We all use different types of market analysis. The only thing that is connecting different types of analysis is finding the levels that will suit as an anchor for some real trading. How many times have you seen the titles, tweets, Oil will go to $20, DXY to 107 in the Q4 2018? What is wrong there?
That is simple believes some individual or group of individuals have. Is that real trading technical analysis? No. So why sometimes you follow this and try to take the trades based on this future uncertain price action, just because someone says that it will happen? Psychology. You tend to believe, and you are trying to find a confirmation of your desires about the market price action
This is quite dangerous, irrational trading behavior. By following this guide you will easily take trades in one direction, usually without setting the stop loss or what is even worse widening stop losses if the trade goes against you. Soon you will be stopped out and maybe you will lose your entire capital. Usually, when you see this flashing headlines tweets, there is no guide how to trade this, there is no explanation what will happen if the Oil, for example, doesn’t fall to $20 but instead goes to $80. You will be disappointed, you will be out of the trading without the capital. Since we mentioned the Oil take a look at this prediction, subjective chart below, mostly seen via social media. So we draw a line from current levels all the way down to $25, and we can say the Oil will go to $25 just because we predicted. And you follow this trade and the price action actually goes above the 75 again, and then we draw a second chart saying yes first a bounce to $78 and then a fall to $20. And you will still follow and trade maybe even the third possible path we can draw just because you still believe, and you desire to take $50 on Oil short, and you found the reflection of this in our or some other analyst analysis.
To avoid all of this you must be aware of the simple truth in trading. Price action is the only thing that will decide in which way the market will go. What level will reach? Trading technical analysis is used to determine the key levels you need to watch, near-term, long-term, and to read the price action that will follow, so you will know what trade to take and in which levels you should place the stop loss. Not the other way around. You expect based on what someone has said, that Gold will reach $1000 and then you are using the technical analysis to justify your trading in that direction and to find the pattern or something that will lead to a fall from $1230 to $1000 in Gold.
Take the DXY for example. Now you must have read somewhere from various analysts that they are bullish on USD (reflected through DXY), and they claim the DXY will reach 107 level. Take a look at the chart below. The untrained eye will simply reach the conclusion that the DXY is in the downtrend. So why would you believe that it will go to 107? Is that even possible? It is possible but then you need to read it like this, or those analysts should say, if we get a daily close above the 96 the instrument could, and only could, go to 97, and then if it breaks and we have a daily close above the 97 then it could and again it only could go to 102 level. From this, you will conclude that levels and the price action close above/below around those levels are the keys for the next levels which could be reached, but only could.
Then there is another question that nobody will answer you. How can you trade this probability? Because the trading depends on probabilities, nothing is for sure in the market. That is where you need to apply, money management, technical analysis, and price action reading. Every market structure, every pattern is possible to trade, but you must avoid having a desire for certain price levels, believes about the direction of the market. You have to unemotionally read the key levels price action and to take the trade entries based on this.
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