Hello, my friend, and welcome to this post on Technical Analysis Chart Patterns. In this post, we will talk about the only type, or example, of technical analysis technique that works consistently in today’s markets.
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Technical Analysis Chart Patterns – Video
Understanding Trading Systems, Rules, and Building a Profitable Strategy
Let’s discuss how to develop effective trading rules and systems. Many traders struggle with knowing where to begin, often relying on strategies they read about online, in books, or from others—like moving average crossovers. A typical example is using two moving averages crossing each other as a trading signal, with many choosing specific types like simple or exponential moving averages. However, this approach alone doesn’t provide a statistical edge or logical basis for market movement. In fact, such a crossover doesn’t inherently indicate where prices will go.
The Issue With Backtesting – Technical Analysis Chart Patterns
One exception is well-known crossovers like the 50-day and 200-day moving averages, where large numbers of traders recognize patterns like the “golden cross.” This self-fulfilling phenomenon works primarily due to widespread participation, making mass psychology a valid trading foundation. But many systems lack this logic; people backtest random setups and assume they’ll perform well in the future simply because of historical results. Here’s the issue with backtesting alone: regulators warn that “past performance is not indicative of future results,” meaning past data alone shouldn’t be your sole basis. Many studies even show that funds or strategies with stellar past performance often underperform in the future due to a “reversion to the mean.”
What a Sound Trading System Should Look Like – Technical Analysis Chart Patterns
So, what should a sound trading system be based on? It should respond to real-time market conditions, focusing on the auction dynamics of supply and demand—whether in stocks, futures, forex, or any traded asset. At its core, every market is an auction, and price changes reflect shifts in supply and demand. News can influence these dynamics, but watching real-time price movements is critical. Adapt as supply and demand shifts, without trying to predict or outsmart the market. Instead, follow the “money flow,” moving with the market until clear changes indicate it’s time to exit or reduce positions.
Final Thoughts
Avoid trading in consolidating markets with no supply-demand imbalance, as there’s no edge. In trending markets, hold positions as long as the trend continues, monitoring bar by bar if needed. Don’t exit out of fear or excitement over a small gain—wait for clear signals before making decisions.
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Happy trading!
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