What is a Chartist?
A chartist is a trader who uses charts or graphs of a security’s historical prices or levels to forecast its future trends. Basically, a chartist looks for well-known patterns such as head and shoulders or support and resistance levels in stocks to trade them more profitably. Chartists trade in all markets where financial instruments are traded: stocks, currencies, commodities, and bonds.
A chartist is a type of technical analyst. In general, a chartist does not look at fundamentals when making a trading decision. However, there are some who combine the fundamentals of their process.
- A chartist is a trader who employs technical analysis in his trading and research by examining price charts and graphs.
- Chartists look for price patterns and trends based on historical performance to identify signals based on sentiment and market psychology.
- Therefore, for chartists, the fundamentals of a security are less relevant than the current balance of buyers and sellers and past price action.
- Chartists can further their training and education by earning the professional designation of Chartered Market Technician (CMT).
Chartists generally believe that a security’s price movements are not random, but can be predicted by studying past trends and other forms of technical analysis. A chartist may or may not combine fundamental analysis with technical analysis when evaluating whether to buy or sell a stock or security. Those who combine both disciplines argue that while fundamental analysis helps to decide which stocks or securities to buy or sell, the optimal application of technical analysis is to decide when to buy or sell the stocks or securities.
Chartists have developed an extensive toolbox of analysis techniques, price patterns, and indicators. Normally, the use of a technical indicator does not provide enough information to make a trading decision; Technicians use various indicators to confirm a hypothesis before acting. There is no broad consensus on the best method to identify future price movements, so most technicians gradually develop their own set of trading rules based on their knowledge and experience.
Chartists often use a combination of indicators, personal sentiment, and business psychology to make investment decisions. Historically proven patterns and trends are the central focus for identifying buy and sell decisions. Engulfing channels and Bollinger bands, for example, can be one of the most reliable price patterns that a chartist will look for for reversal signals.
Serious chartists can seek to earn the Chartered Market Technician (CMT) designation, which is sponsored and written by the CMT Association.
Chartists rely on trading systems of technical analysis that form the basis of their investment operations. Since many technical analysts are intraday traders, these systems are usually aimed at individual traders. Chartists have a variety of options to choose from with many programs available through brokerages. Brokers will often include full charting software with featured chart patterns in their service offering. However, many advanced chartists choose to obtain charting software from independent vendors that allows them access to the full range of chart patterns available.
Some of the most popular independent vendor charting platforms include MetaStock, TC2000, eSignal, NinjaTrader, Wave59 PRO2, EquityFeed, ProfitSource, VectorVest, and INO MarketClub.
Generally, all of these platforms offer a wide range of customizable chart patterns. Platforms will vary based on the particular markets they serve and the additional information they can provide, such as embedded news feeds and critical data.
Brokers will often include full charting software with featured chart patterns in their service offering. However, many advanced chartists choose to obtain charting software from independent vendors that allows them access to the full range of chart patterns available.