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Thoughts behind trading patterns
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Thoughts behind trading patterns

  #11 (permalink)
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I use patterns but i define them a bit differently. To me a pattern can be a price formation on the chart or it can be something that happens repeatably, fairly consistently. Some of my favorite non chart patterns involve things like stacking the order book, then pulling orders. Another one is the way a market behaves in the book before it smashes through a level...

One of my favorite chart patterns is what i like to call "the Hockey Stick" and i find the price action quite interesting as well a the psychology behind it...It starts with a quick impulsive move and then in the continuation of the move it gets choppy. To me, in the case of a bear move, the choppiness comes as the market gets "too short" and traders are trying to cover instead of hanging on for extra profit...It happens all the time in all markets, all time frames and it usually indicates the end of a move and reversion to the mean or VWAP for me...The long is the opposite, as attached.

I don't use these alone, but in context with Volume Profile and the Depth of Market.

I also believe you should develop your own patterns by putting in the "screen time"...You need to own them, be confident in them.

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  #12 (permalink)
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I have read Murphy, Trade Chart Patterns Like the Pros and Evidence based TA. I actually think Intermarket Technical Analysis by Murphy is far superior.
Evidence Based TA is an ok book that would have been great had they provided code to actually replicate what they are talking about in the book. It seems odd to go through all that and not have working examples at the end of the day.

I don't think there is anything to grasp with chart patterns. You are basically doing a quick regime analysis. You will see more bull flags in a bull market and if you take those bets and the bull market continues then the bull flag "worked". The fact it worked though had absolutely nothing to do with the squiggly lines that arise when plotting price points with charting software.
It worked because you are in a bull market regime so any trade that is biased long has a much better chance than one biased short.

A pattern doesn't just have to be profitable, it has to beat what you would have had just buying and holding/shorting and holding + transaction cost, all normalized for the same leverage. "Beating" the unlevered S&P returns by 5% trading ES with 5x leverage is not beating the S&P at all.

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  #13 (permalink)
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There is a simple truth for a day trader, i.e., you need screen time to learn to read price action. Once you have some screen time under your belt you'll have formed what i call a library of patterns you can recognise in context. Further more, there is a very limited set of patterns you need to master in order to be profitable.

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  #14 (permalink)
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xiaosi View Post
I use patterns but i define them a bit differently. To me a pattern can be a price formation on the chart or it can be something that happens repeatably, fairly consistently. Some of my favorite non chart patterns involve things like stacking the order book, then pulling orders. Another one is the way a market behaves in the book before it smashes through a level...

One of my favorite chart patterns is what i like to call "the Hockey Stick" and i find the price action quite interesting as well a the psychology behind it...It starts with a quick impulsive move and then in the continuation of the move it gets choppy. To me, in the case of a bear move, the choppiness comes as the market gets "too short" and traders are trying to cover instead of hanging on for extra profit...It happens all the time in all markets, all time frames and it usually indicates the end of a move and reversion to the mean or VWAP for me...The long is the opposite, as attached.

I don't use these alone, but in context with Volume Profile and the Depth of Market.

I also believe you should develop your own patterns by putting in the "screen time"...You need to own them, be confident in them.

Hah The Hockey stick! Might have to steal that name now!

I'd known it to be the "creeping trend", where price rallies to swing highs, pulling back to basically find support on 'top' of previous ranges- to then lose momentum and start pulling right back 'inside' the previous range.

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  #15 (permalink)
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@Neo1 I completely agree with what youíre saying here. Context is paramount.

Pattern:

Trading the pattern in itself without supporting factors, I believe youíre most likely setting yourself up for failure. Iíve realized that if I were to trade everything that looked like a double bottom, Iíd be setting myself up for failure. I use the patterns more or less for pros or cons. Just for an example of the top chart from my original post, it wasnít the double topping pattern that gave me the idea, It was more or less looking at the fact it was coming into 3900(whole number support) and previous resistance on higher time frame and the trend was down. Yes, I did consider people taking profit there. For most not all, I think when we start out with technical analysis path we think itís definitive, well it came into support, and why the hell didn't it hold(that's what your stop is for). Then we get on the idea well TA doesnít work I need to find something else. I would say what needs to be worked on here is the analysis side. We as trader need to capture the big picture are we getting bottoming action for a potential reversal? or large correction? or are we getting more of a correction for the a continuation move.

Emotions:

When I think of emotions, I think of two types that essential equates to the same. First you have your emotions fear(I don't want to lose my money), greed( I want money I'm going to put on this trade and I should make money), confidence (is the setup really there or do I just want money, last time I got stopped out and had a large draw down).

Second set of emotions is the execution emotions of different traders and methodology which is influenced by the first set.

@NoiseTrader716 I can see how trying trade breakout is super confusing, because you can trade it a few different ways. The traditional way is obviously more risky than other ways.

Analysis: Detailed examination of the elements or structure of something, typically as a basis for discussion or interpretation.

How I would approach TA is not think of it as technical perfect, but the focus more on the second word and analyze. Thatís just my two cents.

I've included a couple charts for the folks that like visuals and context. Thanks to those who contributed thus far.


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  #16 (permalink)
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xiaosi View Post
I use patterns but i define them a bit differently. To me a pattern can be a price formation on the chart or it can be something that happens repeatably, fairly consistently. Some of my favorite non chart patterns involve things like stacking the order book, then pulling orders. Another one is the way a market behaves in the book before it smashes through a level...

One of my favorite chart patterns is what i like to call "the Hockey Stick" and i find the price action quite interesting as well a the psychology behind it...It starts with a quick impulsive move and then in the continuation of the move it gets choppy. To me, in the case of a bear move, the choppiness comes as the market gets "too short" and traders are trying to cover instead of hanging on for extra profit...It happens all the time in all markets, all time frames and it usually indicates the end of a move and reversion to the mean or VWAP for me...The long is the opposite, as attached.

I don't use these alone, but in context with Volume Profile and the Depth of Market.

I also believe you should develop your own patterns by putting in the "screen time"...You need to own them, be confident in them.

I like your name for that pattern. I call it a momentum reversal. Thanks for sharing.

"Small disciplines repeated with consistency every day lead to great achievements gained slowly over time."
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  #17 (permalink)
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The DAX, its got a tad too short, we've got a hockey stick...

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