Technical analysis is still much too limited in scope, looking internally at one market at a time with little regard for the external intermarket factors that also infl uence that market. Additionally, relatively little progress has been made at objectively (quantitatively rather than subjectively) identifying repetitive price patterns necessary to perform effective market forecasting. Instead of forecasting future trends in a way that captures the character and nature of today’s globally interde- pendent fi nancial markets, traditional single-market technical analysis is still performed retrospectively by extrapolating past price data on a single market into the future, just as it had been practiced in the years before the emergence of the globalization of the fi nancial markets, and, as we’ve discussed, even before there were personal computers.
An overwhelming percentage of traders, particularly those new to the equity, futures, and forex markets in the last few years and those with small amounts of trading capital, are still either unfamiliar with, close-minded to, or just plain intimidated by intermarket analysis for whatever reason. They continue to wear restrictive technical analysis blinders; content to focus their attention on only one futures market, forex pair, or individual stock at a time, as if that market was trading in complete isolation. The result is a misperception of what is really happening—and, more important, what is about to happen—in that market.
No wonder so many traders act like spooked horses as soon as the mar- kets get a little choppy or have a sudden trend reversal. These traders hear and read everyday about the global economy and how markets throughout the world are interconnected and linked to one another . . . but they do not really know how to analyze the vast amount of market data this is readily available. So they continue to rely upon outdated single-market, lagging indicators and cross their fi ngers and hope that a global fi nancial meltdown doesn’t catch them off guard when they forgot to put a trailing stop on their positions—or, worse yet, during another trading time zone when they are asleep.
If this is how you approach your trading, it means that you are making your trading decisions without knowing relevant factors, which affect the markets you trade. This is a disaster waiting to happen. If you have a small account to work with, your situation is even more precarious because every trade must count. There is little room for error. If you are in this situation, as far as I am concerned, you should stop trading immediately and get your act together before getting back into the mar- kets. If you are not willing to learn about the markets, study the basic mechanics of trading, and focus your attention on the global intercon- nectedness of today’s markets, then you shouldn’t be trading. There is no shortcut. You’ve got to be willing to put the effort into studying and learning about the markets and then get the right analytic tools—
before you put any money at risk. This is where websites such as www.
TraderPlanet.com can really help you shorten the learning curve.
It is a fallacy to think that when you fi rst start trading you can get by using cheap, commonly used, single-market analysis tools to build up your trading account until you can “afford” to get the right tools. In theory, this approach sounds plausible; in reality, you’re more likely to lose all of your money. You will struggle to break even, at best, if not be driven out of the markets. You cannot put the cart before the horse.
T R E N D F O R E C A S T I N G WI T H I N T E R M A R K E T A N A LY S I S
Get the right tools from the get-go and do your homework, or don’t even bother trading until you do.
Here’s a simple analogy: If your spouse develops a life-threatening heart condition, you wouldn’t choose a cardiologist based on how inexpensive his fees are with the intention that after her condition improves a little, you’ll switch to a better doctor. That would be ridicu- lous. If you want the treatment to be successful, you would consult with the best doctor you can fi nd from the beginning.
Similarly, to get the best diagnosis and prognosis of market behavior, you need to have the best analytic tools that are available—and even then, you need to work hard at being a successful trader.
Nothing good comes easy. Trading is like playing golf. To be successful, you need to do your homework, study the markets, learn about the mechanics of trading, develop strategies that suit your own trad- ing style and risk propensity, and test the
waters with limited risk before you jump in head fi rst. As golf legend Gary Player has said “the harder you practice, the luckier you get.”
Remember, the markets will always be there, so there is no rush to trade until you are confi dent that you know what you are doing.
Although a market-by-market analysis of each individual market by itself is still necessary, it is no longer suffi cient because it fails to take into consideration present-day circumstances involving the global nature of today’s markets. If your trading strategies do not factor in the linkages between related markets, then you are blind to the market synergy that drives today’s globally interconnected markets.
If your trading strategies do not factor in the link- ages between relat-
ed markets, then you are blind to the market synergy
that drives today’s globally intercon-
nected markets.