Some time ago a Reader emailed me with some Questions about how I learned to muck about with Charts and I have reproduced much of it here and added a lot to it. Apologies to that Reader if I did not ask your Permission to do this but I have been very careful to remove any references that might give away your Identity and you seem like a reasonable Chap so I am sure you will be happy that I share this around. And I am confident you will appreciate the improvements I have made to that original text !!
Hi - great to hear from you and thanks for the feedback about the Website etc. I find it very helpful to get Emails (although I might not respond immediately !!) like yours because it often opens up Ideas and Topics for me to write Blogs on and suchlike. It is surprising how often a question makes me think about how I do things - because a lot of how I Invest has become ingrained and automatic and it sometimes never occurs to me exactly how I do things until I have to think about it !!
I would say my knowledge of Charting has sort of evolved over many, many years. I remember in the early days I used to read David Linton in Shares Magazine (he had a page) and they always have had a Charting Page with different 'Chartists' over the years (some are good, some are bad, but it all helps learn what is going on). Investors Chronicle also does the same with its ‘The Trader’ column which is currently filled by Nicole Elliott. I think Shares used to have Zak Mir and he is interesting and I used to see him on some obscure TV Channels like ‘The Money Channel’ I think.
I remember I used to see David Linton on Bloomberg talking about Charts and it used to fascinate me - if you google David Linton I think he has a website (it might be as Updata) and has videos and stuff. I used to subscribe to a quite expensive Charting Weekly email he did but I learnt a huge amount from it. You can see some of David Linton’s stuff here where he does a Weekly look at the Charts - it‘s very good:
The only small critique of David Linton that I will offer up is that he has a ‘thing’ about Japanese Ichimoku Charts - I have looked and looked at these but it just never makes any sense. Bit like Elliott Waves - I just can’t see the wee devils !!
Oh, and I also find ‘Point and Figure’ Charts pretty useless. Each to their own and all that. But if you don’t understand an Indicator/tool fairly quickly, then you will probably never get it.
I think getting ShareScope helped me immensely - I somehow managed to set up the Screens I use and have stuck with things like RSI and MACD etc. for years. Because I consistently and repeatedly use these same Indicators I guess I have got a 'feel' for how they move and what they predict. I think there is a lot to be said for just getting a decent Charting Package (or using something like the link just below which is free) and simply using it over and over and over so that you steadily gain by experience:
I also use the ADVFN App constantly to help understand what is going on Technically on a Particular Stock or Index. I have my Charts on the App set to ‘Candlesticks’ and again this incessant use helps to drive Pattern Recognition into my extremely Primitive Caveman Brain. There is a Blog link at the bottom about this.
The Indicators and Patterns I use and stuff have been things I have tripped over at various times in the last 18 years and I am at the point now where if I ‘discover’ a new one then I get a good idea if it will work or not. For example, I recently heard about Heiken Ashi Candlesticks on a Podcast which Nicola Duke did - I could tell it had potential (especially when a mate confirmed that it looked useful) and I set it up on ShareScope on one of my Chart Settings and have used it ever since. I won’t bore you with the details because if you look at almost any of my Weekend Charts Blogs then you will most likely see some good examples of Heiken Ashi Candles being used in The Real World.
Whilst on that tangent, let me just stress that my Weekend Charts Blogs usually include some explanations of how the Indicators work so it is perhaps worthwhile looking at these.
However, I might add that any new Indicators etc. that you bring to your Charting / Technical Analysis (TA) approach/routines should be merely incremental changes and there is a severe danger that you keep introducing new ‘things’ and end up confusing yourself and overcomplicating the whole game. Keep it simple. Don’t go ‘Looking for the Holy Grail’ - there is no perfect Indicator that works every time and you must get comfortable with the concept of ’Fuzziness’.
I can’t stress this enough. As with pretty much everything to do with Investing you are always best served by keeping things simple and ‘Cutting out Noise’ - both from a Fundamentals perspective and when interpreting your Charts. Robbie Burns the Naked Trader is very strong on this whole ‘Noise’ thing and he uses Charts in an extremely simplistic way. But my goodness it is effective.
A huge leap forward for me was getting a good understanding of Candlestick Charts - the breakthrough was reading 'Candlestick Charting for Dummies' - you can buy a copy in Wheelie's Bookshop on the website. That is a good starting point really - it has a section in the back which combines the Candles with some normal Indicators like RSI, Moving Averages, MACD etc. I find these things have very strong predictive powers - check out this WheelieBlog I did a while back:
Candles for Dimwits is probably the only Book which I look at almost every week - there are some handy Diagrams at the front of the Book inside the Cover which are helpful when you see what you think is a Candle Signal but you are not sure.
Of course as with anything on TA nothing is 100% exact in the Predictions it throws up - however, Charts can point out the ‘Path of Least Resistance’ and help you stack the probabilities of a Trade/Investment working in your favour. In fact, individual patterns have back-tested Probabilities which you can look up somewhere on the Interweb no doubt but after a while you get a pretty good sense of which Indicators work well and which are not so great. For instance, I love the 13/21 Day Exponential Moving Average ‘Golden Crosses’ and ‘Death Crosses’ - these are remarkably reliable.
It might be an idea to buy 'Technical Analysis for Dummies' - that is a simple book and might be a better starting point than the Candlesticks.
Since starting the whole WD experience, I have been exposed to Jason @stealthsurf on Tweets and he does a superb Website called Trading Bases - there are many Free Videos on it and you can learn a lot from how he does things. His Website is here:
Another thing you can do is read my ‘OPAY Buy Rationale Blogs’ from way back in December 2014, I think - you can find them in the Blog Archive but there is a link down below. I did a long series of Blogs which incorporated all of my Technical Indicators and how I use them and what they mean. In addition, if you click the 'Category' 'Technical Analysis' on my Blog Page you should find loads on TA stuff.
If you continue to read my Blogs, especially the Index and Stock ones I put out most Sunday Nights, then you will probably pick up a huge amount by osmosis. And on top of this I tweet a lot about what I am seeing on various Stock Charts on a regular basis (especially after about 10.15pm at night) and these might help your understanding if you look at the Charts to see what I am droning on about.
I am deliberately going to repeat myself now - there are 3 main Principles which are worth using a Branding Iron on your head for (don’t try this at home !!):
I hope that helps, feel free to ask more questions,
Here are the OPAY Blogs:
And here is one on ‘Cutting out the Noise’ which I am secretly quite proud of but I don’t tell anyone (this is the Final Part and it includes Links to the earlier bits):
ADVFN App is in this one:
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.