It’s important that you notice 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 might destroy much of the validity of all chart techniques .
If you are involved in charting, you’re not alone. There are literally thousands of people 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 . In particular , stop loss orders being placed at the very same points by many chartists, may create false penetrations of trend lines and other formations . Charting is inevitably to some extent an inexact science , even for those chartists that have a technical analysis course under their belts .
It is a matter of choice about the scale your chart is on and whether the mid-price or closing price is used . 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 . Furthermore , chaos can occur to the charts because of events that are unforeseeable or changing.
Charting is to some extent a lazy approach . The sheet of paper with a neat looks appeals to many who are weaker. Who have no time or inclination to delve 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 and more people take a technical analysis course, it will commence to defeat its own purpose , especially in a “thin” market setting.
You must understand that if enough traders are going with chart interpretations that are usual for a specific commodity, the price of the commodity will be influenced in the course chartists are expecting the prices to go . Chart followers are able to prove right their own theories. While a pure chartist does not wish to know a thing about 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 deviations in sums that are quantifiable, such as commodity prices, reduce to one figure in summary to register all the diverse activities .
Often the commodity goes completely contrary to fundamental considerations because of technical factors and more. To thrive the chartist must be ready for thorough study and hard work and to develop more experience. It is an art because of its skill and the finesse and experience of the technician . These are no doubt the essential ingredients of profitable trading . A technician has to check, and check again .
Another difficulty of charting comes from the thought that although a commodity situation and its facts are know to a speculator other professionals and trading houses know these very same facts.
In reality, however, some events can occur without prediction and can affect every trader. Prices may not have completely discounted these occurrences , and chartists may be caught unawares and there is very little left that 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 take action fast . (How about a hurricane carrying all the oranges into the Atlantic ).
Technicians are famous for making spectacular profits one week and enormous losses the next . It’s just a fact that prices will not fluctuate according to what their past performance dictates , although you do get some idea on a day to day basis with P&L charting .
The advisability of most systems is indictable 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 isn’t much available evidence that is objective to support all the rules that come with chart analysis. Trends are anticipated by various chartists . This doesn’t work. One cannot assume or recognize a trend that does not exist . When trying to use the following method to utilize a trend , you have to wait until the demonstration of the trend has occurred. Even then, the chartist needs to have a motto when it comes to trends which is that a trend continues until it stops . Once again , he tries to figure out the trend reversal direction as it happens . This is impossible . You can only realize an evolving trend as it happens. Most technical systems cannot anticipate a trend or trend reversal .
If a move occurs that is unexpected , starting all over is what happens to mot technicians. After going through a string of bad losses , quite a few traders just abandon technical studies since they don’t actually work. Since it occurs fairly often , it offers more proof that trading success has no short cuts and there is nothing that works better than experience, work, and knowledge.
The fact that prices fluctuate is all we know for sure , but we don’t know how much they’ll fluctuate .
Protection is only available in those congestion areas because the congestion area defines you’re projection of losses . Even in congestions prices will fluctuate. Any technical approach that attempts to analyze congestion areas , and therein a trading method comes into being, will give the trader and the broker large 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 to get in and out of the market . Due to this, a technical analysis course will help you realize that technical analysis must to some degree encompass fluctuations of price that are short term ( Yes, another good plug for P&L charting ).