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“Technical Analysis of Stock Trends” by John Magee and Robert D. Edwards is the first book to present a solid methodology for analyzing the predictable behavior of financial markets. These are some important facts we can learn by studying the book.

Technical Analysis and Charting

Prices discount a wide variety of variables

Changes in the price of financial assets reflect a wide variety of fundamental variables and influences such as fear, greed, deceit, gullibility, broker’s need for income, money managers’ need for performance, economic estimates, monetary liquidity, manipulation, fraud, economic cycles and beliefs about them, public mood, and the indomitable human need to be right.

Charting and the balance between Supply and Demand

There is a saying on Wall Street to the effect that “there is nothing wrong with charts, the trouble is with the chartists,” which means it is not about the chart itself but its interpretation.

It doesn’t matter what creates the supply and the demand, the balance between them is all that counts. The technical analyst’s task is to read the flux in supply and demand mirrored therein. Ask yourself constantly, “What does this action mean in terms of supply and demand?” Judgment is required, and perspective, and a constant reversion to first principles.

General types of charts

Technical analysis uses three general types of charts: arithmetic, logarithmic, and semi-logarithmic charts.

• Logarithmic charts using logarithmic scales on both axes
• Arithmetic charts using linear scales on both axes
• Semi-logarithmic charts using logarithmic scale on one axis and a linear scale on the other

For manual charting semi-log remains the superior scale.

Important Chart formations

Chart formations are in short, the language of the market, graphical representations of the unchanging human behavior in complex multivariate situations. The inerasable fingerprints of human nature made graphic.

Basic Points Regarding Charting and Trading

1. Chart fluctuation may indicate an important change in the supply-demand balance, and thus signify consolidation or reversal
2. Volume should follow the trend, and increase on rallies and decrease on reactions. But this rule should be used judiciously; Generally, a notable increase in activity may signify either the beginning (breakout) or the end (climax) of a market move
3. Trends and trendlines may determine the general market direction and detect any changes. Occasionally, trendlines can be used for “get in” and “get out” purposes in short-term trading
4. Support and resistance may indicate where a move is likely to slow down or end and where it should pay to take a position. Support/resistance studies are especially useful in providing “cash-in” or “switch” signals
5. The general characteristics of the various stages in the market’s great primary Bull/Bear cycles should never be lost to view. So, keep your perspective on the broad market picture. The basic economic tide is one of the most important elements in the supply-demand equation for each asset
6. Major Bull/Bear markets have recurred in fairly regular patterns throughout all recorded economic history, and there is no reason to suppose that they will not continue to recur for as long as our present system exists

Short-Term Price Patterns

These are some important short-term patterns:

• One-Day Reversals
• Selling Climax
• Spikes and Gaps
• Runaway Days
• Key Reversal Days

The One-Day Reversal (Basically Bearish)

One-day reversals appear quite often at market tops of assets that have a relatively small floating supply and have had a strong advance with the participation of the public.

• One-day reversals do not carry major trend implications in most cases
• Bearish One-Day Reversals develop rarely in the stock market indices
• Bullish One-Day Reversals (Selling Climaxes), on the other hand, are found quite often in the stock market indices at the end of panic declines

Describing the One-Day Reversal

One-day reversal usually begins with a day of unusually high volume, far exceeding the daily turnover of any session of the past months. It comes after a fairly long and steady market advance (or a similar decline). Frequently, even the opening sales are so far beyond the previous day’s closing level as to leave a large gap on the chart. The session ends with a final burst of activity that puts the price at the close right back where it started the day. There has been an enormous amount of activity, and quotations may have traversed intraday in a percentage range of 2 or 3%, but the net change from the previous day at the end of trading is very small.

The Selling Climax (Bullish)

A Selling Climax is a bullish pattern that occurs within a single day. Selling Climaxes are produced by distress and occur at the end of rapid declines which exhausted the margin reserves of many speculators. The next day sees an extensive rally right from the opening gong, as it is immediately apparent then, if not late the preceding day, that there are no more distress offerings.

Spikes Within the Day (Bearish)

Spikes within the day refer to a situation where there is an extremely wide-range day at the end of a long bull move which closes down after making unusual new highs. The Spike might also be a One-Day Reversal. The importance of the spike is highlighted by

1. The strength and length of the action which preceded it
2. The close of the day, whether up on a Bottom or down on a Top
3. Its prominence when compared to the days before and after it

Runaway Days (Bullish/Bearish)

A Runaway Day refers to a situation where there is an unusually long range in the chart, often opening at the low and closing at the high, or vice versa for bear runaways. While the agile speculator may jump on this charging train and realize a nice scalp, it is the following days that reveal the true significance. Nice consolidation and continued volume will confirm the day as significant while a tapering of volume and rounding or volatile pullback will call into question its validity.

Broadening formations (Bearish)

Broadening Formations are often identified during the development of Symmetrical Triangles and represent “doubt” awaiting clarification. After studying the charts, we may conclude that Broadening Formation is definitely bearish.

Major Reversal Formations

These are some key reversal formations:

1. Head-and-Shoulders and Complex Head-and-Shoulders
2. Rounding Turns
3. Symmetrical Triangles
4. Right-Angle Triangles
5. Rectangles
6. Double and Triple Tops and Bottoms
7. One-Day Reversal

Observations

• Head and Shoulders, Rounding Turns, and Triple Tops/Bottoms are signaling Major Market Reversals
• Symmetrical Triangles, Right-Angle Triangles, and Rectangles occur more frequently at Intermediate Market Stages
• Head and Shoulders, Rounding Turns, and Right-Angle Triangles give also indications before they are completed as to which way the price trend is likely to proceed from them
• Symmetrical Triangles and Rectangles give no such indication and rather signal Consolidation or Continuation rather than Reversal
• One-day reversal appears typically after out-of-control moves, up and down

■ Charting and Key Reversal Patterns based on the book “Technical Analysis of Stock Trends” by Magee and Edwards

G.P. for TradingFibonacci.com (c) 19th of February 2026