The behavioral aspects of prices appear rational. In the great bull markets, the repeated price patterns and variations from chance movement are indications of the effects of mass psychology. The greatest single source of information on this topic is Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, originally published in 1841.’ In the preface to the edition of 1852 the author says:
We find that whole communities suddenly fix their minds on one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion….
In 1975, sugar was being rationed in supermarkets at the highest price ever known. The public was so concerned that there would not be enough at any price that they would buy (and horde) as much as possible. This extreme case of public demand coincided with the peak prices, and shortly afterward the public found itself with an abundant supply of high-priced sugar in a rapidly declining market. The world stock markets are often the target of acts of mass psychology. Many have taken their turn reaching incredible heights. only to drop suddenly at a time when buyers are most confident, to start the long climb up again. it should not be difficult to understand why contrary thinking has developed.
Charting is a broad topic taken to great detail; the chart paper itself and its scaling are sources of controversy. A standard bar chart (or line chart) representing highs and lows can be plotted for daily, weekly, or monthly intervals to smooth out the price movement over time. The use of large increments representing price levels will reduce the volatile appearance of price fluctuations. Bar charts have been drawn on logarithmic and exponential scales,’ where the significance of greater volatility at higher price levels is put into proportion with the quieter movement in the low ranges by using percentage changes. Each variation gives the chartist a unique representation of price action. The shape of the box and its ratio of height/width will alter subsequent interpretations based on angles. Standard techniques applied to bar graphs, point-and-figure charts, and other representations use support and resistance trendlines, frequently measured at 45-degree angles (and at various other angles in more complex theories). Selection of the charting paper may have a major effect on the results.
it may be a concern to today’s chartist that the principles and rules that govern chart interpretations were based on the early stock market, using averages instead of individual contracts. This will be discussed in the next series of articles. For now, refer to Edwards and Magee, who said that the similarity of an organized exchange trading, “anything whose market value is determined solely by the free interplay of supply and demand,” will form the same graphic representation. They continued to say that the aims and psychology of speculators in either a stock or commodity environment would be essentially the same; the effect of postwar government regulations have caused a—more orderly” market in which these same charting techniques can be used.’

A price chart is often considered a representation of human behavior. The goal of any chart analyst is to find consistent, reliable, and logical patterns that predict price movement. In the classic approaches to charting, there are consolidation forms. trend channels, top-and-bottorn formations, and a multitude of other patterns that can only be created by the repeated action of large groups of people in similar circumstances or with similar objectives. As of this date, quantitative studies relating the psychology of behavior to the reliability of chart formations have not been reliable. Traditional trading techniques found in the most popular stocks and commodities literature may themselves be the cause of the repeated patterns. Novice speculators approach the problem with great enthusiasm and often some rigidity in an effort to stick to the rules. They will sell double and triple tops, buy breakouts, and generally do everything to propagate the standard formations. In that sense, it is wise to know the most popular and well-read techniques and act accordingly.
Speculators have many habits which, taken as a whole, can be used to interpret charts and help trading. The typical screen trader (not on the exchange floor) will place an order at an even number, from 50 to $1.00 per bushel in the grains, 10 to 50 points in other products. This pattern far outweighs the number of orders entering the market to buy at odd numbers, for example the S&P at 863.50 rather than 863.35 or bonds at 105 16 32 instead of 105 19/32. The public is also known to enter into the bull markets always at the wrong time. When the major media, such as television news, syndicated newspapers. and radio, carry stories of outrageous prices in cattle, sugar, or coffee, the public enters in what WD. Gann calls the grand rush, causing the final runaway move before the collapse; this behavior is easily identifiable on a chart. Gann also talks of lost motion, the effect of momentum that carries prices slightly past its goal. A common notion of the professional trader who is close to the market is that a large move may carry 10% over its objective. A downward swing in the U.S. dollar/Japanese yen from 1.2000 to a support level of 1.1000 could overshoot the bottom by.0100 without being considered significant.