The thorn in everyone’s side has to be whether technical analysis actually works. Some agree it does, still others aren’t quite sure. I’ll avoid, for now, delving into that specific conundrum because frankly, who knows if it does or doesn’t. My belief however is simple, the market is a fickle place and sometimes it adheres to technical points and sometimes, not so much.
It matters very little though, as technical analysis does one thing above all else, and it does it better than even the talking heads on CNN. It tells you a story about a market over time. Quite the dramatic one at that. With every tick above or below that moving average millions are made or lost so, in my opinion, even TNT doesn’t really know drama.
Regardless, technical analysis can help illustrate a path forward and provide confidence to select one direction over the other. Otherwise this trading “thing” may be down right boring requiring no real strategy whatsoever. Which is certainly a valid argument.
Technical Analysis made easy
The Secret to Technical Analysis
The real secret is to script a profitable story. Learn to read the indicators mechanically and do it the same every time. When analysis isn’t subjected to human error attention can be turned to setups that will give the desired edge.
For instance, assume today I use a MACD advancing signal on low volume as a setup to fade the current market move. Now a month passes, and I’m guilty of using a MACD advancing signal with low volume to mark a trend continuation. Neither scenario is necessarily wrong, both could easily produce winning or losing trades. It’s the trader that’s flawed.
If the trader is consistently flip flopping, always reading a different technical story, how on earth will they ever know when they’re wrong?
Let me explain. Assume for a minute you’re a perfect technical trader using the setup mentioned above, always looking to fade the move. You enter your fade trade but price continues in the original trend. You are wrong. Period. You exit the trade with a minimal loss and move to the next opportunity. If you’re always flipping and flopping, you’re basically just guessing, one day convincing yourself its a trend continuation and one day believing in the retracement.
Its a tiring but common story among traders and I hope this article prepares you to be the alternative. To get you off to a great start take a look at my top ten technical indicators page and let me know what you think.
Happy Trading to all,
Jeff the “OptionBoxer”
