Background
The term chartist refers to a trader in the financial markets who relies on technical analysis to predict future market movements by identifying patterns in historical price data. This methodology is based on the belief that past market behavior, as represented on charts or graphs, can provide insights into future price movements.
Historical Context
The practice of utilizing charts for market analysis dates back to as early as the 18th century but gained widespread popularity in the 20th century with the advancement of computational tools and technical analysis techniques. Over time, various visual tools, such as candlestick charts and moving averages, have been developed to enhance the effectiveness of chart-based analyses.
Definitions and Concepts
A chartist specifically refers to a practitioner who predominantly uses technical analysis to inform trading decisions. Technical analysis involves the study of price trends and patterns through historical market data.
Major Analytical Frameworks
Classical Economics
While classical economics does not primarily deal with trading strategies, it emphasizes market fundamentals such as supply and demand, which indirectly influence chartist interpretations.
Neoclassical Economics
Neoclassical economics, with its focus on rational choice theory and market equilibrium, often questions the efficiency of chartist methods, suggesting that market anomalies will self-correct.
Keynesian Economic
Keynesian economics, through its focus on market psychology and macroeconomic factors, partially supports the idea that market trends and investor behavior, which chartists study, can have short-term predictive value.
Marxian Economics
Marxian economics does not typically consider individual trading strategies but critiques the capitalist system, under which chartist methods operate.
Institutional Economics
This framework emphasizes the role of institutions and norms, which can affect the validity of historical price data used by chartists.
Behavioral Economics
Behavioral economics supports the chartist approach by arguing that market movements can be predicted based on recurring behavioral patterns among investors.
Post-Keynesian Economics
Post-Keynesian economists often highlight the importance of uncertainties and irrational behaviors, which align with the chartist focus on unpredictable market activity.
Austrian Economics
Austrian economics emphasizes time preferences and the subjective nature of individual actors in the market, often casting doubt on the predictability methods used by chartists.
Development Economics
Although less focused on trading practices, development economics emphasizes the significance of broader economic growth trends, which can indirectly influence market patterns observed by chartists.
Monetarism
Monetarism focuses on the role of government policies in the economy, and chartists might consider these policy impacts when creating trading strategies based on historical data.
Comparative Analysis
Different schools of economic thought provide varying levels of support or critique for chartists. While classical and Austrian economists often doubt the efficacy of predicting future prices based on historical data, behavioral economics provides a more robust theoretical support by acknowledging recurrent patterns in investor behavior.
Case Studies
Numerous case studies exist documenting the success and failures of chartist methods. These often focus on short-term market predictions during sudden economic changes, such as the 2008 financial crisis and the dot-com bubble.
Suggested Books for Further Studies
- “Technical Analysis of the Financial Markets” by John Murphy
- “A Random Walk Down Wall Street” by Burton Malkiel
- “Trading for a Living” by Alexander Elder
- “Market Wizards” by Jack D. Schwager
Related Terms with Definitions
- Technical Analysis: The study of past market data, primarily price and volume, using charts to forecast future price movements.
- Fundamental Analysis: A method of evaluating securities by attempting to measure their intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
- Efficient Market Hypothesis (EMH): A theory that states that asset prices fully reflect all available information, suggesting that charting cannot provide advantages.
- Moving Average: A widely used indicator in technical analysis that smooths price data to create a single flowing line, making it easier to spot trends.
- Candlestick Chart: A type of price chart used in technical analysis that displays the high, low, open, and close prices of a security for a specific period.
