Introduction to Chart Reading

Excerpt from the chapter:

When it comes to price charts, most traders hold one of two views. They either dismiss charts as fancy presentations of historical data with no real analytical value. Or they give chart reading too much weight, believing that all they need is a price chart in order to perfectly predict the future of a market.

The truth lies somewhere in the middle. Charts are one of the best tools available for analyzing a market. They present an unbiased and accurate history of price changes without any of the spin that comes from company representatives, Wall Street analysts, and their ilk.

Charts don’t tell the whole story, of course. They cannot provide every type of information that a trader could possibly use to assess a market, like the other players’ intentions or the cost of their holdings. But they do offer that rarest of commodities: the facts. And that means that, against all the bluster of the markets, a price chart can be your anchor.

If you know what to look for.

Learning to read charts can be confusing. And often, consulting books on technical analysis—with varying indicators, charting styles, and the like—can make the process more confusing. What you need is something that cuts through the clutter. While many websites detail different indicators and various chart patterns, no one has produced an incisive guide on how to effectively analyze price charts. I hope to remedy that dearth with this book: A clear, concise summary of the most important elements of chart reading.

Once you have mastered these elements and are able to interpret a chart correctly, you can go on to expand your chart-reading skills in a number of ways. You can explore more complex chart patterns to expand your basic tool set. You can add indicators and other data to your charts and learn to incorporate them into your decision making. And you can explore concepts like price structures (e.g. market profile and STOPD) and breadth analysis to further enhance your precision in market timing.

But first, you need to master the basics. This book aims to help you do just that.