BASIC TECHNIQUES
Slaying The Dragon Of Chaotic Markets
Searching For (Trading) Certainty
by Aaron Lynch
Like dragons, markets are always uncertain, whether they are in
a trading range or a trend. Here's a way to make your profits (for certain)
by following the short-term or long-term trend.
One of the most basic human emotions dictating
at least one decision each day is our confidence in a known outcome. This
can be as simple as knowing the sun will come up tomorrow or the train
you take to work will arrive on time (in many cities, of course, this is
a forlorn hope!). Without this basic premise, however, our lives would
descend into chaos, as we could not make a reliable or informed decision
because we would be continually second-guessing all the choices confronting
us.
So how does this affect trading? A colleague of mine disturbs traders
by making the statement that “if the markets were certain then there would
be no markets.” This can shake the confidence of some. If every market
reacted in the same way every time, that market would either be very easy
to trade or break down, as it could not exist this way.
CERTAINTY IN UNCERTAINTY
Balancing the basic need for certainty coupled with an uncertain trading
landscape, we must find an anchor or reference point from which to begin.
For me and for all successful traders, that anchor is our chosen trading
plan.
My trading plan is structured around a tool known as a swing chart,
based on the principles established by W.D. Gann.
Now, what I need you to do is take most of what you have heard about
Gann theory and Gann the man and forget half of it, which might get you
somewhere near to the truth. W.D. Gann was a forecaster of markets and
a sublime trader, but you need to see past the hype that surrounds him
and know that numbers were his forte and mechanical systems a big part
of his trading.
FIGURE 1: CRUDE OIL CONTRACTS. The swings in price action
can be seen in this chart.
Excerpted from an article originally published in the December 2006
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2006, Technical Analysis, Inc.
Return to December 2006 Contents
