1. Eliminating Five Basic
Mistakes from your Analysis
Simple rules to avoid loss making trades
Ian Copsey – FX-Strategy

2. Trend lines

3. Trend lines
Even professional traders have the
habit of drawing as many lines as they
can on their charts
So how many do they have to draw
and how do they decide which ones
will work?

4. Trend lines

5. Trend lines
The main error is that they do not
identify trends and work on a hit and
miss basis
Look at what happened next:

6. Trend lines

7. Trend lines
Q. What is the definition of a trend?
A. Uptrend:
A sequence of higher highs and
higher lows
Downtrend
A sequence of lower lows and lower
highs

8. Trend lines

9. Trend lines
Three Touch Guideline
Anyone (and generally everyone
including my dog) can draw a line
between two highs or two lows
This is my dog ☺
By waiting for three touches the trend
line becomes stronger and more reliable

10. Trend lines

11. Trend lines

12. Trend lines

13. Trend lines

14. Trend lines

15. Trend lines
IF YOU CAN’T DRAW A TREND LINE
THEN DON’T FORCE YOURSELF
Actually they happen infrequently!

16. Double Tops and Bottoms
Double Top
Double Bottom

17. Double Tops and Bottoms
Are associated with bullish or bearish
sentiment that fails to be fulfilled
The period of sideways consolidation
between extremes and peak/trough
will generally cause confusion

18. Double Tops and Bottoms
Target Measurement
Minimum Target
Establishing a minimum target for the pattern

19. Double Tops and Bottoms

20. Double Tops and Bottoms

21. Double Tops and Bottoms

22. Double Tops and Bottoms

23. Double Tops and Bottoms
Q. Why didn’t these Double Tops
work???
A. Because they weren’t Double Tops
Double Tops and Bottoms require
confirmation…

24. Double Tops and Bottoms
Break
confirmation
Confirmation comes on
break of the trough/peak

25. Double Tops and Bottoms

26. Double Tops and Bottoms

27. Double Tops and Bottoms

28. Double Tops and Bottoms

29. Double Tops and Bottoms

30. Heads and Shoulders
Head
Shoulder
Shoulder
Retest of
neckline
Neckline
Neckline
Retest of
neckline
Shoulder
Shoulder
Head

31. Heads and Shoulders
Head & Shoulders represent a slowing
of momentum after a trending move
They should develop with a broad
trending sentiment (uptrend or
downtrend) which should be sustained
during development of the pattern

32. Heads and Shoulders
Extend from
point of break
Measure peak
to neckline
Minimum target
Establishing a minimum target for the pattern

33. Heads and Shoulders

34. Heads and Shoulders

35. Heads and Shoulders

36. Heads and Shoulders
Failures do occur and positions need
to be managed closely
Generally the neckline should act as
support/resistance after penetration
though occasionally there can be slight
penetration

37. Heads and Shoulders

38. Heads and Shoulders

39. Heads and Shoulders

40. Momentum
A favorite indicator type is momentum
in one form or another. These are
often utilized as overbought/oversold
signals but quite often are
misunderstood. If they are misused
losses can result.

41. Momentum

42. Momentum

43. Momentum
Why did RSI & Stochastics fail in
USDJPY for so long?
Basically there was a strong uptrend
and momentum studies are not
intended to be used in trending
markets

44. Momentum
How can we protect ourselves against
entering against the trend?
Use another indicator that identifies
trends

45. Momentum

46. Momentum
As ADX/ADXR are rising, generally
above 30 a trend is indicated at which
point momentum indicators should not
be used

47. Momentum
Sometimes popular indicators such as
RSI do not move to extremes
There are two methods that can be
used to determine better trading
opportunities:

48. Momentum
More sensitive version of RSI

49. Momentum
Breaks of momentum trend lines

50. Momentum
After a trend – when should
momentum indicators be used?
When there is a divergence

51. Momentum
Bullish Divergence
– Price is making new lows
– Momentum is making higher lows
Bearish Divergence
– Price is making new highs
– Momentum is making lower highs
The underlying momentum of price is
slowing beware of a reversal!

52. Momentum

53. Momentum
Wealth Warning!!
A divergence is not a reversal signal and
trades should not be based only on the
fact that a divergence has occurred
Look for other signals:
– A break of a trend line
– Break of a pattern
– Break of the sequence of highs/lows

54. Momentum

55. Momentum

56. Confirm your analysis!
Technical analysis is a broad subject
with many different techniques.
However, it is often risky to rely on
one indicator/technique alone.
Stronger profitability will come from
utilizing complimentary analytical
techniques

57. Confirm your analysis!
What kind of complimentary
techniques are there?
Momentum – used in consolidation and
divergence after trends
Trend lines breaks
Fibonacci projections from Elliott Wave
Pattern breaks
Time cycles

58. Confirm your analysis!

59. Confirm your analysis!

60. Confirm your analysis!

61. Confirm your analysis!