A chartist is a trader or analyst who studies historical price charts and patterns to predict future market movements. Unlike fundamental analysts who focus on economic indicators, company earnings, or geopolitical events, chartists rely primarily on technical analysis tools such as price charts, volume, and various technical indicators. Their approach is grounded in the belief that all relevant information is already reflected in price movements, and that history tends to repeat itself through recognizable chart patterns and trends.

At its core, charting involves plotting the price of an asset—whether it’s a stock, currency pair, index, or commodity—over a set period of time. Chartists look for recurring formations like head and shoulders, double tops and bottoms, flags, and triangles to identify potential reversals or continuation of trends. They also use mathematical tools like moving averages, Relative Strength Index (RSI), and Bollinger Bands to confirm signals and assess market momentum or volatility.

For example, a common technical indicator used by chartists is the Moving Average Convergence Divergence (MACD), which helps to identify changes in the strength, direction, momentum, and duration of a trend. The MACD is calculated as the difference between a 12-period and 26-period exponential moving average (EMA) of an asset’s price. The formula is:

Formula: MACD = EMA(12) – EMA(26)

When the MACD line crosses above its 9-period EMA signal line, it may indicate a bullish signal, whereas a cross below could suggest a bearish trend.

A real-life trading example: Consider the EUR/USD currency pair in the foreign exchange market. Suppose a chartist observes a descending triangle pattern forming over several weeks, characterized by lower highs and a flat support level at 1.1000. This pattern often signals a potential breakdown. If the price breaks below the 1.1000 support level with increased volume, the chartist might anticipate further downside and initiate a short position. Conversely, failure to break support and a bounce could signal a buying opportunity.

Despite the usefulness of charting, there are common mistakes and misconceptions traders should be aware of. One frequent error is over-reliance on a single indicator or pattern without considering the broader market context. For example, a head and shoulders pattern might fail if overall market sentiment strongly contradicts the pattern’s signal. Another pitfall is “chart pattern overfitting,” where traders see patterns that aren’t actually significant, leading to false signals.

Another misconception is that chartists predict exact price targets. In reality, charting is more about probabilistic forecasting—identifying higher likelihood scenarios rather than certainties. This means risk management and stop-loss strategies are essential parts of a chartist’s toolkit.

People often search for related topics such as “chartist vs fundamental analyst,” “how to read trading charts,” or “best indicators for chartists.” Understanding that chartists complement fundamental analysis rather than completely replace it is important. Many successful traders combine both approaches for a more holistic view.

In summary, a chartist uses price charts and technical indicators to interpret market psychology embedded in price action, aiming to forecast future price movements. While powerful, this method requires discipline, confirmation from multiple tools, and prudent risk management to avoid common pitfalls.