Which chart pattern to stick to?

[bonkerrs]

I understand entry is only a small part of the complete trading cycle. I understand the exit is very important as is money management. I remember reading somewhere in one of Nick Radge's articles (and elsewhere, most likely here) to be consistent, whatever you decide to do... be consistent with it and stick to it.

This brings me to starting this thread. I would like to concentrate on learning a couple of chart patterns to enter trades. The problem is there are so many chart patterns to follow and learn. So hard to stay focused!

Some advice on this please
For an entry. I am thinking of focusing on learning head and shoulders, I read this is one of the more reliable pattern signaling a movement in either direction. The other is MACD and 'High and Tight Flags'. H&TF for uptrend.

Looking forward to some words of wisdom!

 

[tech/a]

Google
Thomas Bulkowski

 

[pixel]

Google
Thomas Bulkowski

+1
I have his site bookmarked: http://thepatternsite.com
and specifically the page on Candlesticks: http://thepatternsite.com/CandlePerformers.html

 

[Trembling Hand]

For an entry. I am thinking of focusing on learning head and shoulders, I read this is one of the more reliable pattern signaling a movement in either direction. The other is MACD and 'High and Tight Flags'. H&TF for uptrend.

Perfect timing I was only thinking of this yesterday.

There was an active thread here on ASF a few years back about H&S patterns. Here

I ran some stats on the calls 1 month after each poster had made their post. I did keep a spreadsheet but at the moment cannot find it. But from memory there was a massively miserable success rate of 20% and that was when I was generous and took a win at 1:1 risk to reward.

There is something attractive about the H&S pattern for inexperienced traders that should be investigated further. In fact the "learn a pattern = make money" approach to TA is bankrupt. It simply doesn't work. How in the hell did we get here? How is it that some nice and warm fuzzy sounding patterns invented 50-80 years ago in a vastly different time and probably on a vastly different instrument have come be without question accepted as something that "works"???

We live more and more in a time of proof yet we still fall, collectively, for the fallacy of authority and tradition in things that are so easy to test.

TA doesn't work. Test it.

 

[tech/a]

Some meaty stuff hear.
I will devote sometime to a reply---later.

But in general terms I agree with T/H

----That T/A doesn't work I----and some who have proven
it does supply an edge---Dr Bruce Vanstone for one
don't agree.

http://works.bepress.com/bruce_vanstone/

http://www.iaeng.org/publication/WCE2008/WCE2008_pp80-84.pdf

I have currently employed My own Genius to have his company answer many of the questions asked by you/me and many others. He is also a Dr Physics and has computer programming and analytical skills well beyond my capability.
We are currently putting together a working strategy which will in the end give valuable proof of I'm sure many fallacies that don't work and I'm sure many that do.

Some I will release here.
Others will be available.

 

[wayneL]

TA doesn't work?

Define technical analysis.

The usual indicator based drivel is, well, it's drivel. Avoid. But can be useful for finding candidates.

Analysis of a derivative of price and decision making on that basis is certainly a loser. Analysis of the primary, ie price (and some claim time), has potential to be successful, as has been shown by "the successful".

Not on the basis of prediction however, but game theory. Therefore 1:1 probabilities, or slightly worse even, (as in the case of HS patterns highlighted above) are not an insurmountable obstacle to profit.

TA can be made to work, just like any analysis, But I believe there are nuances that only human observation can overcome.... well, for mere non-mathematical genius mortals anyway, a je nais se quois if you like.

It is ideal for those who, like me, cannot grasp the related nuances of valuation and fundamental analysis.

 

[Trembling Hand]

TA doesn't work?

Define technical analysis.

Bonkerrs, like many if not all at some stage, has taken the approach that if he can shoehorn the random actions of the market into a certain pattern he will able to have a certainty or high probability of some outcome. This is the same for any type of TA........ If X = H&S then X + 20 bars will equal Y (substitute H&S for anything, MACD, RSI, Elliot, GAN, S&R and on and on)

Will not work. Completely lacks context and understanding about when and why to risk $. How and what makes money over many trades,

if the only tool you have is a hammer.........

 

[pixel]

TA doesn't work?

Define technical analysis.

The usual indicator based drivel is, well, it's drivel. Avoid. But can be useful for finding candidates.

Analysis of a derivative of price and decision making on that basis is certainly a loser. Analysis of the primary, ie price (and some claim time), has potential to be successful, as has been shown by "the successful".

Not on the basis of prediction however, but game theory. Therefore 1:1 probabilities, or slightly worse even, (as in the case of HS patterns highlighted above) are not an insurmountable obstacle to profit.

TA can be made to work, just like any analysis, But I believe there are nuances that only human observation can overcome.... well, for mere non-mathematical genius mortals anyway, a je ne sais quoi if you like.

It is ideal for those who, like me, cannot grasp the related nuances of valuation and fundamental analysis. :

yes, what Wayne said
(and tech/a too)
T/A is also more efficient than the study of financials and fundamentals of companies because, generally, I can program a computer to apply the same evaluation algorithm to a wide range of traded instruments, something an individual F/A would find nigh impossible.

T/A is a very versatile tool - in the hands of a trained trader. But just as in other areas, if a tradie IS a tool, he won't be able to successfully USE a tool. It takes an apprenticeship to know how. Years of Learning.

I was going to reply to the OP in greater detail outside Trading hours, and to point out the difference between being consistent and being restrictive. For now, let me just say, simply looking for H&S patterns is not T/A.

 

[pinkboy]

Straight up - Im not a trader or a technical guru......BUT


As with everything, don't restrict yourself to a single technical analysis. Learn several, as a H&S takes time to generate itself, where as you could miss out on a trade with a more definitive pattern in another technical form.

Limiting yourself in this manner keeps you out of the game longer. Diversify.


pinkboy

 

[wayneL]

Bonkerrs, like many if not all at some stage, has taken the approach that if he can shoehorn the random actions of the market into a certain pattern he will able to have a certainty or high probability of some outcome. This is the same for any type of TA........ If X = H&S then X + 20 bars will equal Y (substitute H&S for anything, MACD, RSI, Elliot, GAN, S&R and on and on)

Will not work. Completely lacks context and understanding about when and why to risk $. How and what makes money over many trades,

if the only tool you have is a hammer.........

So you are extrapolating the unlikelihood of success of using a a single pattern to iterations and styles of analysis?

Hmm Can sort of see your point, however, I think proper use of TA accounts for and benefits from said randomness.... which is what makes it so difficult once the mind is polluted with the standard "education".

 

[Wysiwyg]

Straight up - Im not a trader or a technical guru......BUT


As with everything, don't restrict yourself to a single technical analysis. Learn several, as a H&S takes time to generate itself, where as you could miss out on a trade with a more definitive pattern in another technical form.

Limiting yourself in this manner keeps you out of the game longer. Diversify.


pinkboy

Nuh. Thomas Bulkowski is well known in the chart pattern technical analysis field. One could easily be mislead that chart patterns give you an edge. The examples he provides were of "hundreds of perfect trades". In reality, sometimes price moves as the pattern dictates (and right there is the other factor not considered - how far that way) and sometimes price moves the opposite. Include here all fake moves and all of a sudden, in reality, you're on the losers team and getting screwed over.



p.s. price has direction (trend) but this can change at any time.

 

[tech/a]

Nuh. Thomas Bulkowski is well known in the chart pattern technical analysis field. One could easily be mislead that chart patterns give you an edge. The examples he provides were of "hundreds of perfect trades". In reality, sometimes price moves as the pattern dictates (and right there is the other factor not considered - how far that way) and sometimes price moves the opposite. Include here all fake moves and all of a sudden, in reality, you're on the losers team and getting screwed over.

View attachment 59589

p.s. price has direction (trend) but this can change at any time.

Your selective in interpretation.
Your post "Could easily mislead one that chart patterns don't give you an edge"
What he is saying is that the chance of perfect trades are zero.

If they didn't give an edge why would Bulkowski test 100s of patterns
Have a website which must take hrs to maintain and write many books on the
Topic----not one titled " Patterns don't give you an edge and I've proven it"

But you do bring up a good point
How long a successful signal moves in a direction.

It's up to the analyst to develop a profitable strategy.

Very difficult with the limitations of conventional software where pattern recognition is
At best subjective and at worst forward looking in formula so systems testing is nearly
Impossible.
We are taking a different approach using Metlab (m-code) and Python.
According to the guys I'm working with many questions that don't seem to have definitive answers
We are going to find lots of answers and no doubt more questions.

Some may find this of interest as our main goal is to develop our own Bot.
https://www.youtube.com/watch?v=vSppCrUNW9w

 

[Wysiwyg]

Your selective in interpretation.
Your post "Could easily mislead one that chart patterns don't give you an edge"
What he is saying is that the chance of perfect trades are zero.

Yes that is what is quoted in the warning box however I will add some further "quotes" from Mr. Bulkowski so viewers get a better picture of what a successful trader does. After all, that is what we all want to continue or be.

How do you screen for stocks to trade? http://www.traders.com/Documentation/FEEDbk_docs/2006/09/Interview/interview.html

First, I'll check the industry relative strength by ranking the 46 industries I follow for performance over the last six months. The order of the top 10 doesn't change much-stocks doing well continue to do well. I want to know what's working and what industries to avoid.

Then I'll page through nearly 450 securities, mostly stocks. Each stock is sorted by industry, so all airline stocks appear first and then basic chemicals, and so on. I look at the same 450 each day, so I get a feel not only for each stock, but for the industry as well.

Next, as each screen appears, my computer searches for chart patterns and candlesticks automatically, and the chart border changes color depending on the industry relative strength, so that alerts me to the leaders and laggards. So my computer and I catch most of the chart patterns worth finding.

And finally, when I see an interesting chart pattern worth trading, I push a button and my electronic notebook appears, formatted with a checklist of stuff I look for, such as my stop price, target price, future market direction, chart pattern score, and so on. It may take up to an hour to qualify a pattern, but once I'm done with my research, I make a trading decision.

If they didn't give an edge why would Bulkowski test 100s of patterns
Have a website which must take hrs to maintain and write many books on the
Topic----not one titled " Patterns don't give you an edge and I've proven it"

His many books are educational and could add confidence to readers that trading is something that they will be successful at. Why all readers aren't successful I don't know. The patterns do repeat but there are many other factors in trading beyond a single security pattern appearing on a chart.

It's up to the analyst to develop a profitable strategy.

So we read over and over again. Why are there not ten million successful Tech Trader disciples walking the planet?

 

[burglar]

... Why are there not ten million successful Tech Trader disciples walking the planet?

'Cos 9 million potentially successful 'Tech Trader disciples' are in fact "sceptics".

 

[pinkboy]

Instead of getting all techincal, read my post for what it says.

All I said was dont limit yourself to a single trading pattern, instead, learn several so you can learn more about trading technical analysis. A head & shoulder might form less frequently, where as ascending triangles and waves etc will present more opportunities more often if you learn more technical patterns than a single one.


pinkboy

 

[tech/a]

'Cos 9 million potentially successful 'Tech Trader disciples' are in fact "sceptics".

(1) It was designed as a long only trading system by someone with no training or programming a experience.to see I a coplete dunce could develop a profitable system.
It out performed the designers expectations

(2) everyone thinks they can develop a better wheel.

(3) I doubt more than a few 1000 people know of it's existence.

(4) I know of 3 who do use it with some minor tweaks for their SMSF 1 losing year 2009

 

[burglar]

... It outperformed the designers expectations ...

You make it sound like I am not on your side!
(Truth be known, I am still not in a hurry to be on one side or t'other.)

Ever since this post of yours, I have known that you know something that the rest of us don't.

Maybe you're Worst Pick Ever was a sold too early story, you know, the Motza that got away.

Im sure there are
But For what its worth this is my Resources portfolio.
Maybe you'll notice something of interest

 

[tech/a]

You make it sound like I am not on your side!
(Truth be known, I am still not in a hurry to be on one side or t'other.)

Ever since this post of yours, I have known that you know something that the rest of us don't.

I was just adding to your comment.

 

[ThingyMajiggy]

Okay so TA doesn't work, FA doesn't work. Time for some elaboration for those wondering, what does then? Because TA and FA are all most people know.

 

[IFocus]

Okay so TA doesn't work, FA doesn't work. Time for some elaboration for those wondering, what does then? Because TA and FA are all most people know.

Fact is everything works, everyone trades patterns FA / TA / voodoo, its just everyone doesn't recognize what they do is a pattern.

Its the application of the method that fails the trader.

Watch the posting here BTW and see the patterns.