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Burn your charts


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.

Stock go up or down for a reason. Unless you understand and master those reason and have the larger framework as background, no amount of chart reading is going to make you money. Chart reading and chart patterns is about tactics , not strategy. Chart reading can help you make tactical entry, exit, stop decision, but beyond that it is of no use and you may not require that also if you have sound strategy. Unless your basic stock selection strategy is based on sound logic and proven market anomaly, no amount of chart reading is going to make you 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.

35 Comments:

john bougearel said...

for what reason do stocks go up and down?

what paradigm do you use to determine if a stock will go up or down

Anonymous said...

Please post something useful instead of this sort of rubbish.

Anonymous said...

Perhaps the "throw a dart" stock picking method would help, after you burn all your books and charts, of course.

Pradeep Bonde said...

john
Earnings, earnings acceleration, earnings momentum, analysts earnings projection trends, earnings surprise, sales , sales acceleration , sales surprise, margins trends, price momentum and other things.

Anonymous said...

this from the guy who shorted DRYS at 60 a few months ago only to watch it run to 130.

And then he doubled up the short at 100....


any moron reading a chart could have told you that was going to end in disaster.

tell us more about 'sound stock selection'...

john bougearel said...

Earnings are only the denominator to a valuation equation.

Does not the numerator matter.

Anonymous said...

Ah, Mr. Bonde! You don't like your charts "shaken not stirred?"

It's been said, "Charts are a great way to predict the past."

I think it depends on one's timeframe. Charts can identify momentum stocks for short-term trades. Charts can identify value stocks that are basing for longer-term trades.

Charts can be used to anticipate what chart readers are going to do, too. LOL.

Anonymous said...

what? no 3 pm sell off today...
I took my profits and ran before 2pm, in fear of some 2 pm selling kicking in....must be some big block trades going on today... anyway I'm glad to have my profits tucked away overnite...

Also, I somewhat agree w/ pradeep, charts aren't everything. If you charts say buy because a stock is going up, but earnings are below estimates or the fed raises rates.... you're probably going down, not up, at least temporary.
At least that's my take on it.

Anonymous said...

You're either an idiot or you're sincere and simply ignorant. I can't believe TG allows this sort of bullcrap on her blog. Burn your keyboard and spare us the rest of your ruminations based on lack of knowledge.

john bougearel said...

anon,

Teeg does not take kindly to personal attacks

Anonymous said...

WOW! TG actually allows you to post this rubbish? I trained her better than this in th enot so distant past.... how soon she forgets.

What is Technical Analysis but all the Fundamental Information reflected in the most important ingredient - Price Action which in turn produces Price Patterns. This is a result of the Fundamentals and what you failed to recognize - Human Behavior. There you have it - the secret to making millions and I told you in one simple paragraph now please crawl back into you hole of crap and stay there!!!

Brian said...

pradeep, perhaps i am not understanding your post correctly...to throw charts away seems very close minded. whether you want to use technical analysis as a stand alone tool or to COMPLIMENT your fundamental work technical anaysis can be a very valuable tool. Profiting in the markets requires us to understand the participants motivations so we can gague what they might buy (found with fundamentals like those you mention) and technical help us with the timing. I hope i am misunderstanding your post otherwise i cannot continue to provide a link to your blog from mine (this is brian from alphatrends)

"Now I would be looking at a series of 300 plus day on positive side, reversal in stocks up 25% or more in month, and extreme readings of around 200 on stocks up 25% in 65 days to signal possible reversal."

Isn't this technical analysis? They are your words. Where is the mention of fundamentals here?

Anonymous said...

Brian,

Nice post/follow-up.

I agree charts are a very valuable tool among many tools. To have Pradeep suggest you burn them is simply irresponsible and a disservice to the readers of this otherwise very good financial blog (thanks TG). Unless Pradeep can recant this foolish post, I will be unsubscribing stockbee from my RSS reader.

Anonymous said...

successful "chartists" trade the same stocks as successful "fundamentalists". They just utilize different methods to find the same trades and different language to describe their reasoning. No one is pure chartist or fundamentalist, but who cares how they call you, when you have working method that consistently brings profits.
I am sure that Pradeep didn't mean to say that technical analysis is useless in any case. He just highlighted that during bear markets there is no support, as there is no resistance during bull markets. Can anyone argue against that? Now, it is true that sometimes previous zones of resistance are not current levels of support. Why is that? When a working method get known by too many participants it stops to provide the same performance. That doesn't mean that the anomaly stops to exists. It just changes its form.
Don't follow your initial emotions and take off Pradeep's link from your blogs just because he experessed a different point of view. When someone has different opinion doesn't mean that he's wrong and you are right. Respecting other people's opinions doesn't mean agreeing with them. The purpose of Pradeep's article is not to confront. It is to open door for an intelegent discussion, which would ultimatelly lead to mutually agreeable conclusion.

AJ said...

People, let go the emotions! Obviously both the fundamentals + technicals(charts and such), are important. Haven't we all seen a stock run up too much in anticipation of good earnings only to drop like a freaking meteoroid from the sky even after beating and raising numbers.. Just a quick look at such chart would atleast make a disciplined trader take profits and not risk it into the earnings unless one is just plain ole gambler that just wants to risk it all. And from Pradeep's POV, haven't we all seen how a worst looking chart gets a huge move in the north side after a better than expected earnings report?. Just thought this may clarify the issue at hand.

I did notice one thing though, there's a big cry baby here that posts here without disclosing their identity (anonymous I meant) - get a life!

Trading Goddess said...

To the Anonymous person who said "I trained her better than this in th enot so distant past.... how soon she forgets."

Please identify yourself to me.

Everyone knows I have never gone to chart school! And no one, and I mean no one has ever trained me.

Brian said...

pradeep,

again i defer to your words
"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. "
couldnt you say the same about fundamentals? Do we just read a fundamental analysis book one afterooon and become a millionaire? of course not, it is the psychology of what motivates people to buy and sell and the answer is clearly BOTH fundamentals and techincals. please let us know that you understand that. perhaps i am being defensive, but only because technical analysis has served me EXTREMELY well and i would feel lost without it.

whether your primary analysis technique is based on fundamentals or technicals, trading is an art, not a science and no one, NO ONE , has ever completely mastered the markets, we are all continually learning so please dont close your mind. Technical analysis has allowed my accounts to be at all time highs yesterday when the markets got smashed and again today when the markets soared. i rarely respond to these types of debates (if you want to call it that) but everyone please just keep an open mind and respect how other people choose to engage the markets. I have always been impressed with with your work and have spoken highly of it on my blog, now i feel let down, i hope it isn't a stunt to create a controversy and draw traffic to your blog, i think you are more intelligent than that.
brian

Anonymous said...

AJ,

Your profile is empty. So "AJ" is just as good as Anonymous...hyporcite.

There is nothing personal here...Pradeep's post was simply stupid and reckless. And IMO, stupid and reckless posts detract from the standard of excellence that TG has established here.

Anonymous said...

I think some are taking Pradeep's words too literally when he says burn the charts. In his post he does recognize the value of charts in identifying trends, resistance and support, as well as entry and exit points and stop points. Maybe he did mean literally throw out or burn the charts, but what I'm reading is his opinion is a suggestion that one use this basic chart info in conjunction with the larger framework of clues from economic indicators, mop crowd behavior,sponsorship, market manipulation etc.

Anonymous said...

I love charts and I love Pradeep's style.
I have done well with some of his strategies and hope he ignores all the unkind remarks made to him

Trading Goddess said...

Hello everyone,

I apologize for my absence today. As you are all aware, there are times when the "real world" demands that you visit.

Anyway... I appreciate everyone's comments and thoughts herein.

I would like to just mention my own personal opinions.

Many of you know my "trading style" and know that I utlize my "blender" strategy to produce eclectic results for long term holding.

And even though I positively know that the past is no guarantee for future results, I do take a chart into consideration when doing my dd.

Pradeep... I see you just returned from vacation. This post seems to be a bit harsh for someone to be considered refreshes, relaxed and rejuvenated. I may be interpreting it incorrectly... oftentimes the "dryness" of typing can lead to misunderstanding...

You are aware that I admire you and respect your market experience. :) But truly... I do not believe that this post of yours is offering "corrective criticism" or indepth advice and opinions as to how to be better than a "chartist".

?

I loved the pic you chose for this post btw, and yes, I still call you friend.

:)

rds1955 said...

You want to have two strategies..A Buy strategy and a Sell Strategy...
Choose your stocks according to their fundamentals.. then buy using the technicals (Charts) for the proper entry and buy point..

You should only have two distinct reasons for selling a stock..(1) It has meet your expectations and criteria according to your overall investment plan, and it's time to sell. (In other words, you purchase stocks with a plan. You set a limit on how much you expect it to make, and when it does that, you get out...) and (2) The technicals (Charts) are telling you it's time to get out..so there you have it.. BUY - Fundamentals 1st for the best stocks, Technicals for a proper entry point..SELL - Technicals 1st and foremost..They will tell you when things are going bad long before the Fundamentals do..

Pradeep Bonde said...

When people react with emotional arguments , that is a sign of deeply held beliefs.The person has invested lot of time and effort in convincing himself or herself about their beliefs and are closed to alternative explanations and different beliefs.

My proposition is well stated :
All beginner traders are attracted to chart readings. There is a "belief" that chart represents reality and there are people who believe and act on that "belief". There are thousands of books, website dedicated to that "belief".There is a cult dedicated to propagating that point of view and the cult followers do not like their "belief" to be challenged.

Chart readings and technical analysis is about tactics not basic strategy.

Once upon a time even the most prestigious Wall Street firms had a Chart Reader or Technical Analyst on their payroll. All of them were sacked or let go off 6-10 years ago.

Why because increasingly academic studies and quantitative techniques started to answer the question what makes a stock move. Factor models to explain stocks move were developed and tested and this advanced the understanding about what really drives stocks behavior, price moves, and valuations. Large scale recruitment of quants by smart money brought scientific thinking to the art of speculation.

Speculation is much like any other field where established practices were studied, scientific thinking was applied and the field progressed. Much like medical field where today we have progressed from voodoo doctors and practitioners of esoteric medical beliefs to modern medicine.

Those who completely and blindly believe in technical analysis and chart reading in many cases are ignorant of that alternative explanation for markets behavior or in most cases so emotionally invested in their current beliefs that they don't even want to know about it.

One of the most difficult task for most people is to change existing set of beliefs and assumptions. If you have an open mind, you will look at world beyond technical analysis and find many more profitable strategies.

For the record I have never been short DRYS.

Anonymous said...

Pradeep,

Try opening your own mind to the possibility that your original proposition was NOT "well stated".

Not one follow-up comment suggested that TA and charting was the be-all, end-all; it is simply one set of tools among many. No cults here.

Anonymous said...

my posts keep getting deleted.
Goddess
Did you get my post re finding one site that rates funds? Somewhere that one could just enter the fund ticker and get some sort of rating? Am I dreaaaaammmming? Or just putting my lazy side out there for all to see. I just think it would be no different than IBD and all the other sites giving stocks a rating.
Perhaps I'm just cheap and could get this service if I paid for it somewhere?
thanks

Anonymous said...

if charting worked there would be millionaires...

this is the problem.

Charting works very well but you have to have the discipline to follow a system with an edge. Most traders end up going off-system, don't have a system, or trade too large. There are a thousand different ways to go wrong -- even with a good system.

But anyone going around telling other people what NOT to do doesn't get it. Every trader must find a system that works for him/her. I'm still not sure what TG's system is -- if she has one. Most traders these days are just permabulls because it's worked for so long -- there's been no reason to assume the markets won't go down ever again.

If this changes, lots of blogs like this will eventually be abandoned as permabulls continue to shed profits on dips that never undip.

I use a chart based system. I am about 99% cash right now. So we'll see what happens.

There is a time not to trade and that's another thing most traders can't do.

Anonymous said...

it is difficult to day trade this market right now ...at least for me

Anonymous said...

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 usefull. 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 ammount of knowledge, then develop their system, then eveluate 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, optimisation, etc.
and by doing all these sequence and ended up by 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. trade the price.
many money managers and hedge funds get into trouble because they burn their chart.
i welcome further discussion on this opinion. thanks :-)

Anonymous said...

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.

Trading Goddess said...

Xena,

No, I did not get that comment, and I did not delete it. Blogger was having some problems for a while there - maybe that is what caused it.

What is the site?

Trading Goddess said...

To the Anon who said "I'm still not sure what TG's system is -- if she has one."

May I ask how long you have been "reading" me?

Trading Goddess said...

Darma,

Thank you for stopping by my blog as well as taking the time to post your comment. It is apprecated!

I agree that the more tools a person can utilize, the more successful they will be.

Happy trading to you!

And feel free to stop by more often! :)

Anonymous said...

I really dont know what to say, but thats the biggest nonsense i have read and i agree with Darma. how can look for a entry without chart reading?? How can you tell me when a chinese stock is in a top parabolic move unless you ' chart read'... thats a bad post, specially when people are successfully trading this way, maybe he does not, but i do and thats whats matter...WHAT I NEED TO DO IS BURN THE POST..

Anonymous said...

No, pls do not burn the post as Hector said. This turns to be an interesting discussion. :-)

Anonymous said...

i 'll take back the 'burn the post' part of my comment, however, i stick with my strong fundamentals, ranked, and with a proper, not extended chart pattern(im sorry, i chart read) and with a upswing price- action movement compared to previous days or months( i chart read again)....
How can you compare volume to previous days, up volume and down volume unless you read the charts...tell a doctor he dont need to look at the charts or x rays, and tell him to perform a brain surgery and guess what he is going to say...
Example...Lets look at history and lets look at ENRON....my question is....Did you know ENRON had excellent, top fundamentals when it was going down....and guess what the chart was saying.....you know the rest....fundamentals and technicals have to agree and even fundamentals dont matter, just price action...lets look now at the banks/ financials / mortgages sector....what the fundamentals says are they good?...what the chart says...

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