Developing Market Vision
Everybody knows an investor who seems to have “20-20 Market Vision”. They appear to be able to spot market trends long before the crowd. They buy at or near the bottom, sell at or near the top, and schedule vacations for the long, boring middle. How exactly does someone do it?
It’s tempting to feel that such investors have “inside information” but this is rarely true. Not only is truly viable inside information extremely rare, but it’s illegal to trade on inside knowledge. Besides, the “20-20 Market Vision” investors we know don’t necessarily trade in corporate takeover targets. In fact, they largely ignore market fads and front-page news. What then is the secret of their success? In a word, vision.
Your vision is a remarkable skill. No computer can yet match the human eye and brain in vision or visual pattern recognition. You can recognize friends you haven’t seen in decades, even though they may have changed over the years. You can recognize landmarks while driving, scarcely putting your conscious mind in gear at all. Your vision allows your brain to receive and interpret “data” almost effortlessly. What might take a computerized visual system thousands of data points and millions of calculations “to see,” you can see in a glance. This is what makes your vision so valuable.
How does this apply to the stock market? Quite simply that every fact about the physical, economic, and financial world can, in some way, be reduced to a mark on a chart. Thousands of facts, therefore, can be placed on a single chart, and the results are displayed as a picture. In turn, this picture – composed only of dots and lines – takes on a life of its own. You can look at a chart, not only for the individual items of data it contains, but more importantly for the patterns those data points create. One of the real values of charting is that more often than not, the patterns created by the data are much more valuable than the individual data itself. Patterns can reveal trends and relations long before isolated facts give you a clue.
This “How to” book will give you instruction and experiences in reading stock charts, seeing important patterns, and interpreting the situations portrayed by SRC Charts. Will the book make you into an ideal “20-20 vision” investor who never missed a top or a bottom? Maybe, maybe not. But there’s no question about it: the most successful investors are those who know the patterns and rhythms of the market, and can translate their knowledge into action. Whether or not the use of charts can correct your market vision to 20-20 is an open question, but you can certainly sharpen your sights.
As you read, you will encounter many chart examples – the charts of SRC. Look at them with some care. You’ll find that practice improves the connection between your eye and your investing mind. As you refer to the charts, make sure you understand the symbols and notations on them. Learn the patterns while you study so that you will recognize them when they appear in the market. Charts can be vital tools for all investors. Their skillful use however, requires much practice, and a great deal of judgment. This paper will make it easier for you to become familiar with these tools. You’ll find that they can pay off. Many people tend to think that someone who uses stock charts in his investment decisions must be a technician. A technician is often defined as someone who studies the phenomenon internal to the market – such as the patterns of price movement – in an attempt to forecast the future movement of the market as a whole, or of individual stocks.
Actually, the fundamentalist (briefly defined as one who bases his investment analysis and decisions primarily on basic factors, such as economic condition, supply and demand, labor, products, earnings and dividends) has just as much use for charts. The pictures they show and the amount of information they provide help to make the task of investment selection much easier. Our advice is don’t pay attention to these labels, but learn to use and profit from stock charts.
Before we explore the use of individual charts, let’s discuss the features that we believe you will find of most value in helping you make valid investment decisions.