Technical Analysis Course

A technical analysis course teaches us that technical analysis is for the short term. While technical indicators do not meet the test for medium or long term price projections, they are priceless when used in combination as consistent warning signs to alert U against short-term hazards. The entire objective of technical analysis is to enable U to position yourself in the market under favorable terms. Technical analysis must be short-term enough to enable U to exit the market when the trend to which U have committed yourself develops an increasing potential for reversal.
 

To buy/sell based on price level analysis, as opposed to price movement analysis takes no account of the short-term movements of prices. To buy a certain commodity just because a price is $2.00 or looks like a convenient place on the chart, is not talking into account price momentum - price movement.

In order to ascertain price movement - momentum, one must apply technical analysis, and this technical analysis must be short term oriented. That is why I am delighted with the application of Point & Line Charting expressed further on in this book.

In order to ascertain price movement - momentum, one must apply technical analysis, and this technical analysis must be short term oriented. That is why I am delighted with the application of Point & Line Charting expressed further on in this book.

There are myriads of approaches available to the trader. In the following section I will be listing but a few. The trader must accept those to which he is obliged to commit himself, based on his/her acceptance of them. His/her acceptance must flow from knowledge, experience and awareness.

The fewer techniques U employ, the happier U will be.

U will find however, Point & Line ( P&L ) Charting flows very well with any or all of these methods, because P&L charting is the penultimate in short-term day to day and intra-day analysis. I know of no system wherein that particular system analyzes market momentum, by taking into account the high/low/close of the specific day U wish to execute prices.

However, the general medium to long term approaches, which includes fundamental analysis, enable the trader to be aware of price movements and identifying the broad picture. It is very important to be able to identify the " picture " in chart formation analysis.

 

A study of market action is an investigation of people inter-reacting with the market. Since we cannot insert people into test-tubes ( at least not yet ) to research their psychological make-up, we can only use proxies - - prices , which provide a means to measure the results of people's reactions. Whatever one believes is being measured, the entire approach is being based on the assumption that certain repetitive patterns of price and action will re-occur, either before, during or after a significant price movement.

To my mind, U shud have charts which clearly tell U the tale of the market and which wud be the most helpful to U in U're forecasting ability. U're chart is meant to be a road-map on the path to fortune. If it is too detailed, or pretends to do this, U mite as well frame it and hang it on the wall.

Most charting systems contain the basic selling/buying pressure studies.
 

The chartist is always concerned with his ability to recognize the commencement of either a congestion area, a trend, or a trend reversal.

So long as the trend line remains valid the market continues to parade in a succession of highs and lows. And, the prevailing trend is assumed to be intact. The penetration of a trendline cud raise the possibility of a reversal. The downside penetration of an uptrendline cud carry a bearish implication.

In the reading of any chart formation, it is important that the underlying explanation of what is happening is held in mind. The "floor","ceiling","random walk","trending","discounting", all help in the interpretation of charts.

The speculator need not be a statistician to trade in commodities successfully. In fact, more than one statistician has failed miserably in these markets when he attempted to apply his favorite model. The most expensive model in the world will not improve the actual, correct interpretation of the market. No system is that finite.

The best systems always involve the writing down of the reasons why that system is applied, at a given time. The written statement must answer the statement " Do U want to buy or sell this commodity", reducing U're reasoning to a simple statement or two, encompassing maybe the fundamental, technical and outside opinions, containing the outside opinion last in waying them least. Essentially however, market fundamentals underpin trend direction, while charts, volume waves, wiggle-waggles portray the market activity.
 

There are two categories of analysis.

1 ) academic research - whether the markets are non - random or random etc.

2 ) practical market analysis.

 To be perfectly candid, there is very little objective, explicit evidence available to support the commonly accepted rules of chart analysis, yet the rules are widely accepted as valid and in many instances seem to produce worthwhile results. Chart signals are given by patterns built on many days' price activity, which are often extremely difficult to define mathematically. This means that the chartist is essentially performing a highly complicated and subjective multiple correlation analysis in his mind as he examines his chart.

When technicians attempt to focus attention on short-term fluctuations they leave themselves open to criticism. However, nearly all market analysis is based on short-term analysis, as an attempt-is made to find the appropriate moment to execute prices. The use of medium to long term price analysis will not take into account a random walk of a market on a medium to long term basis and the unpredicta­bility of prices. Price is a result of a cause/effect relationship and occur at the wiggle of fingers in a trading pit. To assume an execution of a trading position based on medium to long term chart analysis does not take into account the effective impact of the character of the market as it relates to news events, trader's commitments (who's buying/selling), market psychology and other short term, small time-span factors. Fundamental analysis is the only justifiable approach to long term price analysis.

It must be pointed out that as more people are participating in the market any work to chart and predict each action , the affect that accumulates can cause fluctuations to occur which may take all chart techniques and make them virtually useless.

As a chartist, you have lots of company . 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 . Particularly , 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 to help them out.

You can use about the scale your chart is on and whether to use closing or mid-price on it . To plot price movements , both can be distorted . The latter is the one used more frequently, but as it comes at the end of the day it is associated with a lot of profit-taking etc . In addition, chaos can occur to the charts because of events that are unforeseeable or changing.

Charting is to some extent a lazy approach . To some weaker people, the clinical and neat look on a piece of paper is appealing . Who have no penchant or time to try to dig deeper. Many like to believe that it's a better idea to look at all the variations . As technical analysis becomes more poplar and more decide to take a technical analysis course, it can actually defeat the purpose it has , especially in a "thin" market setting.

It's imperative to understand that is many traders are going with chart interpretations that are usual for a specific commodity, the price of the commodity will be influenced in the direction chartists expect prices to move . Chart followers are able to prove right their own theories. Although pure chartists don't want to know the fundamentals , a trader that is wise will try to use both strategies for futures trading . None of the chart formations are totally reliable. Chartists must look to other indicators for confirmation , such as changes in production from year to year, variation in business cycles , and deviation in commodity prices or any other quantifiable sum , brought down to a single summary figure to show all the activities.

Often the commodity goes completely contrary to fundamental considerations due to a variety of different factors . To become successful the chartist must be ready for thorough study and hard work and to become experienced . It is an art because of its skill and the finesse and experience of the technician . These are all definitely the essentials needed to trade profitably. A technician has to check, and check again .

Another difficulty from charting stems from the belief that while the speculator knows all the commodity situation facts these facts are also known by large trading houses and other professionals .

In reality, however, certain events can occur unexpectedly and affect all traders . These occurrences may not have totally discounted prices , and chartists may be caught unawares and little can be done to protect a position in such a situation except being alert to catch these trend changes quickly and to be quick to act . ( Such as all the oranges being lost to a hurricane ).

Technicians are famous for making spectacular profits one week and then lose big time the next week . It is a fact of life 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 .

Most systems are indictable when it comes to advisability 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's little actual evidence out there to support all the rules that come with chart analysis. Many chartists tend to anticipate trends . This is a falsehood . You can't recognize or even assume a non-existent trend . If you want to utilize a trend with the method following, you have to wait until the demonstration of the trend has occurred. Even then, the chartist's motto with regards to a trend is that a trend goes on until stopping . Yet again, he tries to figure out the trend reversal direction as it happens . It is not possible. Only as it occurs can you become aware of a new trend that is evolving . Most technical systems cannot anticipate a trend or trend reversal .

If a move occurs that is unexpected , many technicians have to start all over again . After dealing with losses again and again, many traders have abandoned their technical studies since they don't actually work. As it is a fairly common phenomenon , it is further proof that short cuts don't exist to trading success and nothing substitutes for hard work, knowledge, and good experience .

The fact that prices fluctuate is all we know for sure , but not how much .

Protection is only available in those congestion areas because the congestion area defines you're projection of losses . Prices fluctuate in congestions . Technical approaches that attempt to analyze these congestion areas, and evolves a trading method therein , will provide the trader (and his broker through lots of commissions) glorious profits , since commodity prices happen to be in congestion , one form or another 85 % of the time .

The universal problem known to the professional and novice alike is when they need to get in or out of a market. Because of this , a technical analysis course will help you realize that technical analysis has to a large degree encompass price fluctuations in the short term (Another plug for P&L charting ).

A technical analysis course will help you learn that if you make it through 1, 2, 3 or 4 years of commodity trading every price pattern will be seen ( look at that again ). Everything else is the endless repeat of different patterns. One of the interesting things about trading in commodities when some markets are on the rise, while others are at the bottom, (the end of bear markets) you can tell yourself " okay, they'll be going up next." Sure enough , the cycle is begun once again, from the top to the bottom and the bottom to the top . All markets will one day cease to move down in price and then each will move sideways for a while and then advance in price . Bear markets always end in commodities, and there's always an end to bull markets .

What I've just talked about is representative of a long term philosophical approach to market price analysis . To put it simply, if in the past year or so the market prices have gone down , the end of the bear market is in sight , and sometime the commodities will begin rising once again. This can be realized almost without looking at a chart . However, when you look at charts by using a technical analysis course, you can see the bear trend is ending and a position can be taken by the trader .

For trading you can't go with an assumption that by being aware of general movements of prices by reading this in the news or just thinking about those movements, that it will help you in the long term to figure out the way prices will move . More often than not such an approach will not restrict the limits on losses once you enter the market , due to movements in price that are adverse or after the accumulation of profits . Most individuals who do not use chart methods in an up market , for example, are surprised by a bear crack or trend. Chart analysis is so important for the protection against losses and protection of profits ! Learn from a technical analysis course first before you put your money on the line .

Chartists can learn from technical analysis course or learn by personal study . Many chartists have the argument "look at others...they probably have more knowledge on the basics than I do."The basic tenet of the chartist is "the trend continues until it stops." Chartists work to anticipate any movements in trends . Chartists are known to end up with amazing profits at one time and enormous losses the next . Chartists always worry about their aptitude to recognize arrivals of trend reversals or an area of congestion. A chartist is happy as long as trends continue on. In analyzing the likelihood or the occurrence of a trend reversal , or there is activity in a congestion area or any trend problem, the chartist becomes very unhappy .

Chartists are quite the characters . The wiggle waggles get him off . What usually happens to the chartist is that he/she does not see the forest but for the trees . And, the chartist's bag of tools is never over-filled until the end when all the information and the systems end up blocking their thinking.

He stares in blank, hypnotic, unreceptively for hours on end at the chart , not realizing what the chart is saying . The major problem is that they continue watching charts to figure out what prices are doing, instead of telling his requirements to the charts.

A suggestion : When the chartist evolves into the fog-like state , they need to take time and write down the request from their chart . A chart is nothing more than information and facts on computer , and like you do with a computer, you have to let it know what you want the computer to tell you , and the criteria that is by , and, only with a preprogrammed trading plan can this be done. The very first requirement a chartist has is that he has a plan for trading and that he gets from his chart the criteria that works with his plan . Going with the investment of a technical analysis course is sound advice .

Most successful chartists are

* a) unlikely to take a long position
* b) are quite likely before receiving margin calls to close out a position .
* c) if they get a margin call are not as likely to put up another margin
* d) are more likely to pyramid profits and trade various commodities .

The unsuccessful chartist

* a) is likely to let losses run and cut short profits
* b) less likely to be short than long
* c) has a clear tendency to buy on days of price declines and to sell on price rises . This action indicates that these chartists are predominantly price level traders .

Track records aren't possible on general chartists, but a track record is certainly feasible on the performance of any particular chartist . Until chart readers allow themselves to be subject to some type of track record , taking their claims seriously is impossible . Few chart readers would have doubted the existence of the "head and shoulder" formation . However , the reversal signal of one will flag another to go on . Usually , if a chartist is justified usually luck was what caused his decisions to be correct. The trader is more painfully aware that technical analysis course competence does not insure competent trading . Those who end up losing don't always lose because their analysis was off but due to the fact they weren't able to turn this into practice that was sound. Bridging the vital gap between analysis and action means getting over the threat of fear, greed, and hope . Impatience has to be controlled and abandoning a sound method for a new one, especially during time of temporary adversity .

 The above material is excerpted from the book "How to Make Money in the Futures Market . . . And lots of it." By Charles Drummond (Copyright © 1970 by Charles Drummond. All rights reserved).
 

Charles Drummond is a Canadian trader who has written nine books about trading and has created a method of technical analysis called "Drummond Geometry." His biography and further information about his work can be found at technical analysis course

Never in my life has something been seen like all these various methods which are coming on stream for the use in forecasting commodity prices . There are many approaches and techniques . Here we'll only briefly look at a few .

Some are conservative and this author will place an asterisk beside the ones which he personally uses . Listed in this chapter 36 ways of forecasting prices are shared. This doesn't consider all the excellent tidbits that come through the revelation of P&L charting technical analysis course.

(This author is very happy with P&L charting , for it enables this trader to quantify price action on a daily and intra-day basis . There is no other system I know of where the activity of the day is more important than congestion or trend in which the prices are being traded. With P&L charting every day's activity portrays the evolution of a trend or congestion , often in just a day . )

Of course, , I become quite irritated by those traders who are convinced that their weighted moving averages, volume oscillator, resistance index, balance volume, and who knows what else, - cash, basis , - are the only system which is effective. And, that the system that they are using is the only effective one and that they have no use for fundamentals, open interest, wave theories, chart patterns, point and figure, many others, and are blinded to the approach of others . ( There . Now I got that out .)

Many times these traders do not even use their own systems and to me it seems, to be continually fighting the market . If you assume the trader has gone through a technical analysis course and has a trading plan incorporating several methods of forecasting prices and combines them in a way which he can continually trade profits from the market , then listening to this trader is a good idea . In the section below that is on planning, the author will show his approaches to the market place and you may get surprised at the flexibility of the author.

Many models are based upon moving averages . Some are difficult and have many variables . Most models draw the bead on trend directions after it has been manifested and will keep you in the market as long as the trend is unchanged . Some moving averages try to forsee trend changes . These types are profitable to the properly capitalized trader who can initiate a recommended position and can underlie more losing than winning trades .

A technical analysis course teaches that the rationale behind the moving average ( MA ) is figuring when the price direction differs from recent price averages. As long as the price average is lower than the current price of say the last ten, twenty or one hundred days the trend goes on. Most often observed is the ten day MA of closing prices . The advantage to this method is that it gives equal weight to each day's price . The MA assumes that the trader bestows as much importance on last week's prices as he does on yesterday's .

The rules of reality are not obeyed here. There is a limited horizon for a short term trader. As compared to other investment forms, commodity prices more rapidly vibrate, so, shorter series usually will do the best.

The best MA should :

1) quickly see a big turn in a price trend not days after the turn has occured
2) we do not want the MA plot so close to the plots of the daily prices that we get lashed into consolidation or minor swings.
3) the moving MA plot must be adaptable to the volatility of the particular commodity .
4) if the commodity locks limit the MA plot should be responsive .

This approaches problem is that moving average lines may be too languid to use as an indication of reversal. Usually , MA technicians have their trading decisions guided by changes that occur in the price market based on the line of MA. As the MA is more sensitive the smaller the degree and amount of the advance differential and the larger the number of sell and buy points , which leads to a lot of whip-saw and some small losses as learned in a technical analysis course.

Of course , the shorter the time span , the more the MA is sensitive to a reversal or trend termination . New trends will be acted on earlier and do not need much time to establish themselves . However , the sensitivity is paid for by traders because, and to repeat , the shorter the moving average the greater is the number of trades that will be made with greater commissions added to whip-saw losses .

So , when it comes to the price trend turn, there is a delay with moving averages . Many times the delay is much greater than would be the case using P&L charting, simple charts, or point and figure charting . The chief advantage of the moving average position is that the each trend of substance has the user automatically put on board (as do all trend following systems .) You can find out more from a technical analysis course.