The Forex Trading Course: A Self-Study Guide to Becoming a Successful Currency Trader, 2nd Edition

Part IITiming the Trade with Technical Analysis

The paramount question in every trader's mind is: Just when and where should I pull the trigger? Technical analysis supplies the tools for answering that question, but there is no single answer or unique path to obtain the answer. There is no single technical indicator that can, or should be, exclusively relied on to produce winning outcomes, because the markets are too complex. No one, to date, has produced a consistently reliable technical trading system for any market, let alone forex. This is because technical indicators can never capture all of the variables that influence price movements.

The phenomenon of irreducible complexity comes to mind. The market has too many variables and models of the market are necessarily incomplete. Financial mathematicians, known as quants, try to come up with algorithms (equations) that improve predictive ability, and they get millions of dollars to try. They've tried every conceivable methodology, such as Fourier analysis, wavelets, and neural networks, to try to gain even the smallest increment of predictive value. Simply put, it is not easy to replace the seasoned, experienced trader. The reason should be obvious—technical analysis provides a snapshot of market moves that have already occurred. The resulting snapshot is a picture that is always lagging and limited in resolution. In contrast, the “smart” trader has evolved a successful mixture of analytical tools that sense repeatable patterns, ...