Analysis by Thom Hartle
A market does not move in a straight line; instead, its
movement travels across the chart in peaks and
valleys, forming a channel in the direction of the
trend. Early identification of the channels can give
you important information, including that the trend
has changed direction, what the profit objectives are
and risk points.
As computers and technical
analysis software become
more and more sophisticated,
there is an increasing
reliance by traders on using
indicators for trading signals.
This focus on using
technical indicators for developing
trading systems is a reasonable step, but
along the way, a certain craft, using simple price
charts to gauge what a market is doing, has been lost.
But why the movement away from chart analysis?
Once more, the answer centers around simplicity;
traders have found that, much to their delight, indicators
are easy to program, modify and design trading
systems around. There is an additional appeal, because
most indicators can smooth the price action and
have specified range limits such as zero to 100. This
feature gives the trader the sense that noise has been
filtered from the markets. The apparent moment-to-moment
randomness in a market is due to the market
participants therein acting in the marketplace for
their own diverse reasons. The result? The underlying
price trends are clouded by the impact of these
traders. As a result, traders have grown dependent upon indicators that filter the price action and produce
reliable trading signals.