What a chart actually shows

A note before the subject starts, because it governs all ten chapters.

How this subject is written

This subject describes technical analysis. It does not teach you to trade on it.

You will find no entry signals here, no rules of the form "buy when X crosses Y", and no strategies. Every chapter explains what an indicator computes, what it assumes, and what it cannot know — and chapter 9 sets out what the research actually found when people tested these methods properly.

That constraint is deliberate and it is the same one the Derivatives subject is written under. The rest of this course argues that outcomes are destroyed by fast decisions made under pressure; a chapter that handed you trade triggers would contradict ten other subjects. Teach it properly, then say what it does and does not support.

What technical analysis is

The research literature defines it compactly:

Technical analysis is a forecasting method of price movements using past prices, volume, and open interest.

Three things to notice in that sentence.

It is a forecasting method. Its claim is about the future, which means it can be tested and has been. Chapter 9.

Its inputs are exactly three — past prices, volume, and open interest. Nothing about earnings, debt, management, competition or the economy. That is not an oversight; it is the defining restriction. Chapters 2 and 7 take the three inputs in turn.

It uses the past. Every number on a chart describes transactions that have already completed.

The field includes, in the same source's description, "chart analysis, pattern recognition analysis, seasonality and cycle analysis, and computerized technical trading systems" — and academic testing concentrates on the last of these, because a rule expressible in mathematics can be applied mechanically to data and evaluated, while a visual judgement cannot. Chapter 8 returns to that asymmetry, because it matters more than it first appears.

What a chart records

Strip the decoration and a price chart holds very little:

Field	What it means
Price	The price at which a transaction occurred
Time	When it occurred
Volume	How many units changed hands

That is the whole of it for a cash-market chart. Everything else — candles, moving averages, oscillators, bands — is computed from those three columns. No indicator adds information; each one reorganises what is already there.

That is the single most useful thing to understand about this subject. A chart with twelve indicators on it does not contain twelve sources of evidence. It contains three columns of data presented twelve ways.

What a chart cannot contain

Why the trades happened. A sale may be a judgement about value, a tax decision, a redemption, a margin call, a rebalancing, or an inheritance being liquidated. The chart records the transaction and not the reason, and the reasons are what would actually tell you something.

Who traded. An index fund buying mechanically and an informed insider buying deliberately leave the same mark.

What did not happen. Orders placed and cancelled, buyers who looked and declined, the price at which somebody would have sold had anybody asked — none of it appears.

Anything about the business. The Company analysis subject spends twenty-two chapters on what a chart omits entirely.

And it cannot contain the future, which is the thing it is being used to forecast. That is not a trivial objection — it is the whole question, and chapter 9 is where the evidence on it lives.

Working the problem

A stock rising steadily for six months. What is that consistent with?

Improving fundamentals. Earnings growing, margins widening, the market repricing a genuinely better business. The rise is information arriving.

A rerating with no change in the business. Interest rates fell, so the same cash flows are discounted less harshly. Nothing about the company changed.

Index inclusion or flows. The stock entered an index, so funds tracking it had to buy irrespective of price. Mechanical demand, no opinion.

A small free float meeting ordinary demand. The Gold and commodities chapter on futures made the same point about thin markets: where little stock is available, modest buying moves the price a long way.

Promotion. The Manipulation and false information chapter describes exactly this shape — accumulate, promote, distribute. A six-month rise is consistent with it.

Short covering. Buyers who were obliged to buy rather than choosing to.

Nothing at all. Six months is not many observations. A random walk produces runs, and the human eye finds trends in them reliably. This is the possibility people discard first and should discard last.

What the chart would need to contain to distinguish them: the identity and motive of the buyers, the free float and who holds it, the flow data showing whether purchases were discretionary or mandated, the earnings and balance sheet over the period, and the rates environment.

None of that is on a chart, and most of it is obtainable elsewhere — exchange disclosures, shareholding patterns, financial statements, index announcements. Which is the honest framing of this subject's limitation: the chart is not wrong, it is thin, and the information that would let you interpret it lives outside it.

The point

Technical analysis forecasts price movements from past prices, volume and open interest — three inputs and nothing else, which is a defining restriction rather than an oversight. A chart records what price a transaction occurred at, when, and in what quantity; every indicator is computed from those columns, so a chart with twelve indicators holds three columns of data shown twelve ways rather than twelve pieces of evidence. What it cannot hold is why anyone traded, who they were, what did not happen, anything about the business, or the future. A six-month rise is consistent with improving fundamentals, a rerating, index flows, a thin float, promotion, short covering, or chance — and the chart cannot separate them.