If You Want To Study Up On Basing Patterns, Here Are Some Ideas

The market continues to look strong from my standpoint.  I would continue to focus on the long side.  Friday will be a quiet trading day but a big shopping day for most.  Sales numbers from Friday and over the weekend should help to set the tone for trading next week.  Monday will mark my last column of the month, and I will provide my monthly total market outlook at that time.

After this past Monday’s column I received an email questioning me about the basing pattern in NGPS (which I highlighted).  The reader correctly pointed out that the pattern was pretty wide and loose, and didn’t look like your typical basing formation.

What drew my eye to the chart was not the base itself but the fact that a nice, tight handle had formed near the top of it.  The bottom of a handle may act as support for a stock, and is therefore a reasonable area to place a stop.  A good, tight handle can really help to improve your risk/reward ratio.  As much as some traders would like to set up exact criteria for technical patterns, identifying bases will always require some level of subjectivity. 

Since we are going in to a long Thanksgiving weekend and some of you may have some reading time, I thought I would share with you some of my favorite reading material for identify proper basing formations, congestion, trends, breakouts and the rest of it.  Below is a short list of books that deal with these subjects that I have found valuable.  (No particular order.)

1)      How to Make Money in Stocks – William O’Neil – This is the book that named the “Cup & Handle”

2)      The Hedge Fund Edge – Mark Boucher – The best book I’ve ever read on intermediate-term investing.

3)      The Investor’s Edge – Gary Kaltbaum – Really enjoyed this one.

4)      Secrets for Profiting in Bull and Bear Markets – Stan Weinstein

5)      Encyclopedia of Chart Patterns – Thomas Bulkowski – In-depth studies of nearly 50 different common chart patterns.

6)      Electronic Trading TNT – Joe Ross and Mark Cherlin – This is a series of 4 books.  Book 1 and Book 3 do a good job of teaching how to  identify uptrends, downtrends, and congestion.  Their approach is a little different than the other books.  I found it very useful.

Gobble, gobble,

Rob

robhanna@comcast.net