Does Chart Analysis Really Work? | Forex Factory

Does Chart Analysis Really Work? | Forex Factory

Does Chart Analysis Really Work?

From wsj.com

Stochastics, moving averages, standard deviations – fancy charting terms you may have heard of. But do they really predict price movements? Or are they mathematical mumbo jumbo? More than just translating numbers into graphic form, chart analysis tools help illustrate market psychology – or what traders call sentiment – and can paint a bigger picture of how most market participants may be positioned. Bars and lines on the screen also depict how prices have moved and can indicate future performance based on past movements. For instance, a deep slide followed by a sharp rise could mean that many traders sold in ... (full story)

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Nov 25, 2013 12:33pm

Quoting Spreadbetter

Disliked

Of course it works, there's been nothing better invented to FOLLOW price better than indicators, they all lag, none lead (on any time frame) and FOLLOWING price when it goes UP and FOLLOWING it when it goes DOWN is as good as it gets.

Ignored

Ha! Ha! That's true, in almost all cases of standard indicators:

Holy Grail indicator candidates => price action, with a lag! ;^D

"...a chart analysis tool’s effectiveness lies in its POPULARITY..."

Two points here:

1). Small retail traders with only 8-10% of the forex market are usually trading against each other, or their BROKERS. ;^D

Takeaway: Play trends when the market is active and stay out when it's slow. If you can't see trends, consolidation and price acceleration right on the charts, there are indicators that may show them, with a lag! ;^D

FYI Hedge funds are not interested in running the stops on your $250 account! (but your broker is) ;^D

2). Over half of forex trades are executed by algos. The Algos created by PhD's aren't likely to be using standard indicators. ;^D

So much for popularity's "self-fulfilling prophecy"! ;^D

To my knowledge there are a few of indicators that some hedge fund managers at least do look at:

1). the 50 day & 200 day moving averages
2). trendlines, topping patterns

All are combined with a thorough fundamental analysis usually in a top down fashion and a lot of undefinable market experience/wisdom & a lot of insider info.

Nov 25, 2013 1:15pm

Quoting Ever E. Man

Disliked

....a few of indicators that some hedge fund managers at least do look at:...

Ignored

Here is how Paul Rotter said he trades German bonds & which indicators he uses (with my emphasis):

"...before the open I check all the ECONOMIC REPORTS that are about to be released, speeches of central bankers - simply ANYTHING THAT COULD MOVE THE MARKET. then I try to define important LEVELS in the markets I trade. I do this THROUGH MY OWN ANALYSIS and through reading ANALYST COMMENTARIES. that's how I get a picture of the market and its important LEVELS. I am NOT interested in OPINIONS OF OTHER MARKET PARTICIPANTS as this would influence my own opinion."

"q: any kind of MENTAL PREPARATION?
a: nothing specific. actually I am MOTIVATED all the time...I see trading more as a SPORTING CHALLENGE and TRY TO ERASE THE THOUGHT OF MONEY.

q: how many HOURS do you spend in front of your screens?
a: usually 5 HOURS, that's when i trade actively...in case of SPECIAL EVENTS i can be up to 11 HOURS."

"q: why a USD-squawk box?

a: ...because it's had SOME EFFECTS ON INTEREST RATES over the last couple of months. THOSE EFFECTS CHANGE, right now it influences OIL PRICES and the DAX.

q: what TIMEFRAMES are you using on your charts?

a: usually 5-30 MIN CHARTS for TRENDLINES and INDICATORS. I prefer P&F CHARTS because they give me a clearer view on PATTERNS (TRIPLE TOPS). FOR INDICATORS I like the CCI because it also shows the VOLATILITY of the markets...."

"q: do you think is it possible for A SINGLE PLAYER TO MANIPULATE THE MARKET?

a: NO,...there are always several big players in the market....take the BUND for example - there are one million contracts traded a day. WHEN A TREND STARTS OUT OF THE BLUE WITH ONLY SLIGHT PULLBACKS, I could trade against it, but with no effect. I couldn't stop the market from going up, because there would be more money needed that I could bring in."

"...q: what has one to do if he wants to become a scalper?
a: he has to watch the order book for a very long time.

When asked for advice for the readers, Rotter says that EVERYTHING CAN HAPPEN ALL THE TIME, so you better have your toilet close to your trading desk."

Lots of takeaways here. Especially concerning toilets! ;^D

Good luck to all! ;^)

Nov 25, 2013 8:50pm

Quoting Spreadbetter

Disliked

...One fault though, I notice that he notes all the high impact news events realising that they and the fundamental policy decisions made by govts., their departments and central banks, move this market...that'll never catch on,...

Ignored

Good point! The article I quoted was from a 2005 interview. It's a bit dated, but perhaps still has some value for the retail trader.

In the most recent 2010 interview, Paul speaks more & more about algo trading, and computerized risk management..."risk management must be computerized, as there is no place for emotions." ;^)

It doesn't sound like the old Paul Rotter...but then, we, as traders, must adjust to changing market conditions. ;^D

"Rotter: I think it will be more and more a battle between machines, where the better ones try to destroy the smaller ones by learning from their behavior and trading against them."

I think that no matter how computerized the markets become, the participants will inevitably produce tradable patterns that some retail traders can exploit.

The most likely result of the algo wars might be low volatility during "normal" times and "flash crashes" during volatile times,

To survive a trader will have to be able to deal effectively with either of these situations.

Nov 26, 2013 12:06am

Quoting mmforexinfo

Disliked

frx trader, the best signal when using Chikou Span is when it crosses the price. It is less important if it crosses Kijun Sen or tenkan Sen. The ideal buy signal is:
- price above Kumo Tenkan Sen and Kijun Sen;
- Kumo with a good height and bullish (both line in angle not flat);
- Tenkan Sen crossed Kijun Sen from below and above Kumo;
- Chinkou Span above Kumo, Tenkan Sen, Kijun Sen and price line.

That is the ideal bullish sgnal but I tell you it is very difficult to find.

Best trades

Ignored

thanks mmxforexinfo. This is the best explanation I have ever got.

Nov 26, 2013 9:53am

You know I'm just looking at a daily chart of eur-usd, you instructed posters to go long when price was at its yearly high of 13825 as it was "on its way to 14400 and you could take that to the bank" or some other inane comment. That has to be the worst call ever made on FF, in fact if anyone is reading this can they put a link up to any worse? Other than his famous gold call of course, that went equally offside...

You are the most unsuited personality and character ever to have attempted to trade, everything about you is wrong; your analysis, being wedded to your insane and inane belief system, your timing, your lack of control, your delusional manner, the levels of immaturity you display.. wow, you really should be the text book of what not to be. Perhaps there's your angle in your pitiful struggle to be seen and heard in this industry, market a book on what not to do;

"trading, don't try this at home kids, Loaded Up's road to ruin, how not to trade..ever.."

Quoting Loadedgun

Disliked

The charts tell you all you need to know about a pair. Take the Euro for instance. Reading by the charts it is clear that the pair is at a crossroad at this point in time:

a) This pair has been in a steady decline for over 4 years now and there is little to suggest it will escape this bear hug anytime soon.

b) It is bearish as a unit up to and including 1.60380

c) There is therefore almost a certainty (P = 1) that we will see a level lower than 1.20240 before we see a peak above the strategic cap above.

d) Instantaneously, we see a...

Ignored

Nov 25, 2013 4:17pm

frx trader, the best signal when using Chikou Span is when it crosses the price. It is less important if it crosses Kijun Sen or tenkan Sen. The ideal buy signal is:
- price above Kumo Tenkan Sen and Kijun Sen;
- Kumo with a good height and bullish (both line in angle not flat);
- Tenkan Sen crossed Kijun Sen from below and above Kumo;
- Chinkou Span above Kumo, Tenkan Sen, Kijun Sen and price line.

That is the ideal bullish sgnal but I tell you it is very difficult to find.

Best trades

Nov 26, 2013 9:13am

Quoting Loadedgun

Disliked

Not if they fit into a theory of the market as event markers and triggers. Dynamics is complex enough to require more than the eye to read the market. But of course it is a matter of experience, study and researched application.

Nice One!
PS: A crucial event to all entry is the turning point either in the primary cycle or within a fraction. Once found of course you can book passage for depositing profit in the bank ----> there is no sense in which the ordinary can tell you a turning point on any scale. Similarly is the notion of extrema on a scale, etc. The problem is people assume these tools are simple (simply because they are common place) and deploy them without study and or fit with a proven theory of the market.

Ignored

LOL

A)LG terms B) Tech Definition
======== == ============
A1)Dynamics => B1) Price Action (which is part of Tech analysis)
A2)Study and Research => B2) Ain't it Tech Analysis or is it just your chaos crystal ball?
A3)Turning point => B3) Contra trading (Tech analysis)
A4)Theory => B4)theory does not move a market, unbelievably you still believe market is move by chaos...............................why the need for ECB, FED etc duh! Just give those ppl at ECB, FED your chaos crystal ball and move the economy into GREEN territory

Come on, anymore chaos terms to sprout? Getting bloody boring with your repetitive terms - which FUNDAMENTALLY bores down to TECH ANALYSIS, by which both have been discredited by you! How contradictory your analysis are! Same old shit day in day out

Move on

Nov 27, 2013 5:11am

It's a tool that represents the real state of the currency trading or currency pair, off course including the indicators. However, especially when there is no fiscal or economic policy, it is necessary to pay attention to technical analysis. This interesting topic to be discussed.

Nov 25, 2013 4:54pm

most charting tool dont work, for examplae moving avg, when price moves up the line moves up, so what is the big deal? i would believe it when moving avg are plotted in advance few periods than present day price. support , res, yes those tool may work.

Nov 27, 2013 2:45am

Does chart analysis really work I think that was the start of this thread.Can we return to the subject now? thank you
Personally I find that supply and demand coupled with good understanding of how to read candlestick charts and the use of a slow stochastic set at 20 3 3 gives me a reasonable indication of where things are going.However one has to know how to use the stochastic coupled with supply/demand.
However ,nothing is certain and a news item can screw the direction as can the big institutions as can lots of other factors.
If you have a good trading plan that works for you and you stick with it then that is what you should do. If things are not working for you, evaluate your trading plan, see what is not working and correct it. It takes time and mega practice as with all things in life. Forex trading is probably the most challenging profession in the world, however can give great rewards in the end. Just hang in there get a plan and if it works stick to it. We are all different.
Happy trading

Nov 26, 2013 1:29am

Quoting Loadedgun

Disliked

The charts tell you all you need to know about a pair...

What else do I need to know as a trader that is not present in my reading here? The article is stupid pure and simple ------------>

Ignored

Nice read LG, and I agree that English poodle is a complete phony.

Nov 26, 2013 1:01am

The Euro will go down in December folks (and for now) that's all we need to know.

Nov 25, 2013 10:14am

Lets just say ive been right moe than enough times to single out a fluke.

Whats mumbo jumbo is nonsensical ratios that say equities are "fairly" valued

Nov 25, 2013 2:42pm

Quoting mima

Disliked

So you do not use any meaning any mathematical indicator at all, in any shape and form ...never ever used it?

Ignored

They are all mathematical as they all calculate price.

Nov 25, 2013 11:58am

Anybody can answer my question? I use Ichimoku indicator. If Chinkou span crosses kijunsen from left below to right above, is it an indication that price will go up?

Nov 25, 2013 11:18am

w/o a chart how do U kno what "WAS", "IS", and where it "GOES" visually?

Nov 25, 2013 10:44am

It's just a matter of helping put the odds on your side.

Nov 25, 2013 10:22am

Of course it works, there's been nothing better invented to FOLLOW price better than indicators, they all lag, none lead (on any time frame) and FOLLOWING price when it goes UP and FOLLOWING it when it goes DOWN is as good as it gets.

Nov 25, 2013 10:35am

Charts are one of the most useful tools of successful traders. Knowing charts is one thing and implementing it , is altogether a different difficult thing. Charts are more or less accurate in the absence of fundamentals(news) and manipulation. However , fundamentals(news) and manipulation are also an integral part of forex. We have to perfect chart understanding taking into consideration the above. If we are patient and have the right charts then PROFITS are definitely ours .If not then this is not the right place for us.
LEARN.LEARN.LEARN. IT IS A NEVER ENDING PROCESS.

Nov 25, 2013 12:12pm

Eh? What's wrong with lagging indicators on a daily chart? As good as it gets for many and for you retail traders it's all I'd recommend; swing trading off a daily chart using indicators.

Quoting mima

Disliked

So you do not use any meaning any mathematical indicator at all, in any shape and form ...never ever used it?

Ignored

Nov 25, 2013 12:19pm

Quoting Spreadbetter

Disliked

Eh?....

Ignored

I do not ask for your recommendation at all ...based on your previous comment it seems that you do not use indicators at all so I just asked you for confirmation of it ...
So answer it straight forward.

Nov 25, 2013 12:50pm

I'm not discussing how I trade on this news section or any other on FF, I come here to discuss news items and occasionally the articles FF mistakingly put in the news section such as this.

Quoting mima

Disliked

I do not ask for your recommendation at all ...based on your previous comment it seems that you do not use indicators at all so I just asked you for confirmation of it ...
So answer it straight forward.

Ignored

Nov 25, 2013 4:17pm

I do read the charts and I only use 1 ema and the chart analysis it works for me. I came across a guy and his method and ever since I haven't pollute my charts with crap. When I got into forex I read a Japanese book about candles and it was all about "candles" They didn't mention indicators, then I started to add indicators and all I did was confuses myself after seem so many thing going up and down with the price AND candles was the last thing I was seeing in my charts. A friend and owner of a hedge once show me his chart and I almost had a heart attack, I couldn't see any candle and then one day this guy and his clean charts came around.... Forex was reborn for me. More than 3 successful years later I'm still against any form of indicators. It's all about the candles in the CHART. OF course, the technical part goes hand to hand with fundamentals.

Nov 25, 2013 4:18pm

Good stuff. A legend, of that there is no doubt. One fault though, I notice that he notes all the high impact news events realising that they and the fundamental policy decisions made by govts., their departments and central banks, move this market...that'll never catch on, what next, sifting through dead albatross entrails?

Quoting Ever E. Man

Disliked

Here is how Paul Rotter said he trades German bonds & which indicators he uses (with my emphasis):

"...before the open I check all the ECONOMIC REPORTS that are about to be released, speeches of central bankers - simply ANYTHING THAT COULD MOVE THE MARKET. then I try to define important LEVELS in the markets I trade. I do this THROUGH MY OWN ANALYSIS and through reading ANALYST COMMENTARIES. that's how I get a picture of the market and its important LEVELS. I am NOT interested in OPINIONS OF OTHER MARKET PARTICIPANTS as this would influence my...

Ignored

Nov 25, 2013 11:15pm

My own personal opinion is that charts are not 100% accurate trading signals. My belief and actual implementation in trades are that charts and analysis are just guidelines to trading. Be it , Ichomoku , Moving Average , Bollinger Bands ,Gann , etc whatever be the chart and analysis , I just regard them as my guide line to trading . I have my own , very unconventional style of trading which I have discovered and I know and understand best.

A very famous saying " Leaders don't do different things, but instead they do the very same things differently".

Over time , you have to reach a stage whereby you come up with a technique and trading style of your own which you understand best.Don't just blindly follow the previous so called leaders or gurus of forex. Stop following the HERD , instead start LEADING.
HAPPY LEARNING AND TRADING.

Nov 26, 2013 12:30am — Edited

The charts tell you all you need to know about a pair. Take the Euro for instance. Reading by the charts it is clear that the pair is at a crossroad at this point in time:

a) This pair has been in a steady decline for over 4 years now and there is little to suggest it will escape this bear hug anytime soon.

b) It is bearish as a unit up to and including 1.60380

c) There is therefore almost a certainty (P = 1) that we will see a level lower than 1.20240 before we see a peak above the strategic cap above.

d) Instantaneously, we see a pair that is close to a key turning point lower -------------------> for now it remains bearish below 1.37780 while currently aiming for a new high at 1.36310 (the current average monthly line).

e) A breach of the unitary monthly average line and a push beyond the stated short-term cap (1.37780) would clear a path to higher levels in the range 1.38 - 1.44 the probability (over a longer run) of which remains high at this stage.

f) Nevertheless current strategy should be informed by i)the intraday bounce at 1.34900 ii) which supports a targeting of 1.36900 with 95% confidence (a 1/20 risk of failure) with a stop at 1.34850.

What else do I need to know as a trader that is not present in my reading here? The article is stupid pure and simple ------------>

BTW: it is a mistake to assume as the writer does the stated (in the article) definition of sentiment. Among several silly mistakes in the article ----------> sentiment, contrary to what the writer claims, is a signed rate of price growth/decay that once calculated informs the trader about momentum in direction over a range.

Nov 26, 2013 1:40am — Edited

The question of risk in trades of course is important to running a business (any business). Charts and especially those modeled by chaos (not many I suppose) are the ONLY means by which to calculate risk in any sensible manner (given a stochastic playing field). The crude approach in technical analysis (the prodigal child of chaotic analysis) notwithstanding there are now sophisticated and more up to date ways of assessing risk in trades. -------------> For instance in post #33 we give you a 1/20 or a 5% chance of failure with a stop at 1.34850 but that risk can be further reduced (for the more conservative trader) by adjusting stop to 1.33990 for the same target and for a 1% risk of failure.

Where to place stops is a maddening issue for most traders and we hear (in technical analysis) talk about volatility based stops. Well with chaotic analysis you can make both risk and take profit definitely volatility based and hence our ability to give trade ideas with clearly attached confidence limits

Nice One!

BTW: How would a fundamental trader place stop and TP? Voodoo or reading the entrails of dead animals most likely

what a laugh at a scandal

Nov 26, 2013 1:47am

Quoting Hot4Pips

Disliked

Nice read LG, and I agree that English poodle is a complete phony.

Ignored

Nice One! >>>>-----+++-----> ^(Kaboom)

English Poodle ___---> Nuked

What a laugh at a scandal

Nov 26, 2013 9:07am

Quoting godson01

Disliked

Indicators are waste of time

Ignored

Not if they fit into a theory of the market as event markers and triggers. Dynamics is complex enough to require more than the eye to read the market. But of course it is a matter of experience, study and researched application.

Nice One!

PS: A crucial event to all entry is the turning point either in the primary cycle or within a fraction. Once found of course you can book passage for depositing profit in the bank ----> there is no sense in which the ordinary can tell you a turning point on any scale. Similarly is the notion of extrema on a scale, etc. The problem is people assume these tools are simple (simply because they are common place) and deploy them without study and or fit with a proven theory of the market.

Nov 26, 2013 5:40pm

It works but you need to know how and when to apply it

Nov 25, 2013 10:55am

Quoting Spreadbetter

Disliked

...indicators, they all lag, ...

Ignored

So you do not use any meaning any mathematical indicator at all, in any shape and form ...never ever used it?

Nov 25, 2013 7:47pm

Indicators are waste of time

Nov 25, 2013 11:52pm

Chart analsysis is not fully reliable, it can screw you at any time, to get rid of this, try and discover your own personal trading method.

Trader#EFEE

Nov 26, 2013 3:29am

Mr Loaded, surely placing stops is judged using the visual that is charts, it not about fundamentals? For example the HH or LL of swing point if you trend trader. Placing stops is very easy. Once you traded more you will know this. Who you trade with in Nigeria, instaforex?

Quoting Loadedgun

Disliked

.

Where to place stops is a maddening issue for most traders and we hear (in technical analysis) talk about volatility based stops. Well with chaotic analysis you can make both risk and take profit definitely volatility based and hence our ability to give trade ideas with clearly attached confidence limits. How would a fundamental trader place stop and TP? Voodoo or reading the entrails of dead animals most likely :rofl what a laugh at a scandal

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