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

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,

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.

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
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DEUTSCHE
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MARK
HORItONTAL
TRADING
HIGH:
LOW

JUN

LINE
HO@X:
.5973
5290

1989

.b020
8: 20-3:
00
ON
ON

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....__....~__._.._....~.....~ . ..-

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DOLiAhS
EST

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03/30/09

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HEAD AND __..._.___

: .._._..........__.
. 57
SHOULDERS
* * .

._. ._ _ .
=i.:.
.
.

23 I 7 OCT21 I 4 N3\la

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DEC
16

301

JAN
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FEB
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IOMAR 24

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

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1988

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26

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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