Trader. In this second edition of Getting Started in Chart Patterns (Wiley, 2014), a book originally published in 2006 and newly revised and expanded with updated statistics, he introduces more than forty chart formations. Better yet, he explains how to trade using them.

Although the title indicates that the book is for novices, it is equally valuable—perhaps even more valuable—for more experienced pattern traders. Without continually reviewing, testing, and revising pattern trading strategies, it’s all too easy to trade yesterday’s market.

In two action-packed chapters Bulkowski explores trendlines and support and resistance. He considers support and resistance to be “the most important chart patterns” because “they show how much you are likely to make and how much you are likely to lose on each trade. That’s like playing poker and knowing the hands of your opponents. You won’t always win, but it helps.” (p. 35)

In the next two chapters he offers ten buy signals and ten sell signals. For each he explains how to identify the pattern and serves up trading tips. In some instances he also includes sections on measuring success and case studies.

Especially valuable are his chapters on special situations and busted patterns. Among the special situations are dead-cat bounces, gaps, and spikes and tails. My personal favorites are busted patterns. Bulkowski explains the general principle: “A busted pattern occurs when price breaks out in one direction, fails to move more than 10% before reversing and breaking out in the opposite direction.” The best performance, he’s found, comes from rectangles with downward breakouts. “They bust, and price shoots up through the pattern, rising an average of 61% above the top of the rectangle.” (p. 252)

Bulkowski can always be counted on to deliver a lively blend of pictures and number-crunching. This book is no exception.