Why Reading Charts Is Better Than Reading News or Fundamentals
Traders are usually divided into three different classes: First. Those who operate on what they hear. Second. Those who trade based on solid facts. Third. Those who base their commitments on supply and demand.
In this story, we will look why traders who follow the news or analyse fundamentals usually end up blowing their accounts and the most successful class of traders are those who read charts.
The first type of traders, who operate on what they hear or what is being told to them make up the great percentage of unsuccessful traders. In other words, they are a bunch of lazy people who are not bothered to put the effort to read the markets and base their analysis on it. These people come to trade the market hoping to get something for nothing; they are always hungry for tips and listen to every rumor that is being talked about. If there is one more thing that is more important for than any other by this class of traders, it is “inside information”.
News can be defined into two classes: the known and unknown. The known news is what we usefully listen to over different news channels, such as CNBC or Bloomberg, and the Internet. Known news can also be defined as what has happened and has been told to everyone. It becomes public property the moment it’s broadcasted. News known to everybody is, expected to be useless for anybody most of the times. Yet, traders are always thirsty for news, talks news and also trades on the news. However, on the other hand, unknown knows consists of important information and facts that are only available to few traders. These traders are known as “insiders” who works with a great advantage. Reports of earnings, reduced or increase in dividends, etc. must always be known to few people, before the news is publically announced.
This brings us to the second class of traders. Traders who operate in the market based on solid facts (earnings, growth etc.). They aim to buy when prices are low and select stocks with consistent dividends and growth. These classes of traders are way successful than the first class, which operate on what they hear. However, when they mix with these estimates of values, the so-called fundamentals analysis, they tend to enter or exit the markets at wrong times.
Wyckoff once stated: Even J.P Morgan himself does not know how the street will take a certain announcement or what the impact of his buying and selling will be. Always keep in mind that no one can predict what the supply and demand will be 5 seconds, 5 minutes or 5 days ahead. No one knows what will, in the future induce others to buy and sell. This is why no one can predict the market with 100% accuracy, not even market manipulators.
One thing you could know is what large operators are doing and what are the supply and demand levels are. They are all reflected on the charts. Every transaction has its part in forming supply and demand or in other words support and resistance levels. The greatest supply usually comes from outsiders close to the bottom of the breaks and in panics. The supply from insiders usually appears on the top of the small rises and at the finish of booms. The demand is just the reverse. A trader must be able to judge when a movement has run its course.
So what characteristics do you need to become a great trader? You must perfect yourself in clear thinking, quickness, and accuracy of judgments. Richard Wyckoff concluded that the losers are principally those who trade on what they hear, as well as those who work on facts or what they think are facts. The most successful class of traders are those who work on Supply and Demand or simply, read the charts.
The above article was greatly inspired by a story written in The Magazine of Wall Street that was founded by Richard Wyckoff in 1907.
In this story, we will look why traders who follow the news or analyse fundamentals usually end up blowing their accounts and the most successful class of traders are those who read charts.
The first type of traders, who operate on what they hear or what is being told to them make up the great percentage of unsuccessful traders. In other words, they are a bunch of lazy people who are not bothered to put the effort to read the markets and base their analysis on it. These people come to trade the market hoping to get something for nothing; they are always hungry for tips and listen to every rumor that is being talked about. If there is one more thing that is more important for than any other by this class of traders, it is “inside information”.
News can be defined into two classes: the known and unknown. The known news is what we usefully listen to over different news channels, such as CNBC or Bloomberg, and the Internet. Known news can also be defined as what has happened and has been told to everyone. It becomes public property the moment it’s broadcasted. News known to everybody is, expected to be useless for anybody most of the times. Yet, traders are always thirsty for news, talks news and also trades on the news. However, on the other hand, unknown knows consists of important information and facts that are only available to few traders. These traders are known as “insiders” who works with a great advantage. Reports of earnings, reduced or increase in dividends, etc. must always be known to few people, before the news is publically announced.
This brings us to the second class of traders. Traders who operate in the market based on solid facts (earnings, growth etc.). They aim to buy when prices are low and select stocks with consistent dividends and growth. These classes of traders are way successful than the first class, which operate on what they hear. However, when they mix with these estimates of values, the so-called fundamentals analysis, they tend to enter or exit the markets at wrong times.
Wyckoff once stated: Even J.P Morgan himself does not know how the street will take a certain announcement or what the impact of his buying and selling will be. Always keep in mind that no one can predict what the supply and demand will be 5 seconds, 5 minutes or 5 days ahead. No one knows what will, in the future induce others to buy and sell. This is why no one can predict the market with 100% accuracy, not even market manipulators.
One thing you could know is what large operators are doing and what are the supply and demand levels are. They are all reflected on the charts. Every transaction has its part in forming supply and demand or in other words support and resistance levels. The greatest supply usually comes from outsiders close to the bottom of the breaks and in panics. The supply from insiders usually appears on the top of the small rises and at the finish of booms. The demand is just the reverse. A trader must be able to judge when a movement has run its course.
So what characteristics do you need to become a great trader? You must perfect yourself in clear thinking, quickness, and accuracy of judgments. Richard Wyckoff concluded that the losers are principally those who trade on what they hear, as well as those who work on facts or what they think are facts. The most successful class of traders are those who work on Supply and Demand or simply, read the charts.
The above article was greatly inspired by a story written in The Magazine of Wall Street that was founded by Richard Wyckoff in 1907.