Profiting from Technical Analysis and Candlestick Indicators: Powerful Methods for Accurately Timing Trades

12. Signal Failures and False Indicators—The Misguiding Signal

A common belief about signals—both reversal and continuation—is that they sometimes fail or are simply false. This belief that unreliable and inaccurate signals are random is misleading, however. Although signal failures and false indicators certainly are possible, it is more likely that a more in-depth examination of a chart will reveal that these occurrences can be explained.

A combination of flaws in patterns, proximity, or trends can be attributed to a majority of signal failures and false indicators. A typical pattern flaw is in a signal that meets the bare minimum to qualify for what it forecasts. Such signals are inherently less reliable than a stronger and clearer pattern ...