Understand What The Chart Is Saying As a Whole

Understand What The Chart Is Saying As a Whole
Many traders cannot see the forest for the trees with technical patterns, obsessing over the smallest details and ignoring the totality of the chart and the picture it is painting. Others use the chart as a convenient rationalization for an action they had already planned to take.

Seeing What They Want to See
Any scientist worth her lab coat knows that constructing an experiment with a particular result in mind will, unsurprisingly, tend to produce that result. This is also true of technical analysis. Traders with a fundamental bias are particularly susceptible to this methodological flaw. They take a well-reasoned, sound fundamental view and attempt to use technical analysis to buttress the argument. “The market must be near a fundamental bottom, see if the chart says that.” Worse yet, others will develop some hunch, pet theory, or “feeling,” then pore over charts looking for some sort of significant squiggle or sketchy line they can draw to justify whatever they were planning on doing all along. 

Connecting The Dots In a Thin Market
In extremely thin or choppy markets it is particularly important to look at the whole picture, as a lack of trades⎯and therefore observations⎯can make spotting breakouts and measuring responses challenging. The overall picture will be less crisp, so the trader must forget about micrometer-level precision and instead focus on the major theme, if there is one to be found. 


From Chapter 4 - Technical Analysis, Pages 142-143.

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Excerpt from Trader Construction Kit Copyright © 2016 Joel Rubano. All rights reserved. No part may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by reviewers, who may quote brief passages in a review.