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Technical Analysis for the Trading Professional by Constance Brown

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Chapter | 7PRICE PROJECTIONS BY REVERSE-ENGINEERING INDICATORS

A clarification is needed in this second edition about reverse-engineering indicators. This is an analytic method and not a trading tool. It is a calculation to define a worst case scenario. It might be needed in trading someday, but not every day. Often it is professional analysts who have to guide their firm in extreme scenarios. Prepare beforehand because it is more difficult when chaos surrounds us.

The example that follows of the USDJPY in Figure 7.8 was indeed a real-time calculation and result. However, to my surprise, I have never been asked why I elected to calculate “y” in Figure 7.1 as a “what-if” scenario to drive the oscillator to point ‘2’ and not some other momentum ...

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