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Having an edge in the market involves understanding some sort of pattern. Consider these examples
Volume spread analysis
Harmonics
Session to session differences of things like the open, value area, pivots...
Elliot wave
Fib levels and knowing how to trade them
Repeating patterns on the DOM like stacking one side while building a position the other way
Swing/wave analysis
Higher Highs and Lower Lows
Candlestick and bar analysis
Patterns can be searched for in different time frames. So I believe an edge develops out of a pattern a person recognises. Of course the pattern needs some form of reliability to trade - eg high win % or when you do win a high profit potential.
How do you trade a pattern - maybe there is more to be made inside the pattern considering the market is ranged most of the time. Play the boundaries. How do you manage risk when entering and exiting a pattern.
So for me - what patterns are reliable? What patterns have a good chance or success? What patterns can be traded with low risk and high reward? How do you trade them?
I am still searching to be honest. But I know that, for me at least, the way forward is to become an observer of the markets. I need to find patterns that I believe in and understand how I will trade them.
@Bigmike the point on context is huge. Understanding patterns and trading them is most effective by observing the context (announcement times, sentiment, prior market behaviour, unfolding world news, sessions times and volume actvity for a possible pattern).
Correct me if I am wrong but trading with an edge is all about some form of pattern - otherwise the market is just chaos and its a gamble. I also believe the patterns that are worth looking at take time to observe and understand before trading them. I am still looking.
Can you help answer these questions from other members on NexusFi?
Yes, I think that is pretty well established. This thread, however, is titled "Is it all mostly about chart patterns" ; I think the assumption when we say "chart patterns" is H&S, rounded saucer, double top, twisted sisters, and all those other "chart patterns." Regarding these, I think many have expressed their opinion that "no, it is not mostly about chart patterns" but I think all would have to agree that patterns of some kind are necessary to recognize in order to have a quantifiable edge in trading financial markets.
In discussions with a friend today we were talking about chart patterns. Both he and I noticed the narrowing ranges each day. I then shared with him this 30 min chart. It shows a triangle.
In classical theory if it breaks out of the triangle too late …
Here is the table of contents from a book on chart patterns to help with the definition.
As you can see both commonly known and used patterns such as double tops and less commonly known/used patterns such as pennants are included.
I am no expert in CDV, but as I learn more about it I wanted to start a thread to discuss trade ideas. If you see me making mistakes in my analysis, by all means let me know.
