Learning About Charts

The value investor argues that fundamental analysis is better. The trader argues that technical analysis is better. Which way is a novice investor to turn?

In the long run, the fundamentals may be better. But when it comes to short-term trading, I base most of my decisions on technical analysis, and then use sentiment analysis as a secondary driver.

If you are not familiar with technical analysis, the chart below is a good learning tool.

This is a chart of the FXI, the iShares FTSE/Xinhua China 25 fund, an ETF designed to be a barometer for the Chinese stock market. China has been a hot topic for investors for several years now, and with the tremendous upswing in the FXI, you can see why. However, as you can also see, the FXI has been declining over the past four months. This downswing has caused a downward-sloped trend line to form, which runs counter to the upward-sloped long-term trend line.

So what do you do with a chart like this? You wait. Wait to see which way the stock breaks before making a move. When two opposing forces converge, the pressure on the stock tends to build. Once the stock moves outside of one of those trend lines, it tends to result in a huge move in the direction of the break.

[Ed. Note: Rick Pendergraft is a professional trader and market analyst. Rick teaches investors how to read chart patterns and how to take advantage of them in his new K.I.S.S. trading program. This program is a great way to earn and learn at the same time. Learn more here.]

Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.