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Why a chart pattern fails?

  • #61
  • Nov 12, 2009 11:42am Nov 12, 2009 11:42am
Quoting novicetrader
Please see that the outcome of tossing a coin has the probability of .5 ( getting either a head or tail ), not .95 unless the coin is biased.....I hope I am not wrong...
You asked for a system not just an entry technique. Of course a fair coin toss is 50/50. But the system is not just the entry criteria it is also the exit criteria. In this case the -5/+95.

With that ratio of stop/take profit you should get approx 95% losing trades.
  • #62
  • Nov 12, 2009 2:36pm Nov 12, 2009 2:36pm
Well shoot, I just thought that a pattern failed when market makers could realize more profit that way. If everyone see's a pattern and acts on it, it almost has to fail. No?
  • #63
  • Nov 12, 2009 5:59pm Nov 12, 2009 5:59pm
Quoting SerpentDove
Well shoot, I just thought that a pattern failed when market makers could realize more profit that way. If everyone see's a pattern and acts on it, it almost has to fail. No?
Au contraire. If everyone sees a pattern and acts on it, it will become self-fulfilling. That is the reason behind the success of the most simple systems. The more traders follow a specific pattern, the more certain it will happen. That is one of the key parts of Jacko's system. The market will move towards resistance and support lines because the majority of the market knows this to be true. The same is true of the 50% fibonacci point. I have been amazed at how true it is by watching him pick his targets.
  • #64
  • Nov 12, 2009 6:17pm Nov 12, 2009 6:17pm
1. Chart patterns never fail, neverever. But we sometimes fail to correctly recognize emerging patterns.

2. Most systems work, only very few fail. But we dump them when they produce inconsistent or losing trades for an extended period of time.

There are countless techniques (edges) available to "measure" (NOT "predict") market moves. This reasonably fair measurement alone is a big edge. But we never stop confusing our thoughts with "What if", "If it", "I should have", "I could have", "it will", "it should", ................

One who focuses on "Exceptions" than on "Likely Possibilities" is bound to fail in this business.
The Thief of Wall Street
  • #65
  • Nov 12, 2009 6:23pm Nov 12, 2009 6:23pm
Quoting Chicky

One who focuses on "Exceptions" than on "Likely Possibilities" is bound to fail in this business.
Absolutely.
  • #66
  • Nov 12, 2009 6:59pm Nov 12, 2009 6:59pm
I tried to read the entire thread but was waysided by... things that make me step out of the norm. Grandkids that have no predjudice. Spiderman. {well; at least a 4 year old in disguise.}

"Chart patterns never fail, neverever. But we sometimes fail to correctly recognize emerging patterns." Good luck with that one. Yes they do or they would be the Grail.
Patterns may offer advice. You, (as the Boss Trader) decide whether to accept it or not. There is no room for I Thought,but..., but that doesn't make me wrong; unless, of course...

Hmmm...

If You Want To Trade...
ONLY Trade What You Know.
IF Your Knowledge is Lacking...
Push Pause....

You'll be amazed at what you might learn.

What...? You expected me to make you rich...?
Go back to sleep. You have another dream comining....
  • #67
  • Nov 12, 2009 7:07pm Nov 12, 2009 7:07pm
Quoting Bemac
I tried to read the entire thread but was waysided by... things that make me step out of the norm. Grandkids that have no predjudice. Spiderman. {well; at least a 4 year old in disguise.}

"Chart patterns never fail, neverever. But we sometimes fail to correctly recognize emerging patterns." Good luck with that one. Yes they do or they would be the Grail.
Patterns may offer advice. You, (as the Boss Trader) decide whether to accept it or not.

Hmmm...
Bemac, how can history fail? If we think its going to be a H&S but it turns out to be something else, it was something else from the very inception. It is our recognition of emerging pattern that was wrong. This is my point.
The Thief of Wall Street
  • #68
  • Nov 12, 2009 7:13pm Nov 12, 2009 7:13pm
Quoting Chicky
Bemac, how can history fail?
Simple. (& I am not referring to Moving Averages)...
The Future is it's Own & has absolutely NO Regard for what happenned in the Past.

Psst. It's a good thing that We know Where It's been and can throw some influence on it. {bank a+b+c+...}
  • #69
  • Nov 12, 2009 7:16pm Nov 12, 2009 7:16pm
Quoting Bemac
Simple. (& I am not referring to Moving Averages)...
The Future is it's Own & has absolutely NO Regard for what happenned in the Past.

Psst. It's a good thing that We know Where It's been and can throw some influence on it. {bank a+b+c+...}
Same is my point. What happend in the past was the fact. Issue is with what we think is going to happen next. Threfore patterns that occur do not fail, our recognition of EMERGING pattern is sometimes wrong.
The Thief of Wall Street
  • #70
  • Nov 12, 2009 7:35pm Nov 12, 2009 7:35pm
My 2 pips: chart patterns are only one TA tool that a trader should use. Alone, they tell you little, but when combined with deeper analysis and understanding of the PA, they are helpful. They do not fail (patterns are a story that PA is telling you and PA never fails), only the trader failed by placing too much emphasis on them, and not putting enough work in to trading. One final thought: some patterns are statisticly more important on specific currency pairs than others, and under certain circumstances. It is up to you to study the pairs and figure that out. Enough said.
  • #71
  • Nov 12, 2009 7:43pm Nov 12, 2009 7:43pm
This might be slightly off-topic but I'll say it anyway.

People want to blame anything but them selfs and their lack of both the right knowledge and experience. Of course, some might have both yet they lack the brain-power.

I have worked with some different people, both in finance and other businesses, and I started noticing quite early how successful people share a lot of common abilities, and this goes for losers too. Losers can't stand to take own responsibility for a bad situation while a successful person person doesn't hesitate to admit he was wrong and learn from his mistakes.

So, if you blame patterns for not working (as in you can't profit from them), you simple haven't fully grasped the concept yet.
Step up, take some god damn responsibility for your own learning and stop blaming patterns for your own failure!
Measure twice, cut once
  • #72
  • Nov 12, 2009 7:47pm Nov 12, 2009 7:47pm
Quoting Chicky
Same is my point. What happend in the past was the fact. Issue is with what we think is going to happen next. Threfore patterns that occur do not fail, our recognition of EMERGING pattern is sometimes wrong.
But if we cant recognize the emerging pattern until it has happened, then what value are trading patterns to us as traders?
  • #73
  • Nov 12, 2009 7:50pm Nov 12, 2009 7:50pm
Quoting novicetrader
Please leave your opinion on why a chart pattern fails?
Also please suggest a system with a consistent failure rate of above 95%.
According to Mark Douglas, the outcome of every trade is a random event. For a system to fail more than 95% of the time, you would have to risk less than 1% of your account to be able to determine that accurately. Agree?
  • #74
  • Nov 12, 2009 7:52pm Nov 12, 2009 7:52pm
Quoting aediaz1
Losers can't stand to take own responsibility for a bad situation while a successful person person doesn't hesitate to admit he was wrong and learn from his mistakes.

So, if you blame patterns for not working (as in you can't profit from them), you simple haven't fully grasped the concept yet.
Step up, take some god damn responsibility for your own learning and stop blaming patterns for your own failure!
Or acknowledge that every pattern has a probability of success attached to it and if you don't know what that probability is, then you are guessing into the dark
  • #75
  • Nov 12, 2009 10:52pm Nov 12, 2009 10:52pm
Quoting kenkomo
But if we cant recognize the emerging pattern until it has happened, then what value are trading patterns to us as traders?
Nothing. I do not believe in patterns in the way other people do.

I just see logic behind a pattern not its form. If someone tells me left and right shoulders of a H&S should be of equal height, I just shrug my shoulders. All I know is that this pattern is sign of trend reversal. Market making "higher high / higher low" to "lower high / lower low" would look like a person's head and shoulder. It is strange that people expect precise measurement of the height of head and shoulders etc.

Similarly, trend lines are nothing but dots connecting round numbers (or other actively traded price levels) on a graph paper.

You never know when and what information of what significance would hit the market news and which bank or company would screw up or what government would interfere in demand and supply mechanism affecting this graph paper and the patterns.

Market sentiments decide which direction market would move (up or down) rest of the things are just a reasonably fair idea about its next stops, may or may not following any specific pattern. If these patterns emerged the way we expect them to unfold, we all would have been billionaires. Comeon man, let's see the things in their reality.
The Thief of Wall Street
  • #76
  • Nov 12, 2009 11:26pm Nov 12, 2009 11:26pm
Market decided not to reverse its trend.

Struggle to remain in trend is very evident.

This is eur/usd on daily.

One may also like to check charts for impacts of Mortgage cirsis and bail out package announcement (prior to this patch). All significantly affecting charts.
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The Thief of Wall Street
  • #77
  • Nov 14, 2009 6:34pm Nov 14, 2009 6:34pm
There are a lot of different “chart patterns”. I think different ones come to mind for different traders. Some might include “candlestick patterns” in their definition of chart patterns. Personally I don’t. I see them more as price action. I also tend to split chart patterns into “classic” and “harmonic” types. I leave the harmonics alone because I don’t understand them.

But I do have experience with ascending channels, descending channels, ascending triangles, descending triangles, and rectangles. The outlines of these patterns, or “formations”, seem to define the areas of S/R quite well. I don’t see any conflict between them and the realities of supply and demand. Other traders don’t need to see or trade these patterns for them to work. They might just be aware of a trend line, or an area of horizontal S/R.

I use channels and rectangles as continuation patterns. I look for price to “bounce” off the borders of these formations. But they don’t hold forever. Once price breaks through, I view the pattern as finally having “failed” or broken just like S/R. With this way of looking at things, every channel or rectangle eventually “fails”. Then it’s time to re-evaluate the areas of S/R for that pair. I’m not trying to be dogmatic and force this view on others. But it’s the way I look at it.

Ascending and descending triangles are also continuation patterns. Ascending triangles in an uptrend are considered bullish. Price consolidates for awhile, unable to break through horizontal resistance. Meanwhile there’s a series of higher lows as price forms an ascending trend line leading up to the resistance. If price eventually breaks north through the horizontal resistance, then everything went as expected and I take the trade. But if price moves south instead, or continues moving mostly sideways, it’s considered a failed pattern and I do not take the trade. Descending triangles work in a similar but opposite way.

What actually causes a pattern to fail? It could be any number of things from data releases (“news”), changes in market sentiment, changes in risk appetite, or the big boys taking profit. Sometimes you just don’t know. But nobody expects them to be 100% accurate, and you trade them accordingly. They’re not the only tools in my toolbox, but they do get used a few times a month.
  • #78
  • Nov 17, 2009 5:54pm Nov 17, 2009 5:54pm
Quoting Chicky
1. Chart patterns never fail, neverever. But we sometimes fail to correctly recognize emerging patterns.

2. Most systems work, only very few fail. But we dump them when they produce inconsistent or losing trades for an extended period of time.

There are countless techniques (edges) available to "measure" (NOT "predict") market moves. This reasonably fair measurement alone is a big edge. But we never stop confusing our thoughts with "What if", "If it", "I should have", "I could have", "it will", "it should", ...................
+1
  • #79
  • Nov 17, 2009 5:56pm Nov 17, 2009 5:56pm
Quoting aediaz1
This might be slightly off-topic but I'll say it anyway.

People want to blame anything but them selfs and their lack of both the right knowledge and experience. Of course, some might have both yet they lack the brain-power.
It could be "off-topic" but it is "dead on".
  • #80
  • Nov 17, 2009 9:53pm Nov 17, 2009 9:53pm
Chart patterns "fail" or "succeed" for the same reason trends begin or end...namely the unpredictable interactions of a multitude of different trends of various length and size.

The only thing that's knowable is the current price in relation to an arbitrarily chosen price in the past - and the fact that the market is always in either an uptrend or in a downtrend (or at least has to be viewed that way if a trader wishes to make money). JMHO.
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