Trading with Charts for Absolute Return

TRADING A SINGLE STOCK

In this computer-driven era, trading signals have to be generated by computers to be accepted. People think that the bigger and faster the computer, the better the trading signals. This is wrong. Up until now none of the huge investment companies such as Fidelity were capable of proving it, otherwise the performance would have been better. The detection of chart patterns has a good chance of producing trading results in the stock markets as good as the best computer models available.

All major problems created for fundamental analysis by globalization (which means investing in stocks in the United States, Europe, Asia, and South America) are being solved as soon as the analysis based on chart patterns can be applied on every single stock around the world.

Why? Investor behavior is as stable in the United States as in Europe, Asia, or South America—which means that for analysis based on chart patterns, it does not matter from which country the respective stock price data are analyzed. Reliable trading signals are generated as long as there is enough trading volume per day in the underlying stocks and stable (and relatively high) volatility to benefit from market movement in upward and downward direction.

Trading IBM on Long and Short Signals

To demonstrate that these chart patterns work not only on futures and cash currencies but on stocks as well, the trend lines and trend channels—as described in Chapter 4—will be applied to shares of IBM, one of the major ...