Technical Analysis: What It Is, How Chartists Use It, and Common Tools

A chartist, within the realm of trading, is a practitioner of technical analysis who heavily relies on historical price charts and graphs to make predictions about future market movements. Unlike fundamental analysts, who delve into a company’s financial health and performance metrics, chartists primarily focus on patterns and trends discernible from past price action. These patterns, such as head-and-shoulders formations or support and resistance levels, serve as signals for potential trading opportunities.

Chartists stand firmly in the camp of technical analysis, which asserts that price movements in securities are not random but can be forecasted based on historical data and market psychology. While some traders may combine both fundamental and technical analysis, chartists typically prioritize the latter in their decision-making process. Fundamental analysis helps identify promising assets, while technical analysis aids in pinpointing optimal entry and exit points for trades.

Chartists employ a diverse array of tools and techniques to analyze price charts effectively. These include various indicators, price patterns, and charting software. Indicators like moving averages, relative strength index (RSI), and stochastic oscillators provide insights into market momentum and potential reversals. Price patterns, such as triangles, flags, and double tops, offer visual cues about future price movements. Additionally, charting software, like MetaStock or TC2000, enhances chartists’ analytical capabilities with advanced features and customization options.

To bolster their credentials and deepen their understanding of technical analysis, some chartists pursue the Chartered Market Technician (CMT) designation offered by the CMT Association. This professional certification signifies a high level of proficiency in technical analysis principles and practices, providing chartists with recognition and credibility in the financial industry.

Chartists rely on technical analysis trading systems to execute their investment strategies efficiently. These systems, often tailored for individual traders, incorporate various charting patterns and indicators to identify trading opportunities. Brokerages commonly offer comprehensive charting software as part of their service offerings, but advanced chartists may opt for independent vendor platforms like MetaStock or NinjaTrader for enhanced functionality and customization.

Chartists primarily focus on historical price data and technical indicators to forecast market trends, whereas fundamental analysts delve into a company’s financial health and performance metrics.

Chartists utilize a range of tools, including indicators like moving averages and RSI, price patterns such as triangles and double tops, and charting software like MetaStock and TC2000.

While technical analysis can provide valuable insights for traders, it may not be suitable for all investors. It requires a solid understanding of market dynamics and carries inherent risks, including the possibility of losses.