[novicetrader]

Please leave your opinion on why a chart pattern fails?
Also please suggest a system with a consistent failure rate of above 95%.

[nubcake]

a better question is probably 'why do chart patterns work'... if, in fact they even ever do.

systems that fail? i'd take a guess that you could pick any system posted anywhere and you would find it would fail, even if it's working for it's creator.

i'm no guru so this is just another noobs take on things.

[novicetrader]

If all patterns fail , then we need to do the exactly opposite to what the system signals to be profitable consistently, but IMO a successful failure system is a rare commodity. Views and Counter views are welcome.

[M.A.C.Doug]

Originally Posted by novicetrader

Please leave your opinion on why a chart pattern fails?
Also please suggest a system with a consistent failure rate of above 95%.

chart patterns fail because they are supposed to fail sometimes. If they did not, then the holy grail would exist. Chart patterns in and of themselves would be lucky to give more than 50% probability of one direction over the other. They are usefull in context of price action and market sentiment They require trader discretion in trading them. You need to think in terms of probabilities and gather all the information you can that supports a better probability of one direction over the other. That is why trading is difficult - its actually hard work. Show me a chart pattern that wins even just 60% of the time and Ill show you an easy way to make money trading. Unfortunately I haven't found anything as reliable as that in my 4 years of searching.

[Craig]

Originally Posted by nubcake

a better question is probably 'why do chart patterns work'... if, in fact they even ever do.

The one and only correct answer.

[TraderT]

Chart patterns fail because the professionals realize most people are looking at the same charts, with the same basic settings (RSI - 14, MACD - 12,26,9).

Most importantly, it's about net order flow that determines whether price moves up or not, within the timeframe the trader is looking at.

If only there is a system that produces 95% losers with a high negative expectancy. Perhaps only brokers will have this advantage from their consistently losing clients?

[daringdave]

Originally Posted by novicetrader

Please leave your opinion on why a chart pattern fails?
Also please suggest a system with a consistent failure rate of above 95%.

You want to trade the opposite to the signals from the chart pattern?

[novicetrader]

always be fading.....this nugget means a lot for pros......I am just trying to understand why they fade the novices like me? also if a pattern is there, its there for all to see, and act accordingly, say a double top, everyone would short sell, then why it fails.....again there are failed failures, and so on...

say a triangle in geometry, even a kindergarten kid would able to identify a triangle, but try to find a triangle in a price chart, the kid will laugh his heart out......

[novicetrader]

Originally Posted by M.A.C.Doug

chart patterns fail because they are supposed to fail sometimes. If they did not, then the holy grail would exist. Chart patterns in and of themselves would be lucky to give more than 50% probability of one direction over the other. They are usefull in context of price action and market sentiment They...

Thanks, good one.......so it seems the failure to success ratio is regressing to the mean....ok, then patterns are supposed to fail.....why? the mechanism behind it, even a single bar is enough to give a pattern a tailspin....

[Sauron]

The pattern doesn't fail, after 10000 occurences usually 50% gave good signals and the other 50% failed. Not better than a coin toss.

[billflet]

Originally Posted by novicetrader

always be fading.....this nugget means a lot for pros......I am just trying to understand why they fade the novices like me? also if a pattern is there, its there for all to see, and act accordingly, say a double top, everyone would short sell, then why it fails.....again there are failed failures, and so on...

say a triangle in geometry, even a kindergarten kid would able to identify a triangle, but try to find a triangle in a price chart, the kid will laugh his heart out......

Professionals don't fade novices. They just trade differently without watching what novices are doing.

A chart pattern only shows what price has done up to the present moment. There are a lot of massive currency moves that aren't based on speculation. If a company needs to repatriate funds, it won't matter if a double top might be forming. In other words, there are many factors driving the market besides short term speculators watching for patterns on short term charts.

Even if the market was made up entirely of speculators, they would have different goals and time horizons. If someone is building a position over a period of months, or years, they won't be paying much attention to hammer on a one hour chart.

It's safe to say Steve Nison is the "Candlestick King". Even he doesn't endorse trading candle patterns alone and teaches how to use them in conjunction with other analysis.

[aiyahmarklah]

Here is a link to a old article, its about a research done by MIT on common chart patterns. Anybody has the actual research paper ? pleas share with me.

http://www.businessweek.com/2000/00_16/b3677113.htm

I have come across many papers discrediting TA, this one offers a different light.

[novicetrader]

Originally Posted by billflet

Professionals don't fade novices....

IMO, that differently encompasses the whole arena of fading, etc...

Candlesticks are just another way of representation of price behavior, so also bars etc....moreover Nison only made the candlesticks more popular in west, which was in existence long before in the east, Japan.
Trading is not based on only chart patterns , as u rightly said it had to be used in conjunction with many others like the oscillators, volume, etc etc....but still if one knows the psychology behind a failed pattern he can trade better, thats why I asked the question, with so many pros around I am sure they will share their real trading experience....
Regards
trade better.

[kaas]

Originally Posted by novicetrader

If all patterns fail , then we need to do the exactly opposite to what the system signals to be profitable consistently, but IMO a successful failure system is a rare commodity. Views and Counter views are welcome.

Only if the system is purely based on signals and does nothing else, if it is also doing stoplosses etc it is hard to reverse signals and be profitable.

For example, if i build a system that hase a take profit of 100Pips and set a stoploss at 1 pip, it will fail, however if you reverse the signal (going long instead of short) it will still fail.

[opie999]

This may sound like semantics but patterns don't "fail". Rather, your preconceived expectations aren't met. The distinction is subtle but it underscores the crucial role that psychology and human biases play in the markets.

My answer to the original question is one word...chaos.