Charting

Nowhere can a picture be more valuable than in price forecasting. Elaborate theories and complex formulas may ultimately be successful, but the loss of perspective is rarely corrected without a simple chart. We should remember the investor who, anxious after a long technical presentation by a research analyst, could only blurt out, “But is it going up or down?” Even the most sophisticated market strategies must capture the obvious trends or countertrends. Before any trading method is used. the past buy and sell signals should be plotted on a chart. Those signals should appear at logical points; otherwise, the basis of the strategy or the testing method should he questioned.
Through the mid-1980s technical analysis was considered chart interpretation. In the equities industry that perception is still strong. Most traders begin as chartists. and many return to it or use it along with their other methods. William L jiler. a great trader and founder of Commodity Research Bureau, wrote:
One of the most significant and intriguing concepts derived from intensive chart studies by this writer is that of characterization, or habit. Generally speaking. charts of the same commodity tend to have similar pattern sequences which may be different from those of another commodity. In other words. charts of one particular commodity may appear to have an identity or a character peculiar to that commodity. For example, cotton charts display many round tops and bottoms, and even a series of these constructions, which are seldom observed in soybeans and wheat. The examination of soybean charts over the years reveals that triangles are especially favored. Head and shoulders formations abound throughout the wheat charts. All commodities seem to favor certain behavior patterns.’
In addition to jiler’s observation, the cattle market is recognized as also having the unusual occurrence of “V” bottoms. Both the silver and pork belly markets have tendencies to look very similar, with long periods of sideways movement and short-lived, violent price shocks, where prices leap rather than trend to a new level, The financial markets have equally unique personalities. The S&P traditionally makes new highs, then immediately falls back; it has fast, short-lived drops and slower, steady gains. Currencies show intermediate trends bounded by noticeable major stopping levels. while long-term interest rates have long-term direction.
Charting remains a most popular and practical form for evaluating commodity price movement, and numerous works have been written on methods of interpretation.