Hi team
not posting much here but I do like a little chart discussion, even if I am no chartist. But I do have other skills to add to the discussion that may be of some help to the newbies.
You often here comments about charts that appear to put them in opposition to the fundamenal analysis, as if they are two entirely different beasts, and one of the comments most frequestly made in support of this is that a good FA event will make the chart obsolete. The truth of this claim, and there is some truth in it, ends up making this TA/FA division seem even stronger, and if you follow this path you can be forgiven for believing in the dichotomy.
But it is a false dichotomy. TA does not stand in opposition to FA, even if the strong FA event seems to make the chart at the time seem worthless. But to get to the bottom of this apparent contradiction, we should commence with what a chart actually is, and in doing begin to unrael that one sticking point when the FA seems 'to blow the chart out of the water.'
Charts place prices and their range and volume in a graphical form, and a whole bunch of mathematical indicators built from these can be applied that assist in analyzing them. Here, I am trying to put charts in a nutshell, and in doing so probably sacrifice much of their description, but hopefully the purists will allow me this licence at this early stage. But there is something more that must be said about charts that is so fundamental that without it we could easily fall into the trap of placing them in opposition to the FA.
The simplified definition of charts that is the graphical expression of price range and volume, is showing what traders have actually bought and sold in a specific time frame, and this is determined by how they 'feel' about the product at that time. So it has been well said about charts that they reflect the sentiment of traders.
This sentiment of course is very complex as no two individuals think or act for the exact same reasons, even though we can certainly find commonalities in traders ambitions and tactics. The point is however, that trading is a very 'emotional' activity, and by that I mean trades are made and influenced by a broad range of reason and sentiment, some quite rational and some not, but as a whole it is a mental process that draws on the vast array of mental activity.
Price and volume range then is the result of all this mental activity, and the chart is nothing more than a picture of it. But just as we can think of the future, so too can charts display what that future may become, just like when we look at a road in the distance dissappearing over a hill, but knowing that it will continue down the slope on the other side, we can also read a chart - 'look left' - and then dertermine its future projectory, until of course that unexpected FA event arrives and sends the chart into a spin of one kind or another.
The new and radical projectory is not however making the chart obsolete, but rather only expressing the new sentiment of traders, and all the rules and indicators still apply, but of course must be read in light of the charts new direction.
Happy tea leaves and Happy Easter.
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