Max,
Here's a trader's point of view.
> Technical analysis is a method to evaluate specific security by analyzing statistics generated by market activity, such as past prices and volume.(Investopedia)
> CHART just shows the overall picture of the specific instrument in a specific time period.
> By reading charts, you will see CHART PATTERNS. The chartist look for a recognizable movement within a specific timeframe. (Identifying specific human behavior and odds of that pattern repeating itself)
> INDICATORS help with the bias of that specific movement in that timeframe. (Is the movement sustainable or likely to reverse?)
> SYSTEM will combine all of above criteria into specific entries and targets, but most importantly, the risk management (STOPS).
> With proper risk management skills, the system will create positive EXPECTANCY. It is an average amount of money you expect to make on every dollar (or unit) you risk. No system will be perfect and will work all the time. The behavior of the market changes over time depends on volatility, market sentiment to name a few. Thus, you hear about people tweaking their systems accordingly.
As you can see, the chart reading is just one of tools in trading. The key to chart reading is not just comprehend them, but more importantly, being able to understand their limitations. This will help with your risk management skills - where lie true trading ability. Every great trader practices various aspects of trade/money/risk management skills. The chart patterns and indicators are just tools to help pull trigger for many traders, but ultimately it comes down to their risk management. Those who read well very much understand their limitations and adjust risks accordingly. The chart reading and trading are not the same thing. From my experience, those naysayers cannot distinguish between these two. There are no guarantees in trading. The unfortunate news might strike, your computer system or internet might go down, and even the exchange could shut down for days like in 2001. You can only minimize risks. The charts are only good as what you want to get out of them.
@Mike H: I saw W5 episode about ONE bad car dealership. Is that mean all the car sales people are cons?? The charts themselves don't make money. The chartists are just playing the odds.
@ethos1: The spike in the chart (due to news) is nothing to do with chart reading. No chartist try to predict the news. They are called speculators. If news is pending, then astute traders stay put. Have you seen why just before the pending news (eg. FOMC or any economic news break) there aren't many traders holding bid/offer at the exchange? If unforeseen news breaks while in a trade, astute trader will reevaluate their positions and mitigate their gain/loss accordingly. The chartist take advantage of the price action after the news and trade accordingly.
PS: Agree with FT - the chart reading is somewhat of an art and science itself.