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