VIEWS: 160 PAGES: 2 CATEGORY: Options & Derivatives POSTED ON: 12/17/2009
It must be pointed out that as more people are participating in the market any work to chart and predict each action , the accumulative effect of those similar actions self-creates price fluctuations which may take all chart techniques and make them virtually useless.
Technical Analysis Course - A Close Look at Charting and How Weak it Can Be It must be pointed out that as more people are participating in the market any work to chart and predict each action , the accumulative effect of those similar actions self-creates price fluctuations which may take all chart techniques and make them virtually useless. As a chartist, you have lots of company . There are many others that are charting all the same things you chart . When a big move is predicted, the trading pits will probably be hit with many orders just like yours . Particularly , stop loss orders being placed at the very same points by many chartists, can create false formations to occur. This means that charting is a science that is in some ways inexact , even for people who have a technical analysis course to help them out. You can use what scale the chart is on and whether the closing price or the mid-price is what you use. In order to plot movements of price, either can be distorted . Usually the latter is used most often , but since it happens at the end of the day a lot of profit taking and more is associated with it . In addition, events that are dynamic or unforeseeable can cause mayhem with the charts . Charting is to some extent a lazy approach . To some weaker people, the clinical and neat look on a piece of paper is appealing . Who have no penchant or time to try to dig deeper. Most people like to think it is more productive to look at all the variations . As there is a spread of technical analysis and more decide to take a technical analysis course, it will commence to defeat its own purpose , especially in a market that is "thin" . It's imperative to understand that if enough traders are going with chart interpretations that are usual for a specific commodity, it can sway the commodity's price in the course chartists are expecting the prices to go . Their own theories can be proven right by them . Pure chartists never want to know all about 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 changes in quantifiable sums like commodity prices , 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 a variety of different factors . To thrive 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 all definitely the essentials needed to trade profitably. The technician must constantly check and re-check . Another difficulty from charting stems from the belief that while the speculator knows all the commodity situation facts the same facts are known by many others who are professionals . However, certain events can occur unexpectedly and can affect every trader. Prices may not have completely discounted these occurrences , which can catch chartists off guard and little can be done to protect a position in such a situation except to recognize quickly these sudden changes and to act fast. ( Such as all the oranges being lost to a hurricane ). Technicians are known to make a huge profit in one week and then lose big time the next week . It is a fact of life that prices will not fluctuate according to what their past performance dictates , although P&L charting can give you a good idea on a daily basis . Most systems are indictable when it comes to advisability because of the absence of a track record . All approaches have to be seen as unbeneficial until proof shows otherwise. To be perfectly candid , there's little actual evidence out there to support all the rules that come with chart analysis. Many chartists tend to anticipate trends . This is a falsehood . People can't assume upon a trend that is non existent. When trying to use the following method to utilize a trend , one must wait until the trend has demonstrated itself . Even then, the chartist's motto with regards to a trend that until it stops, a trend continues. Once again , he tries to figure out the trend reversal direction as it happens . This is impossible . 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, most technicians have to begin again . After dealing with losses again and again, many traders have abandoned their technical studies since they don't actually work. As it is a fairly common phenomenon , it is further proof that short cuts don't exist to trading success and no substitutes for experience, knowledge and hard work . All that is known is that there will be fluctuation of prices, but not how much . Only in congestion areas are you protected because this area helps to define the loss projections. In congestions, prices fluctuate . Technical approaches that attempt to analyze these congestion areas, and when a trading method evolves , will give the trader and the broker glorious profits , as commodity prices are in congestion , more than 85% of the time in one form or another. The main problem that novices and professionals both deal with is when they need to get in or out of a market. On this basis , a technical analysis course will help you realize that technical analysis must to some degree encompass the short term price fluctuations ( Yes, another good 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.
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