Technical Analysis Course The Weakness of Charting It's important that you notice that as more people are participating in the market any attempt to predicate every action on chart rules , self created fluctuations in price can occur as an affect of all these actions which may take all chart techniques and make them virtually useless. You have a lot of company if you're a chartist . There are literally thousands of people charting exactly the same movements as you are . Thus when a major move is signaled , the trading pits will probably be hit with many orders just like yours . Specifically, stop loss orders being placed at the very same points by many chartists, can actually make various formations like false penetrations of trend lines occur . This means that charting is a science that is in some ways inexact , even for those chartists that have a technical analysis course to fall back on . It is a matter of choice what scale the chart is on and whether the closing price or the midprice is what you use. To plot price movements , both can be distorted . Usually the latter is used most often , but as it comes at the end of the day profit taking is often associated with it and more. Moreover , dynamic and unforeseeable events may play havoc with charts . Charting is to some extent a lazy approach . The neat clinical look of a sheet of paper appeals to the many weaker brethren . Those who don't have time or liking to go further . Many like to believe that it's a better idea to look at all the variations. As technical analysis becomes more poplar and more and more people take a technical analysis course, it can actually defeat the purpose it has , especially in a market that is "thin" . It's imperative to 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 . Their own theories can be proven right by them . Although pure chartists don't want to know the fundamentals , combining futures trading taking from both strategies is what a wise trader will try. No chart formation is completely reliable . Chartists must look to other indicators for confirmation , such as production changes each year, business cycle variation, and deviation in commodity prices or any other quantifiable sum , brought down to a single summary figure to show all the activities. In many cases a commodity goes totally opposite of basic considerations due to technical and other factors . To become successful chartists must be ready to do a lot of work and study and develop experience . Charting is an art due to the finesse and experience and the skill of a technician . These are without doubt profitable trading basic ingredients for success . Checking and rechecking must be done by the technician. Another problem from charting stems from the belief that although a commodity situation and its facts are know to a speculator the same facts are known by many others who are professionals . However, unexpected events can occur and can affect every trader. These occurrences may not have totally discounted prices , which can catch chartists off guard 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 be quick to act . (How about a hurricane carrying all the oranges into the Atlantic ).
Technicians are famous for making spectacular profits one week and then lose big time the next week . It's just a fact 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. The advisability of most systems is indictable because a track record is lacking. Any approach must be regarded as unprofitable until there is other proof . To be upfront about it, there's little actual evidence out there to support all the rules that come with chart analysis. Trends are anticipated by various chartists . This is a fallacy . People can't assume upon a trend that is non existent. In attempting to utilize a trend following method , you have to wait until the demonstration of the trend has occurred. Even then, the motto a chartist needs to have is that a trend goes on until stopping . Again , he attempts to anticipate the direction of a trend reversal as it evolves . It is not possible. Only as it occurs can you become aware of a new trend that is evolving . Most technical systems cannot anticipate a trend or trend reversal . When a move occurs that wasn't expected, many technicians have to start all over again . After dealing with losses again and again, many traders have abandoned their technical studies because they never work . As it is a fairly common phenomenon , it continues to show that short cuts don't exist to trading success and nothing substitutes for hard work, knowledge, and good experience . The fact that prices fluctuate is all we know for sure , 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 . Prices fluctuate in congestions . Any technical approach that attempts to analyze congestion areas , and therein a trading method comes into being, will give the trader and the broker huge profits , as commodity prices are in congestion , one form or another 85 % of the time . The problem that both professionals and novices deal with is when they need to get in or out of a market. On this basis , a technical analysis course will help you learn that technical analysis must encompass to a considerable degree price fluctuations in the short term (Another plug for P&L charting ).
The above material is excerpted from the book “How to Make Money in the Futures Market . . . And lots of it.” By Charles Drummond (Copyright © 1970 by Charles Drummond. All rights reserved). Charles Drummond is a Canadian trader who has written nine books about trading and has created a technical analysis course called “Drummond Geometry.” His biography and further information about his work can be found at the technical analysis course website.
Published on Dec 17, 2009
Published on Dec 17, 2009
It's important that you notice that as more people are participating in the market any attempt to predicate every action on chart rules , se...