Book Review:

Technical Analysis of Stock Trends, Eight Edition, is probably the most definitive book on pure technical analysis as it pertains to strictly reading chart patterns. Written originally in 1948 by Robert D. Edwards and John Magee, it has become the Bible of Technical Trading for many a trader. It has found it's way to my desktop, always by my side as I trade throughout the day. A reference book of trading patterns, their precise characteristics and their likely outcomes.

The book starts out with a brief definition of technical analysis and juxtaposes that against the fundamental analysis approach followed by the groundwork for how read charts by discussing of the different kinds of charts that can be used in the analysis. From there, a brief discussion of the venerable Dow Theory is offered (since that was at the primary theory of how markets move at the time of the original writing and still has a great following even today).  From there on, it's all about the technical.

Four chapters are devoted to reversal patterns which includes patterns that most probably would not think of as having possible reversal characteristics. Consolidation patterns are examined in chapter 11, then gaps in chapter 12, and on to support and resistance, trend lines and channels, and finally a discussion of major trend lines. The technical analysis section of the book concludes by sweeping into the application of technical analysis to futures and derivatives charts.

The second part of the manuscript is dedicated to the all important aspect of trading tactics - how to actually trade what you see in the charts. I suspect that most readers read the first 365 pages with interest and then skim the trading tactics section but it is a mistake as making money is more than finding good charts. Part two considers the source of your data, leverage, diversification, use of margin and short selling, stop orders, and then applies those concepts with numerous examples.

Technical Analysis of Stock Trends, is a sweeping book so comprehensive in scope that it, to this day, remains one of the most trusted sources when reading patterns in the market. Edwards and Magee tackled a subject that was little understood by most and generally dismissed by the vast majority and created a most detailed and definitive work. If you have a place on your bookshelf for a definitive reference book on technical analysis, then you should occupy that space with this book. If you don't have a spot, then you should make one!

Reviewed by L.A. Little on 5/02/2009