Four Basic Points on Technical Analysis

The true trader, the consistent winner, is not concerned with any price or where prices started from.  He or she is concerned with what it takes for people to believe strong enough, and with enough commitment, that they will place their capital at risk.”  So, with that in mind, the four basics:

1.  A price chart is simply “a pictorial representation of the sum total of all the market’s belief structures.”  No matter what we believe the chart does not lie.

2.  “Because every potential trader in every market is seeing it differently, every printed price will mean something different to everyone.” Our entry may be someone else’s opportunity to exit and vice versa.  We should always remember this the next time we believe we have a sure thing.

3.  Prices eventually have to stop their forward progress, in either direction.  “When every potential trader has executed for an entry, in any time frame, the market is vulnerable. When no one is doing anything, and what’s been done is done, prices must stop.” 

4.  No matter what indicator we use “every technical indicator designed is based solely on combining or dividing prices in some way.”  Volume and open interest, however, “chronicles the true state of what is happening inside the minds of the market participants.” 

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