November 20, 2007

Chart Reading Cult

Filed under: Uncategorized — by TraderMade @ 7:19 am
Tags: , , ,


I have had a discussion in Pradeep Bonde’s post at TG’s blog. He stated that traders should burn their chart, because chart reading is a long enduring cult in the market. So then he advice traders to burn their chart. lol.

Well, i do agree with him that chart reading is wrong. I often called it as “technical analysis mumbo jumbo”. Drawing lines, discretionarily analyzing the market. They really are cult, imo. LOL. But don’t burn your chart.

It’s like many man died in an open combat, although they bring their weapons. it doesn’t mean that a soldier should throw away their weapon and burn it because of that fact.

In my humble opinion, the same goes for chart and price action in trading. It is not the chart and price action that is not useful. It is the lack of a system to follow that make traders fail. To make money in the market, one should first gather a sufficient amount of knowledge, then develop their system, then evaluate them, then measure the risk profile of the system to determine the proper gearing ratio to suit the risk acceptance of the traders/investors, then follow the system with discipline. Some key points in system development must be considered, especially avoiding curve fitting, optimization, etc.

And by doing all these sequence of system development and ended up by disciplinely trading a system, a price-action-only trader would make money in the market. No need to consider other information such as the earnings, interest rate, nor any other fundamental info. They are nothing but noises.

But yes, many people has fallen into the endless forest of chart reading. Chart reading is not the proper way of using the chart. Developing a system based on price action should be the answer. Do not burn your chart because one will go to the combat zone unarmed because he believes that the fundamental gods will protect him after his praying session. Earnings report, etc is not the instrument to be traded. Price is. Then, just trade the price.
Many money managers and hedge funds get into trouble because they burn their chart.

So, in short words: chart reading is the wrong way of using charts. Do not burn your charts. Use them properly. Do not chart reading… but instead: develop a price-action-only system. It works. At least for me.

Here is Mr. Pradeep’s piece. I couldn’t find the page in TG’s blog anymore, perhaps it’s been deleted to avoid the increasingly tensed discussion by the many angry members of the cult. lol.

Chart reading is a long enduring cult in the market. Beginner traders are quickly grabbed by the simplicity of charts reading techniques and chart patterns. They waste countless hours and years perfecting chart reading and making sub optimal returns. Many get so lost in the technical analysis jungle, that they never find profitable way out of it.

If chart reading was the way to success in market, there would be millions of trading millionaire. After all how much time does it take to read a book on chart reading and chart patterns , probably a day. It is so easy according to practitioners of the esoteric arts that if you are of average intelligence you should master it in few days. Once you do that lo and behold, you will have trading success. The reality is far from it.

All that chart reading and chart patterns tells you is very simple and basic market framework like trend line, support and resistance. If you try and trade with such a simplistic framework, you are unlikely to make much money.

Path to profitability in trading starts by unlearning your technical analysis framework. Burn your charts,learn new market paradigm and your profits will increase.

So, be carefull when ‘experts’ tell you something. They aren’t necessarily always right.



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