"Every day, self-proclaimed stock market experts tell us why the market just went up or down, as if they really knew. So where were they yesterday?"
The average investor doesn’t understand, or at least doesn’t appreciate, this lag in reporting. What most investors do when they hear either good news or bad news is to immediately react to the news by either buying or selling the stock. And since this lag in the news means that the average investor is reacting on old news, he’s getting in late. Sometimes very late.
Here’s why charts are so important to me. Traders trading stock in the market is what creates volume, and volume along with price is recorded and plotted moment by moment on a stock’s chart. Any good charting website like StockCharts.com or FINVIZ will show in real time exactly what’s happening to a stock’s price and volume. If a stock is either increasing or decreasing in price while simultaneously increasing in volume, I know that someone knows something that I probably don't, and they’re acting on that information by trading in the stock. As volume builds and the price starts to trend, I’m seeing the evidence of trading on that information as it spreads out to other traders acting similarly on that same information. The more volume that begins to build as the price begins to move, the better (or worse) the news will be when it’s reported hours later on the internet, that evening on television, or tomorrow morning in the newspaper. The poor guy that finds out in the newspaper the next day will more than likely be the last to the party.
In the end stocks are going to do what stocks do and not what’s expected of them by the news. The news is always a lagging indicator. It’s like trying to drive down the road while only looking into the rearview mirror. Please don't try this. It’s impossible to do. So I watch charts and not the news. I look at stock charts and I expect them to tell me when to buy and when to sell my stocks. If any investor spends the time to understand what price and volume are telling you, if any investor will learn about momentum indicators and oscillators and what they can tell you about the movement of stock prices, an investor can then visually see which way the traders are pushing a stock. And this is financially beneficial information. This kind of knowledge can make an investor rich, but only if he learns how to act on that knowledge. Simply the act of seeing and thinking can earn anyone a pretty decent living.