FOREX Charting Caveat: Prediction versus Description

Chart patterns always look impressive and convincing after the fact. The question is: Can they be predictive or are they simply descriptive? One simple method I learned from my mentor, Charles B. Goodman, for studying this idea is to take an old chart with an already well-formed chart pattern. Cover it with a sheet of blank, opaque paper. Move the paper slowly left to right one bar at a time to simulate real-time trading. Would you be able to predict the chart pattern in advance? You can easily see the patterns that worked after the fact.
Seeing the ones that did not work is more difficult. Charts in books always look impressive, as they are ones that worked. Alas, description does not go to the bank; only prediction is convertible to money.

Tip: MetaTrader 4 has a step-by-step function to accomplish this exercise. NinjaTrader 7 and other platforms have a similar functionality.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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