Making A Chart

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If a person has an interest in technical analysis, it would seem logical that the individual would want to start studying charts.  There are two ways to do that: seek advice or do it yourself.  The person looking for advice could subscribe to a technical analyst's newsletter and follow the author's recommendations.  The goal then becomes finding the newsletter that resonates with the individual with the hope of making at least enough money to pay the subscription fee.  The do-it-yourself type must start by making a chart of the stock or the market in which he or she is interested.  Whether it is a bar chart, a point and figure chart, a candlestick chart or one of the many other types available, picking the form of chart is the first decision that must be made.  The type of chart to use is a personal decision, much like the financial metrics selected by a fundamental analyst for his or her stock screen.

The computer has made charting a lot easier.  The computer literate chartist has several free stock chart websites from which to choose.  Some of the top sites include StockCharts.com,  Yahoo Finance and Bigcharts.com.  Google Finance also provides technical charting, but it is a little more difficult to navigate the site.  This link to YouTube will explain how to use the technical tools at Google Finance.  It is a clunky video without sound, but you should be able follow the steps shown to get to Google charts on the particular stocks you want to follow.

The old fashion way of charting involved pencil and graph paper with daily notations of the price movements of the chosen stock or market. Justin Mamis in his book, The Nature of Risk, Stock Market Survival & The Meaning of Life, had the following to say about making charts:

You may not believe this, or want to accept it in this computerized era, but once you start keeping even a handful of charts yourself you'll see (and feel) the difference.  The very nature of how the stock is behaving rises to the surface via your pencil's posting the volume and the pattern.  Of course, it's not perfect; it isn't even close to perfect.  Sort of like Churchill's backhanded compliment about capitalism, it's just better than anything else, and certainly better than nothing.  What happens is that the market "talks" to you as the language of its ticks becomes recordable on your chart paper.  Keeping your own charts is the way the market's language can be heard most directly.  To paraphrase a more important statement:  All the rest of technical analysis is commentary.*

Author's emphasis in bold.

Mr. Mamis repeated his advice about keeping your own chart in his later book, When To Sell, Inside Strategies for Stock Market Profits.  Reminding his readers that charting did not take all that much time out of their day, he wrote:

It's taken you far longer to read this than it will to keep up with these statistics each day.  We repeat: Don't rely on someone else to do what will take you so little time.  You'll find you get a much better feel for what is actually happening by keeping your own hand and mind in.**

Regardless of which type of chart the individual decides to use, the goal remains the same: see what is happening with a stock or a market and then decide how to turn that information into a profit.  We will continue our study of technical analysis in the next blog. 

* Excerpt from The Nature of Risk, Stock Market Survival and the Meaning of Life by Justin Mamis, copyright 1991, page 221

** Excerpt from When To Sell, Inside Strategies for Stock Market Profits by Justin Mamis, copyright 1994, is used with the permission of Mr. Mamis and Fraser Publishing Company

Comments are always welcome.