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[SynthTrader]

Comment on Charting:

I saw somebody on another board arguing that charting stocks is like "voodoo" and that nobody can ever forecast what a sock will do with any accuracy through charts. He argued passionately that anybody who can predict a stock should move to Las Vegas because they could make a fortune predicting with gambling. I wrote a long response, but it would of course be understood as "argument" or "criticism" and I'm not interested in engaging in discussion board battles. As a chart trader, his post seemed shockingly ignorant. Well, just for fun, I'll put my post here, where somebody like that will most likely never come across it, since this is a chart-based board, and has hardly any readers. hehe

My reply:


Charting is a very useful tool for stock trading, which is why every stock trading professional in the world uses them. If you really believe it is pure luck, then I have no idea why you would trade stocks. Maybe stick with investing, where if you hold long enough, it might just work out in your favor, but for trading, you need real tools. Things like charts and level 2 are essential tools for serious traders. Yes, it is true that you can best predict which way a stock will turn by looking at a chart that is based on what the stock has done under which conditions so far. A chart graphs facts (not guesses), and then you use a study of patterns and indicators that have historically performed in certain ways to best determine what will happen next. It is 100% accurate? No.

Think of it like weather prediction. Can a meteorologist predict the weather exactly, every single time, to the exact detail? No, but you better believe that they can get it very close most of the time. Why? Because they have programs and tools which study historical performance and compare it to what is happening now. Then they can accurately forecast what is most likely to happen next. Like with charts and stocks, the forecast is more accurate in the more immediate future, and becomes less predictable the further out, because you have less data with which to work when predicting longer term.

Think of it also like predicting who will win a football game. Sure, any team "can" win on any given day. Just flip a coin, right? But you'll have a lot more luck predicting who will win if you look at the performance history of both teams. If one team has stats that are at the top of the pack, and the other hasn't won a came in years, then the odds are you can accurately predict who will win.

Predicting or forecasting stock performance with charts is not "voodoo". When somebody thinks it is, then it is only because they lack a rudimentary understanding of charting. Heart surgery is "voodoo" too, if you're somebody observing from the outside who has no idea what the doctor is doing-- heck, it looks like slaughter. But it is a very precise and purposeful procedure. Just because somebody doesn't understand something doesn't make it "impossible" or "voodoo". If a person chooses to shrug it off as such, then they're simply content with their own ignorance, somehow managing to make themselves feel better that they're in the same league with those who have taken the time to study, practice, and learn. "Random luck" is a comfort to those who are too lazy to swing the odds in their own favor through education.