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Is it all mostly about chart patterns
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Is it all mostly about chart patterns

  #21 (permalink)
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trendisyourfriend View Post
Define basic setups...

Buy low, sell high. Buy high, sell higher.



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  #22 (permalink)
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Big Mike View Post
Buy low, sell high. Buy high, sell higher.



Mike

Define low, define high

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  #23 (permalink)
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JEHs View Post
This is the only way to begin to understand everything about trading. It is all that matters.

Not intended for anyone in particular, but...

Hopefully, the reason why one joins this forum, is so they can heed the advice from within, and learn from those who actually know and understand what they are talking about, i.e., @Big Mike (In the near term and in the end game, this will save one considerable time and money). However, membership seems unecessary, if one joins convinced that they are already a trading apostate.


BTW: I don't always blog on Saturday nights; but, when I do - it's always on Big Mike's!


Last edited by tigertrader; February 9th, 2013 at 09:44 PM.
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  #24 (permalink)
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tigertrader View Post
Head-and-shoulders top, bull pennant, and inverted head-and-shoulders...all false!!!

Well said tt.

Being totally serious, I am encouraged by the possibilities implied by the fact that new money entering the market is done based on the premise that "it's mostly about chart patterns" (much in the same way that a trader more advanced than me might see some of my own traits and behavior as relative "fresh meat"). I suppose this is a phase that most of us have gone through; I remember reading a big fat book on technical analysis years ago, and being convinced that it was time well spent. Hey, maybe it was, and you never know what something is and how useful it might be until you learn it.

The thing is, trading is largely about pattern recognition, and allows for quick "reads" just as a professional quarterback quickly assesses the opposing team's defense due to experience and seeing similar patterns time and time before. So, "patterns" themselves are really quite useful in developing intuition in trading, IMO. But, recognizing the patterns comes from time spent watching and participating in the market; and recognizing the context in which the pattern occurs is, as Mike said, ultimately what determines the usefulness of any pattern, whether it be a "head and shoulders" price chart pattern, an "open-test-drive" day open pattern, a "double distribution" profile pattern, a "failed breakout" pattern, or anything else. It seems to me that a pattern (chart pattern, market behavior pattern, etc) makes itself clear to the experienced observer; contrast that to someone who is actively looking for patterns, and in so doing, is probably oblivious to the context which would give that pattern some actionable meaning.

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  #25 (permalink)
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josh View Post
Being totally serious, I am encouraged by the possibilities implied by the fact that new money entering the market is done based on the premise that "it's mostly about chart patterns"

There is obviously an edge to game new/inexperienced traders, but I am not sure I would classify it as chart patterns as a whole. I think the edge is more complex than that, like taking advantage of fear. I would say patterns as a whole are 50/50 odds, until you start quantifying them. And that process of quantifying them is basically providing your interpretation, aka, context of the events surrounding them.

If you just focus on "what does a H&S look like", then build an algorithm to identify H&S in the market (like Suri has, plus dozens more) -- it will be 50/50 odds in my opinion. But then a pattern trader like Suri will bring up those dozens and dozens of charts, study them, interpret them, adding context --- and make his trading decision. If there were a clear edge in a pattern by itself just built by basic terms of identification, then you would take every one blindly.

Suri Duddella is back on futures.io (formerly BMT) March 11th, the format of this webinar is open Q&A, so we can try to talk about it more there.

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  #26 (permalink)
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All I said is that it is important to recognize that the operative word in the original post is "beginner". Advice to the intermediate or advanced player might not be best for the beginner. You might think that it would be best to just teach what you think is the strongest strategy. But my experience tells me that that is often not correct.

From the other threads I have read, I think Big Mike trades mostly futures without any indicators. I am sure that works fine for him. He seems like a fairly advanced trader with many years of experience. But would you seriously suggest that to a beginner.

There are also an enormous number of theories, indicators, strategies, and gurus. Pretty easy to get lost in the thick.
I just think people should try to get some basics down first (however basic might be defined) And then try out different stuff later.

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  #27 (permalink)
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This is my perspective and my experience: The traditional technical analysis which promoted trend lines, head and shoulders, etc does not allow room for "noise" in e leveraged market. Therefore, a beginner has to remember that applications of such traditional methods would mean that many positions would go against quite a lot before the position would go in your favor...if they even do.

More advanced patterns that are measured in waves should done with the context of fear and/or greed of the market. This where entry could be a little more precise, IMHO.

By the way, I yet to find a pattern that allows scalping profitably long term. I don't even bother in that space...this is for the smart ones.

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  #28 (permalink)
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tigertrader View Post
trying to identify textbook cliche chart patterns (a la Magee and Edwards) ...

Head-and-shoulders top, bull pennant, and inverted head-and-shoulders...all false!!!

From what I've seen on the interwebs, most of those identifying such patterns are usually not even close; and a properly drawn trendline is a rarity.

Furthermore, few appreciate how much money is to be made on the failure of a pattern. Between those who entered on the pattern's breakout and those who entered within the pattern anticipating the breakout, there is a lot of fuel to propel the failure move. One needs to look no further than the chart you posted!

Furthermore, none of those patterns was ever meant to be viewed in isolation from considerations of accumulation and distribution; though, from what I typically see, that is precisely what most attempt to do. You will not find a chart in the original Edwards & MaGee that does not show volume. You will also find examples of flags that failed, or that failed initially, forming merely the first leg of a correction rather than the correction in its entirety.

Let us also not forget that every pattern failure is almost universally a successful test of a price level that had been established as support or Resistance to price, e.g. when price breaks the "neckline" of a H&S top, and then reverses to make new highs, all that we have witnessed is a test of support that held. It is for this reason that most who do trade based at least in part on such patterns usually wait for the retest of the broken support/resistance before entering.

In other words, you can enter on the breakout, or you can enter on the pullback. Either is fine, but each is with its own set of risks and rewards. The breakout trader will have more small losses, but will be on board for all the moves, including the big ones that never pullback. The pullback trader will have fewer losses, but will also have a smaller average size win due to missing those big moves from their inception that never seem to stop until they are exhausted.

And last, but not least, in spite of what many refer to as the "fractal" nature of the market, these patterns truly have more value and accuracy on daily and weekly charts than they do on intraday charts. In so far that an anachronism also means ascribing something to a period to which it does not belong, the real anachronism may be the application of these patterns to data sets to which it does not apply.

H & S bottom with evidence of accumulation throughout the pattern, complete with retest of neckline, and two flag/pennant continuation patterns. I don't know that I would use "true" versus "false" to categorize these patterns. All I can say is - it works!


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  #29 (permalink)
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While I'd never consider any chart pattern over the long term, as an order flow trader that's my bread & butter for scalping. In the classic sense they provide simple-to-read decision points. We approach the top of a pennant and I know there's either going to be exhaustion in the print that I can fade, momentum in the print that I can jump into or 2-sided crap that tells me nothing - in which case I see the same value as Mike - zero. I also think you can pretty easily predict the "busted" factor - when they don't hold. It's almost more predictable where they'll shake out the dumb-dumbs than the what-if-they-hold target. Again, an easy fade for a few ticks if the stars align. But I could never put that into a swing or position trade and hold a straight face.

In the right perspective a chart pattern provides historical reference (objective) and a future projection (subjective) and all you're missing is how to evaluate the current situation as being of any value. That's a place to make a decision, how make that decision is up to you.

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  #30 (permalink)
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kwak76 View Post
Hello,

I'm very new at trading. In fact so new that I'm about to join a trading company but I have to give a contribution. The reason being is because I feel like I need someone to hold my hands in the learning curve.


Anyway, I been doing simulation and realize is it all about chart patterns when it comes to picking. I read about volume and open interest but it's all about charting . Wondering if people just rely on chart patterns ? And I think that the only way to really understand chart patterns is to look at it for hours and hours.

kwak76, before you write that check to the trading company, I would really like to see you take some time to study, read, and watch a good bit of price action on your own. Right now, you are so new and inexperienced that while you feel you need some hand holding, you will be unable to distinguish a true helping hand from that of a monster wishing nothing more than to devour your capital and then throw your remains aside. In this business, odds favor that you will be offered the hand of 99 monsters before encountering even one true helping hand.

There are probably only two prop firms I would recommend - Bright and Echo. If you are not joining a trading company that requires you to get your series 7, then you should be extremely wary. After all, how much capital do you have to contribute to your trading? Once you give that "contribution," like it or not, believe it or not, you will likely never have control or possession of those funds again.

What are you hoping to accomplish? What is your immediate, intermediate, and long-term goals with respect to trading? How much capital are you committing? How are you supporting yourself - a job, parents, spouse, trust fund?

What books have you read? What instruments are you watching? You speak of chart patterns, but you do not mention or give examples of to what you are in fact referring - can you post a chart or a little description of what you are seeing as a tradable pattern?

I will tell you now that what works in trading the markets is indeed the simple stuff. I respectfully but strongly disagree with those who say that using chart patterns is an out-dated way to trade the markets. The advent of the interwebs and the ease of mass communicated trading babble has created a literal Babel. Everyone talks about the same thing (trading the markets) but no one understands each other, and they do not understand that thing (the markets).

I would advise a new trader not to read any books about trading written and published since 1999. There have been very few books written about the markets since the internet bubble burst that are worth reading. Most will do more harm than good, and will at least delay if not forever prevent you from doing this thing well.

Instead, please read from the canon of literature produced by those who actually made fortunes from the markets: Lefevre's Reminiscences of a Stock Operator, Darvas's How I Made 2,000,000 in the Stock Market, O'Neil's How to Make Money in Stocks, Sperandeo's Methods of a Wall Street Master and Principles of Professional Speculation, Loeb's The Battle for Investment Survival.

Finally, do not be in a hurry for success. Most take years and years trying this that and the other, and even then, most fail - most who post in this and other forums will never achieve the results they thought would so easily be theirs when they first took the notion to "trade for living" into their heads and hearts.

It does not have to be so. While it will take more than days and weeks it need not take years upon years. Relax, take a deep breath, and slow down. Give yourself a few months to get the equivalent of a good high school education in how those who came before you managed to succeed in this business. Do yourself a favor and start with that Darvas book. Do not allow yourself to dismiss it because of the hokey title or the fact that he was trading in the 1950's. His story will take you through his journey. In the first pages, you will find that he started right where you find yourself now. By the end of the book, nearly seven years had passed, and he had achieved a level of success that eludes 99% of the people who have made the same attempt.

Keep your money in your account - there is no reason someone as new as you should be contributing to the account of a "trading company." Instead, read that Darvas book, and open a trading account with a broker of your choice to trade stocks. Make it your goal to increase you equity by a reasonable amount - say 25%. Do not place a time limit on that increase. Just work diligently to make a 25% profit on your capital.

Once you do that, do it again. And again. And again. Then you will learn when to pyramid and press your bets, and like Livermore before you, you will come to find that "it is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance."


Last edited by cygnetnoir; February 10th, 2013 at 10:56 AM.
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