He is a purely technical trader and his chart analysis goes back 150 years! Before he started trading the markets - he made this quote in Market Wizards about how long it took him to learn to trade the markets:
“It was not an overnight process. I spent four years of solid research before doing any serious trading. After literally thousands of hours of poring over charts, going back as far in history as I could, I began to recognize certain patterns that became the basis of my trading approach”
The above should be good advice for beginners, who think there going to be able to make big profits without doing their homework, getting an education or buying the latest get rich software package.
The Art of Technical Analysis
He is a firm believer in technical analysis and made the following quote on his views why charting is the best form of analysis:
“The essential element is that the markets are ultimately based on human psychology, and by charting the markets you’re merely converting human psychology into graphic representations. I believe that the human mind is more powerful than any computer in analysing the implications of these price graphs.”
The bit I like is the human brain is better than a computer at analysing charts. I have always believed this because the human brain, can think, whereas a computer can only work with what’s inputed into by a human.
The problem is a computer cannot think for itself and don't believe anyone who tells you they can – they can't. Artificial intelligence is around but its in its infancy and is never, likely to be able to mimic a human brain. The human brain is simply to complex and can think, independently. In addition, the humand brain can learn from experience which a computer can never do – so in conclusion, charting is an art not a science.
“Many economists have tried to trade the commodity markets fundamentally and have usually ended up losing. The problem is that the markets operate more on psychology than on fundamentals.”
Price is set by the belief of what the participants buying and selling a commodity or financial instrument think its worth – their the buyers and the price they set is the right price. Sure the fundamentals, are there for everyone to see but humans are emotional and emotions set the price not logic or an economists view.
Winning Percentages on Trading Signals
“A pattern that works 50 percent of the time can be quite profitable if you employ it with a good risk control plan.”
How true is this? We have stressed in numerous times on this site – if you win 50% of your trades, you can make a huge amounts of profitlong term. However most traders, who start to trade, think they will win most of their trades but of course this doesn't happen, they get frustrated, loss discipline and lose money.
The pro trader knows – its not the percentage of winning trades to losers that matters – its the amount made on winning trades compared to losing trades that matters. If you have a Forex trading strategy which makes 3 x as much on winning trades, as it loses on losing trades - on a 50% win ratio, you will get very rich. All you need to do is cut losers quickly and run your profits – it really is that simple.
I if you want proof pure technical analysis strategies work Al Weiss proves it and also remember do your homework, get an education and treat it as an art and you can enjoy currency trading success.