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Shares Made Simple: A beginner's guide to the stock market by Rodney Hobson

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Chapter 17: Charting

Chartists believe that shares gain a momentum that may or may not be justified by fundamental data.

We can see when a company is theoretically under or overvalued. The stock market can be particularly efficient at ironing out these kinks, so in theory a share price should not get far out of line before the laws of supply and demand pull it back into place.

However, the stock market can be an irrational place, running at least in part on what is referred to as sentiment, the overall feeling of investors towards particular shares or the market place in general.

If shares start to move in a particular direction, investors jump on the bandwagon, sometimes in simple fear of missing out. The stampede can turn into a panic. ...

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