Chartism
Chartists may examine trends, support levels or recurring patterns to form trading signals. The approach differs from fundamental valuation using expected business cash flows and risk. Weak-form market efficiency challenges the ability of historical trading patterns alone to generate consistent abnormal risk-adjusted returns after costs. Observing a successful past pattern can reflect chance, data selection or a strategy that no longer works. The term describes an analytical approach, not proof that prices can be predicted reliably or that every technical signal is useful.
Worked example
A trader uses a moving-average crossover as a buy signal. Before treating it as evidence of skill, an evaluation would need to consider out-of-sample results, risk, trading costs and whether the rule was selected because it happened to fit past data.
Common mistake
Presenting a pattern found in historical data as a guaranteed forecast of future prices.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |