Jim Cramer may not be a chartist, but he understands why charts are so important for predicting the market's major moves.
"You must consider them as if they are footprints at a scene of a crime," the "Mad Money" host said. "These footprints trace out what big money managers might be doing with their buying and selling of stocks."
But for Cramer, the best way to produce results is by carefully analyzing both a stock's fundamentals and its technicals for more comprehensive results.
A good technical analysis means being able to find the indicators that will help to determine the overall direction of the market, especially since so many stocks are influenced by S&P 500 stock futures.
Sometimes, technicians start by comparing the chart of an individual company to the chart of an average to determine the legitimacy of a move, a tactic known as confirmation.
For instance, if the Dow Jones industrial average hits a new high, historically, it is not sustainable unless the Dow Jones transportation average also hits a high, confirming the breakout status of the Dow itself.
If both the industrials and the transports hit new highs, Cramer feels secure blessing the move as legitimate.
The inverse is also true. If there's a move up without confirmation from a majority of the indexes, then the whole rally could be fake and shouldn't be trusted.
Source: Bloomberg Pro Terminal
Junior Trader Stefan Panteleev
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.