Which chart pattern to stick to?

[tech/a]

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.

Absolutely right.

But it's not only the application of one singular trade but the application of your trading business overtime which will determine profit or loss, drawdown or ruin.

 

[pixel]

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

... and for the remaining 1 Million, the usual 80:20 rule applies, i.e. 80% struggle to break even, 20% may make a living, and of those 20%, only a small minority excel. That's about the same ratio as in every one of life's endeavours, be it plumbers, car mechanics, programmers, lawyers, politicians, ...

 

[peter2]

FA checklists and TA patterns provide an objective analysis that make us feel good about starting a trade. That's it.

Our psychological bias makes us think they are high probability events that will provide the positive edge that we need to profit. The reality is that all patterns do not have an edge. Of course we disbelieve the facts and continue to look for the "Holy Grail" pattern (beginners' cycle).

The best patterns for each of us fit our beliefs about market behaviour. In my case the best patterns (for me) in bullish markets involve a break-out entry (Darvas boxes, ascending triangles etc), in uncertain market trends I prefer pullback patterns like the EW abc pattern or a fib ambush at support. In all cases I prefer to trade with the trend of a time frame that is larger than the one that forms the pattern.

I prefer patterns that show an entry trigger and a logical place for an initial stop loss. I use these levels to define the risk of the trade so I can allocate risk capital appropriate for my risk tolerance.

To your initial question "Which chart pattern to stick to ?". That is something for you to decide. I started with the Darvas box pattern, luckily in a bull market, but I traded this one pattern through the bull market and into the GFC bear market. I have traded 1000's of Darvas boxes, both in sim and for real. I learned what I have to do to be profitable by trading this one pattern.

I'm not recommending this pattern for you, but I urge you to select one pattern that provides plenty of opportunities and stick with it. Create scans to find them in the markets you trade, back test them with a variety of management techniques, create checklists to identify perfect patterns. Trade them in sim and for real and learn what you must do in order to be profitable. If this sounds like a lot of work, yes it is.

 

[burglar]

I was just adding to your comment.

Sorry, I misunderstood your intent, and I worded my post poorly.


The world's greatest chess champion may have been a code breaker in the war and never found time to play.
The world's greatest footballer may play soccer.

 

[burglar]

... lawyers, politicians, ...

Don't get me started on lawyers!

 

[bonkerrs]

Thanks for the replies. I have been reading (with much interest) the replies so far.

 

[subterfuge]

TA doesn't work. Test it.

I thought you said you used charts to trade? (I Must have mistaken you for someone else)

So if you don't use technical analysis, I take it you trade fundamentals?

 

[tech/a]

I thought you said you used charts to trade? (I Must have mistaken you for someone else)

So if you don't use technical analysis, I take it you trade fundamentals?

I don't really know How T/H Trades but understand his analogy that its like Spotting your mother in a crowd.
You can identify her instantly yet others have no idea she is there!

 

[cynic]

It seems the possibility of Technical Analysis sans charting has escaped the attention of some members.

It also seems that some have misconceptions regarding the extensive realm of possible trading modalities.

To opine that such a vast realm is confined to a mere two subsets (i.e. T/A and F/A only) and to further assert the mutual exclusivity of those subsets, suggests an absence of understanding of the true nature and function of financial markets.

 

[ThingyMajiggy]

It seems the possibility of Technical Analysis sans charting has escaped the attention of some members.

It also seems that some have misconceptions regarding the extensive realm of possible trading modalities.

To opine that such a vast realm is confined to a mere two subsets (i.e. T/A and F/A only) and to further assert the mutual exclusivity of those subsets, suggests an absence of understanding of the true nature and function of financial markets.

So again, as no one answered me last time, what else is there? If TA and FA don't work, what does? Also I doubt it matters about the application if there is no statistical edge in what you're looking for?

 

[wayneL]

It seems the possibility of Technical Analysis sans charting has escaped the attention of some members.

It also seems that some have misconceptions regarding the extensive realm of possible trading modalities.

To opine that such a vast realm is confined to a mere two subsets (i.e. T/A and F/A only) and to further assert the mutual exclusivity of those subsets, suggests an absence of understanding of the true nature and function of financial markets.

Quantitative Analysis?

 

[cynic]

Quantitative Analysis?

That's one possibility.

A few others that I know of are lunar (a.k.a. lunatic) analysis, intuitive analysis and let's not forget my personal favourite, namely cynical analysis (no charts, company reports or historical data are required for the correct performance of C/A).

 

[Trembling Hand]

FA checklists and TA patterns provide an objective analysis that make us feel good about starting a trade. That's it.

Our psychological bias makes us think they are high probability events that will provide the positive edge that we need to profit. The reality is that all patterns do not have an edge. Of course we disbelieve the facts and continue to look for the "Holy Grail" pattern (beginners' cycle).

The best patterns for each of us fit our beliefs about market behaviour.

I don't really know How T/H Trades but understand his analogy that its like Spotting your mother in a crowd.
You can identify her instantly yet others have no idea she is there!

I thought you said you used charts to trade? (I Must have mistaken you for someone else)

So if you don't use technical analysis, I take it you trade fundamentals?

Actually I trade with 25 charts on my screens, don't know a thing of the fundamentals of the companies I trade ( in fact I trade an Index and have done literally 1,000s of trades and don't even know what companies make up that index)

Looking at systems that 'work' you can say "see here is a TA system that is profitable over 1000 trades. That's proof that it can work". But it seems to me when you look at what is generating the profit its not actually the TA signal in a pure sense. It's being exposed to risk when its favourable to do so. That is why lots of systems have equity curve triggers or index filters. Lots of systems have win rates below 50%. They are just capturing the tendency for financial instruments to trend. They are not getting any great insight into the markets next move and/or the length of the next move.

With discretionary traders as far as market reading skills I think what they are doing is far more implicit than some silly TA patterns viewed after the event. Sure they may be 'reading' a chart but they, I would very much doubt, are seeing a pattern the same as the last 100 trades they took. They are simply recognising a market phase that is favourable as far as risk to reward. You can say but that is TA. I say from experience you are leaning into the trade in your head long before you can see the pattern show in the chart. You then use a chart to manage your bias. Ie if it goes here I was wrong, if it goes here I was right and am taking profit.

Its you ability to learn and use info to colour your bias that makes you a successful trader. Not waiting for a H&S pattern to show. Once your bias is leaning the right way you will find some pattern in the chart to risk dollars on an uncertain outcome.

 

[cynic]

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.

So again, as no one answered me last time, what else is there? If TA and FA don't work, what does? Also I doubt it matters about the application if there is no statistical edge in what you're looking for?

My apologies for overlooking your earlier posts Thingy.

The questions regarding efficacy of particular analysis styles is one to which I prefer not to proffer a definitive answer, primarily on account of it being a rather subjective and controversial topic.

I've known some traders that have been extremely proficient in the profitable application of F/A. Likewise for T/A.

I've also known some that have repeatedly failed to profit despite their devotion to one or another mode of analysis.

Generally, those suffering chronic losses exhibited the same behaviours, namely, a failure to fully appreciate the scope and limitations of their chosen modality. I've observed many traders placing unrealistically high expectations on what their analysis can actually deliver!!!

 

[tradezy]

Its you ability to learn and use info to colour your bias that makes you a successful trader. Not waiting for a H&S pattern to show. Once your bias is leaning the right way you will find some pattern in the chart to risk dollars on an uncertain outcome.

Hi Trembling Hand,

I would like to ask how you form your "bias" to go either long or short for the instrument you are trading.

With thanks,

Tradezy

 

[tech/a]

Hi Trembling Hand,

I would like to ask how you form your "bias" to go either long or short for the instrument you are trading.

With thanks,

Tradezy

Do you know what his mother looks like?

 

[Trembling Hand]

Hi Trembling Hand,

I would like to ask how you form your "bias" to go either long or short for the instrument you are trading.

With thanks,

Tradezy

I'm not sure if this is a serious question after what I have already added?

 

[tradezy]

Hi Trembling Hand,

I'm trying to work out how to develop directional bias on the index (XJO) in a "structured" way.

To work out my bias I have been looking at daily candlesticks (1 year timeframe). I work out which way the market is moving based on the current trend. I then switch to a 5 minute candlesticks (1 week timeframe).

Do you start on a higher timeframe then switch to a lower timeframe?

Or do you stay on one timeframe to determine bias? Or do you do something else entirely?

Any insights would be appreciated.

Tradezy

 

[Trembling Hand]

Or do you do something else entirely?

Errr I would have to say something entirely different..

To work out my bias I have been looking at daily candlesticks (1 year timeframe). I work out which way the market is moving based on the current trend. I then switch to a 5 minute candlesticks (1 week timeframe).

Although I do believe you have to be creative to find an edge today. I would be surprised if there is any correlation between a daily trend and one you find on a 5 minute chart. From my testing when the daily/weekly time frame is strongly trending it comes from over night gaps. The times frames below that are actually statistically showing an edge in the reverse direction.

How did you come about that approach?

 

[tradezy]

Hi Trembling Hand,

I'll start by saying that I don't have much of a clue when it comes to discretionary trading. Discretionary trading is like a mystery to me.

In answer to your question, I guess you could say I derived my discretionary approach by watching Youtube videos.

I came across videos where people say that they like to start off with a daily charts to see the big picture first, then drop down to lower time frames e.g. 4hours, 1hour, 30mins.

I noticed many of them end up trading the 5minute charts if it is moving in the direction of bias established on the daily chart.I just assumed pretty much everyone did it this way!

Is there another way to develop bias besides looking at the chart? Is it by looking at market depth imbalances?
Can you point me in the right direction?:1zhelp:

With thanks,

Tradezy