Most commodity traders incorporate technical analysis into their trading strategies, so I had to include this book among my reviews, even though the technical research is mainly based on stocks.
Encyclopedia of Chart Patterns, 2nd Edition by Thomas Bulkowski is one of the most thorough books written on the explanation of technical analysis, with data to backup (or to question) the validity of each technical chart pattern. The author has done an almost incomprehensible amount of research and presented it in an easy-to-read reference encyclopedia that should be on every trader’s bookshelf.
Technical Chart Patterns
A good part of technical analysis deals with chart patterns. Thomas Bulkowski provides a detailed analysis of 53 chart patterns. Many traders have likely heard of some of them – double tops, head-and-shoulders, triangles, wedges, etc. You may have used these chart patterns in your commodities trading or maybe you have read that they are profitable strategies. Now, you have some statistical data to backup the fact that they work or don’t work.
This research was conducted using stocks in both bear and bull markets. Commodity traders can also apply these results to commodities - Technical analysis is technical analysis. It rarely matters if you apply it to different markets or different timeframes. I would expect that if someone did a similar study on commodities, the results would be very similar.
Thomas Bulkowski gives a great description of each technical pattern that includes multiple charts, so you can see real world examples of each pattern. Not all patterns will look exactly the same, so Bulkowski explains the characteristics of each technical pattern and how some formations can be more favorable than others.
Presentation of Data
Encyclopedia of Chart Patterns, 2nd Edition contains the most concise historical research on technical patterns I have ever seen – period. Thomas Bulkowski is also a trader, so he knows what other traders are looking for in their research. He made certain to collect the proper information in order to make the studies relevant for real world traders.
The presentation of the technical analysis studies are what make this book a must-have for traders. You can literally keep it on your desk or bookshelf for whenever you need to research a technical chart patterns.
The author shows you the number of patterns he found for each study and the overall success rate of each. He also compares how well they performed in bull or bear markets. You will also get advice from the author on how to best trade each pattern.
Overall, Encyclopedia of Chart Patterns, 2nd Edition by Thomas Bulkowski is an excellent resource for traders. Most books on technical analysis will give you an overview of a few patterns, but they fall short of providing the evidence on the validity of each technical pattern. The author goes above and beyond the call of duty with this book. The book does cost more than the average trading book, but you get what you pay for. This book is 1,000 pages of excellent research that should prove its value for years to come.