E Reading Charts With A Fat Crayon

A good subtitle for this article might be "Give Yourself Permission Not to Be the Perfect Investor". Too many of us get caught up in creating the perfect analysis but by the time we finally get there, it is usually too late to profit.

The debate continues on whether navigating the financial markets using charts is an art or a science. Those of the latter belief work with equations, trading systems, and models. Those of the former belief and I venture that most investors fall into this category, use basic charts, a trustworthy source of opinion, and their own experienced eyes.

Let's leave the rocket science to others. For most of us, simple charting tools work just fine whether you use them to complement the fundamentals or all by themselves.

Just as some writers use journalistic license to bend the rules of grammar and facts, some chart watchers selectively ignore various chart points to attempt to create a meaningful and, more importantly, useful analysis. Call that "technician's license." They do not get hung up on pennies when they are trying to invest for dollars.

Strict interpretation of technical charting rules - rocket science - can yield academically correct analyses, but they may only loosely describe what is going on in the real world.  What more do you need than your eyeballs to tell you that in a bull market, prices on the chart move higher over time?

Assessing whether the market is in a bull or bear trend is more than half the battle. If you know if there is a bull market in progress, then you can take your list of sound companies and buy their stocks on weakness. If you know it is a bear market, then you might limit yourself to special situations where the fundamentals are so compelling that the rest of the market is not an influence.

Many traders spend huge amounts of time poring over their charts to determine idealized buy points. And to find them, traders draw horizontal lines connecting points on the chart that represented price lows in the past. The theory is that if demand surged at that price before then it is likely to do so again.

1 2
View single page >> |

Disclosure: No positions in anything covered.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.