1. Charting Techniques—Predicting the Future

For many, charting itself—and technical analysis in general—is an uncertain science, more guesswork than fact and far from reliable.

Most theories of prices and trends agree on one point: Short-term pricing is chaotic and short-term trends are difficult to predict. However, charting provides short-term forecasts about price movement in one respect: Due to the chaotic nature of short-term price movement, many price moves are overreactions to immediate news, and these are likely to correct within one to three subsequent days. For example, earnings surprises often lead to big moves in price, even when the surprise is minor. A repetitive tendency can be observed, in which the immediate reaction to the ...

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