| CHAPTER
8:
The Use of Charts as Guides And Indicators
Page 1
MANY interesting queries have been received regarding the
use of charts. The following is a letter representative of
most: “Referring to your figure chart explained in Volume 1
of the Magazine of Wall Street, I have found it a most
valuable aid to detecting accumulation or distribution in
market movements. I have been in Wall Street a number of
years, and like many others have always shown a sceptical
attitude toward charts and other mechanical methods of
forecasting trends; but after a thorough trial of the chart
on Union Pacific, I find that I could have made a very
considerable sum if I had followed the indications shown. I
note your suggestions to operators to study earnings, etc.,
and not to rely on charts, as they are very often likely to
mislead. I regret that I cannot agree with you. You have
often stated that the tape tells the story; since this is
true, and a chart is but a copy of the tape, with
indications of accumulation or distribution, as the case may
be, why not follow the chart entirely, and eliminate all
unnecessary time devoted to study of earnings, etc?”
(Continued after the box of related
articles.)
Let us consider those portions of the above which relate to
Tape Reading, first clearly defining the difference between
chart operations and tape reading. The genuine chart player
usually operates in one stock at a time, using as a basis
the past movements of that stock and following a more or
less definite code of rules. He treats the market and his
stock as a machine. He uses no judgment as to market
conditions, and does not consider the movements of other
stocks; but he exercises great discretion as to whether he
shall "play" a chart signal or not. The Tape Reader operates
on what the tape shows now. He is not wedded to any
particular issue, and, if he chooses, can work without
pencil, paper or memoranda of any sort. He also has his code
of rules - less clearly defined than those of the chart
player. So many different situations present themselves that
his rules gradually become intuitive - a sort of second
nature evolved by self-training and experience.
A friend to whom I have given some points in Tape Reading
once asked if I had my rules all down so fine that I knew
just which to use at certain moments. I answered him this
way: “When you cross a street where the traffic is heavy, do
you stop to consult a set of rules showing when to run ahead
of a trolley car or when not to dodge a wagon? No. You take
a look both ways and at the proper moment you walk across.
Your mind may be on something else but your judgment tells
you when to start and how fast to walk. That is the position
of the trained Tape Reader”. The difference between the
Chart Player and the Tape Reader is therefore about as wide
as between day and night.
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