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You Have Been Setup to Fail As a Trader!
Whether you are a stock, commodity or currency trader, at some point you have been lead to believe that by using price oscillators like Stochastic, RSI, Williams %r or the many others you will be able to determine turning points in those tradable instruments. The idea with these is that they can measure the price action and determine when those prices have become overbought (moved too high) or oversold (moved too low). When a signal is given prices will then reverse.
Once you’ve learned this and their ability to signal turns has been instilled in your beliefs of what is possible, you have been setup to fail. It’s not your fault since those that teach the use of these indicators in trading courses will show you how well they worked in the past. Of course, real-time experience will show you how often it doesn’t work. Let’s look at a couple of examples
Before we do that, if you have not read the article I wrote called Bringing Common Sense to Trading. In it you will learn how to trade prices action that has moved too far too fast.
In the above chart of Google (GOOG), once prices began their move higher there weren’t any pullbacks of significance. While conventional thinking would suggest that prices would or should pullback it didn’t happen. You see, overbought is a flawed concept that does work and it will limit what you believe is possible. There is a meaning to the word of course, but it has no real existence in the markets. When buyers are in control and there is little to no price resistance to the left prices can move higher and higher regardless of the overbought belief. It is obvious from the chart above, what is overbought can become more overbought and then move even higher.
If you still have any doubt that the idea of overbought or oversold is flawed, this chart should take care of it. As Research in Motion (RIMM) started its decline there was never a point where it was overbought within the decline, which is still intact. I know that we can make some oscillator with some setting show an overbought signal at the Pristine Sell Setup (PSS). However, that would setup another limiting belief that it may work in the future or on another stock or currency. FA Get About It.
At this point, RIMM could be oversold at zero, but look at this chart. From the high, it fell 20 points and no bounce and then another 20 and nothing. It fell about 50 points before being able to move up and form that PSS! Is that when some oscillator read oversold? There is no oversold or that it has moved too far lower when big money institutions are overloaded and caught. In addition, when there is no significant price support to the left (a Pristine Price Void), the odds are extremely high that the decline is going to continue until the Void is closed.
If you are reading this you are passionate to learn about trading and failure is not an option. You are in search of the truth in technical analysis; same as I was. I found it and it isn’t in the accepted, over-taught indicator based methods. The truth is in keeping it simple and understanding the messages within the price action. This is the same for day-trading, swing-trading or long-term investing and the same for FOREX, Stocks or E-minis.
If you have a trading screen full of indicators I am sure that you have been affected by the plague that infects everyone wanting to learn trading based on chart reading. Consider what I’ve shown you and remove them, read my other article Bringing Common Sense to Trading and the light will start to come on.
All the best,
Greg Capra
President & CEO
Pristine Capital Holdings, Inc.
2012-09-29 22:56:35
Source: http://www.traderslaboratory.com/forums/showthread.php?t=14377&goto=newpost
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