Online Investing on the Australian Sharemarket, 5th Edition

Chapter 9Benefiting from online charting

In chapter 8, I discussed fundamental analysis — an important method of analysis for share investors interested in medium- to long-term investing. This method allows you to make trading decisions based on sound fundamentals. For short-term trading, fundamentals aren't of great importance, as traders aren't interested in shares with good metrics; they're interested simply in buying and selling shares to make a capital gain — and the faster the better. For these traders, the significant tool is technical analysis; that is, analysing charts to detect trends and to predict likely future price movements.

Nevertheless, charting analysis is also important for longer term investors because, regardless of the length of time of the investment, it's generally not a good strategy to buy shares when the price is falling or to sell shares when the price is rising. In this chapter I outline the basics of charting — if you want a more comprehensive treatment, I suggest you refer to my book Charting Made Simple.

Tip

If you're a longer term investor, you should use charting (technical analysis) in conjunction with fundamental analysis.

Why use charts?

The main benefit of charting is that it allows you to analyse trends easily through visual inspection rather than by trying to analyse rows of numerical data. The old saying ‘a picture is worth a thousand words’ is very true when you are trying to understand how share prices or other investment ...