The Technical Trader
A technical trader uses technical indicators, hotlines, newsletters and perhaps
some personally defined objective rules to enter and exit the market.
As a technical trader, you are beginning to realize that rules are important and that it is appropriate to use some objective criteria such as confirmation before making a trade. You have developed rules, but sometimes you follow them and
sometimes you don’t. It depends how confident you feel today and how much
money you are making or losing. If an indicator gives you a buy signal, you may
override it because your broker told you the earnings report was going to be
negative. Or maybe the bonds are up, which means interest rates are rising, and
you better see how high rates go before you commit more money to this already
overpriced market. You may think, “I have a profit, hmm, I just may take it now.
Even though the Stochastic is not overbought, the markets are tough. It’s not
easy to make money. Like my father said, ‘you can’t go broke taking profits.’ At
least now I have a winning trade. I’ll sleep well tonight.”
Our trader now begins to realize that using the intuitive and hot tip approach will
not lead to profitability. He now begins to focus on the technical indicators
themselves. There are so many! Moving Averages, Exponential and Weighted.
The MACD, Momentum, P/E Ratio, Rate of Change, DMI, Advance/Decline
Line, EPS, True Range, ADX, CCI, Candlesticks, MFI, Parabolic, Trendlines,
RSI, Volatility Expansion and Volume and Open Interest, just to name a few. So
much to learn and so little time!
This whole new world of technical books, seminars, newsletters, and hot lines
now begins to preoccupy our trader. He learns all he can about indicators. He
wants to find the one indicator that will ensure profitability. He surrenders to
what I call Indicator Fascination.