Monday, September 26, 2005

Throw Away your 10Qs: Charts 101

I remember the first investment bank I worked at.

The managing directors bought and sold securities based on strictly on their chart patterns.

They lived and breathed charts like there was no tomorrow, scanning charts all day, picking away at breakway gaps, sliced 50 day moving averages, and the coveted triple bottom.

So it came to be that I studied charts nightly after those grueling days at the office.

On the weekends, there I was again, poring over charts at Starbucks, isolating the next momentum-driven winners.

In a bull market, the easiest way to make money (not that it's ever easy) is to buy a fundamentally strong company with a stellar chart to accompany it.

To a neophyte, an inverse head and shoulders or a cup with handle may all sound like a bunch of jargon, but guess what: such jargon is Wall Street's greatest secret.

If I was put on an island, forced to pick stocks in order to eat, and only allowed to utilize one and only one investment strategy or tool to help me out, I would pick technical analysis.

Technical analysis is the examination of past price movements to forecast future price movements.

Technical analysts rely almost exclusively on charts for their analysis.

Investing is part art, part science and the technician believes that it is possible to identify a trend, invest or trade based on a trend and make money as the trend unfolds.

Because technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends.

As technicians believe it is best to concentrate on what rather than why, technical analysis is, in my opinion, an investment approach that requires you to be as tough as nails.

As hope is never part of the equation, technical analysis is by no means for the faint of heart.

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