Chapter 3. Chartism as a dead end in the classical technical analysis. The way out, suggested by Masterforex-V World Trading System.

1. The classicists of the technical analysis (such as Murphy, Schwager, Elder, Luca, Neiman, etc.) have not determined the mechanism for the trend transition into a flat and backwards – i.e., no clear criteria of such transitions are submitted.
2. As the consequence, the technical analysis algorithm has become complicated with the so-called theory of the expanding flat. The latter implies: a) the true breaking through the flat level and the trend beginning; b) the false breaking, accompanied by the takeover of traders’ postponed orders and coming back to the flat.
3. The classicists of the technical analysis have just ascertained the fact that the problem of the true and false breaking through the flat level does exist. Being unable of solving this problem, they refer to the only filter (the volume of transactions) that permits distinguishing the true breaking-through from the false one.
4. However, the gauge in question (the volume of transactions) is not adopted at forex.  

Thus, one gets into a vicious circle.

There logically arises the question. How the classicists of the technical analysis (Murphy, Schwager, Elder, Luca, Neiman, etc.), having in their disposal such a tottering basis, managed to get out of the difficulty and wrote hundreds of pages of their books. They have created illusion of originating a new science – the trading technical analysis (working according to its rules, more than 99% of traders all over the world lose their deposits). So, if each of the starting axioms is rather doubtful, what is this theory worthwhile as a whole?

The classicists of the technical analysis suggest a rather original way out: it’s Chartism, which logically makes the cul-de-sac of this branch of the classical technical analysis of trading and marks the end of it with a thick dot.

*** ALGORITHM OF THE CLASSICAL TECHNICAL ANALYSIS – The problem of the trend transition into a flat and backwards – The impossibility of solving the problem of the transition into a flat and backwards – The theory of expanding flat with true and false breakings-through levels – The impossibility of distinguishing the true breaking-through the level from the false one – Chartism as the graphical patterns of continuation and reversal of the trend:

 Graphical patterns of the trend reversal :

*the head and shoulders;

*the upturned the head and shoulders;

*the double top;

*the triple top;

*the double bottom;

*the triple bottom;

*the thorn;

*the diamond.

Graphical patterns of the trend continuation:

*the rectangle;

*the gaps;

*the flag;

*the pennon;

*triangles;

*the wedge.

The essence of Chartism . At the terminal, the classicists of trading look for patterns of the trend reversal and continuation. When such figures come to the end, these specialists make conclusions whether a given trend is to be continued or whether there comes the reversal.

Development of Chartism is stimulated by the following reasons .

1. Incapability of finding the algorithm of the continuation and reversal directly during the movement. Respectively, the mechanism for the trend transition into a flat and backwards in the on-line regime is not clarified.
2. As the result, in the on-line regime any classicist cannot tell whether at present the reversal pattern is being formed. If a given level is broken through, they cannot clearly point out where the reversal is to begin now. If at present the trend continuation pattern is being formed, respectively, it’s necessary to open a deal along the previous trend (and where this must be done).
3. Because such problems remain unsolved, any classicist cannot synthesize trends from different timeframes among themselves. For instance,

*the pulse m15= the 3^rd wave at h1, the 3^rd wave at h4 - respectively “long-term” deals are to be opened (their duration varies from several days and up to several weeks). Here one must clearly see at what stage in the intensive trend there is going on the currency pair movement exactly at the given moment.

*the movement m15= to C-wave of the 4^th wave at h1-4. Respectively, one looks for the point of the obligatory closing of “short-term” positions against the current trend and opening of deals along the current medium-term trend h1 in order to take the 5^th wave at h1-4.

4. Instead of this, the technical analysis of trading, developed by the classicists, is based on examining the history of quotations of numerous patterns of the reversal or continuation of the trend. The classicists don’t clearly understand the mechanism for the figure formation in the on-line regime. They also cannot detect the delicate verge of transformation of some figures into others – i.e., to precisely draw a distinction between such patterns.

There is an example of the erroneous presentation of the “head-and-shoulders” reversal pattern. As the result, further this pattern can turn into the figure of the trend continuation but not into that of the reversal.

After-effects of Chartism in the works by Murphy, Schwager, Elder, Luca, Neiman, Borcelino, etc.

In the previous chapter the classicists’ views are submitted. When one understands the essence of Chartism, once more one should try to comprehend the logic of the analysis given to trading by the classicists. It’s very important. For the further progress, it’s necessary

• to clearly see logic of the analysis given to trading by the classicists;
• to impartially distinguish their weak and strong points in giving analysis to the market;
• In order to start gaining profit regularly, to replace weak links in their algorithm of giving analysis to trading – i.e., to correct the mistakes, improve imperfections and to solve enigmas of trading, unsolved yet.

Logic of Chartism. Why Neiman advises to open deal only starting from the middle of the trend. How the “head-and-shoulders” pattern turns into the model of the trend continuation but not into that of the reversal – so that it can cause Chartism-supporters’ losses.

I want to remind that E. Neiman has written the following.

Citation

You can be not in time for recognizing the trend beginning – but it’s not of the greatest importance. Much more urgent is to get at least into the middle of the trend. As a rule, this segment is much more profitable than the trend 1^st phase because of the speculative “warming-up”.

Here arises the question: why does Neiman advise to open deals only starting from the middle of the trend and sometimes to miss thousands of points of profit? The answer is the following.

·   As all Chartists, Neiman doesn’t see the algorithm of the trend reversal and continuation.

·   Approximately in “the middle of the new trend” one of the patterns of the trend reversal becomes formed. From the viewpoint of Chartists, this indicates the “new trend”.

I don’t comment either on sequences of such a so-called “scientific” approach by Neiman or on the whole of the theory of the old classical technical analysis. I hope everything is already clear – i.e., even if one doesn’t know the trend beginning and the end, “it’s much more important to get at least into the middle of the trend”.

We now illustrate what consequences of Chartism logic can be in the branch of the technical analysis of trading. For this purpose, we take an example from a book by E. Neiman.

*** The intersection of two signals, coming from the two patterns, is marked with a circle (the “head-and-shoulders” pattern indicates the trend reversal; the “false breaking-through” implies the line that supports the channel in-force direction). Finally, the bull trend has won. Many traders who are wrong in estimating the situation at that moment have lost their money. The best outlet would be either to wait till the clarification of the situation or pick other confirmative signals.

The line of neck.

Neiman cannot see his mistake. According to him, the “head and shoulders” pattern is formed (this pattern is depicted at the foot of the chart). However, instead of the trend reversal pattern, the “head and shoulders” model has turned into the trend continuation figure.

Such nonsense regularly occurs at forex. What’s to be done?

If the theory contradicts to practice, the only outlet is to change the theory. One must honestly and frankly write the following.

a). Chartist branch of the trading technical analysis, depicted in works by Elder, Murphy, Schwager, Luca, Neiman, etc., has become obsolete and unprofitable.

b). A new theory of the technical analysis of trading must be developed.

* This theory must provide the algorithm of the currency pair movement (instead of waiting and guessing whether the pattern of reversal will be formed or not);

* This theory must improve mistakes in Chartism itself. Chartists draw the trend reversal patterns incorrectly. The reason is misunderstanding of the reversal algorithm, implied in these patterns. For instance, Neiman has incorrectly plotted the “head and shoulders” pattern as the model of reversal.

Examining this mistake, the reader who comprehends the essence of Chartism should pay attention to Neiman’s logic (that of a typical chartist).

Instead of thinking over the problem how, why and when the pattern of reversal turns into the trend continuation pattern in the real trading, Neiman has remained within the framework of Chartism. He has made the conclusion, contradictive to the common sense. According to Neiman, the best solution is “either to wait till the situation will clear up or to get other confirmative signals”.

Masterforex-V comments in connection with the typical chartist mistake, made by E. Neiman .

Backgrounds of Neiman’s mistake, discussed above, originates from Chartism – i.e., from a search for chartist patterns of the trend continuation and reversal instead of looking for an algorithm of the currency pair movement inside such patterns. This is the principal difference between Masterforex-V Trading System and other trading systems at forex.

a). If one doesn’t know an algorithm of the currency pair movement at forex , one acts as Neiman and other chartists. That is, one waits and tries to guess whether the trend reversal will occur or not (in the second case, the trend continuation pattern must be formed). In the above-given chart, Neiman mentions a great number of anonymous traders who have lost their money. According to him, the mistake of those traders was that they had to wait till clearing up of the situation. Once more I want to remind the reader that Neiman has submitted the chart d1. During several months the downward-directed movement went on (at that moment it was not clear which of the two variants had to be realized – either the correction or the 1^st wave of the new downward-directed trend). Thus, Neiman has omitted the downward-directed movement as a whole. Only at the very bottom (when he considers the head-and shoulders pattern to be already formed) he has opened the deal on sell.

Neiman doesn’t notice any reversal at all. Besides, he doesn’t estimate the movement intensity at each of reversals. He doesn’t see the role of the movement in the current trend (At Chart d1, the falling down goes on at least during several months. Judging by Neiman’s comments to this chart, only at the very end of the trend bear wave he has opened the deal on sell – when the “head and shoulders” pattern is already formed. This pattern of reversal (the “head and shoulders”) is acknowledged by chartists all over the world – to start from Schwager, Elder and up to Neiman.

I hope the prospects for traders are evident. That is, 99% of followers of Chartist School of the technical analysis of trading lose their deposits.

Each of traders who doesn’t want to repeat chartist mistakes made by Neiman, Elder, Schwager, Luca, Neiman and other representatives of this school must overcome the stereotypes of Chartism.    

b). If one can recognize the algorithm of the currency pair movement at forex, one follows the market according to the procedure, developed in Masterforex-V Trading System. For instance, dealing with the pattern of reversal, one

*traces out each step of this reversal;

*detects the point of the reversal confirmation;

*sees the point of the reversal cancellation – i.e., the “head and shoulders” pattern transformation into the pattern of the trend continuation but not the reversal (as it’s depicted in Neiman’s chart);

*synthesizes reversals in different timeframes.

Comments. In this chart, every movement is very simple, logical and regular – if one knows algorithm of the reversal and continuation of the trend. In particular, in Masterforex-V Trading Academy even the beginners know the bases of the system algorithm. When asked to give analysis to each step of the USD/JPY pair movement in Neiman’s chart d1, they easily solve this problem on their own.

Making use of Masterforex-V Trading System algorithm in explaining the currency pair movement, misunderstood by E. Neiman .

For those who aren’t trained in Masterforex-V Internet Academy, I submit promptings concerning the search for algorithms of the trend continuation/reversal.

1.   Searching for the reversal towards the bull trend. By finding its beginning (even in the limited space of Neiman’s chart), one can see the movement further development. In particular, absurdity of opening a deal on “sell” in the black circle, drawn by Neiman himself, becomes evident.

*** The intersection of two signals coming from the two figures is marked with a circle (the “head-and-shoulders” pattern indicates the trend reversal; the “false breaking-through” implies the line that supports the channel in-force direction). Finally, the bull trend has prevailed. Many traders who are wrong in estimating the situation at that moment have lost their money. The best outlet would be either to wait till the clarification of the situation or pick other confirmative signals.

The line of neck.

Chart 1. According to Masterforex-V Trading System algorithm, at this point

a). the previous bear wave has come to the end;

b). the so-called pivot level is broken through (the term is introduced by Masterforex-V); the trader’s task is accurately to keep an eye on the given level during each of the recoils.

Besides, the reader must clearly be aware of the following aspects.

*If this level remains not penetrated, one deals with an ordinary recoil (the trend continuation pattern).

* If this level is broken through, a rash reversal is possible – in case of its confirmation by other binary regularities.

c). In this connection, there arise certain questions.

*During the recoil, breaking-through which of the levels can cause the reversal of the whole trend?

 *What does confirm coming to the existence of this reversal towards the medium-term bull trend after the breaking through Masterforex-V pivot?

*Why is the given medium-term bull trend considered to be “short”, accompanied by the obligatory deals on buy?

*How will you calculate the point of close of this medium-term bull trend?

Chart 2. Circle 2. As the 1^st medium-term bull trend is “short” and it’s accompanied by the obligatory close of deals on buy, the intensive movement towards the opposite direction follows it without fail.

 

 

 

 

 

 

 

 

 

 

 

 

 

In this connection, there arise the questions.

*What makes the beginning of the regular movement directed downwards (opening of deals on sell)?

*What are the goals of this medium-term bear trend?

*What are the consequences of this medium-term downwards-directed movement for the long-term bull trend d1 (see Neiman’s chart)?

  

Chart 3. Circle 3.

*Opening of “long-term” deals along the medium-term bull trend. What does confirm the beginning of this “long” medium-term bull trend?

* Why is this medium-term bull trend longer than the 1^st medium-term trend?

*How will you “follow the market”, aiming at not missing the end of it (keep in mind intensive recoils directed downwards)?

 

Chart 4. Circle 4 and Neiman’s black circle.

*The downwards-directed movement starts after the closing of long deals on buy.

*Why has the reversal happened in Circle 4 and why it hasn’t occurred previously under the condition of intensive downwards-directed recoils?

*Why is it necessary to close deals on sell in the black circle (but not to open such deals as Neiman does it – as well as a great number of traders, about whom Neiman writes with confidence)?

*Where exactly to open deals on buy in Neiman’s black circle? Where to place the “stop” and why is the lock preferable than the “stop” in the given case?

Chart 5. Why does the development of the long-term bull trend d1 becomes determined exactly at the point B?

*The long-term trend d1 reversal can occur only there (but not in Neiman’s black circle).

*What are criteria of the trend reversal and continuation? The reader should find a pattern that would confirm the trend continuation (but not the reversal).

The corresponding promptings are submitted above. Maybe, you don’t understand them and an algorithm of each of recoils. Besides, probably, you don’t see the synthesis of the short-, medium- and long-term trends (the place where it could occur included) – as well as the continuation of each wave of the pulse and the correction at this chart. In this case, opening deals only at the very end of the movement (as Neiman does it), you will lose your deposit for sure.

The search for the algorithm of movement during the trading is much more difficult than by studying the history.

Exactly for solving these problems Masterforex-V Internet Academy has been organized more than 2 years ago. This Academy provides the following services.

*Training of the beginners.

*It’s explained how to calculate each movement at forex and to detect every reversal; its goals and significance with regard to timeframes of a larger scale are revealed. Our students have worked in a situation, more complicated than the one depicted in Neiman’s chart. They have gained profit after each of the recoils in the on-line regime.

*During the trading, one can get on-line promptings by more experienced traders.

*One can open a real commercial account only after the faultless overcoming of several reversals at h1-4 and taking the bulk of profit, potentially available in each of these timeframes.

Elements of Chartism. Their consequences in the technical analysis by Elder, Schwager, Luca and other classicists of the technical analysis.

Why C. Luca substantiates the absurd theory of opening deals under the condition of breaking through the expanding triangle. In practice, this implies missing of hundreds of the new trend items (sometimes even thousands of them when one deals with volatile pairs). The reason is a hope of taking other 100% of the items already traversed.

When one realizes that C. Luca doesn’t know the movement algorithm, the answer becomes simple. Really, the long-term deals don’t change in a moment. At the same time, C. Luca doesn’t notice the algorithm of the trend transition into a flat and backwards (as well as Neiman hasn’t detected it – see the chart given above). Consequently, according to Luca’s logic, when the trend has passed through hundreds or thousands of items, there arises the probability that the trend will not come to an end but it will go on farther. That is, one can gain profit, starting from the “middle of the trend” (as well as Neiman recommends it).  

Why A. Elder states that the majority of breakings through the price corridor bounds are false . Elder is a working trader. Reading his books with attention, one can find many secrets of his successful trading (sometimes he just drops a hint). Several chapters of this Book will be dedicated to Elder’s trading system. The minute analysis will be given to each of weak and strong points of the algorithm of his trading system from the viewpoint of Masterforex-V technical analysis. The goal of putting Elder’s trading system under consideration is the following.

*To add to one’s arsenal strong links of Elder’s trading system algorithm.

*To improve Elder’s trading system weak links (or substitute some other ones for them).

Now I want just to specify a series of problems concerning Chartism’s negative influence on Elder’s trading system.

a). To understand secrets of the successful trading according to Elder’s trading system, the reader should answer the following questions.

*Towards what direction of the trend development the majority of such breaks are false?

*What is the role of divergence in Elder’s trading system?

*What filters Elder uses as complementary to the divergence?

*What for Elder needs “3 screens” – 3 timeframes in giving analysis to the current market? Why Elder makes the subdivision into the long-, medium- and short-term trends (other classicists use one screen (timeframe) in their trading?

*What are the drawbacks of “3 screens” and why in Masterforex-V trading system they use 7-8 timeframes? What drawbacks of “3 screens” can be eliminated with the help of other timeframes? How to synthesize timeframes among themselves, clearly seeing what subwave in what wave is moving in the on-line regime when the trader “follows the market”?   

 b). To reveal drawbacks of Elder’s trading system, I submit several theses.

 *According to statistics used by Elder, the majority of breaks are false. Respectively, what criteria are to be used in the minority of the cases – when such breaks are true? Below it’s described how Elder cannot submit criteria of distinguishing the diamond pattern from the false break (the latter is called the “zirconium” break by Elder).

* Surely, attempts to catch the correction maximum will yield profit – if one will not place “stops” and observe the rules of money management.

* The role of money management in Elder’s trading system.

* Why in Elder’s books the triad of components, necessary for the successful trading, is arranged in the following sequence? Psychology of trading takes the 1^st place; the technical analysis has the 2^nd place; management (“control over the capital”) occupies the 3^rd rank.

This arrangement is nonrandom but logically relevant to Elder’s trading system. All advantages and drawbacks of this system are inherent in this presentation, where the role of the trading psychology is more important than that of the technical analysis. Why is it so?  

Prompting questions concerning Elder’s trading system, issuing from Masterforex-V technical analysis

1.   What drawbacks of the technical analysis in Elder’s trading system must be overcome due to psychology and management (according to Elder, psychology prevails over the technical analysis)?

2.   Why the arrangement of components, required for the successful trading, is different in Masterforex-V trading system? That is, the technical analysis of trading takes the 1^st place. Psychology of trading occupies the 2^nd place (at Masterforex-V Academy forum, a professional trader-psychotherapist directs this section). Management occupies the 3^rd rank.

An example of a by-default dispute between the two Chartists – Elder and Neiman – about the “diamond” pattern of the trend reversal

Thus, now you can see logic of the primary components of the classicists’ algorithm. You try to give a fresh look to this aspect via another pattern of the trend reversal – the “diamond” – as well as via Elder’s and Neiman’s attitude to this pattern.

1.   How these specialists find the trend reversal pattern and why do they open deals starting from the middle of the trend. That is, these authors already see the trend beginning. However,

*They don’t see where there will be the end of this trend.

*What role will this trend play with respect to timeframes of a larger scale – i.e., will it be a new pulse or correction.

2. How, because of Chartism, these authors dispute with one another about the patterns, realized in the past. In its essence, the discussion is reducible to the problem of naming these patterns. Below one can find different estimations of the reversal “diamond” pattern, submitted by Elder and Neiman.

3. How it’s easy to solve this problem via the logic of Masterforex-V technical analysis.

*** Line of support.

We have already seen this chart when we have examined an example of the “head and shoulders” pattern. However, after the lapse of time, this pattern becomes most likely similar to a “diamond”. It was expedient to sell after the breaking through the second line of support.

   In his comments to the given Chart, E. Neiman has written from the position of Chartism again: “We have already seen this chart when we have examined an example of the “head and shoulders” pattern. However, after a lapse of time, this pattern becomes similar most likely to a “diamond”. It was expedient to sell after the breaking through the second line of support”.

Analogously with the above-given example of the “head and shoulders” reversal pattern, this statement by E. Neiman also confirms the total failure of all chartist books, written by him and by all his predecessors about the technical analysis. Such specialists as Murphy, Schwager, Luca, Kan et al. are engaged in the same business as Neiman. That is, they look for patterns instead of determining an algorithm of the currency pair movement. This algorithm helps us to decide whether there will be the trend continuation or whether the reversal has already started (and what’s important, the trend behavior becomes predictable already at the beginning of the movement but not at the end of it).

Understanding these facets of Chartism, you should try to estimate Elder’s so-called “new” approach to the “diamond” pattern…again from the viewpoint of Chartism technique.

In this connection, A. Elder has written the following.

“Beginning as an expanding triangle, this pattern comes to its end as a symmetrical triangle. You should carefully concentrate your attention on recognizing this pattern. Those who deal with such charts can see that the “diamond”-type pattern is a “direct descendant” from Rorschach chart. Taking a good look at this chart, you can find the “diamond”. However, for a gambler its value is minimal. I searched for such “diamonds” myself. However, most of them turned to be fakes made of zirconium”.

In Part 1 of Book 2 I have asked a provocative question: “Who is right – Elder or Neiman?”

1.   I hope that the answer to the question “What was in the past?” is evident That is, for a working trader it’s of no practical importance whether there was the “head and shoulders” or the “diamond” pattern. Studying the history of trading, traders don’t gain profit – they just learn lessons.

2.   The reader should also scrutinize the currency movement in the given chart. In this way you can clearly see under what conditions

*the reversal “diamond” pattern works;

* what this movement represents by itself with respect to timeframes of larger scales.

3. By finding the answers to these questions, you can determine the regularities. You will clearly know the following: a) when in most cases this reversal makes just the correction (according to Elder, “zirconium”); b) Exactly under what conditions this reversal turns into the “diamond” in timeframes of larger scales.

Why B. Williams doesn’t work at forex and doesn’t recommend the work at forex to other traders.

Why is it so? By answering this question, you also detect the weak and strong points of B. Williams’s trading system (on the analogy of the above-examined Elder’s trading system).

The prompting : there are the same elements of Chartism (in the absence of the notion of “trading volume”, B. Williams’s gauge MFI is inapplicable; it cannot indicate whether the breaking through a level is true or false). The classicists of the technical and wave analysis don’t regard either the wave structure, the timeframe synthesis or fibo levels as their principal prompting (the “magic wand”). Only the trading volume serves as the principal prompting that confirms or denies their technical and wave analysis.

*Without this criterion all trading systems, developed by the classicists, work 50/50. These specialists perfectly understand this fact. The problem of the flat transition into the trend is unsolved by Elder, Murphy, Schwager, Lucas or B. Williams. This is why B. Williams doesn’t work at forex and doesn’t recommend others for doing this. Issuing from this advice by B. Williams, one can draw 3 paradoxical conclusions.

a). B. Williams doesn’t trust his trading system – in particular, his Alligator, AO and AC without MFI gauge (The latter, based on the trading volume, is senseless at forex).

b). The 2^nd conclusion is rather striking. Which of B. Williams’s indicators is the most important for the author himself when he takes a decision whether to open/close a deal? As one can see, it is neither Alligator, nor AO.

c). One should also pay attention to the 3^rd conclusion. At hundreds of sites all over the world the training to forex is based on “Trading chaos” and “New dimensions of the exchange trade” by B. Williams. The reader can guess what the final result will be! Really, the author of this technique himself doesn’t know how to make use of these books at forex!

Why the overwhelming majority of analysts recommends studying just the charts h4, d1 and those of a larger scale. The reason is that they don’t see the technical analysis algorithm logic (the flat transition into a trend and backwards). This is why these specialists advise not to pay attention to the “market noise” – m1, m5, m10 and m15 – but to study d1. They hope that the trend will remain unchanged, while their prognostications made ½ of the year before will be happily forgotten.   

A prompting from Masterforex-V trading system : the currency movement logic remains the same at m1-5 and at h4-d1.  

More than 3 thousands of students in Masterforex-V Academy from 40 countries all over the world can tell how they carry on daily calculations and how they get promptings in the on-line regime already during more than 2 years. In our Academy we work with all timeframes – to start from m1-5 and up to d1, w1 with the movement accuracy up to 1 or several items.

If the analyst doesn’t understand the currency movement algorithm, he conceals his incompetence by referring to the “market noise, not worthwhile of the trader’s attention”. Contradictions in the issued news or some other reasons can be mentioned as well.

L. Williams, the world champion in trading, about Chartism in all books of the classical technical analysis of trading and about the dead-end character of this technique.

I suppose that there are no reasons further to dwell on Chartists’ logic – Murphy, Schwager, Elder, Lucas, Neiman, etc.

L. Williams, the world champion in trading, is the only individual who has frankly written about the dead-end character of the further development of this branch of the classical technical analysis.  He has written the following.

Citation

When we start to construct the daily movement of prices in the form of bars in the chart, there arises the problem how to read them. Often this induces chaos in traders’ heads. The people who name themselves “chartists” read graphical presentations (charts) of the price behavior during many years. Scrutinizing the chart structure, these guys, have found out typical patterns and given names to them (for instance: wedge, head and shoulders, pennant, flag, triangle, W-basis and M-top, 1-, 2-, 3-configuration).

It’s supposed that these patterns depict the fight between the demand and supply. Some patterns indicate the sell; others depict the process of buying by professional operators. Such a striking piece of information! However, it’s erroneous.

At present Chartists are called “technical analysts”. Now they make computers to conjecture at charts. Computers have added respectability to chartists, helping them to look like true scientists. Actually, so many books have been issued. There are titles such as “New science…” or “The scientific approach to…”… Is there the true science in all this madness? Honestly to say, I think that there isn’t.   

On the basis of the aforesaid, you should try to realize Chartism consequences.

1.   During the last 20 years all classicists of the technical analysis (Murphy, Schwager, Elder, Lucas, Neiman, Kan, etc.) keep on circling. One after another they repeat the same ideas concerning the technical analysis (only verbal expressions differ).

*about patterns of the trend continuation and reversal;

*about the search for new patterns and models (I wonder that still nobody has developed the reversal models containing 4-5 tops (or even more)). One can also find such patterns in charts. At the same time, Murphy’s patterns of reversal – the “saucer” and the “rounded models of the top and base”- are unrealizable at forex);

 *about various types of triangles and so on.

2.   During the last 20 years all traders who work according to such trading systems lose their deposits with the same probability all over the world - 99%.

3.   Why all classicists of the technical analysis write that their technical analysis is applicable only to timeframes of large scales. Why L. Williams has managed to become the world champion when he has applied a different approach to timeframes of a small scale (m15).

4.   The whole system of activities of Dealing Centers and Broker Houses (and their intensive growth) is based on the regular losses of trading deposits by traders - in 99 of 100 cases. To prevent the residual 1% from gaining profit, brokers can apply legal techniques of hedging. Otherwise, illegal tricks can be played – such as knocking down of stops or the vulgar non-payment of the earned profit to a trader. The matter is that relations between traders and Dealing Centers are completely unprotected legally.

5.   The near-by forex business logically issues from this regularity.

*There is a tremendous number of analysts, each of them presenting the analysis of his own. Can you imagine a beginner, who reads dozens of analytical reviews, contradictory to one another?!

*The sale of thousands of various mechanical trading systems and “advisers” (without understanding and explaining of the movement algorithm).

*Training of beginners at trading courses on the basis of the same books written by chartists, where the same mistakes keep on being repeated.

Why the “head and shoulders” pattern in the chart from a book by E. Neiman is incorrect

When you will understand the movement algorithm, you- in contrast to chartists - will be capable of doing the following without difficulty.

*to work both within the reversal pattern and after the end of it (when it’s abolished or confirmed);

*to see patterns of the trend reversal/continuation as they really are and to turn down the form of such patterns, submitted by chartists.

In addition, the paradox and dead end of Chartism consists in the following. A lot of classicists of the technical analysis of trading don’t know niceties of patterns of the trend reversal and continuation. They expect such patterns for opening deals starting from the middle of the new trend.

Look at the “head and shoulders” reversal pattern at the foot of the chart from the book by E. Neiman again. Find the mistakes, made by Neiman-chartist.

Why the trend reversal pattern cannot take the form, sketched by Neiman (he imagens the “head and shoulders” pattern, where it’s absent).

Now you plot the pattern of the real “head and shoulders” reversal. Each step of the trend reversal must be grounded in accordance with clear criteria. In this case, you will never miss the trend reversal.  

Carefully look at Neiman’s chart once more. Now you tell why after the end of such “head and shoulders” pattern, submitted by Neiman (the red circle), a trader must     

*open a deal on buy but not on sell;

*know where to open a deal on buy;

*see where to locate the stop;

*understand why it is better to install the lock instead of the stop.

Principles of developing the algorithm of the technical analysis according to Masterforex-V

1.   Formation of the trend reversal algorithm: there exists the reversal pattern, uniform for all classical figures of the trend reversal and the wave analysis of trading; it s still not described in the literature.

2.   Synthesis of timeframes - to start from m1 and up to d1, w1. 

 a). The reversal at m1= the pulse wave or correction of a higher timeframe of the short-term trend at m5-15;

 b). The reversal at m5-15 = the pulse wave or correction of a medium-term trend at h1;

c). The reversal at h1 = the pulse wave or correction of a medium-term trend at h4;

d). The reversal at h4 = the pulse wave or correction of a long-term trend at d1.

3. The movement logic (algorithm) is identical at all timeframes:

*at the short-term trends m1-5 (the market noise);

*at the short-term trends m15-30;

*at the medium-term trends h1-4;

*at the long-term trends d1 and higher.

4. This is why in Masterforex-V Academy a special chair is established for the beginners.

*First of all, here they are trained to faultlessly detect reversals at m1-5 in the on-line regime and to see the strict logic of this movement.

*Only after this the students proceed to the work at timeframes of larger scales: the short-term trends (m15-30); the medium-term trends (h1-4) and the long-term trends (d1, w1 and higher).  

5. The technical analysis presented by Masterforex-V is universal.

*It’s applicable to all currency pairs of forex ( (GBP/USD, EUR/USD, AUD/USD, NZD/USD, USD/CAD, USD/JPY, GBP/JPY, EUR/JPY, AUD/JPY, NZD/JPY, etc.) – see the beginning of the algorithm of their interconnection .

*It’s applicable in all timeframe – to start from m1-5-15 and up to d1, w1.

*During more than 2 years this technical analysis is successfully tested and applied in Masterforex-V Academy by more than 3 thousands of students from 40 countries all over the world.

*Many students of Masterforex-V Academy more than once have won various competitions and tournaments. They have openly augmented their deposits in dozens and hundreds of times during short periods.

* We receive positive references from hundreds of traders-students of our Academy concerning the training and Masterforex-V trading system.

Other elements of the trading technical analysis algorithm

Before starting to read the next page in Book 2, the reader should try to understand

*the deadlock logic of Chartism – a branch of the trading technical analysis – in works by Murphy, Schwager, Elder, Luca, Kan, Neiman, etc.;

*the regularity in emergence of new schools of the trading technical analysis; such directions make a step forward with respect to this branch (you think, what is the branch in question? – The answer is submitted at the next page of this site).

*These next directions in the trading technical analysis also haven’t made Grail. You think why it is so.

*** Other branches of the technical analysis, where the analysts have become aware of the deadlock character of Chartism.

The answers to these questions are available in the next chapters of this Book.