Why I Hate Charting...

As you can see from the title above, I am not a fan of charting, or technical analysis in general. I’ll always have a look at a chart when I am investigating a stock, but I will never make a trade decision based on technical indicators. There are two main reasons for this, the first of which is that I have never taken the time and put in the effort to really understand how to apply this style of analysis. I have always been somewhat dubious of the efficacy of charting, in spite of the innumerable books, blogs and media on the subject, but I find it hard to believe that trades that occurred yesterday/last week/last year will dictate the direction of a move in a stock tomorrow/next week/next year.  

The second reason for my aversion to technical analysis is derived from the saying “a picture is worth a thousand words”. Many people are looking for the path of least resistance when it comes to investing, and it is easier to look at a chart, apply some indicators, and presto! Decision made. I find that this methodology is particularly prevalent in young men in the broking industry, and a lot of the methods that they are using are essentially data mining. There are so many indicators that can be applied in even the most basic charting package, that you can almost always justify both a buy and a sell on a particular stock at any given time.

I write this all with the caveat that I am sure there are dedicated professionals who are diligently working away on their charts, and understand exactly what they are doing, however, I find that all too often; it is a smokescreen to justify an investor not wanting to put in the research time.

I find myself walking past people with their market data up, and more often than not, they have dedicated up to half their monitor real estate to a chart with so many lines on it, that it looks like one of those magic eye puzzles I used to have when I was a kid – you need to stare at the screen and walk away slowly, then maybe it will come into focus. However, I rarely see these same “market experts” reading other sources of research, and certainly never have they got the latest annual reports or financial statements open.

This is understandable, researching company statements and financial reports is boring, for most people, and they are complex – even with an extensive financial education, and years of experience, they are difficult to interpret. However, if you are using the same charts and the same indicators as everyone else in the market, don’t be surprised when you come to the same conclusion as everyone else, and end up losing your money.