technical price patterns' Rate of failure. | Forex Factory

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technical price patterns' Rate of failure.

  • #1
  • First Post: Sep 16, 2007 7:58pm Sep 16, 2007 7:58pm
I have been studying typical price patterns that exist in Edward and magee's book.
Im so skeptic when it comes to such patterns like triangles,pennants and so on...
I believe their success rate is no more than 50% and maybe lower in a high leveraged market such as the spot FX.

has anyone done a statistical study regarding these patterns and their success rate?
I don't believe people can make money consistently relying on these patterns or even relying on lagging technical indicators.

Jake Bernstein , Larry williams and many successful traders have always stressed this out.
as they grow with their experience they always mention that the hardest part was unlearning what they learned before about such patterns and the mumbo jumbo stuff.

I need opinions made upon practical studies and experience.

Regards
  • #2
  • Sep 16, 2007 8:15pm Sep 16, 2007 8:15pm
Don't use JUST patterns, use them to confirm or converge with candlestick patterns, support/resistance, trend lines, etc.
  • #3
  • Sep 16, 2007 8:27pm Sep 16, 2007 8:27pm
Im not asking whether to use them or not.
I don't use them, Im asking about their rate of failure and if anyone has gone through a study about their success rate.
me myself I find them unreliable and misleading in todays markets.
  • #4
  • Sep 16, 2007 8:31pm Sep 16, 2007 8:31pm
this question is impossible to answer. There are so many different ways to trade these patterns(how you draw them, your exit strategy etc). Two people could find the same pattern and one make money and the other lose.

Everyone just trades their beliefs of the market. If you believe they are unreliable you won't trade/be successful with them.
  • #5
  • Sep 16, 2007 9:19pm Sep 16, 2007 9:19pm
I gave you a simple answer. Use patterns alone and sure, you are likely to see more than 50% fail. Use them with what I mentioned and you'll likely see well above 50% success rate. Though all that depends on your money management. Also there are some books that have done extensive testing on this subject, encyclopedia of chart patterns.
  • #6
  • Sep 16, 2007 10:55pm Sep 16, 2007 10:55pm
I don't know muc abt patterns, but i'm very sure simple SR trading does exist.
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  • #7
  • Sep 17, 2007 1:16am Sep 17, 2007 1:16am
The probabilty of any PA or price patterns etc working is always around 50%. Thus having a good R:R would increase the probability of prifitability. It depends also on which pairs and time frame. A possibility to raise any expectation is by applying filters to them. I have not seen any stand alone analysis on any particular " technique"
  • #8
  • Sep 18, 2007 4:41pm Sep 18, 2007 4:41pm
Swiss cheese is the key!
Maybe.
  • #9
  • Sep 18, 2007 5:07pm Sep 18, 2007 5:07pm
mosad2 - a few years back a researcher at the Fed (IIRC) looked at H&S patterns and found that they worked, but they did vary by ccy pair. Someone else did research on breakouts, based on longer term street channels, and also got good results, but I can't remember who that was. All with a big IIRC, since it was awhile ago that I read the articles.

But as highway points out the big issue is RR - knowing where to put a stop, what to target, that sort of thing, which boils down to calculating expectations. Right now, for most of us, the specific stats one needs to generate expectations aren't readily available, because most people who actually invest the time & money in that sort of research want to be compensated for it.

Now here's a question in return (open to anyone); I'm actually picking away at the analysis of simple fib level extensions after a retracement on just $/Cad, looking at only at up-bounces (something simple, I have to get the analysis debugged) followed by a return to the base level. I'll be happy to put up results, but I would be curious as to what others consider the completion of an extension at a given level. A simple touch of the line? A daily close below? I would also like to correlate these with standard simple MVA's; my own personal leaning is to use 50, 100, and 200 day averages for this. And if you were working on a fib retracement, would you tend to set the SL simply w/r to a hard number, a resistance/support level, or the height of the bounce? ATR? Or something else? (Given USD/CAD over the last 5 or so years, obviously the results are going to be more than a little biased )
  • #10
  • Sep 18, 2007 8:03pm Sep 18, 2007 8:03pm
It is more a question of when and where they occur, rather than if they are "successful" if found in any old spot in relation to other prices.
  • #11
  • Sep 18, 2007 8:56pm Sep 18, 2007 8:56pm
Quoting pfdtrader22
It is more a question of when and where they occur, rather than if they are "successful" if found in any old spot in relation to other prices.
That's certainly true, but rather too vague to be useful. Most patterns are defined not just in terms of their immediate characteristics, but in terms of their priors as well, and the need to account for those statistically in order to analyze the behaviour of of the price after the completion of the pattern is pretty well known. The specifics, OTOH, are not...
  • #12
  • Sep 19, 2007 12:07pm Sep 19, 2007 12:07pm
pfdtrader22and HalifaxCB,

Thank u for ur reply. it's true that the most important thing is where the pattern appear and in which TF.
about how to trade them , they totally depend on the trader's risk tolerance.
I started this thread coz I was studying triangles with different forms symmetrical , right angle triangles, etc...
and I found that their predictability is not that reliable!
even in elliott waves, the patterns that are based on triangles are the hardest to trade and it's advised to stay sidelines till the completion and price decides which way to go.
and in a high leveraged market like the spot fx, wich is prone to false breakouts and false initial moves, the more we drop timeframes the more we are prone to false moves.
so in order to trade ,such patterns with somehow a high success rate, a one should monitor higher TFs for the formation of such patterns.

Regards
  • #13
  • Edited 2:56pm Sep 19, 2007 1:03pm | Edited 2:56pm
Quoting Ted1983
Swiss cheese is the key!
Maybe.
Hi Ted,
Just to kill some time, maybe I can share something with you. I happen to have my house built directly on the ground where Einstein had his - Kirchenfeld. His house was moved to the museum and we bought the land to built ours. We kept back the apple tree which he planted. I was collecting the apples yesterday which is still alive till today LOL. ( Too bad my family did not have his brains through eating his apples )
A few years ago, the government wanted to put our address and picture of that tree on the official Einstein report. We declined due to the fact that we would be having buses of Japanese tourists in front of our home during summer. LOL
So let us replace the cheese with Einstein's apples.
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  • #14
  • Sep 19, 2007 2:24pm Sep 19, 2007 2:24pm
Pattern breakouts do work very well as long as they are located within a clearly trending market and the breakout happens in the direction of the trend. In fact, one of my favorite setups are ranges, flags and triangles breakouts, always in the direction of a clear trend.
  • #15
  • Sep 19, 2007 2:52pm Sep 19, 2007 2:52pm
Quoting mosad2
I have been studying typical price patterns that exist in Edward and magee's book.
Im so skeptic when it comes to such patterns like triangles,pennants and so on...
I believe their success rate is no more than 50% and maybe lower in a high leveraged market such as the spot FX.

has anyone done a statistical study regarding these patterns and their success rate?
I don't believe people can make money consistently relying on these patterns or even relying on lagging technical indicators.

Jake Bernstein , Larry williams and many successful traders have always stressed this out.
as they grow with their experience they always mention that the hardest part was unlearning what they learned before about such patterns and the mumbo jumbo stuff.

I need opinions made upon practical studies and experience.

Regards
Here's a book that's done all of the work for you: Encyclopedia of Chart Patterns
  • #16
  • Sep 19, 2007 3:03pm Sep 19, 2007 3:03pm
Quoting mosad2
I have been studying typical price patterns that exist in Edward and magee's book.
Im so skeptic when it comes to such patterns like triangles,pennants and so on...
I believe their success rate is no more than 50% and maybe lower in a high leveraged market such as the spot FX.

has anyone done a statistical study regarding these patterns and their success rate?
I don't believe people can make money consistently relying on these patterns or even relying on lagging technical indicators.

Jake Bernstein , Larry williams and many successful traders have always stressed this out.
as they grow with their experience they always mention that the hardest part was unlearning what they learned before about such patterns and the mumbo jumbo stuff.

I need opinions made upon practical studies and experience.

Regards
Yes, the most extensive study of chart patterns I have ever seen was done by Thomas Bulkowski

This is the definitive word on the stats of every kind of pattern imaginable.
As an example here is a page from the book.
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  • #17
  • Sep 19, 2007 4:19pm Sep 19, 2007 4:19pm
Every trading book & blog out there seems to involve chart patterns in some way. Yet not once have I come across a long-term profitable pattern trader (which would lend credence to Nassim Taleb's theories). One of the guys in Market Wizards claimed to trade off of chart setups, but they were proprietary setups, unpublished..
  • #18
  • Last Post: Sep 19, 2007 6:12pm Sep 19, 2007 6:12pm
Very, very interesting Hibbiz. And humorous too! Thanks for sharing.


Quoting highway
Hi Ted,
Just to kill some time, maybe I can share something with you. I happen to have my house built directly on the ground where Einstein had his - Kirchenfeld. His house was moved to the museum and we bought the land to built ours. We kept back the apple tree which he planted. I was collecting the apples yesterday which is still alive till today LOL. ( Too bad my family did not have his brains through eating his apples )
A few years ago, the government wanted to put our address and picture of that tree on the official Einstein report. We declined due to the fact that we would be having buses of Japanese tourists in front of our home during summer. LOL
So let us replace the cheese with Einstein's apples.
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