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Why a chart pattern fails?

  • #21
  • Nov 4, 2009 2:06pm Nov 4, 2009 2:06pm
Patterns are just visual representations of order flow over time, I'm of the opinion that they don't fail, because they don't mean anything if you are just trying to predict where price is going to go. That's not to say that they aren't important (depending on the trader, I certainly 'see' patterns and pay attention to them), but if you are looking at patterns as a golden goose that's going to tell you where price will be, you are using them wrong.

A double top that is forming means nothing if the order flow for the day was heavy initial buying (first leg up), consolidation & buying on dips (dips being the middle and the 2nd leg down), because that double top has a decent chance of just turning into a bullish pennant if the 2nd leg fails, and if buying pressure doesn't subside and price eventually breaks out north, that may turn out to be a 'successful' pattern while the double top 'failed'. But either way, the patterns themselves meant nothing other than representing what has already happened during the day. They are ever evolving, and that is why I find no use in predicting where price is going based on a pattern, but at the same time still pay attention to them.
  • #22
  • Nov 4, 2009 2:52pm Nov 4, 2009 2:52pm
At any given moment, there are so many variables that can affect the outcome of a trade...such as an unnannounced news event, a big player buying or selling a large amount. You could enter a trade based on some indicator or chart pattern and then the dow unexpectedly crashes, and your yen trade goes down with it. I changed my trading style to much more short term. I pull up a dow futures chart, a dollar index chart and I also trade gold and oil. But the intermarket relationships are much more helpful to my style of trading than watching lagging indicators. I get an idea of what the market is doing right now, wait for the best risk/reward scenario and jump in. The markets are too volatile and choppy in this time of uncertainty to be in long swing trades based on chart patterns..in my opinion.
  • #23
  • Nov 4, 2009 3:06pm Nov 4, 2009 3:06pm
Quoting smittens4212
Patterns are just visual representations of order flow over time, I'm of the opinion that they don't fail, because they don't mean anything if you are just trying to predict where price is going to go. That's not to say that they aren't important (depending on the trader, I certainly 'see' patterns and pay attention to them), but if you are looking at patterns as a golden goose that's going to tell you where price will be, you are using them wrong.

A double top that is forming means nothing if the order flow for the day was heavy initial buying...
Post of the year!
  • #24
  • Nov 4, 2009 4:35pm Nov 4, 2009 4:35pm
Quoting billflet
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...
Well said Bill. Well Said.
  • #25
  • Nov 4, 2009 5:08pm Nov 4, 2009 5:08pm
If chart patterns never failed, we'd all be rich. Like poker, getting pocket aces or kings does not guarantee that you will win everytime. Its all about probabilities and money management.
  • #26
  • Nov 4, 2009 5:39pm Nov 4, 2009 5:39pm
Quoting novicetrader
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...

first off, charles dow brought candlesticks over to the us WAY before nison did. second, nison is a total crock and doesnt even know half the crap he's teaching.

but as for the subject, think of it this way. a chart is just a graphical representation of what the price is doing. price, and everything else in trading, follows the laws of supply and demand. think of a chart pattern as being the graphical representation of supply and demand. lets use an ascending channel. more and more people are demanding the currency, so price starts to go up. it moves around a bit, but demand stays about the same, but supply starts to decrease because less and less people want to sell at the higher prices, pushing the price higher again. eventually, demand is going to drop off. this happens in everything that isnt a neccesary good. so, when the demand drops off, you will see a break of the channel to the downside. the reason this works and can be traded is because this little supply and demand cycle repeats itself. it makes a pattern. patterns that show up on the charts as a chart pattern. these can be traded.

this is my opinion and the way i look at it.
  • #27
  • Nov 4, 2009 5:55pm Nov 4, 2009 5:55pm
Quoting blacksun1
first off, charles dow brought candlesticks over to the us WAY before nison did. second, nison is a total crock and doesnt even know half the crap he's teaching.

but as for the subject, think of it this way. a chart is just a graphical representation of what the price is doing. price, and everything else in trading, follows the laws of supply and demand. think of a chart pattern as being the graphical representation of supply and demand. lets use an ascending channel. more and more people are demanding the currency, so price starts to go up. it...
Another nice post! Thanks Blacksun!

Sure, some may say that it's basic stuff. But, IMO that's what counts - a fundamentally sound way of looking at (looking into, really) transactional data as it streams along.

Let's continue to look below the surface, my friends! Actually, that's about as far below as you need. Staying focused, flexible and unattached - that's another thing. LOL!
  • #28
  • Nov 4, 2009 6:07pm Nov 4, 2009 6:07pm
Quoting damagedv1
.... The markets are too volatile and choppy in this time of uncertainty to be in long swing trades based on chart patterns..in my opinion.
I've just come to the same conclusion.

I've spent years trying to broaden my trading horizons and learning to aim for bigger targets and now I'm having to retrain my mind to take what I can day by day.

Bankers; you can't live with them and you can't live without them!
  • #29
  • Edited 9:31pm Nov 4, 2009 9:18pm | Edited 9:31pm
if patterns really work most of the time. everyone would be trading patterns and waiting to get rich!!!

they just form by chance. not created by those who sit in fancy offices purposely. just tells you there's a high probablity where prices might go. if you see dark clouds forming in the sky, will it rain??

but, who knows where prices will go?? who can really tell with 100% accuracy what will happen next??? we're all making educated guesses by trading forex day in day out.

time might be better spent on how to skin this cat more effectively. thanks
  • #30
  • Nov 5, 2009 9:02am Nov 5, 2009 9:02am
Quoting Porkpie
the market doesn't give a hoot about patterns, its pure illusion. Like any market its about demand and supply - not patterns.

This is the best thread to learn patterns on FF:
http://www.forexfactory.com/showthread.php?t=185027


Fantastic insight
luv to loose.....
  • #31
  • Nov 5, 2009 9:10am Nov 5, 2009 9:10am
The visual way of representing Price action as a bell curve as in Auction Process ( Market Profile ) is the best logical pattern of all , as it is scientific and any one from any field can say that its bell curve with a value zone and with deviations away from mean. Other patterns are a subject of discretion.
Views and counter views are welcome
luv to loose.....
  • #32
  • Nov 5, 2009 9:11am Nov 5, 2009 9:11am
Quoting billflet
True enough....
Thanks a lot sir
luv to loose.....
  • #33
  • Nov 5, 2009 9:14am Nov 5, 2009 9:14am
Quoting blacksun1
first off, charles dow brought candlesticks over to the us WAY before nison did. second, nison is a total crock and doesnt even know half the crap he's teaching.

but as for the subject, think of it this way. a chart is just a graphical representation of what the price is doing. price, and everything else in trading, follows the laws of supply and demand. think of a chart pattern as being the graphical representation of supply and demand. lets use an ascending channel. more and more people are demanding the currency, so price starts to go up....
Thanks a lot for the enlightenment.
luv to loose.....
  • #34
  • Nov 5, 2009 11:48pm Nov 5, 2009 11:48pm
Quoting MackS10
You can still be profitable with patters that only work 20-30% of the time... As Mr. Soros has said before "It doesn't matter how often you are right or wrong - it only matters how much you make when you are right"
.
  • #35
  • Nov 6, 2009 2:01am Nov 6, 2009 2:01am
Quoting blacksun1
first off, charles dow brought candlesticks over to the us WAY before nison did. second, nison is a total crock and doesnt even know half the crap he's teaching.
Dow may have brought candlesticks to the U.S. way before Nison started writing about them, but no one was attempting to use them until Nison's books made them fashionable. Unlike the rest of Dow's work, candlesticks all but disappeared in the western world after his death over a hundred years ago.

I have one of Nison's books but never really warmed up to it and I don't claim to be an authority on Nison or candlesticks. In fact I'm far from it. But I think it's safe to say that what most of the western world knows about candlesticks has come from Nison rather than Dow, simply because he's marketed so much material--good, bad, or otherwise.
My only point in mentioning Nison at all is as I said: Here is a guy who has devoted his life to researching, writing about, preaching about, and promoting candlesticks (along with his products and seminars ), and even he doesn't rely entirely on candle patterns, and says so in his books. To me, this alone says much about the reliability of patterns when used by themselves.

Then again patterns don't necessarily imply candlesticks either. A bar chart reveals the same patterns. Candles might be easier to read, but a lot of the old-timers would disagree.

On another note, I think that none of us are really getting novicetrader's original question. I think he's asking from a different angle other than: "Why didn't that double bottom hold?" Maybe more like: "If that double bottom didn't hold, what is that saying about the underlying market condition and how can we use it?"
  • #36
  • Nov 6, 2009 10:59pm Nov 6, 2009 10:59pm
As pointed out by billflet sir, logical/psychological insight behind a failure will most probably give an edge , thats why my question. If we know the why of failures, success will take care of itself, IMO....
regards
luv to loose.....
  • #37
  • Nov 7, 2009 12:21am Nov 7, 2009 12:21am
Those who can move price see "patterns" differently then rest of us...
Business of trading run by professionals is based on supply and demand ...not on "patterns".
The Market pays you to be disciplined
  • #38
  • Nov 7, 2009 12:42am Nov 7, 2009 12:42am
The signature of supply and demand can be represented graphically, and these historical signatures in time form the pattern , IMO.....
luv to loose.....
  • #39
  • Edited 3:13am Nov 7, 2009 2:58am | Edited 3:13am
Quoting novicetrader
As pointed out by billflet sir, logical/psychological insight behind a failure will most probably give an edge , thats why my question. If we know the why of failures, success will take care of itself, IMO....
regards
This is a pointless question. It's like questioning why a coin flip would land on heads and not tails. Its all down to luck and probability. But if you ask what can we know about the principles of demand and supply with regards to price action then that would be a far more relevant question with regards to trading profitably.

The art of trading boils down to taking trades that offer a high probability but with low risk imo. If you are trading off patterns the chances are you are getting in late in the game. Such patterns aren't the low risk high probability trades some gurus would like to make you think they are.

I disagree with you Novice. If you are looking at 'patterns' as a way of understanding supply and demand then you've already missed the boat. It's price action with regards to support and resistance and its not any support and resistance. 'Patterns' are created by price action but not all price action creates 'patterns'. 'Patterns' are misleading. Price action is key. (I have a feeling this discussion is boiling down to semantics).
  • #40
  • Nov 7, 2009 5:07am Nov 7, 2009 5:07am
Quoting Porkpie
This is a pointless question. It's like questioning why a coin flip would land on heads and not tails. Its all down to luck and probability. But if you ask what can we know about the principles of demand and supply with regards to price action then that would be a far more relevant question with regards to trading profitably.

The art of trading boils down to taking trades that offer a high probability but with low risk imo. If you are trading off patterns the chances are you are getting in late in the game. Such patterns aren't the low risk...
Thanks for your view dear Sir, I like that. such views are welcome.
luv to loose.....
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