Identificador de carga útil

If there is any one fault that most technical analysts share, it’s the inability to get rid of the charts when necessary. Another Bingism comes to mind: “You have to know when to throw the charts away.” The ability to do this is one of the things that made Bing Sung such a good trader. An important part of any trader’s character is the ability to incorporate the work he or she uses with natural gut instinct. Too many people become married to a strategy for whatever reason. Perhaps new traders and investors need the simplicity of a discipline that allows them to make what they feel are qualified investment decisions based on a given methodology.

This approach gives part-time traders a tool by which they can map the price action of a market and make sensible trades with the handicap of time and lack of homework. Most people don’trecognize that becoming married to one particular strategy can be disastrous. This is the primary reason that over 90 percent of the retail public who open futures trading accounts lose their money within three months of starting. How can that be? How can so many people consistently lose? When new traders and investors start thinking they can compete with seasoned veterans on an equal playing field, tthey are destined to fail.

New traders cannot compete with the veterans of the markets and ex- pect the same level of success unless they have the right combination of discipline, time, and a proven gut feel for trading. New traders usually find a strategy they understand and then become enamored with it. Most of these traders end up finding out what the old-timers have known for years: If you live by the sword, then you’ll die by the sword. In other words, if you find yourself married to a certain methodology, then that methodology might one day bring you down.

Imagine a trader who based his or her entire strategy on the relative strength indicators of the market. This trader would have been selling the stock market all through the late 1990s because the relative strength index (RSI) was so high. With hindsight, it’s clear that this trader would have been horribly wrong to stick to this disciplined approach.

There’s a big difference between calling yourself a technical trader and understanding the market structure, along with the charts and price action. Aaron Reinglass, an old friend of mine, is a perfect example of the seasoned technician who incorporates fundamentals into his analysis. Aaron is always fond of saying that if a person doesn’t know how or why he or she made a profit in the market, then there’s a good chance he or she will eventually lose it.

Reinglass is the son of Auschwitz survivors, who had a big influence on his worldview. A skeptic by nature, he’s an excellent technician with an uncanny way of finding the hidden news story that could make a large market impact. He occasionally comes to me with an article or story from a major publication or the Internet supporting or opposing an opinion we discussed the previous day. The most memorable thing he ever said to me was at the beginning of the move down in stocks during late 2000 and early 2001: “Remember, Jack, drinking doesn’t cause hangovers—stopping drinking causes the hangover!” What he was trying to say was that the charts were confirming what we had suspected all along: that the market was in serious trouble. I’ve borrowed that line from him and used it, with his blessing, on many occasions.

The real question that all students of the markets should ask is whether charting the markets gives them a true edge in trading or not. As I talk to audiences around the country, one question that seems to come up again and again is whether I use technical analysis and, if so, what disciplines I follow. It seems fairly obvious that the market observer will notice certain patterns that develop over the course of a trading session. You might argue that the market will do whatever it wants (the random walk theory, which we’ll discuss in Chapter 7) and that charting the price action is after-the- fact analysis. There are moving averages that can range from intraday to yearly, which give traders an idea of moving value by setting an average price.

Charting price action is a little different in that traders are looking for certain patterns to reemerge so that they can be proactive in placing what they consider to be high-percentage trades. These charts can be generated from a tick-by-tick account of the action to a time frame of any choosing. This type of analysis is the most commonly used by beginners and has its own flaws. Certain types of market study such as point-and-figure analysis and pivot point methodology are destined to fail because of their popularity. Being the easiest way to begin a trading career, these simplistic approaches become self-fulfilling prophecies for professionals that feed off of the retail accounts.

It’s only logical: If the entire retail world is looking at the same chart and deducing the same analysis from the price action, then they’re bound to do the same thing collectively. Another of the best-kept secrets on the Street is that the professional trader makes a great living off the uneducated retail investor who uses simple support and resistance levels to get in and out of positions. This is almost the same as telling the world what you’re doing and thinking as a trader.