Technical Analysis Course – Discussion of Trading Methods
Never in my life has something been seen like all these various methods that are appearing for use in price forecasting for commodities. Hundreds or different approaches and techniques are out there. Here we’ll only briefly look at a few .
Some of them are rather conventional and I’ll put an asterisk by those I use personally . Within this chapter 36 ways of forecasting prices are shared. This doesn’t consider all the wonderful glorious little tidbits that can be found with a 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 the way trading prices are going . With P&L charting every day’s activity shows congestion or trend evolution , sometimes within one day . )
Of course, , I’m frustrated by those traders who are convinced that their moving average, point and figure, resistance index, volume oscillator, balance volume, weighted moving averages , and who knows what all else , – basis, cash , – are the only effective system . And, the system they use is the one system that is going to be effective and they don’t have a use for seasonals, contrarian opinion, volume, oscillators, momentum indices, indices, other options , and are blindfolded to the evolution of anyone else’s approach . ( Yes. Now I got that out .)
Often these traders don’t even use a system that is theirs and seem to me, at least , to always be fighting the market . Assuming they have taken 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 planning section , this author will succinctly portray his approaches to the market place and the flexibility may surprise you .
There are three basic methods to analyze the market behavior of commodity prices .
1. fundamental
2. mechanical
3. technical
FUNDAMENTAL
Often the market goes completely contrary to fundamental considerations due to various factors . Fundamental traders are interested in the price movements that are long range and need to be prepared to simply wait. Fundamentalists may deny it , but there are just too many external factors to be taken into account , such as the natural response to fundamental influences , reflected in the fluctuations day by day . So for analysis, there is now reason to seek them out .
MECHANICAL
The mechanical methods use only price to figure out what action to go with and the action doesn’t require a trader’s decision . There are three mechanical methods .
1. chart
2. computer summaries
3. moving averages
Going through a technical analysis course will teach you to follow the rules of trading faithfully and it is usually based on some mathematical formula to help predict the right trading time . A computer uses the mathematical formula and tells you what it thinks that you should do . One great thing about this method is they can be back checked . Computer based methods usually bias themselves towards mathematical trend analysis ,using moving averages and other trading systems . Your computer can become a chart reader and it can formulate and test any and all decision rules .
TECHNICAL
In the last several decades , much work has been done to get technical tools in place , – all trying to use trading statistics to anticipate the futures prices, i.e. O.I., price, and volume.
There are four broad areas of the technical approach .
- 1) patterns on price charts
- 2) methods that follow trends
- 3) analysis of character of market
- 4) structural theories.
For charting, there are a variety of methods . The most popular are :
- a. daily high/low/close bar charts
- b. point and figure method
- c. the average that moves of the prices at closing
The lists of approaches taken to technical analysis can be put on the list by these technical approaches .
- 1) tape or board reading
- 2) price chart analysis – which consists of
- a. the price and its trends
- b. support as well as resistance
- c. consolidation ( continuation and reversal )
- d. prices and the patterns and formations
- e. the measurement rules
- f. wave theory
- 3) volume and open interest analysis
- 4) other technical indicators which can include :
- a. measures of relative performance
- b. studying the periodic price performance
- c. contrary opinion and opinion survey
This will be discussed later .