subject: Technical Analysis Course - A Close Look At Charting And How Weak It Can Be [print this page] It needs to be pointed out that as more people are involved in the market any work to chart and predict each action , the accumulative effect of those similar actions self-creates price fluctuations which can end up destroying all of the various chart techniques .
If you are involved in charting, you're not alone. Thousands of others are charting every move like you are doing. Thus when a major move is signaled , you are liable to have a lot of the same orders as yours hitting the trading pits . Particularly , the placing of stop-loss orders at identical points by hundreds of chartists , may create false penetrations of trend lines and other formations . This means that charting is a science that is in some ways inexact , even for people who have a technical analysis course to fall back on .
You can use on the chart scale used and whether the mid-price or closing price is used . To plot price movements , there can be a distortion to either. The latter is the most often used , but as it comes at the end of the day a lot of profit taking and more is associated with it . In addition, chaos can occur to the charts because of events that are unforeseeable or changing.
Charting is an approach that is a bit lazy . To some weaker people, the clinical and neat look on a piece of paper is appealing . Who have no time or inclination to delve deeper . Most people like to think it is more productive to look at all the variations. As technical analysis spreads and more and more people take a technical analysis course, it will commence to defeat its own purpose , especially in a "thin" market setting.
You must understand that is many traders are going with chart interpretations that are usual for a specific commodity, it will influence the price of that commodity in the direction chartists expect prices to move . Chart followers are able to prove right their own theories. Although pure chartists don't want to know the fundamentals , a trader that is wise will try to use both strategies for futures trading . None of the chart formations are totally reliable. Confirmation must be sought from various other indicators by chartists, like business cycle variations, changes in year to year production , and deviations in sums that are quantifiable, such as commodity prices, reduced to a single summary figure to register all diverse activities .
In many cases a commodity goes totally opposite of basic considerations due to a variety of different factors . To succeed the chartist must be ready for thorough study and hard work and to become experienced . It is an art due to the finesse and experience and the skill of a technician . These are no doubt the essential ingredients of profitable trading . A technician has to check, and check again .
Another difficulty of charting comes from the thought that although all the facts of a commodity situation are known to the speculator other professionals and trading houses know these very same facts.
In reality, however, unexpected events can occur and all traders are affected . Prices may not have completely discounted these occurrences , and chartists may be caught unawares and little can be done to keep a position in this situation protected except to be alert to recognize sudden change in the market trend and to take action fast . ( Think about a hurricane that takes all the oranges out to sea).
Technicians are famous for making spectacular profits one week and then lose big time the next week . The facts are that prices will not fluctuate according to what their past performance dictates , but you can get an idea on a daily basis if you use P&L charting.
Most systems are indictable when it comes to advisability because there is no track record . Each approach has to be looked at as unsuccessful until proof shows otherwise. To tell the truth , there isn't much available evidence that is objective to support the commonly accepted rules of chart analysis . Trends are anticipated by various chartists . This is a fallacy . You can't recognize or even assume a non-existent trend . If you want to utilize a trend with the method following, you must wait until the trend has been demonstrated . Even then, the chartist's motto with regards to a trend is that a trend continues until it stops . Again , he tries to figure out the trend reversal direction as it happens . It doesn't work . Only as it occurs can you become aware of a new trend that is evolving . Trend reversals or trends can't even be anticipated by most technical systems either .
When a move occurs that wasn't expected, starting all over is what happens to mot technicians. After a series of discouraging losses , many traders have abandoned their technical studies because they never work . Since it occurs fairly often , it offers more proof that trading success has no short cuts and nothing substitutes for hard work, knowledge, and good experience .
All that is known is that there will be fluctuation of prices, but we don't know how much they'll fluctuate .
You're only protected in congestion areas since they define the projection of any losses . Even in congestions prices will fluctuate. Any technical approach that attempts to analyze congestion areas , and evolves a trading method therein , will provide the broker and trader huge profits , since there is congestion of commodity prices, one form or another 85 % of the time .
The main problem that novices and professionals both deal with is when they need to get in or out of a market. Due to this, a technical analysis course will help you realize that technical analysis must encompass to a considerable degree fluctuations of price that are short term (Another plug for P&L charting ).
by: Charles Drummond
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