Traders' views - Forex

How to use chart patterns and within trading systems

By , 10 Oct 2012

The trouble with technical analysis is that sometimes it can give you opposing views. So that if your belief is skewed in one direction you’ll find something in the technical analysis box which will confirm how you feel.

Just recently the dollar index (the market sentiment indicator for currencies) made the break of a key trend line but bounced off a Fibonacci level. Which one does a trader focus on?

Let’s take trading systems. Each system has in it its own proprietary indications about how the software feels about a certain situation. It doesn’t make an opinion it just crunches its algorithms and tells you in a non-biased way how it sees the result. 

Why, then, don’t traders look for interesting chart patterns that they like and then add their favourite trading system into the mix?

If you are happy with your trading systems performance then find that ambiguous pattern that you like the look of but let the trading system call the shots and see how it sees the outcome.

Whatever the call, make sure you manage the risk and let the system give you the next move. You may find that an unbiased view is the one you need.

Here is the type of chart I mean.

The dollar index has broken the key red trend line and retraced to the bottom 61.8% Fibonacci level which could be a higher low. A good trading system should offer an unbiased view of where it sees the best action.

Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.

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