1. Given similar circumstances and conditions, people tend
to react in a similar manner.
2. All fundamental information is available to, and absorbed
by, market participants rapidly. That is, all the fundamental
views, real or not, are already in the price. This leaves only
emotion as the unknown and influential force.
What many technical analysts do not fully appreciate, or
appreciate at all, is that it is the difference between reality and
consensus fundamentals that gives major market movements
their power. The emotional swings that are so often given status
by technical analysts actually occur only around what is a fundamental
price shift or trend. It is this fundamental force constantly
in the background, and usually very consistent in power,
that is at the heart of any trend. However, despite failing to recognize
the significance of the real fundamentals, technical analysis
provides the clearest measure of immediate emotional bias
and has been shown to deliver excellent overall forecasting performance.
My own view of technical analysis and markets in general is
slightly different from textbook theories. I believe all the various
theories are essentially describing similar phenomena. Whatever
school or schools of thought analysts or traders choose to follow
should ultimately be dependent on what appeals to them and
what they are comfortable in understanding completely. All market
theories have significant overlap—most are simply describing
the same phenomena using different language.
Using Classical Technical Analysis
Rather than concentrating on individual technical methodologies,
warrior traders see through the array of technical theories to
a deeper truth. As I will describe here, there are processes that
give rise to repetitive patterns of behavior in our markets.
Warrior traders do not deviate into a particular obsession with
one particular discipline of technical analysis but instead see all
the theories as potentially having some value. Ultimately, warrior
traders know they must choose the theory that works best for
them. We are all individuals, meaning that the different languages and approaches
to the market will have varying degrees of attractiveness to each of us. Finding
the one, two, or even three approaches that we feel some affinity for and can
quickly incorporate into our developing personal battle style is of vital importance.
Contrary to common belief, applying a greater number of approaches or
technical tools into one trading approach can be detrimental. It is better
to thoroughly understand and be familiar with one to three approaches.
In this way you develop a warrior-like sense of how the market is looking
on the basis of your preferred methods. This gives the warrior an advantage
over the trader who mechanically applies a vast array of technical tools.
On the battlefield, there is no time for hesitation. Hesitation
can mean defeat. It must all flow as one—action and reaction
must become an organic and synchronous exercise. Our fundamental
understanding, our technical analysis weapons, and our
conclusive instinct must unite in a timeless and artful fashion to
deliver winning blows in a steady stream of success.
What the various theories of technical analysis have in common,
and what is essential to successful battle, is the belief that
there are repetitive patterns of behavior in the price action of
markets. This can be seen after even a cursory glance at market
charts. However, every market is different, and every trend
within each market is different. While the textbook application
of these theories will provide only limited success, the real-world
battlefield application of some theories can signal the end to the
enemy. Warrior traders identify the pattern of now—that is, the
pattern of this particular market and the battle at this particular time.
When developing an understanding of immediate price action,
it is essential to remember that all markets develop rhythm.
When that rhythm alters, it usually signals a significant change
in trend. Identification of that rhythm—that is, the current
pattern of behavior—can be aided by the broad and flexible
application of some technical analysis theories. But, ultimately,
understanding of a market’s rhythm is an art—an art that anyone
can develop but few have bothered to. It is just one of the
arts learned by the warrior trader. However, on the day of the
battle and in the midst of furious action, it can be the most
important skill of all.
Read More:CLASSICAL THEORY TECHNICAL ANALYSIS
