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

The Power of Technical Indicators 103

Flip-flopping back and forth between technical methods is just as

bad as trading based on backward looking fundamentals. Neither method

leads to success. The biggest problem with both i s lack of consistency and

objectivity. I recently came across an article from Reuters titled “Stocks

and dollar fall as economy, earnings sour.” The first sentence of that article

is “Stocks slipped and the dollar fell on Thursday after another batch of

weak data suggested the economy faces further weakness.” Three days

earlier, a Thomson Financial article was titled “Dollar recovers against

euro as investors turn to safe haven currencies.” The first sentence of

that article was “The dollar recovered firmly against the euro as falls in

equity markets prompted investors to turn to safe-haven currencies.” To

summarize: On Monday, the dollar rallied and stocks fell because of a

slowing economy. On Thursday, the dollar fell and stocks fell because of

a slowing economy. There is nothing consistent or objective about that

analysis nor is there anything consistent or objective about switching

technical trading methods on a whim.

WHAT IS TECHNICAL ANALYSIS?

In trading, the trader is his own worst enemy. The emotional impulses from

the limbic system win over the rationalization of the neocortex and the