I have made my mark in trading and trading education by thinking differently. One of the things I have always been fascinated with is how we are taught to do certain things and how we learn, specifically when it comes to anything that has to do with competing. For example in the United States, we compete for jobs, money, better this and better that… Have you ever considered that in the largest democracy in history, our school systems do not teach classes on how to compete? In capitalism, there is typically a winner and a loser. Yet, people in this country are never taught in school how to compete. In fact, it is the opposite. The natural educational path of our school systems is to train everyone to think the same way. This is bad news for those with those herd mentality blinders on and great news for those who focus on the art of competition. It all begins with thinking differently. If you bring a herd mentality mindset to competing in the trading markets, you will likely hand your account over to those who think differently and think the markets properly.

The books that teach conventional technical analysis tend to teach it the same way – offering little to no edge. Be careful taking the same action the masses do in the markets because they are not the ones who consistently profit, they typically lose. Let's take a look at two ways to use these same conventional principles a bit differently than conventional thought.

Trend Analysis

Most people know all about assessing a trend. Typically, everyone looks to see if the market in question is making higher highs and higher lows for up trends or lower highs and lower lows for down trends. Others use moving averages to determine whether they are sloping up for up trends or down for down trends. These are the two most popular ways to assess a market's trend. Another way to assess a trend is to look at the pivot lows in up trends and pivot highs in down trends.

Let's take an up trend for our example. Looking back at recent prior data in any market on a price chart, it is easy to see what the current trend is. It is equally important to assess how healthy the trend is and when and where it may end. One way to do this is to measure the distance between the lows of the pivots that make up the up-trend. Notice the up trend in the chart below; the distance between the pullbacks (pivot lows) is decreasing as the trend moves higher. This means the trend is becoming weak and will likely end soon.

The logic behind this is that a strong trending market does not pullback often. If it does, it is not a strong trending market anymore. Keeping with our constant supply and demand theme, remember that a trend on any timeframe is really a supply and demand imbalance moving back into a price level of temporary balance. This is a larger timeframe chart but the assessment can be done in any market, and any timeframe.

This is an excerpt from September 2009 issue of Trader's Journal.