What’s the best combination of Technical analysis that is the best?
What is the best?
I was asked this question a few weeks ago and would like to offer some pointers.
The question is coming from someone who is struggling to find the right strategy and finds charts very confusing.
The question is hard in that the answer to his or her question is a different answer to the one they are seeking. What I mean by this is that the best combination of technical analysis simply doesn’t exist.
Let’s take two traders.
Trader 1 uses a breakout system where by they wait for a particular range on a bar (or candle, either way it doesn’t matter), and if this range is not retraced by anymore than a particular amount they will enter the market in the direction of the bar, i.e. if it closed high they will enter long.
Trader 2 uses market sentiment. When the market becomes 90% bullish or bearish, they will enter in the opposite direction. For example, if the market sentiment on a particular index is over 90% bullish, they will short the index.
Now Trader 1’s system works fine and so does trader 2’s. However give trader 2 trader 1’s system (and vice versa) they will both struggle. Why?
A few reasons, but for one, trader 1 trades many times a month, trader 2 may only open 3 or 4 positions in a whole year. Trader 2 has a far bigger account and far deeper pockets. Also, trader 2 has basically no inclination to be in front of the trading screen all day; trader 1 is looking for excitement. Trader 1 also has more time on his hands and doesn’t like to holiday much, where as trader 2 spends a lot of his time over in Africa doing charity work…..
Are you starting to get the picture? Trader 2 could never trade trader 1’s system for the simple fact that he doesn’t have the right make-up for that system. Same as trader 1, he can’t trade trader 2’s system for lack of funds and because he needs more excitement. “What! 3 or 4 trades a year?” trader 1 says, “I’d go insane with boredom!”
You need to get out and learn all the various techniques used by other traders and then find which methods appeal to you the most. There is no magic formula, I am sorry to say to you, but if your patient, and find the methods that suit your personality and your resources; you’ll find your edge.
Happy Trading
Dean Whittingham
Pentagonal Trading © 2004 - 2007
