A Tale Of Two Charts: Bullish Or Bearish?

Chart construction is an art. No two chartists will create the same chart after looking at the same security. From different indicators applied, to horizontal vs diagonal trend lines (or both), there's a lot to look at and mark up in a technical stock chart. Regardless of what momentum oscillators or moving averages you like to use, do me a favor: adjust the price scale.

If you're looking at a stock that's going down and to the right, the most recent candle should not be at the bottom right corner of the chart, otherwise your eyes might tell you that it's as low as it can go. Adjust the price scale and move the last candle up towards the middle of the chart. This way, you are more cognizant of the potential downside in the stock.

Buy the dip?

On second thought....

Same goes for stock charts that are sitting at 52 week highs. If the most recent candle is in the top right corner of the chart, you are not going to be as aware to the potential upside as someone looking at the same chart but with the candle towards the middle of the chart.

Sell the rip?

My former boss, a CIO of a $4B wealth management firm who practiced technical analysis often fell victim to this chart crime, which I believe turned him more cautious than he probably should have been. Don't make the same mistake, because it can cost you, and your clients, a lot of $.


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