the hAnDbook of teChnICAl AnAlysIs100‐period CCI within the area of consolidation, as indicated at Point 1. Therefore,
the trader may decide to go long once price penetrates the high of the candlestick indi-
cated on the chart. In this example, we see conflicting signals actually complementing
each other and affording the trader an advantageous entry at relatively low prices.
The important point to remember is that any form of analysis may be em-
ployed, as long as the analyst is intimately familiar with the peculiarities associ-
ated with each form of analysis. It is better to be conversant with one form of
analysis than to employ a slew of technical approaches without fully grasping
the intricacies of each approach. This leads to confusion and ineffective analysis.
It must be noted that combining technical studies will frequently result in both
confirmatory and contradictory signals as we have seen, with many of the signals
being also complementary as well. Only add studies once the first form of analysis
is fully mastered. The practitioner must always remember that no form of analysis
is always perfectly representative of the market, and it is inevitable that different
forms of analysis will many times lead to conflicting signals.
Subjectivity in pattern Identification
As mentioned, interpretation and inference of potential future price action based
on historical price behavior is essentially an exercise in subjectivity. Each analyst
will interpret and infer future price action according to his or her own experience,
knowledge, objectives, beliefs, expectations, predilections, emotional makeup,
psychological biases, and interests.
The identification of price patterns may also present some challenge to the
novice practitioner. Occasionally, the markets will conveniently trace out various
price patterns that may cause some confusion. Refer to Figure 1.17.
fIgure 1.17 Conflicting Chart Pattern Signals.