Three key tools for chartists

There are two types of investors: those who see stockmarkets as a random, irrational force and those who believe that the behaviour of a market is down to trends (aka chartists). Here, Tim Bennett explains three key tools that all would-be chartists should have.

Investors fall broadly into two camps. The first are those who believe that markets are irrational in other words, that they often 'misprice' stocks. This type of investor favours 'bottom-up' analysis. They use ratios to find what they believe to be good stocks at cheap prices, in the assumption that eventually other investors will catch on and drive the share price closer to 'fair value'.

The second camp believe the 'trend is your friend'. You shouldn't worry about whether a stock is fundamentally cheap or expensive largely because Mr Market is rational at all times. In other words, all known information is already 'in the price', which leaves little scope for bargain hunting. All that matters is spotting whether a price is rising or falling and gauging for how long the trend will last. Catch the prevailing trend early enough, and you'll make a lot of money.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.