Charting: The Newest Bubble?
Has Charting become the newest bubble or fad in the market to fleece a sheep following? The primary reason charting has become so popular is it eliminates the laborious task of trying to understand the various fundamentals of a security. Also charting takes out the emotions and the action provides more objective buy/sell decisions. That is of course as long as the chart trader avoids interjecting his own subjective analysis into his chart variables. Typically, charting is a day trading style of trading. Of course the technical analyst types attract a following by talking the long-term historical repetitious prophecies thus they get false volume they can capitalize on. False volume is interest in a stock that is not driven by a fundamental event.
Now a Fundamentalist deals with factual circumstance(s) that has or will affect supply of or demand for a stock or security. This accurate and realistic organization of due diligence (DD) is the basis for this particular investing approach. Fundamentalist are only concerned with the principles of supply and demand for the security, which include but not conclusive stock structure, buybacks, stock splits, 144, debentures, S8s, media events, acquisitions, silence periods, management profiles, industry, focus, business plan, etc. Thus this style or approach is the crucial gathering of as much information and data as possible to try and determine future investment gains.
A true fundamentalist will know the determining fundamental conditions or events that were the main reasons for any historical price movement. Another words, a fundamentalist can quickly identify the key price-influencing factors that caused buying or selling interest that came into a security. However, gathering fundamentals is very time consuming where a fundamentalist spends numerous hours gathering, confirming, verifying and evaluating the factors while organizing the data to form an investment profile for the future. Plus the cost of data gathering is not cheap. (eg. Telephone Bills)
Thus a fundamentalist is easy to spot, they are not a sheep or a follower because they can answer a question, not the insider questions or the "do you still beat your wife" type questions that can not be answered. Basically fundamentalists can discuss the fundamentals with their underlying basis being their personal organized data or Due Diligence. Thus they know exactly why they are in a security.
On the other hand, a Chartist is concerned basically with stock action like price movements, volume and thus trying to trade for small gains while other chartist do the same but also look for distinguishing historical patterns that repeat themselves. Facts and fundamentals have nothing to do with their technical analysis or charting except that reputable chartists accept the fact that fundamental supply/demand considerations, at the end of the day, determine the action and value of a stock they are trading.
However, chartist believe that the price at any given point in time represents an accepted value to all investors or traders, from institutions to small investors regardless of their chosen style in the market. (Fundamentals or Technicals) (Investing or Trading) The key premise of the technical trader is that the historical price action can be used to prophecize the action of the price in the future. Whereas charting traders are only concerned with the current action of the stock.
So basically a chartist can be either a current action chartist or a prochecizing chartist or both. The main difference is that a current action chartist doe not predict they just play the action and could careless about the technical analysis. Where the chart prophets of technical analysis make predictions like a clairvoyant who claims they can prophecize events from the stars. The humble factor is the main difference.
Basically there are three types of chartists and make no mistake about it chartist have low risk tolerances and are basically daytraders:
1. A Chartist Scalper Trader has an extremely low risk tolerance who buys and sells quickly to take advantage of small price fluctuations. Usually a "scalper" is ready to buy at the bid and sell at the ask price. The term "scalper" is used because these traders attempt to "scalp" a small amount on a trade. Typically they have already bought in (front loaded) before announcing the signal for buying to the Internet flock. Thus when the volume comes in they will scalp the momentum or rather fleece the flock. I have heard they are happy with 10% -20% scalp depending on the interest.
2. Chartist Pattern Trader combines pattern recognition techniques, tape reading skills and a few simple indicators to trade only those markets with the highest potential setups. The types create "templates" for interpreting market behavior and spotting opportunities. (eg. Head & Shoulder or Cup & Saucer patterns) These type have a low risk tolerance I have heard 20%-50%+ depending on the pattern and of course the interest.
3. A Chartist Position Trader have a medium risk tolerance who establishes a position (either by purchasing or selling) and holds it for an extended period of time. Of course depending on the action of the stock, they build a large position in the security playing the highs and the lows. I have heard will play 30% up but are looking for 100%-1000% returns.
Make no bones about it a lot of chartist are essentially "Day Traders" who try to go home "flat" at the end of the day by closing out all their positions. Although daytraders on average earn a small profit on each round trip transaction, they improve liquidity on a security because they compete with each other to take the other side of a public order. Anyone following blindly, especially a day trader is not very savvy. Chartists live in a world of a 5 minute chart range. Depending on the action they are in and out sometimes in minutes.
More and more people are being fleeced by charting especially if they do not have their own real time chart to follow the action of the stock. But even if they do they have to have the same variables established so they can track exactly what the Master Charter is putting. A lot of these day-trading chartists have accumulated followings. The followings, flock or sheep are starting to rebel.
The more people learn the more they realize a chartist uses a 5-Minute bar or candle chart to try to determine the Range of the Stock and therefore the volatility of the stocks they trade. It appears they look at 2 different range calculations. First, the 5 minute High to low range and second, the Daily High to Low range. They are trading on certain information with a 5-minute span so their posts are always delayed. Thus by default of a time derivative the chartists have the upper hand of buying low and selling high.
Please understand 5 minutes is crucial in being able to get in and out on the same plane as the chartist. Once they post and thus bring the people they have following them into the security, the next 5 minutes can be the difference in making a profit or loss. Whereas, the chartist could be getting out the flock is coming in. Couple of 5-minute surges and a chartist can make very good money "scalping" the stock thus fleecing the flock.
Most fundamentalists believe the chartist's concept that they can predict future price movements from just looking at charts as being nothing more than hype especially in the OTC market. Any possible repetition of a future price if not driven by a particular fundamental event is merely Hype (not Pump because it is not a lie what they post) for the chartist to Dump into the buying. (H&D) Also the chartist have the upper hand to Short and Distort.(S&D) Thus they can play the stock up and down fleecing the flock or scalping the price on both sides of the coin and action.
H&D = Gleeful Hype to Dump shares into the upward action of the stock
P&D = Pump (Lie) to Dump shares into the upward action of the stock
S&D = Short and Distort to buy shares into the downward action of the stock
Now the reason I am learning to chart is because it appears the only ones making any money on charting are the chartists off their flock. I have lost on nearly every chart recommendation I have bought into. This is why I feel the new bubble or fad of the Internet is charting is going to bust. The more I learn, the more I am discovering that the chartist scalp or fleece simple as that really.
One thing I have discovered is volume is the key to charting or any P&D, H&D, S&D, scalping whatever. Volume equals Interest is the first rule of supply and demand in the stock market. Basically, volume is needed to sell and no volume or little volume to buy. The art of charting is to kill the volume or have no volume to accumulate and let the accumulation break the band and thus the flock comes in. Like taking candy from a baby.
Is it possible that chartists performing this H&D, P&D, S&D and getting away with it use various explanations of baffling rhetoric and codes?
Are Chartists the new internet Bubble Prophets or Interdomus?
Interdomus = Internet Nostradomus
Hey this is my opinion and I could be wrong!
To be continued …
Gary Swancey
