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Trading Tools and Tactics: Reading the Mind of the Market by Greg Capra

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Chapter 1

Subjective Doesn't Work in the Market

Technical Analysis Is the Objective Standard

Webster's Dictionary defines subjective as “characteristic of or belonging to reality as perceived rather than as independent of mind.” When we want an opinion from a critic on how good a movie is, we are expecting a subjective review. When we read a restaurant write up, we also get a subjective review. We may see the movie or eat the meal, and have a different experience than the critic did. We will tend to follow the critics who agree with our subjective notions.

This is fine for movies and dinner and many other things in life. But the market is not a matter of opinion. There are several ways in which “subjective” enters the marketplace. Subjectivity can enter when traders try to rely on the latest guru in the marketplace, when they try to use fundamental analysis in their decision making process, and when they use technical indicators on their charts. While there are some others, these are the three biggest culprits. I am going to explain how you can fall into each of these traps, and how you can avoid them.

THE GURU SYNDROME

The first common way in which people let subjectivity enter their trading comes to people before they decide to do it on their own. There is a tremendous tendency for people to want to follow a guru, or anyone who speaks with authority. Often these people are followed without any track record, simply because they say things that “make sense” or agree with our views ...

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