Trading Systems and Methods, + Website, 5th Edition

CHAPTER 3

Charting

It is very likely that all trading systems began with a price chart, and we come back to a chart whenever we want a clear view of where the market is going. Nowhere can a picture be more valuable than in price forecasting. Elaborate theories and complex formulas may ultimately be successful, but the loss of perspective is easily corrected with a simple chart. We should remember the investor who, anxious after a long technical presentation by a research analyst, could only blurt out, “But is it going up or down?” Even with the most sophisticated market strategies, the past buy and sell signals should be seen on a chart. The appearance of an odd trade can save you a lot of aggravation and money.

Through the mid-1980s technical analysis was considered only as chart interpretation. In the equities industry, that perception is still strong. Most traders begin as chartists, and many return to it or use it even while using other methods. William L. Jiler, a great trader and founder of Commodity Research Bureau, wrote:

One of the most significant and intriguing concepts derived from intensive chart studies by this writer is that of characterization, or habit. Generally speaking, charts of the same commodity tend to have similar pattern sequences which may be different from those of another commodity. In other words, charts of one particular commodity may appear to have an identity or a character peculiar to that commodity. For example, cotton charts display many round ...