THE MUSIC IN THE SHARE CHARTS

ALL major turning points in the price of any financial instrument, whether a share, future, commodity etc., will reveal themselves in a suitably constructed bar chart (i.e. one which includes the high, low, close and volume for the timeframe in view, and when properly viewed, sized and scaled). The trick is to know how to see those fantastic trading signals in time to take advantage of them, in my case for short term trades, in an investor’s case to buy at a value for money level for timely long term holdings.

BAR CHART = MUSIC SCORE

To me, such a chart, is almost identical to a piece of sheet music but because no two compositions are exactly the same, being able to read one does not mean you can read the other UNTIL all the elements of composition, including harmony, expression, and rythym have been learned. Each share or market has its own pulse and nuances.

Reading the music of the stockmarket requires study of the rules at work and then constant practise. Those who are too lazy to go with that will never be consistently successful, those who want to make lots but risk little should stick to the lottery, those who cannot accept that you have to make losses in order to make profits will never make it, and those who trade without having any real method at all will forever be conducting their own post mortems on why they are not succeeding. In the words of Jimmy Slater - "if you want to be successful there can be no escape from homework".

To learn my method, neither the fundamentalist approach nor the technical analysis approach can be discarded, for without a knowledge of the fundamentals there can be no down to earth understanding of what is going on in a particular share or market, without which your trades would be those of a dummy.Yet without borrowing the simplest of technical analysis tools, such as trend lines and moving averages, there can be no visual gauge of what trends and potential points of support and resistance for price prevail. Yet even both of those together are not enough to constitute a method of analysis which has all the ingredients required by the trader who wants to earn a living consistently and permanently - boom and bust is no better for the trader than for the economy. Each trader has his or her own individual toolbox, and whilst they can do quite a lot with just a spanner and a hacksaw, they can do the whole job efficiently time after time with a full snap on kit.

IMAGINATION IS GREATER THAN KNOWLEDGE

The greatest minds in history have always recognised (and always said so) that finding an answer to a complex problem is never easy, and also that the answer is almost always one which is too simple for the majority to believe. There was no support in its day, for example, for Uncle Albert’s E=MC2, and it took the entire scientific community 50 + years to accept his predictions of Black Holes.

SUPPLY AND DEMAND

Many will tell you that stockmarket prices go up because there is more buying than selling, and go down for the converse reason. If it was as black and white as that then do you not suppose that all a first grade maths student would need to do to clean up in the markets every day would be to seperate each day’s trading volumes into buying and selling and Bob’s your Uncle? No indeed, it is not that easy; the correct explanation for why prices go up is because demand has exceeded supply, and prices go down because supply has exceeded demand, which may sound the same but it is actually a very different statement.

Prices actually go up not because there is buying but because the share has already been bought, causing a scarcity of supply! And the same vice versa. The smart money does not buy shares when they are rising, they first buy them to stop them falling any further after a long decline, and then they disguise their campaign of acquiring a bulk of the floating supply, so that the market is forced to continually mark prices up to reflect scarcity. Thus, the stockmarkets are not casinos at all - but auction houses! When they are dumping, prices will first rise, not fall, because the marketmakers don’t want you to know that, and will mark up the price to dupe the public into buying at tops.

INFORMATION OVERLOAD = NO PROGRESS

You can swallow every piece of arithmetic there is and not see this phenomena visually, you can absorb every piece of fundamental news from everywhere and still not know when to open or close a trade. You can be the world’s greatest expert at the science of interest rates and federal committee meetings, only to reach the common position of "the more I learn the less I know for sure", and yet the answer has been before you all the time - it’s all in the chart and if you can learn to read it for yourself you can be your very own guru, independent of brokers, tipsters, magic formulae, news channels, and so on. Indeed, you can create your very own destiny and tell everyone else to go figure. We are only human of course, so as we ourselves are not foolproof, we can have a great method of analysis and still be a lousy trader, but we can never be a good trader without a good method of analysis. Also, it can take a lifetime to make a fortune if you only have threepence to trade with, but only a month to lose everything if you have no method.

LEARNING TO READ MUSIC IN THE CHARTS

Once a price has started to rise or fall you have to be able to interpret that price action as to whether it is reflecting a change in demand or supply, or whether the price is being marked up or down to suck you into a duff trade, or whether it is moving as a result of a temporary rally or retracement based on "poor quality volume", and is going nowhere in particular at that moment in time. Poor quality volume is that volume attributable to the public who are not ofay with the best points to buy or sell an instrument. You will observe all sorts of price gyrations after the newspaper gurus give out their weekly pronouncements, but they will not give you the key to trading, for if they could, they would dump their salaried desk jobs and become traders for themselves.

CANNOT RUN BEFORE LEARNING TO WALK FIRST

Many bar charts are extremely complicated to read because, unlike music, they reflect not only the trading of the day but also the shenannigins of (a) the marketmakers who will use certain conditions to whipsaw you into a slaughtered state and (b) the smart money operators who cleverly manipulate share prices and (c) duff or manipulated data.

In order to illustrate the miracle of price range and volume at work (just two of the constituents of chart bars' equivalent to musical notation), the following example is among the least complex, and emails from seekers of truth are most welcome:-

The above daily charts (upper = price bars, lower = volume bars) of AB Foods shows the price having risen for some time until reaching POINT 1 where you will see huge volume, the bars clearly sticking up above the rest, and although this includes public buying, most of it is professional selling into a rising trend.

You will observe within the week afterwards the price range widening into new highs and although closing on the high of the day the following day the range narrows and closes on the low of the day, here is the sell signal for longs, and the short sell opportunity for traders.

The price moves sideways for another week or so, the selling which has already taken place is hidden from the public, then quietly the price begins its gradual but continuous descent until reaching POINT 2 where huge volume steps in to stop the price falling further. At this point the public have clamboured out of the share severely wounded, the professionals have stepped in, and for the next few days this buying is hidden by a false sideways move on thinned price ranges, and then the gradual but continuous ascent to yet new highs is commenced.

The STOP LOSS LINE is soon drawn under, as an ascending trend line connected between two lows, and contained within the long term upward trend channel. This provides a dynamic stop loss method, when the price breaks down below this line, the long trade is closed but NO SHORT TRADE is opened at POINT 3, because no selling volume had yet appeared at this point.

Thus, those traders who could read this music had (a) the opportunity to get out at the right time if they were already long up to point 1, (b) the opportunity to short sell between points 1 and 2, (c) the opportunity to go long between POINT 2 and POINT 3 when the line is broken.

You can independently obtain this chart. and any other charts used in my columns, from your own sources to verify that this picture is what everybody everywhere could see (or click the DATAFEED navigation icon for more info).

How many individuals would look at the above charts the way that I have? Ask yourself this question:- is this too good to be true, or just too true not to be good? If you could learn to find these charts and read them this way - would this not change the way you look at the markets forever?