Today's Quote: “It is always the best policy to speak the truth, unless, of course, you are an exceptionally good liar.” Jerome K. Jerome

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

There are far too many casual market players who don’t have even a small grasp of what technical analysis or the art of chart reading is all about. That is not necessarily their crime; however, the sad part lies in the fact that many of these ill-informed individuals are amongst the most outspoken critics of this art. As mentioned before, price charts do nothing more than graphically display what we call the “footprints” of money. They show human psychology at work and the repetitive cycles of fear, greed, and uncertainty. What we have always liked about charts is that they are factual. You see, a large money manager can show his face on CNBC, MSNBC, or MoneyLine and lie about how much he or she loves a stock, when all the money manager really wants to do is generate enough buying to offset his or her major blocks of sell orders. But guess what? The chart won’t lie. Each sell order issued will show up on the chart the instant it occurs, and the volume will reveal just how large the sell order is. It’s because of charts we can say, “Gotcha!” A key analyst can issue a major brokerage report stating how XYZ is positioned to dominate its industry, yet you will be able to tell if this is really true. How? Because if the chart of the stock is rising faster than its industry group, you can confidently say, “that analyst is my friend.” If the chart looks like a staircase leading to the lower depths of purgatory, you can say, “Gotcha pal. Either you are a fake, or you don’t know what you are talking about!” Earnings reports can paint a false picture with the help of fancy accounting, but charts don’t lie. A CEO can hold a conference and boldly issue inaccurate statements about a company, but the chart, my friends, won’t ever lie. Investors and traders, both large and small, bet with their money, not with their mouths. Now the bet may not always be right, but at least you know that their bets (buys and sells), which make up the chart, are based on true convictions, on true beliefs. And just in case you’ve forgotten. Each bet is what actually makes up the chart. Charts don’t lie.