Saturday, June 14, 2008

Path of the unknown

Even though the combination of MACD, Slow Stochastic, Bollinger Bands combination is very powerful still there is limited where they will unable to trace the path of the unknown. As they rely on the time frames historical records these combination will not be able to trace any record beyond monthly time frame since there are no trading platform that provide the data. Therefore we have to rely on our instinct to analyze the market movement.

To illustrate this problem we can see it on GBP-JPY monthly time frame where stochastic is moving up while MACD is still moving down. At this point we will not know how far the market is following stochastic direction. There are two possibilities which is the middle of weekly time frame or further more to the middle of monthly time frame as shown below. Now that the weekly time frame seem to be broken it is possible that the market might continue moving upside to its upper band or making a sudden reversal. Beware of sudden reversal!!! Because it will have little stopping when it happens. This is very dangerous position to trade because of the unknown situation.

Although we know that eventually the market will go down because of the MACD still moving downwards. But that is only to be confirmed when stochastic is moving inline with the MACD moving downwards again.

gbp-jpy technical analysis

gbp-jpy technical indicators

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