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Thoughts behind trading patterns
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Thoughts behind trading patterns

  #1 (permalink)
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Thoughts behind trading patterns

I wanted to discuss patterns and psychology in this thread. Also, I wanted to see what you guys and gals thoughts are behind the overall patterns. Also, what patterns do you guys like to trade the most?

My overall beliefs are patterns themselves are based off S&R, period, but not the pattern itself. Yes, when people see the pattern developing they anticipate what is going on like a head and shoulders, double bottom, flag, etc... Then you can anticipate stop and target level based off the pattern.

I think my favorite pattern would be the double, bottom, flags, and HS'. Essentially an HS pattern is bull or bear flag whichever the type you're trading into a double top or double bottom (might not be picture perfect) back into a flag.


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  #3 (permalink)
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Since you mention psychology, I would encourage you to read this book: Evidence Based Technical Analysis by David Aronson:

http://www.amazon.com/Evidence-Based-Technical-Analysis-Scientific-Statistical/d...based+technical+analysis

The book is not a psychology book, but a methodical analysis of patterns and what happens "before" and "after" the fact. That of course does involve human nature, a psychological response.

A good book.

Mike

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  #4 (permalink)
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Big Mike View Post
Since you mention psychology, I would encourage you to read this book: Evidence Based Technical Analysis by David Aronson:

http://www.amazon.com/Evidence-Based-Technical-Analysis-Scientific-Statistical/d...based+technical+analysis

The book is not a psychology book, but a methodical analysis of patterns and what happens "before" and "after" the fact. That of course does involve human nature, a psychological response.

A good book.

Mike

Hi Mike,

I'll look into the book. I've read up on the author and an interview from what I've read, describes debunking of TA. I might not be getting the whole concept of the book.

I know we all trade differently what we see, how we enter and exit, and how aggressive or conservative we are. On top of that add emotions of the market participants.

Was there anything about the book in partiulcar you found valuable or was this more or less just an interesting read?

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  #5 (permalink)
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teamtc247 View Post
Hi Mike,

I'll look into the book. I've read up on the author and an interview from what I've read, describes debunking of TA. I might not be getting the whole concept of the book.

I know we all trade differently what we see, how we enter and exit, and how aggressive or conservative we are. On top of that add emotions of the market participants.

Was there anything about the book in partiulcar you found valuable or was this more or less just an interesting read?

The book review thread is more appropriate, but briefly he tests patterns in a methodical way. Something most are incapable of.

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  #6 (permalink)
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Big Mike View Post
The book review thread is more appropriate, but briefly he tests patterns in a methodical way. Something most are incapable of.

Sent from my LG Optimus G Pro

I'll have to check it out.

I agree with testing the methods. I think people get caught up at times with back testing though. People like statistics. I think a lot of it has to do with testing yourself, you yourself is the only thing that can be consistent. The market is never the same, I mean it is and isn't. I think discretionary method of trading is the best way to trade. To bring this thread back to patterns, all the indicators and stuff people but on their charts take away and distract from the overall picture.

Reading price in itself provides indication(I think this the answer with proper money management and knowing you'll be wrong a few times.). I guess we are really just trading our own beliefs.

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  #7 (permalink)
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Life is so much easier when you give up on "patterns".

A bull or bear flag "works" if the trend continues, it really has nothing to do with the pattern. If you get a pull back in a trend then it is just a good place to bet.

Support and resistance is the best one to delete from your thinking though. It is so obviously nonsensical. New information is being discounted continuously in any market so any level from the past is a moving target. I don't want to think about how much time I spent trying to figure out factors for a breakout vs shorting back to resistance and all that even while knowing that markets are discounting on a continuous basis.

A great exercise is to think about how you would trade if there were no price charts at all. Even if you just plot returns instead of price itself it leads to a much more relative valuation approach.

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NoiseTrader716 View Post
Life is so much easier when you give up on "patterns".

Completely agree. When people talk about "patterns" they are usually talking about flags, pennants, head and shoulders, these types of things --- and I believe they are mostly worthless.

However, those that like this kind of thing should check out all the webinars from Suri Duddella on futures.io (formerly BMT). He is a pattern master and wrote the book on patterns (literally), and he goes over his exact system in great detail in the webinars.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
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  #9 (permalink)
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NoiseTrader716 View Post
Life is so much easier when you give up on "patterns".

A bull or bear flag "works" if the trend continues, it really has nothing to do with the pattern. If you get a pull back in a trend then it is just a good place to bet.

Support and resistance is the best one to delete from your thinking though. It is so obviously nonsensical. New information is being discounted continuously in any market so any level from the past is a moving target. I don't want to think about how much time I spent trying to figure out factors for a breakout vs shorting back to resistance and all that even while knowing that markets are discounting on a continuous basis.

A great exercise is to think about how you would trade if there were no price charts at all. Even if you just plot returns instead of price itself it leads to a much more relative valuation approach.


Thank you for sharing your beliefs and viewpoint. My intent was not to make any non-believers, believers of price action and patterns, more or less was discuss the topic in the subject line with like-minded folks. It sounds to me when you attempted to learn this style, but didn't grasp. Anyways thanks for your comment, and enjoy your weekend good sir.

Here's a book that will help you understand the so called self fulfilling prophecy.

http://www.amazon.com/Technical-Analysis-Financial-Markets-Comprehensive/dp/0735...of+the+financial+markets

"Small disciplines repeated with consistency every day lead to great achievements gained slowly over time."

Last edited by teamtc247; August 2nd, 2014 at 12:03 PM.
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teamtc247 View Post
I wanted to discuss patterns and psychology in this thread. Also, I wanted to see what you guys and gals thoughts are behind the overall patterns. Also, what patterns do you guys like to trade the most?

My overall beliefs are patterns themselves are based off S&R, period, but not the pattern itself. Yes, when people see the pattern developing they anticipate what is going on like a head and shoulders, double bottom, flag, etc... Then you can anticipate stop and target level based off the pattern.

I think my favorite pattern would be the double, bottom, flags, and HS'. Essentially an HS pattern is bull or bear flag whichever the type you're trading into a double top or double bottom (might not be picture perfect) back into a flag.



I use patterns in my trading, however they're not exactly conventional patterns. They're more based around my own interpretations of price action, and i consider them more or less a function of order flow not s/r. I wouldn't go looking for conventional patterns in the sense of double tops/ bottoms either, and if that was my approach then i'd be looking to fade them.

Patterns are all about context, and i'd never consider them meaningful on their own- however i believe they can help form the foundations of a trading methodology. It's no surprise that backtesting standardized patterns or any Standard TA leads to results with no statistical significance. It seems like flawed logic to expect you could randomly chop up a data series that largely consisted of "random walk", and then expect to get a meaningful result out of using standardized patterns. That would be black magic.

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