Chartists believe that they can see patterns in charts which can predict future price movements.
- They like to superimpose straight lines over the charts, usually connecting a series of high or low points. Sometimes, they also have squiggly lines drawn on them as well.
- The chartists all have their own systems that they follow, normally based on the thoughts of a guru from a long time ago, or perhaps some strange pattern which exists in nature.
- And the jargon they use sounds very scientific. Expressions such as 'declining wedge' and 'fourth wave' suggest to outsiders that the systems are profound and well researched.
- The beauty for chartists is that they don't need to know anything about the market they're trading. They have no need to look at fundamentals.
You shouldn't get distracted by charts.
Chartists have no scientific basis
It is fine to look at the odd chart every now and then; it's the crazy theories that chartists use that you should be cautious on. Charts themselves are useful for a feeling of how far markets can move and how they react to news flow.
However, a few things are obvious about chartist theories.
- These ideas are not applied in the economics field which is always searching for theories on human behaviour.
- Nor do the theories have a true mathematical basis, and the chartists often do not have a mathematical background of any kind.
- How many chartists do you know who are successful? Probability would suggest that there are a few out there somewhere.
Chartists are the astrologers of the markets. They use a pseudo-science. At best, it is a clumsy way of following trends. Their methods are unsubstantiated, though extremely popular.
There is simply no reason, for example, why price moves should imitate the pattern of plant growth, star patterns or anything else.
Ref: 100 Secret Strategies for Successful Investing by Richard Farleigh
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