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CLEAREX.MARKET / FOUNDATIONS · 04 / 17
FORBES — NEW YORK
THREE PEAKS — ONE NECKLINE — ONE SIGNAL
THE FATHER OF CHART PATTERNS
RICHARD SCHABACKER
SCHABACKER
PATTERNS — HOW CROWD PSYCHOLOGY BECAME GEOMETRY
1899 — 1935
PORTRAIT → DOT MATRIX
SCROLL
HEAD & SHOULDERS — THE MOST FAMOUS REVERSAL ··· TRIANGLE — A SQUEEZE ··· FLAG — A BRIEF PAUSE ··· DOUBLE TOP — A SECOND ATTEMPT ··· GAP — AN ABANDONED LEVEL ···HEAD & SHOULDERS — THE MOST FAMOUS REVERSAL ··· TRIANGLE — A SQUEEZE ··· FLAG — A BRIEF PAUSE ··· DOUBLE TOP — A SECOND ATTEMPT ··· GAP — AN ABANDONED LEVEL ···
02 — THE ROADMAP

PSYCHOLOGY
BECOMES A PATTERN

A young Forbes editor, an unfinished manuscript, two heirs — this is how chart patterns got their names.

1899—29
THE YOUNG FORBES EDITOR

He entered New York financial journalism and, before turning thirty, became financial editor of Forbes. Hundreds of hand-drawn charts crossed his desk each day — and in them he saw a recurring geometry.

1930
THEORY AND PRACTICE

«Stock Market Theory and Practice» — over 700 pages. It carried Dow's theory a step further: beyond the trend of the index, specific SHAPES recur — and they can be recognized and traded.

1932
A SYSTEM OF PATTERNS

At the height of the Great Depression «Technical Analysis and Stock Market Profits» appeared. Head-and-shoulders, triangles, flags, double tops, gaps — for the first time a unified taxonomy, complete with trading rules. Technical analysis became a profession.

1935
A ROAD CUT SHORT

He died at just 36. His system was unfinished — but all his notes and manuscripts passed to his brother-in-law, Robert Edwards. The work did not stop.

1948
THE CHARTIST'S BIBLE

With John Magee, Edwards published «Technical Analysis of Stock Trends» — where head-and-shoulders, the neckline and the measured target found their final form. The book has stayed in print for over 75 years.

03 — THE MOST FAMOUS PATTERN

HEAD & SHOULDERS

Three peaks — the middle one higher, the two sides lower. The most famous case of crowd psychology turned into a shape.

THE PSYCHOLOGY MECHANICS

THREE ATTEMPTS — ONE RETREAT

01LEFT SHOULDER — A NORMAL ADVANCE, BUYERS CONFIDENT
02HEAD — A NEW HIGH, BUT ON WEAK VOLUME: THE LAST CHARGE
03RIGHT SHOULDER — FAILS TO EVEN REACH THE PRIOR HIGH: THE FORCE IS SPENT

The pattern itself is not the signal. Only when the neckline joining the two lows breaks does the story confirm.

HOW THE PATTERN ASSEMBLES

SCROLL DOWN TO ASSEMBLE THE PATTERN

Each peak is a phase of crowd feeling. Follow the four steps and watch a reversal be born.

LEFT SHOULDER

A healthy advance, a healthy pullback — it still looks like a normal trend.

HEAD

A new high — but on weak volume. The pullback deepens to the prior low.

RIGHT SHOULDER

The third attempt fails to reach the head — proof the buyers' force is spent.

THE NECKLINE BREAKS

The line joining the two lows breaks downward — the reversal is confirmed. Target: measure the head-to-neckline distance downward.

LEFT SHOULDERLEFT SHOULDERHEADLEFT SHOULDERHEADRIGHT SHOULDERNECKLINELEFT SHOULDERHEADRIGHT SHOULDERNECKLINEHTARGET = HTHE BREAK
VOLUME FADES WITH EACH PEAK
04 — PROOF

2008 — A COLLAPSE SEEN IN ADVANCE

In 2007 the S&P 500 drew a textbook head-and-shoulders: 1,555 in July → 1,576 in October, but on weak volume → just 1,440 in May 2008. When the neckline broke, the pattern completed and the index fell to 666.

LS — 2007.07 · 1,555 HEAD — 2007.10 · 1,576 RS — 2008.05 · 1,440 THE BREAK 666 — 2009.03 NECKLINE
REAL DATA — S&P 500, 2007–2009
05 — TODAY

INSIDE EVERY SCANNER

01PATTERN-RECOGNITION ALGORITHMS FIND HEAD-AND-SHOULDERS IN MILLISECONDS
02THE 1948 BOOK IS STILL IN PRINT TODAY — MORE THAN TEN EDITIONS
03THE MEASURED TARGET = THE ORIGIN OF MODERN RISK/REWARD

Schabacker's taxonomy is now training data for neural networks — the work of spotting patterns has moved from the human eye to the GPU, yet the geometry is unchanged.

ACTIVE DRILL · MEASURE THE MOVE

PROJECT THE TARGET

The neckline just broke. Schabacker's rule sets the target by measuring — head-to-neckline, projected down from the break. Click where you think price is headed, then check your eye.

THE MEASURED MOVE
H = head − neckline. Target = neckline − H, projected down from the break.
Click the price level you expect the move to reach.
06 — LEGACY

1899—1935

Schabacker gave the patterns their names. Edwards and Magee turned them into a book. Today everyone who looks at a chart thinks in their language.

← FOUNDATION_01 — CHARLES DOW ← FOUNDATION_02 — ELLIOTT ← FOUNDATION_03 — HOMMA FOUNDATION_05 — DOJI MANGA → OPEN THE CHART — CLEAREX.MARKET →
FOUNDATION_04 — RICHARD SCHABACKER ··· 1948 — EDWARDS & MAGEE ··· A PATTERN IS THE FOOTPRINT OF CROWD PSYCHOLOGY ··· CLEAREX.MARKET ···FOUNDATION_04 — RICHARD SCHABACKER ··· 1948 — EDWARDS & MAGEE ··· A PATTERN IS THE FOOTPRINT OF CROWD PSYCHOLOGY ··· CLEAREX.MARKET ···
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CLEAREX.MARKET / FOUNDATIONS · 04 / 17
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