Richard W. Schabackera Market Master
Richard Schabacker is widely considered to be the ‘father’ of technical analysis. Throughout the 1920s and 1930s he was appointed to highly prestigious editorial positions with influential publications, including being the youngest Financial Editor of Forbes magazine and Editor of ‘The Analyst’, a weekend section of the New York Times.
Schabacker’s reputation was not confined to his expertise as a technical analyst. He was a highly respected market forecaster and a successful trader. He also wrote three large books prior to his death at the young age of 36. These were: - Stock Market Theory and Practice (1930);
- Technical Analysis and Stock Market Profits: A Course in Forecasting (1932);
- Stock Market Profits (1934).
Today most serious technical analysts own a copy of Technical Analysis of Stock Trends (first published in 1948). Robert Edwards and John Magee wrote this classic. Few realise that Richard Schabacker was Robert Edwards’ uncle.
Schabacker effectively picked up from where Charles Dow left off. He defined ‘technical market action’ as “That aspect of analysis which is based upon phenomena arising out of the market itself, to the exclusion of fundamental and all other factors.”
(Schabacker, R. W., Technical Analysis and Stock Market Profits: A Course in Forecasting, Pitman Publishing, London, 1997, page 6, first published in 1932.)
His definition set the scene for modern technical analysis, defining it as a broader discipline than simply ‘charting’. His definition would include the study of such areas as how human behaviour affects markets, comparative relative strength and position of the market.
Stock Market Theory and Practice (1930)
Richard Schabacker’s first book consisted of more than 800 pages. Most of it was devoted to providing more ‘behind the scenes’ information. He provided information on the role of stockbrokers, the key stock exchanges, how traders’ orders reach exchanges, and he discussed how brokers handle orders.
It was the remaining 250 pages of the book that left no doubt in readers’ minds that the author was a pioneer in the field of technical analysis. In this section Schabacker documented important charting patterns in great detail. He also discussed trends and support and resistance.
Technical Analysis and Stock Market Profits: A Course in Forecasting (1932)
It was Schabacker’s second book that earned him the title ‘the father of technical analysis’.
In the 1930s it was common for courses to be written and sent to students one chapter at a time. Each chapter would be paid for individually and the student would have access to the course’s author if assistance in mastering the coursework were required. The method of producing such a course meant that production costs were high and print runs were limited to around 1,000 copies. This is why so few original courses are in existence today.
This book is best described as a comprehensive course in charting patterns, in particular reversal patterns. For each pattern he described: - Its shape;
- The factors that can be relied upon;
- The weaknesses of the pattern;
- Volume relative to the price movement.
The reversal patterns he described included head and shoulders; the rounding turn; symmetrical, right-angled, descending, ascending and inverted triangles; broadening tops; diamond formations; rectangles and island reversals.
Schabacker then turned his attention to continuation patterns – flags, pennants, rectangles and triangles.
In the remainder of the book he describes break-away, continuation, common and exhaustion gaps; the horn formation; the zig-zag movement; the trend; trendlines; channels; support and resistance lines and levels; volume of sales; false moves and shake-outs.
Technical Analysis of Stock Market Profits consists of 12 lessons, or ‘studies’ as Schabacker called them. These were: - Study I - Technical Approach to Stock Trading.
- Study II - Important Reversal Formations.
- Study III - Important Reversal Formations – continued.
- Study IV - Important Reversal Formations – continued.
- Study V - Minor Reversal Formations.
- Study VI - Major Continuation Formations.
- Study VII - Miscellaneous Intermediate Patters and Phenomena.
- Study VIII - Trend Line Action.
- Study IX - Support and Resistance Levels.
- Study X - Measuring Rules and Formations.
- Study XI - Use of Long-Term Charts, Averages and Groups.
- Study XII - Trading Tactics.
It is beyond the scope of this article to discuss the many topics covered in this book, however to illustrate how easy to read the book is, the author will reproduce part of one small section on the uses of trend lines:
Practical Uses of Trend Lines
…So trend lines serve a double purpose. While they last they define the line of continuation in a movement, and when they are broken they serve notice of a probable reversal and advise us to forget the old lines and start searching for new ones to define the new trend.
(Schabacker, R. W., Technical Analysis and Stock Market Profits: A Course in Forecasting, Pitman Publishing, London, 1997, page 269.)
In total, this advanced course consists of more than 450 pages of classic technical analysis wisdom.
Stock Market Profits (1934)
The focus of this investment classic is the individual’s skill in acting on trading set-ups. Specifically, the book covers charting techniques and market forecasting, and goes on to show that the more an individual takes control of what he or she is doing, the greater the financial return.
Stock Market Profits consists of 11 chapters:
I. Introduction.
II Cycle of Business and Securities.
III Long Swing Investment.
IV Short-Swing Trading.
V The Fundamental Factors.
VI The Technical Factors.
VII The Proper Use of Stock Charts.
VIII Market Psychology.
IX Common Sense and Foresight in Trading.
X Diversification of Risk.
XI Market Counsel – Good and Bad.
Conclusion
Edwards and Magee, in their Foreword to Technical Analysis of Stock Trends, state about their classic book:
Part One is based in large part on the pioneer researches and writings of the late Richard W. Schabacker. Students of his ‘Technical Analysis and Stock Market Profits’… will find in the pages of this section much that is familiar and except for the illustrations, only a little that is really novel.
(Edwards, R. and Magee, J., Technical Analysis of Stock Trends, John Magee Inc., Boston, 1987.)
Despite this glowing tribute to Schabacker’s book, few students of Edwards and Magee’s book would have read Schabacker’s classic works. This is, to a large extent, because his books were out of print for many years.
Fortunately, this has all changed. Donald Mack, a well-known investment book expert and experienced trader, has spent two decades trying to find, and get back into print, investment classics. This has led to a resurgence of interest in the writings of Richard W. Schabacker and a series of accolades from well known contemporary trading and investment authors. These include:
Today’s technician has all the modern computer methods of interpreting price and buying trends. No matter how sophisticated they get, all technicians must get back to basics and there is no finer way of reviewing those time-honoured technical principles, rules and precepts than with the original version of Schabacker’s ‘Technical Analysis of Stock Market Profits’. (Ralph Acampora, well-known Wall Street analyst.)
If you think you know all there is to know about technical analysis as it pertains to charting and chart trading than you must read ‘Technical Analysis and Stock Market Profits’ by Richard Schabacker. This original work by the founder of technical analysis will teach you many valuable things that you didn’t know. (J. Welles Wilder)
(Acampora and Wilder cited by Mack, D. in Schabacker, R. W., Technical Analysis and Stock Market Profits: A Course in Forecasting, Pitman Publishing, London, 1997, pages xviii to xix.)
Finally, it is interesting to note that Donald Mack, who spent 20 years reviewing investment classics, describes Schabacker’s Technical Analysis and Stock Market Profits: A Course in Forecasting as “the finest work ever produced on conventional Technical Analysis”. He uses the word ‘conventional’, as he believes that W. D. Gann “on the basis of the knowledge he has passed down to us, was and still is the finest analytical mind that has ever been produced in speculative markets anywhere”.
On the subject of W. D. Gann he adds:
Ever since his passing in 1955 efforts have been made to denigrate his name and his accomplishments (certainly an easy thing to do when his distracters only have the ability to take in the surface meanings of his writings, totally lacking the realisation of the depth of meaning underneath these same writings). He did not make it easy for those who choose to delve into his work, something he could not do and would not do.
(Mack, D. in Schabacker, R. W., Technical Analysis and Stock Market Profits: A Course in Forecasting, Pitman Publishing, London, 1997, pages xviii to xix.)
Needless to say, the author of this article, who has studied the works and original charts of W. D. Gann extensively, totally agrees with Donald Mack’s comments about Richard W. Schabacker and W. D. Gann.
Richard Schabacker and W. D. Gann were, without any reasonable doubt, market masters.
This article was reprinted, with permission, from the Australian Technical Analysts Association Journal, January/February 2004.
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