INTERPRETING THE BAR CHART

The bar chart, also called the line chart, became known through the theories of Charles H. Dow, who expressed them in the editorials of the Wall Street Journal. Dow first formulated his ideas in 1897 when he created the stock averages for the purpose of evaluating the movements of stock groups. After Dow’s death in 1902, William P Hamilton succeeded him and continued the development of his work into the theory that is known today. Those who have used charts extensively and understand their weak and strong points might be interested in just how far our acceptance has come. In the 1920s, a New York newspaper was reported to have written:
One leading banker deplores the growing use of charts by professional stock traders and customers’ men, who, he says, are causing unwarranted market declines by purely mechanical interpretation of a meaningless set of lines. It is impossible, he contends, to figure values by plotting prices actually based on supply and demand; but, he adds, if too many persons play with the same set of charts, they tend to create the very unbalanced supply and demand which upsets market trends. In his opinion, all charts should be confiscated, piled at the intersection of This same newspaper may have repeated this idea applied to program trading after the stock market plunge in October 1987. Nevertheless, charting has become part of the financial industry, whether the analyst is interested in the fundamentals of supply and demand or pure price movement. The earliest authoritative works on chart analysis are long out of print, but the essential material has been recounted in newer publications. If however, a copy should cross your path, read the original Dow Theory by Robert Rhea;’ most of all, read Richard W Schabacker’s outstanding work Stock Market Theory and Practice, which is probably the basis for most subsequent texts on the use of the stock market for investment or speculation. The most available book that is both comprehensive and well written is Technical Analysis of Stock Trends by Robert D. Edwards and John Magee. it is confined entirely to chart analysis with related management implications and a small section on commodities. For the reader who prefers concise information with few examples, the monograph by W.L. Jiler, Forecasting Commodity Prices with Vertical Line Cbarts, and a complementary piece, Volume and Open Interest, A Key to Commodity Price Forecasting, can still be found. A valuable recent addition is jack Schwager’s, Scbwager on Futures: Technical Analysis (Wiley, 1996), the first of a three-volume set.