Although I place very little faith in the predictive abilities of stock-price charts, I can't claim to ignore them entirely. Quite apart from the simple curiosity of sampling the opinion of other market participants, there is the simple elegance of the chart itself. The one above is generated by Sharescope, the investment database that I've used for some years now. It shows the recent decline of the Euro vs. the pound, which seems to have accelerated since sinking below 0.855 on December 12th.
I should point out that the chart is much more detailed on screen, and the package as a whole does a lot more than drawing elegant charts. If I can claim any aesthetic credit, it would be for customising the chart itself - there are many, many options.
Below is another example, also of EUR/GBP, but over a longer period. We might conclude that the Euro is merely towards the lower end of the trading range that began in January 2009, but that it might easily sink to 0.8 before finding any support.
Incidentally, I meant what I said: I really don't take this stuff seriously. No-one should trade using any of this stuff; I reckon there's about a 50:50 chance that the Euro will follow my interpretation of these charts; as far as I can tell, the EUR/GBP rate is random.
1 comment:
I agree that you should not take these chart patterns seriously. Except insofar as other people do.
Support and resistance lines are good places to start worrying. However much money you have in the market you should never worry until something is about to change and that is where support and resistance come into their own.
When price comes into the zone prices often give up on their trend and stick. An argument has broken out between those who believe the support will hold and those who think it will be broken. Sometimes it is many days before it is resolved and no-one knows who will win. But you should worry if you hold a position.
Of course there are those times when there is no argument and the bounce or the break is instant so you have to stand ready to act.
If you have money in the market you are always at risk of losing. You have made a judgement and it is gratifying if you are right. But you will not be right for ever and looking at those charts warn you of the moments when luck may desert you.
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