Principles to mitigate some common errors that all of is commit

FX:SPX500   S&P 500 Index
"1. Perspective. The interpretation of any indicator should not be based on short-term trading patterns; the longer term implications should always be considered.
2. Objectivity. A conclusion should not be drawn on the basis of one or two reliable or favorite indicators. The possibility that these indicators could give misleading signals demonstrate the need to form a balanced view derived from all available information. Objectivity also implies removing as much emotion from the trading and investing process as possible. If incorrect decisions are being made, they will almost always come from a position of mental imbalance. Every effort should therefore be made to reduce the emotional content of any decision on both the buy and sell sides.
3. Humility. One of the hardest lessons in life is learning to admit a mistake. The knowledge of all market participants in the aggregate is, and always will be, greater than that of any individual or group of individuals. This knowledge is expressed in the action of the market itself, as reflected by the various indicators. Anyone who fights the tape or verdict of the market will swiftly suffer the consequences. Under such circumstances, it is as well to become humble and let the market give its own verdict. A review of the indicators will frequently suggest the future direction of prices. Occasionally, the analysis proves to be wrong, and the market fails to act as anticipated. If this unexpected action changes the basis on which the original conclusion was drawn, it is wise to admit the mistake and alter the conclusion.
4. Tenacity. If the circumstances outlined previously develop, but it is considered that the technical position has not changed, the original opinion should not be changed either.
5. Independent thought. If a review of the indicators suggests a position that is not attuned to the majority view, that conclusion is probably well found. On the other hand, a conclusion should never be drawn simply because it is opposed to the majority view. In other words contrariness for its own sake is not valid. Since the majority conclusion is usually based on false assumptions, it it prudent to examine such assumptions to determine their accuracy.
6. Simplicity. Most things done well are also done simply. Because the market operates on common sense, the best approaches to it are basically very simple. If an analyst must resort to complex computer programming and model building, the chances are that he or she has not mastered the basic techniques and therefore requires an analytical crutch.
7. Discretion. There is a persistent temptation to call every possible market turn, along with duration of every move a security is likely to make. This deluded belief in one's power to pull off the impossible inevitably results in failure, a loss of confidence, and damage to one's reputation. For this reason, analysis should concentrate on identifying major turning points rather than predicting the duration of a move -- there is no known formula on which consistent and accurate forecasts on this type can be used."

Hamed Aghajani
Newcastle upon Tyne, United Kingdom
Saturday 30/05/2015 22:30 BST

The text adopted from Pring, Martin. J., Technical Analysis Explained: The Successful Investor's Guide to Spotting Investment Trends and Turning Points. 5th edition, Mc Graw Hill, 2014.


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