CHAPTER 10 Charting a Course

Now that you have created a list of tradable stocks and found the ax for each, you are almost ready to begin trading. The only thing left for you to learn is when to buy a stock and when to sell it. Needless to say, this is easier said than done. After all, the ax isn't going to issue a press release notifying the market that it's going to buy the stock at, say, $10.50 and run it up to $10.75 before dumping it. This is not how the game is played.

Even so, the market makers do leave behind a trail of clues indicating their intentions, and these signposts are all indicated in the stock charts.

The Value of Stock Charts

Before starting a discussion about how to read stock charts, I need to say a few words about their utility. I understand that many long-term investors resort to reading stock charts much in the same way they would read palms or tea leaves. From their perspective, that might make sense; after all, a chart demonstrating last month's stock prices for IBM will have almost no impact on the price of the stock two, five, or ten years from now. Over a period of time, many other factors, such as sales, earnings, growth, competitive forces, and the state of the economy, will be the overwhelming dynamics in determining the ultimate stock price.

As an active trader, stock charts mean a lot—they are one of the most vital pieces of information you need to acquire. Regardless of whether or not you put any merit in what is called technical analysis ...

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