Page 1168 - How to Make Money in Stocks Trilogy

Don’t Invest Blindly: Use Charts to See the Best Time to Buy and Sell 153

Why Use Charts?

“Just as doctors would be irresponsible not to use X-rays on their
patients, investors are just plain foolish if they don’t learn to interpret
the price and volume patterns found on stock charts.”

—WILLIAM J. O’NEIL

I couldn’t imagine making any buy or sell decision without first checking the
chart. It would be like driving blindfolded: If I can’t see what’s going on
around me, how do I know if I should hit the gas—or the brakes?
Charts truly are that important. And here’s why.
Think back to one of the “Big Rocks” we’ve been discussing:

Buy stocks being heavily bought by institutional investors. Avoid
those they’re heavily selling.

We spent an entire section hammering home that key point: Fund man-
agers and other professionals ultimately determine the fate of your stocks.
By using charts, you can literally see what these big investors are doing.
And it’s not hard to do once you demystify what’s in a chart and understand
one simple fact . . .

Charts Tell You a “Story”

When I was starting out, charts seemed overly “technical” to me. My
epiphany came when I finally realized all those lines and bars aren’t so mys-
terious after all. They actually do just one simple thing: They tell you a story.
As you’ll soon see, charts paint a behind-the-scenes picture of what is really
going on with the stock:
• Are fund managers enthusiastically buying? Or are they heading for the
exits, unloading shares as fast as they can?
• Despite some recent price declines, have institutional investors actually
been stepping in to support the stock and pick up more shares—meaning
it could be heading for even bigger gains?