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technical analysis, but technical analysis needs fundamental analysis in order to work properly. The best market traders have all been "tape readers" of one sort or another. That is because exceptional professional investors constantly look for evidence that their trading scenario is correct. They use a combination of fundamental analysis for the long-term overview and technical analysis for timing and confirmation of the fundamental outlook. If you are bullish on a particular investment, you need to see trading evidence that accumulation is predominating. If you are looking to sell, you need to see distribution evidence. |
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Neal: So how do you know when you are wrong? |
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Tom: Professionals know they are wrong when they start losing money. That sounds simplistic, but this is how professional traders approach trading. They keep their losses small, because they "scale" into positions. They look for their trades to behave as expected. And when they don't, they know that they have to at least step back and reassess their outlook. If a trader puts on a position and it doesn't immediately start to work in his favor, he knows that he is either wrong or early. He can't afford to impose his view of what the trade should do by sticking with or adding to a losing trade. Rigid thinkers thrive only in trending markets. Flexible thinkers make money in all markets, because they are willing to admit when they are wrong, if only temporarily. Being wrong is important information for the flexible thinker. |
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Neal: So, Tom, how do you plan to carry this message forward to the great masses of traders? |
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Tom: The Market Technicians Association has recently taken steps to try to earn increased investment industry respect. In July 1998, the Market Technicians Association was kind enough to publish an article I wrote wherein I advocated that technicians should not take it upon themselves to convert all |
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