|Posted on July 9, 2009 at 9:00 AM|
Over the past few decades, when the financial markets were less volatile and tended to trade independently of one another, single-market methods of analysis were the mainstay of technical analysis and rightfully so. However, at this juncture, a narrow characterization of the markets, with its focus (if not preoccupation) on the inward analysis of each individual market, is much too limited. Traders need to expand their perspective to take into consideration external factors that affect each market.
Here's a simple analogy. Imagine yourself as a licensed pilot preparing to fly your private plane from New York City to Washington D.C., just before dusk one summer evening. Everything on your preflight checklist indicates that all of the plane?s internal operating systems are functioning properly, including visual fuel and oil checks, control movements, altimeter, compasses, flaps, mags and engine runup. However, you neglect to inquire about one critical external factor: the flight service in-route weather briefing.
In effect, by ignoring the external environmental context in which your plane will be flying, you are implicitly assuming that either the weather conditions will be favorable, or will not adversely affect your flight. This could make for a ?hard landing? (no pun intended) if in fact the weather conditions prove unfavorable for such a flight.
- Trend Forecasting With Technical Analysis.