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.