Every week Jim Cramer works with technicians in "Mad Money's" Off The Charts segment, in order to look at patterns in charts that can predict the next big moves for stocks.
While Cramer is certainly not a chartist, he understands that charts do play a vital role in understanding if a big move is the real deal.
"Why do charts work? First you must consider them as if they are footprints at a scene of a crime. These footprints trace out what big money managers might be doing with their buying and selling of stocks," Cramer said.
The second reason to care about charts is that Cramer finds there is a remarkable self-fulfilling nature of charting stocks. This means some of the best investment ideas can come from chart inspired brainstorming sessions. However, Cramer thinks that the best way to produce results is with a careful melding of both fundamentals and technicals.
A good technical analysis means being able to find the indicators that will help to determine the overall direction of the market, especially since so many stocks are influenced by the S&P stock futures.
Sometimes technicians start by comparing the chart of an individual company to the chart of an average to determine the legitimacy of a move. This is what is known as confirmation.
For instance if the Dow Jones Industrial Average hit a new high, historically it is not sustainable unless the Dow Jones Transportation Average also hits a high, or confirms the breakout status of the Dow itself. So if both the industrials and the transports hit a new high, Cramer considers the move to be one he can bless as being legitimate.