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THE POTENCY OF CHART PATTERNS (FOR DEPENDABILITY AND ORGANIZED TRADING)
As far as I am concerned, chart patterns are the purest form of Technical Analysis as they are created through the process of price discovery itself. They are the “footprints” left on the chart by traders that control the markets, and they tell you the direction in which they are headed. You simply cannot get any more current or closer to the market than the latest tick and the bar that just formed. The last bar reflects ALL the latest information and news available at that point in time.
In contrast, consider the type of analysis with a multitude of indicators and oscillators that are available in most software programs and that are widely used by traders. Talk about self-fulfilling prophesies. Such indicators are derived from past prices and as such must therefore by definition, be lagging. They rely on smoothing techniques over any number of price bars, and by the time their indicators indicate a change in direction, it is already too late to enter and if you do, the risk factor is greatly enhanced.
Also, when one uses multiple indicators and/or oscillators, one frequently runs into situations where they provide conflicting information – one says “buy, the other says “sell”. This introduces indecision and undermines a trader’s confidence in his/her analysis.
I’ve also found that using multiple indicators and oscillators removes the focus on price and what the action is trying to tell the user. Many traders that are having trouble with their trading, also show screens that are chock full of indicators – MACD, RSI, Stochastics. ADX etc. and they so clutter up the screen to the extent that they can hardly see the price bars. How can you trade successfully when you can’t even see what the market is currently doing? Using price patterns allows you to eliminate the clutter, and puts the focus back where it belongs – on price.
With the SPBANKBOOK TRADING SYSTEMS, chart patterns are the core of their trading methodologies. It is important to point out that they are NOT those patterns that are taught in most Technical Analysis books – ie: “head & shoulders”, “rising wedges”, “cup & handle” etc. Most of those are after the fact, and are highly subjective. They usually require too much interpretation to translate, and they show results too late to take advantage of them. One person can see one thing, and another person can see the opposite. Too much subjectivity.
One good thing about a good trading strategy, is that it works on any markets. All bar charts of all markets show similar configurations. Delete the names from various bar charts of various markets – mix them up, and then try to determine what chart relates to which market. Very difficult to do. The various SPBANKBOOK TRADING SYSTEMS all rely on varying chart patterns, and basically should work for any market. For years, we have stuck to showing results from trading the S&P 500 Index market. This does not mean the systems will not work on other markets – just not enough hours in the day to diversify.
Having said all that, if you were to couple a successful trading system with a Fixed Ratio Money Management approach, there is just no limit to the growth of your bank balance, and no more risk than trading the original trading approach. . You will amaze yourself at how fast your account will grow. The MS Excel spreadsheets that come with the TRANDWAY TRADING SYSTEM MANUALS (both large contract and Emini contracts) automatically determine the number of contracts per trade, as well as keep an accurate record of your trade results. You can also personally dictate the speed at which you wish to reach your target. It’s a win-win situation.
For more information on adding the Fixed Ratio Management Approach to your trading, go to: HOME and click on “Money Management – 3 Part Series” on the main page.
GOOD LUCK WITH YOUR TRADING.
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