Chart Dexterity (1)

Information vs. Wisdom

The game is in your head.

When I started this series, I wanted to talk about technical analysis and visual representation of patterns in charts, but the more I think about it, the more I realize we need to start somewhere else entirely. We need to start with what you're actually looking at when you stare at a chart.

Technical analysis has been around for centuries in various forms. Japanese rice traders developed candlestick patterns hundreds of years ago. Charles Dow created his theory in the late 1800s. Then came moving averages, oscillators, momentum indicators—layer after layer of tools supposedly designed to help us understand price movement. But here's what strikes me as odd: the more indicators we've created, the more confused traders seem to become.

Maybe that's because we've been building complexity on top of something that might be fundamentally simple. Or maybe it's because we keep looking for wisdom in the wrong places.

There is no wisdom in charts. There's only information. And we have some knowledge that we can use to interpret all the charts. From that knowledge and from the context in your mind that allows you to choose between different positions comes something that might resemble wisdom, but even that's questionable.

I wonder sometimes if all these indicators—RSI, MACD, Bollinger Bands, Stochastics—are just different ways of looking at the same thing: price movement over time. They're transformations of price data, mathematical representations of what already happened. But price action itself, the raw movement of buyers and sellers, might tell us more than any indicator ever could.

When you look at a chart—go to a one-minute timeframe and look at any chart you like—there are impulsive moves and there are consolidations. Those consolidations can be accumulation or distribution. So when we're talking about impulsive moves and sideways moves, that's something that doesn't need any kind of special knowledge or wisdom. You can see it on any chart, understand it, and try to categorize those sideways moves that can be either distribution or accumulation.

This might seem too simple. After decades of indicator development, after countless books on technical analysis, after all the complexity we've built around chart reading, it might feel like there should be more to it. But what if there isn't? What if the basic structure of price movement—impulse and consolidation—contains most of what we need to know?

When price locks into a liquidity pocket and starts moving sideways, there are only two outcomes: either it breaks upward or downward. That's it. All the indicators in the world won't change that basic fact.

If you look at any chart on any timeframe, you can see key levels, impulsive moves, and sideways moves that can either be accumulation or distribution. These are facts you might use to define a position. That position, that pattern, might produce an opportunity that you can use to start injecting your liquidity into the market. Either your liquidity is injected in the right direction or not. You'll find out soon enough.

The interesting thing about price action trading—focusing purely on how price moves without indicators—is that it might force you to develop a different kind of relationship with uncertainty. Instead of waiting for an oscillator to confirm what you think you see, you're making decisions based on the raw behavior of buyers and sellers. This could be terrifying or liberating, depending on how you look at it.

What I mean when I talk about wisdom—it refers to patience. Patience until you see a pattern so obvious to you, so recognizable, that you don't need to interpret anything else about it. It's just the pattern you see and that's it. You don't need anything else.

Take a double bottom or double top pattern. You might see this pattern, understand something about it, use it. When you use it in what seems like the right way, you might reach good profits. But if you start jumping into all kinds of patterns—breakdowns, breakouts, breaking points—that might put you in a weak position because every time you see something like that, you're putting yourself in danger, trying to find something that may or may not be there.

Maybe it's better to sit on the sidelines and try to inject your liquidity into the markets when it feels safer, when you see a position or an opportunity that seems very clear. We probably shouldn't rush into any kind of trade whatsoever. We might want to try to find what appear to be the best possible patterns to trade with.

When you start understanding certain patterns, when you start working with patterns you think you know well, they might act like a filter. They could stop you from looking at other patterns, other occurrences of price movements that might draw you into trading. That might be the most important part.

We probably don't want to be in the market at all times. Most importantly, we might not want to enter into trades at any given time. Maybe we only want to enter into trades when they seem to suit us.

Keep that in mind. Don't forget about what might be the importance of patience.

___________________________

★ Note: This is Part 1 of the "Chart Dexterity" series - exploring the uncertain boundary between information and interpretation in technical analysis. Part 2 will examine how pattern recognition develops and what that might mean for decision-making under uncertainty.