In the CNBC video link below, Jim Cramer reviews the U S Dollar Index using technical analysis of Fibonacci levels and Time Symmetry analysis that suggests a possible long-term turning point. Jim admittedly knows little about technical analysis concepts. In the segment, he is repeating what was sent to him — or it may even be paid for advertising.
This type of overly complex analysis draws in novices and even institutional traders. The belief that technical analysis needs to be complex to be accurate is simply wrong. I was drawn into this type of analysis when I first started to learn it many years ago also, which was in the late 1980s.
With so much attention around complex types of analyses that sells books about its use, trading platforms support those analysis and educational services selling how to use that type of analysis. It’s hard to not be drawn into it.
After a period of using this type of analysis years ago, I realized it was too subjective and inconsistent. And when it did work, it was virtually always aligned with the simple, foundational technical analysis concepts of support, resistance and trends.
Technical Analysis of the U S Dollar Index
In the chart above of the U S Dollar, the decline was relatively controlled with lower highs and lower lows. As prices neared the old swing low, prices accelerated lower — as they typically do — near the end of a downtrend. That being said, that climactic drop does not change the trend from down and positions can be initialed (if desired) before a trend change.
This analysis is an “indication” of a potential turning point.
You have a choice as to the type of analysis and method to use. Would you rather the simple approach of looking to the left for an old swing low,or draw lines over lines to find the same reference point?
If you are a Fibonacci user, look at the turning points and you will find that the vast majority occur at a prior old turning point.
Keep it Simple Stupid — or KISS.
All the best,
Managing Director Master Trader
Founder of the Pristine Method and Pristine Trading