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Forex training - CHAPTER 1

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INTRODUCTION AND RATIONALE TO THE TECHNICAL APPROACH

A second orientation I have is to discuss some of the pitfalls to improved
trading and investing decisions, such as your attitude toward the
market—is it gambling or is it profitable investing or trading that you can
master? How much time will you invest in it and how much perseverance
will you maintain? I find that a person’s emotional temperament, work
habits, discipline, and ability to see ahead (foresight) are as, or sometimes
more, important as mastery of some of the more complex areas of technical
analysis. Time spent and perseverance in understanding the most basic
use of charts and technical indicators are more important to most market
participants than exhaustive study of every aspect of this field. And there is
a great tendency among people to think that complex ideas and techniques
must be the way to approach the markets, which after all, are complex
mechanisms. This is wrong, as simple is better in my experience, and I am
not the only one saying this—many top advisors and money managers base
their decisions on a relatively simple set of criteria.

USE OF EXAMPLES


Chart Examples

I use stock and stock averages exclusively for all examples in this book
relating to demonstrating technical patterns and indicators. While I also
have a background in the futures, fixed income, and foreign exchange
markets, I will not provide chart examples from these markets, or discuss
aspects of these markets that are unique to them—for example, describing
open interest and how to use it in futures or the ways of
constructing a continuous contract price series from the various futures
contract–months. I do discuss some custom indicators and methods of
analysis that are unique to the stock market, as I believe I have something
unique to say about these things. However, again I want to emphasize
that all general technical analysis principles, which comprise most
of this book, are applicable to all markets.

All Markets

The popularity of technical analysis owes much to its initial widespread
use in the commodities markets, especially in the 1970s, when these markets
were very active, drawing in many individual futures traders. Technical
analysis is very popular in the biggest single market in the world—the
interbank currency market, usually just called the foreign exchange or FX
market. Having worked in this area in Europe, I can say that I understand
a major reason for this—a chart or a technical indicator is the same in any
language. This said, I do not draw, for example, on FX charts of
dollar–yen or of the eurodollar for my illustrations.

Further Study

I do, however, point you to other books with a more detailed and specialized
orientation toward other markets or specialized fields within technical
analysis that you may want to study further if you’re interested—for example,
on candlestick charting or wave analysis. Some of what I consider to
be the best reference works on technical analysis are provided at the end of
the book in a recommended reading list. Some of these books draw on
more examples from the futures markets, for example.

NEED FOR TECHNICAL ANALYSIS

There are plenty, in fact a majority, of successful money managers who say
they don’t use technical analysis at all. There are also rich investors and
speculators who rely mostly on technical analysis. It’s not the method; it’s
the person—just as Jack Schwager found in his wonderful Market Wizard
series of books.
You may not have the emotional temperament or time for short-term
speculation in the market, which is my situation, but you can still vastly
improve your batting average when it comes to longer-term investing, such
as in stocks. You can focus on looking at long-term charts and indicators
only—however, don’t get married to a stock, either. Even very long-term
investors decide it’s time to exit a stock or stock sector and look for other
situations. This group of individuals can benefit from stock market timing
to find a more advantageous (cheaper) entry into a stock or mutual fund or
to exit when a primary trend reverses.

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

SHARETHIS