Technical Analysis vs Fundamental Analysis

I have to admit it – after thirty plus years of studying technical analysis – and after writing three books on the subject – I am still swayed by market fundamentals. An example occurred just recently.

My technical analysis system suggested that a large move up in the USD/JPY pair was reaching exhaustion point – and that a short trade was likely to be profitable. But my bias to be long the dollar versus the yen caused me to ignore a very obvious trading opportunity. So it is time that I got into pulpit and preached to myself. You might want to listen in.

Prices oscillate – prices ALWAYS oscillate – even in the most tenacious trends.

Those oscillations are somewhat predictable using technical analysis. Fundamental analysis is for long term trading. Technical analysis is for short term trading and entering at a favorable point for longer term trade.

Oscillations look different in different time frames. For most FOREX markets, five time frames are used – two for setting up the other three.

Weekly and daily charts are used for predicting support and resistance levels that are used for constructing short-term trading charts. The number of ticks per bar for those three intraday charts will vary widely depending on the specific market, However, I almost always use as my primary intra-day chart, a tick bar value yielding around twelve to fifteen bars per day. The other two intra-day charts are set to a ticks per bar value of one tenth the number of ticks per bar as the previous chart.

For example, for the USD/JPY pair I am currently using 10,000 ticks per bar, 1,000 ticks per bar and 100 ticks per bar for my three intra-day charts.

I usually construct my trade on the 10,000 ticks per bar, then monitor it on the other two.

The juxtaposition of price on the trade construction chart to support and resistance lines determine entry, stop and profit target. I use the shorter time frame charts for determining entry and exit values.

It is a very good method of trading and I should follow it religiously.

Today I did not and an obvious short trade on the USD/JPY was ignored – of course in only ran about 800 pips – 80% of which is $640.00 for a typical position.

End of lecture.


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