Additionally when a chartist sees that the volume has grown or expanded but the stock doesn't go down, that means the stock has finally found its floor and is now safe to buy. That is when the number of buyers is finally equal to the sellers in their power to determine the direction of a stock.
Chartists also look at the advance of a stock, which happens when the stock takes out its resistance overhead. Technicians don't just look at the closing price and a graph against the previous day, because it won't actually paint a clear picture of the trajectory.
Instead, technicians use what is known as a moving average to better represent a stock's movement. They figure out the moving average by taking the closing price of a stock over a period of time, add them up, and then divide by the number of days in that measured period.
"Typically, when a stock gets overbought it is ripe for a pullback because overbought stocks, ones with many buyers reaching to take in supply, tend to snap back after they have gotten too far away from their longer term trend line," Cramer said.
Investors can determine if a stock is overbought or oversold by charting the ratio of higher closes, also known as the relative strength index, or RSI. This is a momentum oscillator that measures the direction that a stock is going, and the velocity of the move.
Cramer also matches the RSI of an individual stock to something else, maybe the relative strength of its sector or a larger index, and then measure the price action historically. He looks for anomalies where strength stands out, because that is a sign that there is a pending move or a change in momentum.