The Market Breathes - Explaining Market Behaviour

I liken the market to a living entity. This is, I believe, justified even if only to make useful analogies to try to explain its behavior.

 

Consider the market as a mentally unstable person. They have mood swings, they may or may not be violent, they may or may not appear “normal”. One day they may make you a cup of tea, the next they may set fire to your dog. Given enough data, you can always figure out what the trigger WAS for a particular behavior, but predicting from that information relies on a LOT of experience and gut instinct. Does that explain why experienced manual traders consistently make money using MACD etc? I think so!

Any time series analysis is just that, ANALYSIS. The best you can do in the technical sphere is to use indicators to see where price action MIGHT go. Doesn’t mean it’s going to go there! Of course, there are modern indicators which give fast and accurate signals, it's a matter of time to see whether or not we will have any "Smoothed RSI Inverse Fisher Transform millionaires".

The market breathes, price moving first one way, and then the other. Most trading decisions require entry time, direction and volume. The conservative trader also demands a stop loss price, and perhaps also a profit target. It is advantageous in any problem-solving situation to be able to reduce the unknown parameters. How much easier the trader's life would be, for instance, if they only had to concern themselves with only one or two of these.

Look out for my upcoming article on "Watcher", my grid-trading expert advisor (EA) for the Metatrader4 platform.