“Technical Analysis of Stock Trends” by Edwards & Magee is my favorite stock-market book.
I’ll never forget the dramatic impact this book had on my trading when I began reading it. It was during the March-to-May bear-market rally of 2008. I was short for fundamental reasons, and rightly so; the economy was crumbling and the market was about to crash. But I was taking a lot of pain during the rally.
After reading the book, I was suddenly able to read charts and saw that the market was making a bullish “ascending triangle” pattern. I adjusted my positions and saved myself a lot of grief.
As the market continued to rally, I saw that it was making a bearish “rising wedge” pattern. I went all-in and leveraged short. I made a killing when the market plunged in June.
This book is the primary reason why I was able to turn in such an astounding performance in 2008.
While this book has been updated many times, it was originally published in 1948, and many of its chart examples are 80 years old. Take my word for it; not much has changed in the market since then, and the same patterns repeat over and over today. In fact, you can read the first part of this book with the “ancient” information and skip the later chapters with the “modern” information and save yourself some time. This book is a classic in the true sense of the word.
Stock patterns are the same today as they were 80 years ago because price movements are a reflection of human nature. And human nature does not change.
You will also hear many authorities criticizing technical analysis. In just about all cases, these people are just trying to sell you their own books, or their money-management services. They all secretly look at charts.
However, the book does not cover huge market factors like mean-reversion and sentiment. Consequently, I have written my own trading book, The General Theory of Day-Trading, which builds on what Edwards & Magee accomplished.