Put plainly. Charts are factual and cannot tell a lie!
A large money manager can show his face on CNBC or Bloomberg TV and tell a story of how much he loves a stock, when all he really wants to do is generate enough buying to offset his major blocks of sell orders. But guess what? The chart won't lie. Each sell order he issues will show up on the chart the instant it occurs and the volume will reveal just how large the sell order really is. Charts don't lie!
Someone told me once that "A smart person is someone who only believes half of the people they talk to and a genius is someone who knows exactly which half to believe". Charts don't lie!
The astute trader must never forget that we, as traders, really trade people, not stocks. So many novice market players (myself included) fail to comprehend this critical point. As a result, they stay forever confused as to why stocks often contradict rationality and all sense of reason. Stocks can do nothing in and of themselves. Their prices are determined by the perception of people. And as you well know, people's perceptions are entirely controlled by their emotions. It is these emotions, primarily greed and fear, that often cause stocks to extend too far in both up and down directions.
When the world seems peachy and comfy, greed dominates the landscape and stocks tend to move well above reasonable levels. This is when many Wall Street analysts will become confused, frustrated and sometimes irate. Why? Because they don't understand why stocks are not behaving according to their neat little mathematical measurements of value. If they fully realized that stocks have no life of their own, they wouldn't be so perplexed. Well maybe they would anyway!
When the dominant attitude or emotion changes from greed to fear, stocks, driven by these same people, tend to drop well below reasonable levels. This is when the eternal market optimists get frustrated and confused, as they can't understand why stocks are not turning back up so quickly. This wide vacillation from over depressed to overextended has never stopped, and it never will. It is what creates trading opportunities in macro as well as micro time frames. It is what keeps the new people coming in, and the old beaten people leaving. This is what makes us money!
The astute trader, understanding this, builds his skill around knowing when one emotional state is about to give way to another. That's trading. Trading is not knowing when a stocks earnings will be better than expected, or trying to guess when a company will announce a new product or a stock split. It's all about people and their emotions, which is why chart reading is so important to us all. Balance sheets and income statements state the past, a past that people have already "emotionally" reacted to. Charts, on the other hand, serve as a living map, built trade by trade, of the players' current emotional state.
Technical analysis is the ultimate tool for the active trader and those who play the market short-term without taking advantage of this tool are at a huge disadvantage.
We trade the Results of People's Emotions.
That is Why we look to Technical Analysis before Fundamentals.