Charts vs. No Charts: A Thought Experiment

This is a topic I revisit periodically because I think the ways that traders interact with their charts raise all kinds of important issues in trading discipline and execution. First off, I should state my own bias: I look at charts every day, primarily a candlestick / moving average / Bollinger Band combination, but I don't make trading decisions based on them. They're fun to look at, always fascinating, but for me, also dangerous. My worst trading decisions were all made based on charts because, as I've written before, they can be very deceptive. On the other hand, some of my best trading ideas came from looking at charts; however, their development and execution all took place on spreadsheets. In fact, all my current trades are identified by equations run through an Excel spreadsheet, and I could spend my entire day without looking at a chart once and it wouldn't affect my trading activity. I'd probably just get a little bored without any pretty candlesticks to look at.

So that's the background for the thought experiment I came up with. (In case you're wondering what I mean by "thought experiment," here's an excerpt from the Wikipedia definition: "A thought experiment in the broadest sense is the use of an imagined scenario to help us understand the way things really are. The understanding comes through reflection on the situation...Thought experiments are well-structured hypothetical questions that employ 'What if?' reasoning.")

Now here's my "What if" question: What if two traders of similar experience and temperament traded the same currency pair using exactly the same trading indicators for exactly the same period. However, one trader makes all his trading decisions based on the indicators depicted on a chart. The other trader doesn't look at a chart once, but responds to the same signals identified by equations in an Excel sheet or comparable software. After an initial trial period, the traders would then switch places and trade using the other system for the same period of time. This way both traders would have used both systems, providing a more balanced set of data to draw conclusions from.

At the end of these test periods, what would the trading results look like? Would the charts have enabled the traders to make decisions with better market context and understanding of the larger trends at work...or would they have led to confusion, indecision, and losses as the traders got caught by deceptive patterns, jumped to conclusions about where an indicator was heading, or delayed their trades because of contradictory visual cues?

And over at the chart-free trading desk, would the traders have benefited from the strict Yes/No answers this more mechanical system would generate? Would they place their trades more precisely and exit them with more discipline and less second-guessing? Or would they have gotten bored by the relative lack of discretion allowed them, along with the absence of interesting visuals, and gotten sloppier in their trading as a result? Or maybe during the stress of a losing streak, they'd have begun doubting the integrity of the system without a chart to reassure them that their indicators were valid.

Of course, the ultimate deciding factor would be the total profits (or losses) resulting from each system. So which would win? You can probably figure out my answer - feel free to leave yours in the comments below!

Related topics:
Don't let your charts deceive you
The perils of chart burnout
Know your candlestick patterns