Forex

Chartists study market action, trying to identify recurrent price patterns.
Their goal is to profit from trading when patterns recur. Most chartists work
with bar graphs showing high, low, and closing prices and volume. Some
also watch opening prices and open interest. Point-and-figure chartists track
only price changes and ignore time, volume, and open interest.
Classical charting requires only a pencil and paper. It appeals to visually
oriented people. Those who plot data by hand often develop a physical feel
for prices. Computers speed charting at a cost of losing some of that feel.
The biggest problem in charting is wishful thinking. Traders often convince
themselves that a pattern is bullish or bearish depending on whether
they want to buy or to sell.
Early in this century Herman Rorschach, a Swiss psychiatrist, designed a
test for exploring a person's mind. He dropped ink on 10 sheets of paper and
folded each in half, creating a symmetrical inkblot. Most people who peer at
these sheets describe what they see: parts of the anatomy, animals, buildings,
and so on. In reality, there are only inkblots! Each person sees what's on his
mind. Most traders use charts as a giant Rorschach test. They project their
hopes, fears, and fantasies onto the charts.
Brief History

The first chartists in the United States appeared at the turn of the century.
They included Charles Dow, the author of a famous stock market theory, and
William Hamilton, who succeeded Dow as the editor of the Wall Street
Journal. Dow's famous maxim was "The averages discount everything." He
meant that changes in the Dow Jones Industrial and Rail Averages reflected
all knowledge and hopes about the economy and the stock market.
Dow never wrote a book, only the Wall Street Journal editorials.
Hamilton took over the job after Dow died and struck a blow for charting
when he wrote "The Turn of the Tide," an editorial following the 1929 crash.
Hamilton laid out the principles of Dow theory in his book, The Stock
Market Barometer. Robert Rhea, a newsletter publisher, brought the theory
to its pinnacle in his 1932 book, The Dow Theory.
The decade of the 1930s was the Golden Age of charting. Many innovators
found themselves with time on their hands after the crash of 1929. Schabaker,
Rhea, Elliott, Wyckoff, Gann, and others published their research during that
decade. Their work went in two distinct directions. Some, such as Wyckoff
and Schabaker, saw charts as a graphic record of supply and demand in the
markets. Others, such as Elliott and Gann, searched for a perfect order in the
markets- a fascinating but futile undertaking (see Section 6).
In 1948, Edwards (who was a son-in-law of Schabaker) and Magee published
Technical Analysis of Stock Trends. They popularized such concepts
as triangles, rectangles, head-and-shoulders, and other chart formations, as
well as support and resistance and trendlines. Other chartists have applied
these concepts to commodities.
Markets have changed a great deal since the days of Edwards and Magee.
In the 1940s, daily volume of an active stock on the New York Stock
Exchange was only several hundred shares, while in the 1990s it often
exceeds a million. The balance of power in the stock market has shifted in
favor of bulls. Early chartists wrote that stock market tops were sharp and
fast, while bottoms took a long time to develop. That was true in their deflationary
era, but the opposite has been true since the 1950s. Now bottoms
tend to form quickly while tops tend to take longer.