Thursday, June 29, 2006

The Reality of the Chart


Price ticks coalesce into bars, and bars into patterns, as the crowd writes its
emotional diary on the screen.

Successful traders learn to recognize a few
patterns and trade them. They wait for a familiar pattern to emerge like fishermen
wait for a nibble at a riverbank where they fished many times in the past.


Many amateurs jump from one stock to another, but professionals tend
to trade the same markets for years. They learn their intended catch’s personality,
its habits and quirks. When professionals see a short-term bottom
in a familiar stock, they recognize a bargain and buy. Their buying checks
the decline and pushes the stock up. When prices rise, the pros reduce
their buying, but amateurs rush in, sucked in by the good news. When
markets become overvalued, professionals start unloading their inventory.
Their selling checks the rise and pushes the market down. Amateurs
become spooked and start dumping their holdings, accelerating the
decline.

Once weak holders have been shaken out, prices slide to the level
where professionals see a bottom, and the cycle repeats.

That cycle is not mathematically perfect, which is why mechanical systems
tend not to work. Using technical indicators requires judgment.
cheers
courtesy:-come_into_my_trading_room

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