THE HAnDbook of TECHniCAl AnAlysis26.7.1 Collecting bullish indications
It is important to be cognizant of the fact that:
For every bullish or bearish signal or indication, there exists an equal and
opposite interpretation of that signal or indicationFor example, an overbought reading on the stochastic could mean that price is in
a strong uptrend. It could also mean that price may be potentially overbought and as
such may be due for a correction. Another scenario where this dualistic interpretation
manifests itself is when there is a small breakout. It may be interpreted as price prov-
ing itself capable of penetrating the resistance level and hence be regarded as a bullish
sign. Conversely, it could also be seen as a setup for potential exhaustion, with traders
expecting a false breakout. Therefore, it is not difficult to see why technical analysis
may sometimes prove challenging. We can never be privy to all information available,
and therefore it is impossible to form an accurate or perfectly informed opinion of the
markets. It is far more practical to formulate a simple working view of the markets
with clearly defined risks and rewards, allowing us to limit our losses when we are
wrong about the markets and letting us maximize our profit when we are right. After
all, no one can truly foresee the future and we should expect, on applying the WCS
principle, that many of our forecasts may be proven inaccurate.
So the next best thing to do once a market participant has formulated a certain
outlook on the market is to gather all the relevant information that supports that
view. From the information gathered, identify significant key price levels with which
to define the maximum risk and minimum potential reward for maintaining that view.
Assume that we have a bullish outlook on the market. This next step is to identi-
fy all the bullish indications that will support that view, paying close attention to the
key levels in that stock which we could use to manage our exposure in the market.
We collect all bullish and bearish indications from the short‐, medium‐, and
long‐term charts, in the form of bullish and bearish signals and triggers.
Figure 26.13 Organizing Technical Data.