05/01/2019/11:00CET
Since this is a how to guide, I thought I would share some of the more nuanced observations that go into technical analysis.
Let me start with a bold statement: "Technical analysis is not a science, nor is it a skill" (TA for short)
Why do I say this?
Because, even though there is such a thing as good and bad TA, bad TA can be proven correct and good TA can end up wrong. I would equate TA to prospecting.
A good background in Geology can certainly help you in prospecting (the mineral mining type), but it does not assure you of any certainty. And then there can be a newbie with no geology training who strikes it big. Chart TA is a bit like this.
Now a good background in Geology will improve your hit rate in the long run and that is why just as in mining, a good knowledge and experience in TA will improve your hit rate in trading.
With that out of the way lets take a look at the charts and see how our trade is doing...
Before I dive in, here are the previous 2 posts which will give you some background to this post. I recommend you go read them in conjunction to this one. And remember to upvote and follow me.
Here is our chart again, zoomed out for context (and I have switched off all indicators and the trade P&L areas)
What can we see here?
- The descending channel which started back in mid Nov. Now note how the 3 equidistant parallel lines were followed by price action.
- Then we broke out to the upside between 21st and 23rd Dec
- Notice that price action seemed to now be reluctant to break back into the channel. So the channel boundary was now acting as support, albeit descending.
- Then on 28th we had a strong daily candle close significantly above the channel support line. This was hinting to a short term trend change. That is when I drew the ascending support line to see if price action would respect it. I also saw a possible upper channel, or in this case wedge (channels are parallel or near parallel lines) boundary. It is in very light blue because it is not yet reconfirmed. (In general my convention is to draw in lines where I see possible trends, at first in very light colours and then darken them as they get reconfirmed. In some cases I also tweak them as I go.)
So now we have what looks like a wedge with an ascending bias which could run for the next 5-15 days.
What I wanted to show you is best seen in the hourly.
- Later yesterday evening we had a small breakout that hints to a reconfirmation of the ascending trend line. It is the right most red circle.
- The other 2 circles mark the precious confirmations of the trend line.
- The start of the trend line is off screen but you can see it in the daily
Trade over the next 12-24 hours will be interesting.
Word of warning!
TA is not a science, it is more a craft
It is tempting to see patterns and lines everywhere in charts
Resist this kind of over analysis
Keep it simple, and always be ready to admit you were wrong when the facts go against your predictions.
Hubris is the traders worst enemy!
TA is not a science, it is more a craft
It is tempting to see patterns and lines everywhere in charts
Resist this kind of over analysis
Keep it simple, and always be ready to admit you were wrong when the facts go against your predictions.
Hubris is the traders worst enemy!
As always guys, leave comments, have fun and trade safe.