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Past share price: how I use charts

January 29, 2021

There is considerable debate about whether charts work in the sense of whether looking at past share price action tells you anything about the future trend in share prices. It obviously doesn’t in any absolutely reliable sense or all chartists would be millionaires but I do finds charts useful, even indispensable.

They are my first port of call with a share I have never encountered before because I love to see a strongly rising share price. Any kind of flat-lining kills my interest very quickly.

I also use charts for timing decisions and although my strategy does not depend on selling shares it is unlikely I would hang on to a share if the long term moving averages were both falling. There are too many rising shares to bother with those that have signaled that they are in a bearish (falling) trend.

I don’t bother with complicated technical analysis of the sort practised by some chartists. Again my rule is that if the message is not obvious there is no message. Developments which I treat as buy signals include breakouts above resistance. So if a share hits 90 five times, falls back each time and then blasts through 90 ($, p or whatever) I will be a buyer. If a share stays strong in a weak market I will incline towards buying. If a share is persistently strong I will be a buyer and if the whole market takes a dive I will be ready to buy favoured shares showing signs of recovery or just holding up well.

I do need some sort of positive sign. I never try to catch a falling knife so I never buy into a falling share or a falling market. It has to be clearly on the turn because you never know how bad a fall is going to be. I have seen some big ones in my time.

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