Peter Brandt authored one of the most authoritative books ever written on the subject of trading with classical chart patterns (now out of print and hard to find). He was also one of Commodity Corporation's most successful trading advisors during the late 1980s. The following is Peter Brandt's presentation from the MTA's 1989 Annual Seminar in Naples, Florida (exact date unknown).
Daniel L. Chesler October 2004
"CLASSICAL
CHARTING PRINCIPLE"
"AN EDWARDS AND MAGEE' APPROACH TO TRADING FUTURES MARKETS”
I have been trading of these
I am going
trade
the
let
a trading
as pure
cation. not
markets,
me say that
all
a whole exception
15 years.
For 13
has been Edwards
strength,
follow
which
those
I will
and
based
the
outside
on chart
limited
the
Elliot
of analysis,
comment
formation
Wave Theory such things
chart
patterns
I use to provide
me with
Nor do I pay
or volume
a 13-day
some sort
I do
as oscillators,
The only is
identifi-
or Gann.
or stochastics.
on later).
I am
For the most
to basic
to open interest
I
formations.
as is possible.
is
with
some experiences
standpoint
advance/decline
I will
and Magee to
of you familiar
share
or monitor
of attention
That
and for
from
fundamentals
lot
how I use Edwards
an E&M trader
I do not
use in trading rage.
about
of trading
technique
of my analysis
follow
relative
about
practitioners,
have had with
part,
to talk
futures
E&M as trading
probably
method
for
patterns.
Today
First,
markets
my primary
years,
Magee chart
futures
(with
one
tool
that
moving
ave-
of handle
on
trend.
so,
with
these
and to basics.
preliminaries
aside,
let's
get
down to business,
I
When many of us think triangles,
charting
Analysis marriage
of Stock that
prjnciples trendlines
and resistance,
of John Magee and Robert
"Technical through
support
gaps,
we think
of classical
Edwards
and their
The reality
Trends".
--
of H&S,
and the
like,
1948 book is
John Magee became knowledgable
that
it
was
on classical
charting.
In
the early
the FinancialEditor
1900's,
name of Richard
W. Schabacker,
but
he was also
an ardent
that
the markets
did not
mental
events
be something spent
His
the
student always
besides
remainder
conclusion
Schabacker
act
with
what
He concluded
that
there
life
that
searching
drove for
journalist,
He observed
in concert
fundamentals
of his
was a guy by the
was a financial
of the markets.
seemed to dictate. else
of Forbes
the
funda-
had to
the markets
and
answers.
was that:
1, Major
market
engineered
2. That
moves were by large
these
trading
necessarily nor were other's operating
act they identity. with
(and are)
trading
interests as a single
always
aware But they
similar
minds
interests.
did not group, of each were and
motivatior.
7
3. That major
price
downs were by the
activities
preceded
doing
In other
by graphing
could
the words,
preparation.
prices
and volume,
of large
interests
be detected.
From a more practical eral
people
moves required
4. That
and mark-
always
things.
major
the
almost
"right"
"right"
mark-ups
trading
standpoint,
Schabacker
came to sev-
conclusions:
1. That
any given was either
time,
or moving any real today
2, That
market,
at any given
in a sustained
up and moving price
a trading
during
progress
down without (what
range
trend
we call
or consolidation).
the periods
of consolidation,
prices,
when plotted
on a graph,
to form
recognizable
geometric
3. That
depending
formed, next above
the
sustained average
on the exact
direction trend
tended configurations.
geometric
and magnitude could
pattern of the
be determined
confidence.
?lT.AJOURXiL/?lAY 1989
with
While
Schabackcr none
market, charting
John
of
published these
books
on investing
books
several dealt
with
his
Schabacker
's
daughter
That
the
origin
work
in the
stock
on classical
techniques.
Magee
Schabacher's
married notes.
is
and became of
owner
the Edwards
of all
and Magee
book.
Without figurations
any
additional
comments
identified
by Schabacker
Consolidation Head
and
Rounding
at
this
those
geometric
Trend
Patterns
Gaps
Shoulders
Flags
Turn
Symmetrical
Triangle
Pennants
Right
Triangle
Channel
Angle
Broadening
con-
include:
Patterns
(Common)
time,
Double
Triangle
Channel
Diamond
Cradle
Wedge
Trendlines
Double "M" and
Top/Bottom "W" Patterns
Horn Drooping/Accelerating
Pattern
this
Of course,
simplified
I proceed
I want
list.
discussed
and exceptions
Now, before charts,
a very
Schabacher
manuscripts, conditions
is
In his
unpublished
many variations,
to charting
to discuss
techniques.
exactly
what
very
important
to make some very,
nuances,
I look
for
points
use of charts.
1, Charting
is more of an art
Successful study
chart
interpretation
can be misread,
as a Wave Count
3. Charting
is
price books
casts
are
should
time,
for
perfect
tool,
in dangerous for
formulating
chart
not
People
to make grand
be used
same way
can be prostituted.
a trading
4, Even the most
10
takes
much in the
forecasting.
chart
not
science.
and effort.
2, Charts
for
than
trading
fundamental
well-defined pattern
who use
economic
territory.
timing
a means
foreCharts maneuvers,
opinions.
and seemingly is
subject
.YTA JOL?F3~/.blhY 1989
to failure.
in on the
5. Not
every
market,
be understood
markets
all
6. It
is very
easy to over for
studying
has got
patterns
imate
chart
to spend over
six
points
clas-
analyze
a chart.
chartist
until
them.
is
something is
one of
on this
the page; will
find
My rule
15 seconds
is
... chart
My experience
it".
pop off
need to find
These
defy
to be something
patterns
to turn
will
The mentality
and I have to find
time
More often
a novice a chart
is made of it.
chart
trying
principles.
The temptation
"there
is
to all
of the time.
charting
to keep
danger
market
can
chart
interpretation
a given
than not,
time!
classical
The real a chart
sical
of the
using
principles. to fit
all
is
that
that
legit-
us.
We don't
that
if
on a chart,
I have it
is
the page.
are extremely
important,
and should
never
be under-
stated.
I maintain charts
daily,
weekly
on 24 markets.
and monthly I do not
chart
bar charts livestock,
and closing OJ, Coffee,
price Oats,
11
and some of the
Lumber, preference
is
NY Composite
Index
trading
is
charts,
pattern
constantly.
of the
currency
broken
down into
Recognizable
trading.
These may consist
of
or triangle,
week double
or a 6 week wedge.
bottom
average,
a given
market
classical
chart
patterns
The following classical
Here we find ments late drawn clutter
Also Swiss
instance,
my the DOW,
markets.
two categories.
graph
a series
over
a period
March,
1989).
in Bean Oil the
in the Franc
Soybean
graph
handout
during
this
(from
actually time
any more than
book available,
and Crude Oil.
I find
demonstrates
months
were
is
that
on
12 to 15 recognizable
which
10 recognizable
of 8 l/2 There
about
an 8
of some degree.
Oil,
market,
of
as 2 or 3 week
My experience
provide
per year
charting
are appearing
a 5 or 6 week trendline,
will
of
patterns
such things
head and shoulders
lent
for
possible,
are:
1. Every
12
and all
Wherever
indexes.
to use cash market
My own personal These
stock
it
to be an excel-
my point.
classical
chart
mid-July, 3 other
period,
but
develop-
1988 through patterns
I did
I had
not
want
was.
I include
a graph
on the
to
I .T’.._.
CD ru
m RI 1 i
f
‘-’
’ . * I; -
-J-+-T -CL.-.
11..
. . _ . * . .
.. . . -
.
.
.
.
_
.
.
.
.
.
.. .
!
. . : . . . . . i
. .
/
. . .
.
_ .
...,!. .. *, .&.*..J f A= -=-: _A :- -
_ i]L . . - M-i, L -f=,
-.
+-fy?$
.2 -
_
.
__
-
. -.
.
iq-
‘.
,.._.._..... --
L
‘-
_ ._ . . . . . . . . .._ . .
., _’ ,-
--
= -- 7 -.
.
.
.
.
.
.
I
13
_^_.._ ___. .-. ..-.. TWIN& . ..- -. -.... -.
.
_
_
-
.
_
_
.
_
.
_
IlOWS
_.
, _ . _ ._._ . 1...;.-; _. _..-‘._
r ____________,_..._-- _..__ ____ ,............-. ----.- _--...---..--.-cC_I---...-_ . . .
-_. .
- . _ TBLAN.GLE.
e!t .! ‘..:.._._..__.__ -._--. _. _____ _ ; _ -Illi I11
,
14
20 MAY
3 1
17 JUN
! t
15 JJ,
29 1
12 AUG
26
9 1
SEP
23
7 1
21 OCT
4 1
18 NOV
2 t
_ .._ _._+.--,--.- ; _ ._ .._..__._; ; /
. . . . . .. ..._-2. . . . . . . . . . . . . . . . . . * *
1988 I . , . , , , , . . 1 3 1 1 . . , .t . .~. ,.. T .f.._._.T._, _T T--T------6
. . ..
16 DEC
30 1 I
13 JAN
27 1
10 FEB
24 i
10 24 MAR
7 I
21
APR
12
DEUTSCHE EAPP
MARK HORItONTAL TRADING HIGH: LOW
JUN
LINE HO@X: .5973 5290
1989
.b020 8: 20-3: 00 ON ON
IMM. ‘. ....__....~__._.._....~.....~ . ..-
......... . .’
DOLiAhS EST
U.S. d
ii/25/00 03/30/09
60
.59
F-,
HEAD AND __..._.___ : .._._..........__. . 57 SHOULDERS * * .
._. ._ _ . =i.:. . .
I
9
23 I 7 OCT21 I 4 N3\la
12
DEC 16
301
JAN 13
27 1
FEB 10
24 1
IOMAR 24
1
52
VOL. THS. CTRS
7APR 21
15
So that every
is one part
of my personal
identifiable
magnitude
pattern
or implied
The general
rules
I do not
a market
boundaries
3. If
profits
I trade
the
break-out.
the
pattern,
I cover.
I cover.
one contract
pay attention
Stochastics
or contrary
opinion
One comment
on volume.
Volume
in commodities,
In
stocks,
a known
--
the
float.
of each signal
to Relative or volume
per
Strength
or
in
stocks
can always
be compared
In commodities,
we create
supply,
$50,000
or open interest.
is more important
volume
of a fixed
differently.
break-out
include:
at the objective.
I do not
to be treated
at the
$300 a contract,
in capital.
regardless
program
of a completed
rule,
interest
on
of its
trading
back within
As a general
constant
regardless
anticipate
closes
I am out
4. I take
16
in this
the position
point.
action
move.
I follow
1. I assume
2. If
development,
price
taking
trading:
and therefore,
than to open
volume
has
In this
25 to 35 signals I took
a look
at the previous
were
31 profits
were
losers.
But
trades
put
That
the net
further,
by only
in the bottom
which
have been before
And that
is why I don't
positions,
yes.
I mentioned And it
2.
is
Major
the
this
least
Market
the markets
does not
bottom
line
not
in April,
66% of the
trades
profit
all
Less
than
the
have been able
for
5% of the
opinions,
of the
I believe
come from
opinions.
Market
no.
is only
important
to predict
fact.
to have market
approach
Moves.
means that
I would
like
But market
that
'speech
line.
I am sure
would
between
Out of 91 trades,
4 trades.
More importantly, 5% it
trade
this
3 months.
or 34%.
was represented
usually
When I wrote
per month.
there
91 trades
I will
of my trading,
portion
one of two
I use in trading.
two.
that
trading
the
real
positions,
compensation but
by holding
concentration
toward
in
positions,
The other
part
identifying
the really
My experience price
of my trading
moves in
is
that
futures
big
there
is
an all
out
move.
are between
10 and 25 really
sizable
each year.
NTA JOUR@,.L/r\"L;Y
1989
17
I define
the
ingredients
of these
1. E&M measured
moves with
move objective
of
the
following:
$3 to 5,000
per contract.
2. Major
chart
3. Technical
development
significance
or monthly
Let's
take
a look
at the past
and then
we have any situations
cover
in my handout
a major
massive launched develop
the major prior
head and shoulders the
to identify
this
at the current
currently
taking
type
of
markets
form.
A more complete
of examples.
happend
breakout,
Notice Often
in Gold. On the
was penetrated.
was completed.
listing
On the weekly
daily
chart,
how a symmetrical
in a major
move,
a triangle
a pattern
will
to the launch.
SWISS FRANC - In May,
from
look
1988 two things
trendline
rectangle
just
and/
materials.
GOLD - In January, chart,
a couple
chart.
on the weekly
12 months
to see if
only
daily
chart.
in retrospect,
is
18
price
situation
I will
on the
1988 the Swiss
pattern.
1985 low was being
At the
completed
a complex
continuation
same time,
the major
trendline
penetrated.
-PITA JOU3TZL/MAY
1989
--___-. T-TI-.
__-.---. ---_----..
-
- -.-- GOLD ,.
COb$X,
W,EEKLY
H.L.C.
.
.--A-.
4425
‘325
Y
---- - 1.4
L,. ,..l_..,~.l.I WF,
i 1 I I 1 L.-.I.1W?.., I L L I L A.1v3LL-J
SONDJFHAHJJASONDJFHAb’JJASONDJFHAMJJASO
5..-.-, :E 1 15 25 :7 JAk =:i.
20
26 1
1, 25 n.4; ’
8 22 IPR
6 I
20 WPI’
3 1
17 JU’.
1 1
15 JLI,
29 1
,3
PORK. -I eklyl
.BECCIES-..CME
high __~
idw
klclode
_____ ..____-
.-wEEKrui
of
nebrest
___ - ___ -.__ -. ._... - .---+
f&i?
i Pi ;g f 4
.- .-..-. .
-;6
.-
e -
:5
_.___ ..__ _ ^_._ - ...-.. -.
.
I 1 1. .1-l P!R
. ,. 1.12
ASONOJFHAMJJASONOJFHAMJJASO
21
___--.-
..--.--A
_-.-,
15 .
22
I
FUTURES _.__- CRB -. ~----‘--:-ig;L:y
II
’
__
._
PRICE . .r-..INDEX (!99!=100) . ; ‘*;p 1c.d -_0 .”..05e’
.--7.,
.1-r-&
----.
-.
-..
-j210
: - ----;2oc
1
23
----.
KANSAS CITY . ..._ .-... ---.-~.. - _-_-_ We e k 1, n 1gh
d Se”-
WHEAT iFiiG
r’e’5--Fbei
.-.
-.
.-.-.-_
..-..-
10 w -6Fj
__-_-
___-.
WEEKLY u
5
-
.---
3oc
--,+-----
-. I.~--
24
. -.--._~.
-.-
_
__ ______-
‘7 q: 260
PORK BELLIES Here
there
angle
- I don't
trade
bellies,
was a simultaneous
on the weekly
chart
August,
1988
but
completion
this
is
a classic.
of a symmetrical
and head and shoulders
tri-
on the
daily
chart.
COPPER - In
on the
daily
chart
Copper
completed
and a symmetrical
an ascending
triangle
triangle
on the weekly
chart.
CRB INDEX
- In
a symmetrical the
IX
weekly
May,
triangle
prices
Now,
let's
any
current
(Editor's
take
sumultaneously
CRB Index
daily
graph
in
at
completed
and a running
rounding
the
this
May,
monthly
turn. bottom
on the
weekly
chart.
markets
to see if
move.
writing
in mid-April
are likely
Sugar
chart,
and
chart
a major
there
A close
daily
on the
bottom
current
for
From late
a diamond
a major
a look
Note:
this
of
candidates
SUGAR - On
pletes
on the
breakout
through
Conference
year
the
flag
on
chart.
WHEdT - The
wheat
1988
is
by the near
establishes
propelled
we can identify
until
the MTA
to be some changes.)
forming contract
a minimum
an enormous above
objective
13.50
7com-
of 24.50.
25
CRB INDEX - On both
the
hibiting
a possible
7-month
a target
of 218.
sible
Note
multi-year
that
the monthly
and weekly
the
CRB is ex-
top pattern
CRB chart
with
displays
a pos-
charts
display
a head and
formation.
closing
and shoulders
The objective,
top.
to thank
me a handout materials. the
charts,
head and shoulders
D-MARK - The weekly
I want
handout,
a package.
26
and weekly
top.
SOYBEAN OIL - The daily shoulders
daily
you very
booklet
give
graph if
completed,
head
is 40.00.
I have brought
my presentation
and other
have a limited me your
shows a multi-year
listening.
much for
containing
But I only please
price
supply.
business
card
So, if
with
pertinent
I run out
and I will
of
send you
i-.-. _-.-
.--
I:,-;-. j,,;T --
-
_ ._ _--.. ! ,.r -ii*: ’
- -...-/ 111‘j,E
‘i.‘lP.‘BF
I
nGILY
I GLOBAL
I LICQ
I
0
,... ,........_..............................
/
SUGAR - MOtiTHLY
. . .
; 4,
____
---_.
--~-,-. ,L
- ----.!;I L
L.-F.
--_--C&S
I 1 : 01
J.~l?.‘W
]
WILY
DMARK
I GLOBAL
I LIM
I
- WEEKLY
. .. . ...
/ u= IL= I-=
:..i; , 532,: y,q:’
!--------~.I:i-~-.
.:
‘-“I:
-L-.--I-----
,-.
/ .:-
_
_. _.__
.‘, i.
-.
.._. - .---. ___... ..-
‘,,r:
-___.--.--. c ,1 : -L.-.--..
GPF,
JLL
OCT
JRl4 1989
&PI3
27
,
..-
-.
._ .’
,:..
>,$.
1:
;
_-A-
-
__._.. :
.,
--. ! ‘.
‘.r’I
J
ffiILY
I bLoBaL
)
l 0)
CRB INDEX - WEEKLY
I
I. ...........
.. . j
24ooo .
22OOC
, * :.:
IYEY
cm :i.
INDEX - DAILY .:
.d; 2ooDo
'CASH
;..
.:. .-; 2soot
I ; I
28
.,.....
. ..
. .._.....................
-2
I
COMMODITY
RESEARCH
BUREALI (1967=100)
FUT@E$
PRICE ! I
-.. --I
.-..
t
HEAD---
i
-
I
iDI a10
.~. -
- --
IINDEX I I
_---- II
ml ¶60 850
-H
SO0
R.S.
L.S.
---
----+---+/I60 160 140
29
I ,,‘I IIIi ......_............. : : l/j .. . .h: I .._. _. . . . .._............... -2LKy) ,I, 1 i .; I II 1$1 :. ,1 ‘11 cm jj/ I IlJ ‘1: -1 I III11 ],’ yjj,, ; :d . -~ ,i2 ,I ._.................
SOYBEAN OIL - WEEKLY
25 :
E 22 APa
6 1
20 MAY
3 ’
17 JUri
1 1
15 JUL
29 t
12 26 AUG 1
9 23 SEP
7 1
21 DC1
4 1
10 NOV
2 t
16 DEC
30 1
13 JAN
27 1
10 FEB
24 1
10 24 MAR
I
7 21APR
As an advisor, the has been profitable consistently rates
hotline every toward
service of his newsletter, THE FACTOR, year since its inception in 1981 and the top of the CTCR rankings.
As a money manager since late 1984, Mr. Brandt's composite futures account program is up 154% through December, 1988.
Ft'A JOUFNAL/MAY 1989
managed
31
