Apply both art and science to uncover market mysteries. This requires using both sides of the restless brain. The subjective mind studies chart patterns and looks for common shapes from times past. The practical mind rarely trusts the eyes and seeks truth in the cold, hard numbers. Effective trade preparation combines these diverse tasks into a single, well-organized plan. The cooperative brain first digests vast amounts of information to arrive at probabilities regarding the future direction of price movement. Then it organizes this complex data into focused vision and tactical planning.
Beware of the tendency to see something that isn't there. The mind plays tricks on what the eye perceives. The human brain attempts to construct order from visual chaos. Even random data fed to the waiting mind responds as perceived pattern. Unfortunately, this false order may tranquilize the eye but lacks truth or predictive power. And it will bleed your trading account until you build effective filters to stop this noise from passing into the system.
Technical indicators apply truth serum to filter endless chart patterns. They bypass distorted vision and output simplified plots that draw important conclusions about current price activity. Profitable setups depend on seeing reality instead of illusion. Use indicators to cross-verify promising formations and uncover hidden characteristics through convergence or divergence with bar information.
Market mathematics churn price and volume into well-organized graphics. Traders then apply time restraints and compare indicator movement to observable price bar movement. Adjusting an indicator's time settings taps that chart's unique 3-dimensional mechanics. In other words, use specific time intervals to measure unique trends and conditions within that narrow period alone. Then compare the information to similar data from other intervals in order to predict what may happen next.
Individual trading styles respond to specific time frames. Look at the common settings for each major grouping below. Reduce trend relativity errors by focusing your analysis on the chart best suited to your current strategy:
| Participant | Price Chart |
| SCALPERS | 1-minute |
| DAY TRADERS | 5-minute |
| POSITION TRADERS | 60-minute |
| INVESTORS | Daily |
| INSTITUTIONS | Weekly |
Chart patterns and technical indicators are not created equal. A highly-skilled technician can trade successfully using a simple bar chart with no moving averages, Stochastics or MACD. But the most powerful market indicator has little value when viewed in the absence of current price. Don't believe this statement? Just try this simple exercise: buy a stock at oversold, or sell it at overbought without looking at price. Not a very good way to make money.
