Chapter 1
A Primer on Chart Setups
This is a book about chart setups and how they can make you a more profitable trader. I have been involved in trading for a quarter-century, and during almost that entire time, I have used charts and technical analysis as the basis of my investing decisions. This book endeavors to show you meaningful, clear examples of the most powerful chart patterns so that you can commit them, and their importance, to memory.
Technical analysis is the study of past price movement for the purpose of predicting future price movement, which, if done correctly, can lead to substantial trading profits. The prices studied are typically those of financial instruments such as stocks, commodities, and foreign currencies. But no matter what market is being studied, the underlying principles are the same. Specifically:
- A price chart is the most perfect representation of the balance of buyers and sellers for any given entity.
- Prices tend to move in trends and patterns which, based on historical analysis, can lead to statistically meaningful probabilities of future price movement.
- The skilled examination of a price chart can guide a trader as to how long he should remain in a trade and when he should exit.
No matter what you trade, technical analysis can make you a better and more profitable trader. Price charts will consistently provide the most truthful picture that can be had of a tradable object, because everything that can be publicly known or speculated is already ...
