by Paul Handforth of The-Way-to-Trade.com
To many traders the market is a generator of random sequences.
In many cases it will drive you round the bend. Commitment
is a very necessary quality if you are going to be a winner.
The Nature of the Market
Whether the market is such a generator depends on your
perception of the market. For example if you choose to
trade the market on the basis of a precise algorithm,
i.e. a precise formula used by many such as stochastics,
moving averages, etc., then you are dependent on exactly
what the market throws at you. In this sense it is such
If, however, you choose to look at something which has
"meaning" then the market will not be solely
such a generator.
However, most of the chart patterns, etc. that are used
are fairly meaningless. This is illustrated by two facts:
1. For something to have meaning it has to be right
more than half the time. Strictly, the variance from
the 50/50 criterion has to have statistical relevance.
2. Very often, no sooner do we see a "pattern"
than it aborts. It was never really there in the first
place. It just so happens that the market, in its function
as a generator of random sequences, is going to throw
out all types of "pattern" but that does not
mean that they have any meaning.
So What Does Have Meaning?
In my view the only fact that can be stated about markets
is as follows:
Markets move from extreme to extreme across all time
Markets are a manifestation of human psychology. They
are driven by fear and greed. Peaks are driven by greed,
troughs by fear. This is obvious in the very long-term
Fear is often illustrated, literally, with blood in the
street. Greed is so endemic nobody recognizes it for what
it is. But stand aside and it becomes obvious. Not so
obvious in the shorter term moves, but still there.
At the extremes the key point is that price is stretched
unrealistically. Why is this? Because traders and / or
investors are paying too much, selling too cheaply, because
it is an emotional decision.
To win you must put yourself outside that emotion.
Extremes are detectable and I have built an array of
tactics for spotting them.
Article by Paul Handforth
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