Going Against the Crowd
I was once bounced from an expert's forum because of my unconventional ideas about trading methods. In a discussion on support and resistance, I proffered the heretical idea that since so many traders used the same methods to calculate support and resistance, they could not possibly be of value.
This does not mean that conventional methods are taboo. It does mean to be aware that many others are using them and have read the same books you have. Conventional chart patterns have been around so long that I find it difficult to believe they can still be the basis of a successful trading program. Those who do use them seem to have found a twist that sets them apart from the crowd.
This also is about expectation. If too many traders expect an indicator or chart pattern to work, it will not; it cannot. Markets anticipate events. If everyone anticipates prices going to a certain price to form a head-and-shoulders chart formation, prices will never fully build; the right shoulder will droop or be nonexistent. Traders will anticipate that price and begin buying and selling on that expectation well before prices reach that level.
Markets also discount information. This means that information finds its way into prices before the event. "Buy on the rumor, sell on the news." Stock traders anticipate endless growth from a company. How often have you seen a quarterly report with a large increase in earnings, but the stock price drops? The market anticipated the report, and there is no one left to buy. Worse, while the earnings were good, the rate of earnings was lower than expected.
A weekly hour on the FOREX forums over the weekend will give you a good idea of upcoming expectations. Make a note of them, and see how the market actually reacts. I advise against perusing the forums during the week unless you are seeking specific information; it can be too unsettling. Everyone is quite sure they are right!
By Michael Duane Archer