Chart Reading

Chart analysts believe that :
(1) Chart pattern reflects everything that has or could affect the price movement. things that include economy, politic, government policies, market psychology, GDP, interest rate, currency movement, commodities, company business, etc.
(2) Chart pattern tends to repeat itself - market participants tend to act and react to events in a similar way consistently over time - past, present and future.












These books separately cover topics on chart pattern (head and shoulders, double tops, etc.) trend line, indicators, oscillator, volume, candlesticks pattern (Doji, shooting star,etc.), wave count, fibonacci ratio ..........etc.

With these tools, chart technicians try to identify possible chart patterns and attempt to project possible future price movement.

On hindsight it is usually easy to pinpoint chart patterns that have already formed and to point out the subsequent movements such as the KLCI chart as shown below.





But in real time it is very difficult and uncertain to determine the next price movement. There are always several possible outcomes. That is why several chart analysts using the same tools can have different outcomes over the same chart. It has to be that way for the market to exist. That is also why there are always bullish buyers and bearish sellers for the same stock at the same time to complete a transaction.

In early July we have this failed head and shoulders for Dow as shown below. A pattern can fail.


Those that have sold their stocks when 'head and shoulders' pattern was formed have to buy back their stocks within a week when Dow moved above the neckline.

Another example is the following stock. If the price starts to move up from its current position, it is an 'inverted head and shoulders'.

But if the price starts to drop lower from the current level to 44 cents and if it can move higher from the 44 cents level, it is a 'double bottoms' formation.

If it does not stop at 44 cents level and it continues to go lower, then it is something else.

If it is so difficult and uncertain in real time chart reading, why bother to spend times on it?

There are many reasons. The first reason is - you think you know what you are doing at that moment.