DislikedTechnical analysis can definitely indicate the sentiments in the market. But I agree that a fundamental understanding is also not too bad to have a higher win-rate.Ignored
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If I presented this chart to you without without indicating what instrument it was, nor the price scale, can you tell me what the sentiment is? Furthermore can you isolate based on this chart, changes in sentiment? I won't even bother asking if you can do the above in real time as the bars unfold tick by tick, because given a strong upmove, by relying on the chart alone, you have no idea whether it's due to strength of the quote currency, weakness of the base currency, or even none of the above.
Now if I told you on the spot, without looking at a chart, what the sentiment of EUR/USD was over the same time period, would it be possible to do that? Is it farfetched to posit that one could possibly make a rough mental map of the above chart if they were aware of the instances where sentiment changed? But that would assume you have a knowledge of how to guage sentiment. Nobody's going to code you an EA, indicator, or write a book to provide you with that knowledge. It has to be personally developed, but when it is, it becomes a powerful tool.
I dislike making analogies, but here goes nothing.
My Physics is really rusty, but in signal processing, when a signal is being transferred, it goes from Digital to Analogue, and when transferred, the Analogue is converted back to Digital to recover it. This is done so that information can be transferred compactly and efficiently.
However, the nuances and particular subtle characteristics of the Digital data - its quality - is compromised, as it's slight deviations are made to rigidly conform to a bit code such as 1s and 0s even if the values are things like 1.63, 1.45 etc. When Digital is converted to Analogue, information is lost.
Converting the Analgoue back to Digital reprodues the original signal, but instead of it being smooth, it is jagged as information has been lost in the conversion process. Below the digital signal is the smoother, grey curve, while the reproduced result of transferring it from digital to analogue and back is the jagged, red curve.
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The point I'm driving at here, is in the above example, if we model the human expectations and sentiments as the smooth grey curve, and try to transfer this information to a chart, we can get something similar to the red curve. Also note how it's possible for price and sentiment to diverge from each other. If I were to use any indicator at all in my trading for Overbought/Oversold, it would not be Stochastic 8,3,3, it would be this discretionary concept.
Going from the sentiment and expectations, we can roughly generate the chart. But going from the chart the other way, the precious, previous sentimal and expectational information is lost. In the extreme case, one can exclusively use a chart, and be oblivious of what's happening in the EuroZone, but by being cogniscant of what's happening, you'd be hardpressed to not have an idea of what price is doing. When you realize that the relationship is like a one-way valve, it becomes immediately clear which form of information has more utility compared to the other. Digital trumps analogue for most things.
Pains must be taken to express that I don't want it to come across as me saying that charts and Technical Analysis are useless. For some things, they are. Furthermore, a common point of misconception is that I'm talking about Fundamental Analysis. I'm not. I'm circumventing all that and going straight to what motivates others to take the trades that produce the resulting Price Action on your screen before the fact. For me, this embodies thinking out of the box.
I realize trying to convey points of view across a forum is not only time-consuming, but ultimately frustrating for both parties involved. It is challenging to reconcile information from points of view which differ from your philosophies - even I am a victim to it as well. Maybe I should just spend more time in my Journal...
Regards,
xXTrizzleXx