Chartist: What it Means, How it Works, Technical Systems

What Is Chartist?

A chartist is a trader who uses charts or graphs of a security's historical prices or levels to forecast its future trends.

Understanding Chartists

A chartist is a type of technical analyst and is usually not looking at fundamentals when making a trading decision. They essentially look for well-known patterns such as head-and-shoulders or support and resistance levels in securities so as to trade them more profitably. Chartists ply their trade in all markets where financial instruments are traded—equities, currencies, commodities, and bonds.

Chartists generally believe that price movements in a security are not random but can be predicted through a study of past trends and other forms of technical analysis. A chartist may or may not combine fundamental analysis with technical analysis when assessing whether to buy or sell a stock or security. Those who combine both disciplines maintain that while fundamental analysis helps in deciding which stock or security to buy or sell, the optimal application of technical analysis is in deciding when to buy or sell the stock or security.

Chartists have developed an extensive toolbox of analysis techniques, price patterns, and indicators. Typically, the use of one technical indicator does not provide enough information to make a trading decision; technicians use several indicators to confirm a hypothesis before taking action. There is no broad consensus on the best method of identifying future price movements, so most technicians gradually develop their own set of trading rules based on their knowledge and experience.

Chartists will typically use a combination of indicators, personal sentiment, and trading psychology to make investment decisions. Historically proven patterns and trends are the central focus for identifying buying and selling decisions. Envelope channels and Bollinger Bands, for instance, can be one of the most reliable pricing patterns a chartist will look to for investment signals.

Serious chartists can seek to obtain the Chartered Market Technician (CMT) designation, which is sponsored and written by the CMT Association.

Technical Systems

Chartists rely on technical analysis trading systems that form the basis for their investment trades. Since many technical analysts are day traders, these systems are typically targeted at individual traders. Chartists have a variety of options to choose from with many programs available through brokerages.

Brokerages will often include comprehensive charting software with featured charting patterns in their service offering. Many advanced chartists, however, choose to obtain charting software from independent vendors which allows them to have access to the full range of available charting patterns.

Some of the most popular independent vendor chartist platforms include MetaStock, TC2000, eSignal, NinjaTrader, Wave59 PRO2, EquityFeed, ProfitSource, VectorVest, and INO MarketClub.

Generally, all of these platforms offer a broad array of customizable charting patterns. Platforms will vary based on the particular markets they serve and the additional information they can provide, such as integrated news feeds and fundamental data.