If you use technical analysis, then the chances are very likely that you have committed stock chart fraud. I have probably been guilty of it several times. Furthermore, if you did it, then you probably paid a hefty penalty for it.
Stock Chart Fraud is manipulating a stock chart so it looks like a buy. The penalty comes in the form of a smaller bank account.
Probably the biggest mistake in using technical analysis is forcing a trade. With so many different patterns, studies, and time frames, it is very easy to make any bad stock look like a buy. To prevent this from happening it is important to keep a structure method or flow that consistenly works more often than not.
We have all been there. We are having a hard time finding a stock that fits our criteria, eventually we get impatient and begin to manipulate charts so they show what we want. The problem is that these trades usually don’t result in happy returns.
Below are three simple things to keep in mind to prevent stock chart fraud:
- Keep A Log
- Expand Your Knowledge Base
- Don’t Trade
Keep a Log
I don’t keep a diary, nor will I ever; however, when it comes to stocks, I have notebooks, word documents, and excel spreadsheets filled with previous trade activities and what worked or what did not. If we can keep a running record of what is a bad trade and what is a good one, then we are less likely to engage in scandalous stock chart behavior.
Expand Your Knowledge Base
The more we know, the more opportunities out there. If you only know one chart pattern, then you will have a hard time finding a stock the fits that pattern. This will often lead to multiple acts of stock chart fraud. Now what if you knew two, three, or even four more patterns? Obviously, the amount of plays you have to choose from will expand drastically.
Don’t Trade
It is always better to lose no money, then lose any. If you are having trouble finding a trade that fits what you are looking for, then just step away. Come back in an hour, a day, or longer. Just do not force a trade when there is nothing there.
So whatever you do, do not be the the next trader to engage in stock chart fraud, or you will pay a hefty fine.