Chart Pattern and Trading Psychology (Forex Education)

August 30, 2010 5:44 PM GMT

One thing I must always think about is the importance of pattern recognition. Whether traders focus on technical indicators or chart configurations, they are extracting patterns from markets that are associated with future price movement.

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Traders need to see enough examples of patterns to create an implicit learning. Every trader need to learn implicitly. This is the learning that characterizes athletes, fighter pilots, chess masters and other trained professionals.

A hallmark of implicit learning is that the performer's knowledge cannot be verbalized and will result in expert performance.

Two factors hinder the acquisition of expertise among traders:

A lack of experience time
Traders who watch markets on a part-time basis cannot possibly cultivate the intimacy with patterns that are characteristic of full-time traders who actively view and review markets.

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Too much information, too many indicators, tool, etc
Traders who watch too many patterns run the risk of internalizing none of them. By jumping from chart to chart, indicator to indicator, traders create what researchers call interference effects. Information obtained before and after the occurrence of a key pattern interferes with the processing and internalizing of that pattern.

There is much to be said for advice to maximize the experience, but focus on a small set of core, tradable patterns.

Traders need to concentrate on a few tools and indicators in order to internalize them. Traders also need to trade only indicators and tools when they feel comfortable with them. I am trading only with a few indicators; and I am always trading the same. No doubt, I could have added some other indicators and tools. But for now I feel comfortable with my indicators.

Happy Trading!

Roger
r.baettig@IBTimes.com

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