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The Visual Investor: How to Spot Market Trends, Second Edition by JOHN J. MURPHY

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CHAPTER 11
Mutual Funds
Chart analysis of mutual funds is an additional step. A trader can analyze the various industry and sector indexes to find which ones he or she wishes to invest in and then simply match them up to a suitable mutual fund. The mutual fund industry is so vast that you can find anything you wish to trade in the bond and stock markets. Most mutual funds are also indexed to some market benchmark. All you really need to do is analyze the benchmarks and then match them up with the appropriate fund. Chart analysis can also be performed on the mutual funds themselves if you wish to go a step further. There are at least two reasons for doing so.
One is for purposes of confirmation. A buy or sell signal on an index chart should be confirmed by a similar signal on the mutual fund that corresponds to that index. A second reason is because index charts and mutual funds are not always “perfectly” correlated. Sometimes action in the mutual fund chart will lead the group index, and sometimes it’s the other way around. If you’re a mutual fund investor, it’s usually a good idea to make sure that the mutual fund chart looks reasonably similar to the group index that attracted you to the mutual fund in the first place. The good news is that most of the visual tools described in this book work very well on mutual fund charts.

WHAT WORKS ON MUTUAL FUNDS

As is the case with most markets, it’s not necessary to do an exhaustive analysis of mutual fund charts. Simple trend-following ...

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