The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies

CHAPTER 7

Tools for Confirmation

There are in fact four very significant stumbling blocks in the way of grasping the truth … namely, the example of weak and unworthy authority, longstanding custom, the feeling of the ignorant crowd, and the hiding of our own ignorance while making a display of our apparent knowledge.

—Roger Bacon

Is more information always better? Some traders, when they are considering a trade, will use multiple indicators and analytical tools, solicit opinions from other traders, and even consider elements such as fundamentals that do not really have a bearing on their time frame. This approach can lead to “paralysis by analysis” as so many factors are considered, with so many conflicting points of view, that the trader simply does not know what to do. The justification offered for this approach is that an officer on a battlefield would want every possible piece of information, wouldn’t he? Perhaps not. It might be better for the decision maker to have processed intelligence from verified and trusted sources that has already been filtered from the massive flow of raw information. In trading, the equivalent is to focus on a few simple tools that are completely understood—depth of information, rather than breadth.

It is critical that traders understand the subtleties of every tool they use. They should know how they react in every possible market environment, and furthermore, must understand the complex interactions between multiple tools. This may lead to an ...