Technical analysis has been around for as long as there have been organized exchanges, but the futures trading communities didn`t accept technical analysis as a viable tool for making money until the late `70s and early `80s. Now nearly every futures trader uses some form of technical analysis. Here`s what the early technical analysts knew that it took the mainstream market community generations to catch on to.
A finite number of futures traders participate in the markets on any given day, week, or month. Many of these futures traders do the same kinds of things over and over in their attempt to make money. These individuals develop behaviour patterns, and a group of individuals, interacting with one another on a consistent basis, form collective behaviour patterns. These behaviour patterns are observable and quantifiable, and they repeat themselves with statistical reliability. Technical analysis is a method that organizes this collective behaviour into identifiable patterns. The patterns can give indications of when there is a greater chance of the market moving in one direction or another. In a sense, technical analysis allows you to get into the mind of the market, and anticipate what`s likely to happen next, based on the kind of patterns the market generated in the past.
As a method for projecting future price movement, technical analysis has turned out to be far superior to a purely fundamental approach. It keeps the futures trader focused on what the market is doing now in relation to what it has done in the past. This is instead of focusing on what the market should be doing based solely on what is logical and reasonable as determined by a mathematical model, as would be done in fundamental analysis.
But, if technical analysis works so well, why don`t more people consistently make money? Once an investor learns to identify patterns and read the market, there are limitless opportunities to make money. But, as I`m sure you already know, there can also be a large difference between what you understand about the markets and your ability to transform that knowledge into consistent profits.
Think about the number of times you`ve looked at a price chart and said to yourself, Hmmm, it looks like the market is going up (or down), and what you thought was going to happen actually did happen. But, you didn`t actually make a trade, and in the end you moaned over all the money you could have made.
There`s a big difference between predicting that something will happen in the market, and the reality of actually getting into and out of future trades. The difference is a mental gap that can make futures trading one of the toughest fields to master.
But can futures trading be mastered? Is it possible to actually trade with the same ease and simplicity you feel when you`re only watching the market and having theoretical successes? Regardless of your ability to use technical analysis, you still need to make money. Well, it is possible. Placing trades in the futures market can become as easy, simple, and stress-free as watching the market and thinking about doing futures trading.
This may seem unlikely, and to some futures traders it may even seem impossible. But it`s not. There are people who have mastered the art of trading in futures, who have closed the gap between the possibilities available and their bottom-line performance. They have taken the opportunities given them by using technical analysis, and they`ve applied the other skills necessary to make consistent profits. With time, and discipline, you can learn to trade in futures like the most successful futures traders.
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