Following the Path of Least Resistance | CQG News
Summary
This article will try to illuminate why most retail traders fail at speculative trading. Looking at the chart below (Figure 1) of the spot US Dollar-Japanese Yen (USDJPY), at first glance it appears to have all sorts of reasons for selling the market short on October 30, 2014. These reasons include an overbought Relative Strength Index (RSI) reading of 68.44, failure to breach the upper Bollinger Band, as well as the approach of a theoretically low-risk shorting area: the recent resistance level of 110.09. Unfortunately all of these reasons are short-term phenomena, which run counter to the most important, big picture fact displayed on the chart, namely that the path of least resistance as defined by the 200-day Exponential Moving Average (EMA) is up. Notice that in this second chart, issues such as historical resistance levels, an overbought reading in RSI, and the upper Bollinger Band level are all rendered immaterial and the only valid technical indicator remains the markets ability to close above its 200-day EMA.
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