There is no technical analysis that can predict price.
Technical analysis is a very good discipline for describing and justifying the past,
but definitely not for earning money operating on the market in the present.
Directional traders often support this. What also helps me here, are the completely
informal conversations I have had with traders who live from trading on the stock
market or on the Forex and who have spoken to me about how their strategy, is
based on studying the price but also takes into consideration previous key levels, and only works because of the care taken to enter into the position at the right
moment and only earns because of care with risk management.
When I talk about risk management in my courses, the audience only pays attention
because of the word “risk”, and all the rest is just boring as people want to hear
about profits, and definitely not about how to manage their own operational plan:
management does not fascinate anybody.
In this book you will learn that technical analysis is the result of the amount of
money operators put into the game and not the opposite.
A resistance does not only form because the price reacts psychologically to a
specific past price level.
If no money was involved, the price would not go anywhere.
A level of support results if money flows in the market but the fact that those
movements correspond with a support, does not tell us if it will be a support, or a
“broken support”.
What should I do when I read about the presence of a support on a chart? Do I buy
it, thinking that it works as support, or do I sell it, thinking that there will be a
breakout? Is this not the same thing as deciding to buy or to sell at any time?
People say that oscillators do react late in relation to the price, that they give a more
immediate and filtered reading of the price and that they therefore reduce the
information it gives.
Of course, a line drawn with a mathematical formula can not, at any time back up
my personal decision about the risk I want to take.
A very interesting observation came from a pleasant chat with a directional trader
recently...
When stock exchange traders were floor members they certainly did not have
computers and could not calculate the MACD or stochastic value at any moment of
the day.
Traders knew the prices of the previous stock exchange session and they could
mark with a pencil, in a notebook, the prices of the trading day that were shown on
a luminous strip display.
These traders managed enormous capital and represented the interests of
institutions that definitely did not trade on the stock exchange to lose their money.
Today, computers allow us to automate complex formulae in a second and this
allows analysts and private traders to go crazy using indicators and "magic formulae", which have nothing to do with the price, other than as the basis for a
calculating model that tries to explain what the price already says.
The more you move away from the pure price, the more you go towards something
that does not represent the price at all.
In any case, I want you to remember that what we buy and sell is always a price, never one of its derivatives, the stochastic is not on sale:.
the feeling that everything can be automated.
In trading, the “robot” that imitates human abilities without emotions is one of the
frontiers in the top ten interests for newbies and professionals.
I have heard a lot of talk amongst professionals on this subject.
A lot of talk amongst traders new on the scene, who already want a trouble free life.
A major split has emerged between those who consider the trading system as the
only way to success, and those who consider it as the surest way to a guaranteed decline in performance and capital in the medium term.
budgeted when you started trading, you will know for sure that you have earned the
results with commitment and you will certainly not believe that you have found the
Holy Grail but of have simply learnt a profession after having committed yourself to it with consistency and passion.
The market satisfies the demand and supply of those who place orders to buy or
sell, and that’s all.
If the price rises, your order has contributed to that movement, just as it has when
the price falls.
It is simply a matter of understanding whether there are people able to “manipulate”
the price or not.
In any case we will not be those people, and we have to accept this fact. In any case, if a character exists who "manipulates” the market, (usually called a
“strong hand”), it would be interesting to understand what logic this character
adopts and what moves he/she makes, so that we can be on the right side of the
market.
I have never found the phone number of someone who could keep me updated
about the intentions of the “strong hands”, but what I have identified is the “track”
that those “strong hands” leave when they move.
This particular detail warrants consideration in this e-book, which does not intend to
explain direction as the result of a technical observation, but simply as the result of
the circulating money flows.
To know where the money masses are directed gives us the chance to be on the
side of those who earn simply because they have enough capital available to influence the rules.
Useless to say that, being able to change the rules of the game is a winning hand in
any activity.
In trading this is only possible at the very highest levels. Levels of power that are in the hands of a few.
unobtainable information and are even able to create such information, not just
modify the rules of the game.
To know that the market can be manipulated and that this ability is in the hands of
the few, makes us conscious of the real risk, that of the impossibility of predicting
the price.
If anytime you enter the market, you are conscious of the fact that you can lose In
spite of your trading system, you can think of making this fascinating job part of your future.
Who are these people?
Let’s say that if the strong hands are able to move the market with some efficiency,
and to be a significant counterpart to the equivalent value exchanged, maybe those
strong hands will be a big part of this 5%.
This reduces the chances of us being elected to the 5% of profitable traders even
more.
The simplest thing to do, I think, is to follow the moves of those who definitely have
the cards, whether legitimately or not, to play the game.
That is why simply watching the price and reading the tracks left by the big
operators is an inescapable necessity for the trader.
The trader is “the little fish” that swims under the “shark”.
The shark moves and looks for its prey to eat, and by remaining under the shark’s
belly the meal is guaranteed, and if nothing else, we also avoid becoming the shark’s dinner.