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Re: Beware The Chartist

Burt Blumert wrote an interesting article on LRC about chartists (or market-technicians).

While I certainly understand Mr. Blumert's sentiment, I don't entirely agree with him.

I think a major error that many chartists make is that they think they "know" what will happen next. When someone says they "know" Google shares will reach $500 tomorrow, I move on without taking that person seriously.

The reality is that the future is uncertain...and any of an infinite number of variables can alter the outcome.

However, if a chartist states that there is a "high probability" of a certain outcome, I see no wrong in making such a statement. There are individuals who make a very good living reading charts and making decisons based on them. People do tend to act a certain way in certain situations. I don't see how having knowledge of that can be a detriment. However, a good chartist (in my opinion) is one who undertands that the future is uncertain and all decisions are based on probabilities.

To me, this is not much different from decisions that are made in other lines of business. For example, let's say that after a hurricane, there is a high probability that people will want bottled water. A company like Wal-Mart knows this, and stocks up on thousands of bottles before the storm. There is no guarantee that Wal-Mart will sell these bottles...any number of events can occur to change the outcome. But based on past actions of individuals, Wal-Mart is willing to speculate.

A chartist makes decisions based on how people have acted in the past. So no matter how a person comes to their conclusion, I believe it's wise to accept that anything can happen and every move is a speculation...whether it be Wal-Mart buying bottled water, or Joe Trader buying shares of Apple.

So unlike Mr. Blumert, I'm not willing to dismiss all chartists.

However, if I hear someone say that they "know" what will happen next, I agree with Mr. Blumert wholeheartedly: Beware The Chartist.


Posted Oct 04 2008, 10:57 AM by ChrisR
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Trading System Development wrote re: Re: Beware The Chartist
on Tue, Oct 7 2008 1:31 AM

This is such an important issue. Many chartists will not back test an idea in order to arrive at an average.

If one can arrive at an average profit per trade (as long as the data is sufficient enough to smooth out the results), then one can even determine the number of trades one must take over a period of time to reach an objective, give or take for errors and surprises.

So in fact, there is more certianty in approaching a trading method for the purpose of reaching a goal than there is in 'knowing' where a market or stock is going to go, for the purpose of making a profit from it