CHAPTER 2
Avoiding a Trading Tragedy
Out of intense complexities intense simplicities emerge.
—Winston Churchill
If you are reading this book, you are probably a technical trader. You may have spent time, money, and effort learning about indicators. You may have learned through experience that trading with indicators can be very difficult. In some ways, trading with indicators makes it difficult to find profits. Perhaps a close look at why indicator-based trading systems have difficulty finding profits in forex is in order.
All indicators are created from price data. This is what all indicators do to price data: Price data enters into an equation and is spit out as something else. Sometimes the end product is a squiggly line, sometimes a straight line, sometimes a color or a number; it depends on the indicator. The end result is always the same: The indicator changes price data via a formula. The form of this end result (the indicator) may vary, but the process is always the same.
These very same indicators, based on price data, are meant to hint at future movements in the market. Stated another way, an indicator will suck in price data, massage and process these data, and then spit out a graphical representation of these data. Indicators offer price data in another form. Perhaps this new form of price data is easier to interpret; perhaps this new form of the price data will hint at what the market may do in the near future. All indicator-based trading systems are founded on the ...
