Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

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c06 JWBK195-Saettele June 5, 2008 19:35 Printer: Yet to come

CHAPTER 6

The Power of

Technical

Indicators

T

he method that is referred to as technical analysis encompasses

a wide array of techniques, including moving averages, oscillators,

point and figure charting, candlesticks, time cycles, pivot points,

trendlines, traditional chart patterns such as the head and shoulders, and

tools derived from Fibonacci mathematics (which is the mathematical

foundation for Elliott wave analysis). I will cover just a few of these in-

dicators. There are so many indicators, and many new traders feel over-

whelmed when it comes to deciding what technical tools to use for their

trading. Technical analysis is only valuable if the person using it is disci-

plined. Once you develop a trading method robust enough that you feel

comfortable risking real money, it is imperative to be consistent and stay

with that strategy until further analysis suggests otherwise. Exploring and

testing new methods is always important, but hastily changing your trad-

ing style because of a few bad trades destroys the advantage that technical

analysis provides in the first place. That advantage is objectivity. The fol-

lowing hypothetical example sheds light on this matter.

A trader using a moving average to determine a directional bias might

decide to take long trades if price is above the 21-day simple moving av-

erage ...