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 a generator.

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 frames.

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 extremes.

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 of The-Way-to-Trade.com. The Way to Trade is crammed full of revolutionary trading ideas and little-known concepts. You'll be amazed at its simplicity, but astonished at the potential rewards for you.


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