If you are an amateur in the Technical Analysis game, know that besides charts, there are many factors that impact the prices, and that predicting on the basis of charts alone leaves you with a 30%-50% chance of success.
I will not elaborate much on this because there are at least 6-7 factors that impact stock prices – besides the technical charts.
Here’s just one example that will help you understand the importance of analyzing other data before making a trading decision.
Here is the Ultratech Cements Chart. Note the price movement between 31-7-18 and 9-8-18.
It was all systems go and the stock was looking very bullish. (See Indicators and price action)
Now, see what happened immediately after:
The stock just fell off a cliff.
An amateur or an arrogant experienced chartist will give you the standard nonsense – Bhav Bhagwan Che (in Gujarati).
There was a massive underlying reason.
Now check this data:
During this period, the promoters were selling stock.
In the bullish period, they sold off 7,80,000 shares!
And that’s a huge, huge number for Ultratech, considering that it is a 4 figure stock.
But the price kept on going up despite the news.
Why did this anomaly happen?
Were operators rigging the price? Unsure, but possible.
Was the retail investor prodded to buy? Oh, yes, you bet:
So while the retail investors, chartists and newbies jumped into the stock, the management kept selling.
Everything was legal, no laws were broken.
What was the end result – chartists were proved wrong, retail investors were left holding the baby, and promoters sold at 4400 levels.
Like I said earlier, charts alone do not cut it, and if you are an amateur or beginner relying on charts alone, you will pay a price.
Perhaps you already are….