Does charting actually work?

Question

Just to add, charting will not be used as an entirety, but in conjunction with Fundamental Analysis too.

Answer 1

Charting tells you what has already happened - there's no guarantee that any trend will continue.  But as long as there hasn't been some major change, that info is a decent guide, just not a guarantee.

Answer 2

If you look at it scientifically, there is quite a bit of evidence that neither work.

An accessible book that explains this is "A Random Walk Down Wall Street" by Malkiel.  

Answer 3

Yes, it does. But in my experience money management (knowing how much money you will put at stake, and when to cut a losing trade), is the more important factor. In other words, good exit rules are more important than the entries.

Answer 4

The argument of charting (or TA - Technical Analysis) vs. fundamentals is an ongoing one with supporters for both side. However I find many people migrate to the middle...where I am.

I believe that fundamentals are always sound in the long run. No one can argue that gold and oil will have higher highs in 5 years, due to global and industrial need for both.

However I have found that fundamentals are long term based ideas. Technical analysis is much more accurate for the short and mid term. NOTE however that TA IS NOT A PROJECTION TOOL. It merely reflects probable outcomes based on current ratios and readings.

In my experience in the market, different strategies merits different tools. So for my RRSPs, my decisions are all long term, and my investments are based on fundamentals. However in my investor account, the activity is daily.

In my investor account I choose stocks in markest with long term up/down trends (based on fundamentals) and use TA to trade in the direction of the overall trend to hedge my risks. Furthermore, I use stop losses to ensure I don't get caught with a market shift, which can happen at anytime and CANNOT be predicted.

TA is a powerful tool, and the $$ in TA traders accounts don't lie. But the trick here is stops. The ones who make money are not smarter or better at reading charts, but the are more efficient money managers and use stops more pro-actively to mitigate losses. You will always win and loose. The key is to minimize losses and maximize gains. TA can help you identify cases where the gains will be large, but one must always cover ones rear for "dumps" via stops.

Good luck and happy trading.

Answer 5

more then you could ever imagine. and anyone who tells you no loses money in the market

Answer 6

warren buffet spent nearly a decade trying to be a chartist.

he has said that the day he finally realized that he was wasting his time was when he had at a chart upside-down by mistake, and got the same answer that he got when he finally realized his mistake and turned it around.

just think:  this is maybe the second-richest man in the world.  and if he hadn't wasted so much time with charts, he could be twice as rich right now.