In retrospect, the market bubble of 2000 seems obvious. Explanations range from the likes of Elliott grand supercycles. historical valuation, head and shoulders top, and broken trendlines. These technicians are attempting to gain insight by applying cause-effect relationships to something the Fools believe is unexplainable, unpredictable, and pure junk. Yet, there are some very smart traders who continue to make money based on these seemingly random motions in price. I actually have my theories that one of the masters, Stanley Druckenmiller. caused the March 2000 Nasdaq top in an act of disciplined profit taking. More often than not, levels at which money is put on the line are determined by exactly the tea-leaf reading approaches the Fools sneer upon.

Technical analysis is actually a combination of anticipation, decisive action, confirmations, and risk management. Traders are guided by pattern setups based upon geometric proportions and/or statistical probabilities that attempt to predict future price fluctuations. It is a world filled with terms like relative strength, moving averages, retests, breakouts, support/resistance, oscillators, and tons of ways to filter price information — RSI, CCI, Stochastics, MACD, ADX, Candlesticks, Renko, Point & Figure.

Each individual must determine their unique risk profile and time horizon. This is one of the most difficult and time consuming endeavors imaginable and involves years of trial-and-error. I am most comfortable the role of an equity swing trader (day-week hold period) and futures scalper (intraday-overnite) — what follows is the systematic approach I use to guide myself thru individual buy and sell combinations on the ES s&p emini futures contract. The daytrading/scalping charts and comments were recorded over a 8 day period spanning October 15 — October 24, 2003 in the realtime financial channel #pitstock. The approach relies entirely on well-established pattern calls that I have learned to trust over time, along with insight gathered from the likes of Linda Raschke. Larry Pesavento. Robert Krausz. Bill Wolfe. W.D. Gann. and the classic Edwards & Magee.

There are many excellent references available that explain the geometries and criteria involved in patterns. These will be added in the future, and should serve to pique interest or perhaps lead to integration of an approach that fits your risk profile. How did the Fools do. Their Rule Breaker so gleefully touted in January 2000 with annual returns of 71% since 1994 quietly shut down in March 2003 (ahead of one of the greatest bull cyclical runs in a structural bear market) with no gain since 1998 citing conflict of interest with their new stock picking service. Is Technical Analysis Voodoo?