Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Robert

Chart Patterns: Reliable?

Recommended Posts

Can one rely on strictly chart patterns to trade the markets? For example: triangle, wedges, flags, pennants, etc...

 

Do you think one can make money in the markets in the long run relying only on chart patterns? Thanks

Share this post


Link to post
Share on other sites

If you ask some of the older and successful trading veterans, most used to hand-drawn chart patterns before modern technology. They never used anything else since the advent of the personal computer, except it has quicken their analysis. My mentor used it for 15 yrs, still making money today. Patterns are the meat of my trading. Not complaining so far.

Share this post


Link to post
Share on other sites

I think undoubtedly yes. If you add a bit of 'context' so much the better. Of course realistic expectations are important! Just like any method patterns can fail but on balance they 'work'. It is because they tend to be a graphic representation of sentiment. (I guess some of the more exotic ones like Bats and Gartleys are less so). If you stick to flags, pennants, double tops, 2bs, 12'3s etc. You can develop profitable and simple strategies.

Share this post


Link to post
Share on other sites

I believe in the May issue of "Technical Analysis of Stocks & Commodities" magazine Bulkowski has an article discussing exactly this. He went back and ran some analysis on some of his previous patterns to see if their reliability had drop off in today's markets. I believe he was very surprised to find that their reliability was not what they once used to be and found far more failures than previously. You might want to have a read of the article to see exactly what he had to say about it.

Share this post


Link to post
Share on other sites

Chart patterns are reliable-- Mastering them is another subject....so too is Trading them profitably .

 

The problem that many have with patterns or their claim that chart patterns are not reliable is usually linked inexperience of understanding Price action or other variables like not enough time to master a pattern...to truely know it like the back of your hand and that takes time.

 

Part of the mastery is realizing that many variables influence any particular chart pattern that is trying to form. Because of this fact Programmatic back testing via a code usually will miss the value and the true reliability of chart patterns--In contrast a trader that has mastered his favorit chart patterns knows exactly when to trade them and when to let them go by. He has learned to be aware of the influencing variables and understands their impact on what he is trading , thus he can make appropriate adjustments on the fly.

Asking a Code to do the same thing is near impractical, unless you have a team of top notch programmers at your disposal and even then I dont think you would get the same results....some things just cant be communicated through code.

Share this post


Link to post
Share on other sites

Pappo is correct with his assessment of Pattern logic and coding/testing patterns.

In my experience, patterns do have excellent reliability with great repeatable logic.

Many successful traders have implemented patterns/code logic to take advantage of them.

Most pattern success or failure depends on knowing the pattern logic with market

context and knowing how/where they are forming. Without market context logic,

testing patterns is a futile exercise. Programmers tend to miss this logic when testing

patterns. Also, individual mastering of patterns requires thorough market knowledge

and experience and mastery may be limited to just few patterns. Coding patterns may be

more difficult for even most seasoned programmers too.

 

 

Excellent trading ideas are discarded due to poor coding and poor back-testing methods.

I have seen this many times in my career as many brilliant programmers with great ideas

but with little or no trading knowledge discard their concepts as not profitable due to

novice back-testing methods/results. Also, each trading platform have various trade

execution logic and hence many Automated Trading Systems back/forward testing results

suffer from wrong/poor execution methods.

 

 

Here is an example of a recent Bloomberg Article where TA was slandered.

 

"Stock Charts Fail Forecast Test in Complete S&P Miss (Update3)" by Michael Tsang and Eric Martin

 

Stock Charts Fail Forecast Test in Complete S&P Miss (Update3) - Bloomberg.com

 

Tsang and Martin (journalists) with little TA and no real trading/investing/programming

experience published an article and slandered the TA and indicators due to their wrong

back-testing results... Bloomberg published the article as it was written by their journalists.

Many TA experts (Murphy, McClellen et. al.) have written their concern to Bloomberg.

The editors at Bloomberg have softly admitted but sadly it was never removed.

 

Regards,

Suri

Edited by suriNotes

Share this post


Link to post
Share on other sites

For me the idea that a market is overbought or sold is absurd, yet people use stochastics like a "grail machine"....5,3,3 no 15,9,9....No 8,3,3.....No.....the Angle.....No the Cross of the stochs.....No.......the Macd with the stoch ...No...oh wait the 15 min must align with the 5 min.....No....wait the

Ema 34 must retrace before the CCI will give us a hook, oh yes , oh yes, oh yes, Meg Ryan in Harry met Sally now screams in the restaurant.......Eureka..........OH NO, There was news and the stochs of the 15m got tangled with the 5 and the leading index is at its monthly high plus the stoch is overbought, yes yes yes and now even Harry joins Meg ....oh no The fed killed us with the news, bloody hell maybe next time I will use a faster MA to compensate for the lack of feed accuracy due to my broker...oh wait that it, the feed is broken, I will buy a better feed : CQG(XXXX$), Bloomberg(xxxxxxxxx$) thats its , that was the problem the feed, oh wait its not the feed its the fact that I have to pea while trading, so I will read trading in the Zone again to distract my pain of trading through my Urinal glans directly unto the stoch 15,9,9 on the 3 Min which is the way to go, but wait my platform does not have Range Bars and everybody knows range bars are the way to go, unless the bottleneck is the CPU which is not strong enough to play DOOM and trade at the same time, so I will get a better CPU , oh wait, I have thunder storms so a great UPS is required....YES EUREKA ITS THE UPS GUYS, Much better than any technical analysis tool out there.

 

 

daily candle is it....lol.

Share this post


Link to post
Share on other sites
For me the idea that a market is overbought or sold is absurd, yet people use stochastics like a "grail machine"....5,3,3 no 15,9,9....No 8,3,3.....No.....the Angle.....No the Cross of the stochs.....No.......the Macd with the stoch ...No...oh wait the 15 min must align with the 5 min.....No....wait the

Ema 34 must retrace before the CCI will give us a hook, oh yes , oh yes, oh yes, Meg Ryan in Harry met Sally now screams in the restaurant.......Eureka..........OH NO, There was news and the stochs of the 15m got tangled with the 5 and the leading index is at its monthly high plus the stoch is overbought, yes yes yes and now even Harry joins Meg ....oh no The fed killed us with the news, bloody hell maybe next time I will use a faster MA to compensate for the lack of feed accuracy due to my broker...oh wait that it, the feed is broken, I will buy a better feed : CQG(XXXX$), Bloomberg(xxxxxxxxx$) thats its , that was the problem the feed, oh wait its not the feed its the fact that I have to pea while trading, so I will read trading in the Zone again to distract my pain of trading through my Urinal glans directly unto the stoch 15,9,9 on the 3 Min which is the way to go, but wait my platform does not have Range Bars and everybody knows range bars are the way to go, unless the bottleneck is the CPU which is not strong enough to play DOOM and trade at the same time, so I will get a better CPU , oh wait, I have thunder storms so a great UPS is required....YES EUREKA ITS THE UPS GUYS, Much better than any technical analysis tool out there.

 

 

daily candle is it....lol.

 

 

Programmer,

 

You couldn't be more spot on. Thanks for the chuckle. I do a bit of training and have heard all of that buschwa again and again before the wannabees begin to learn. If it was that easy, you couldn't get a cab.

 

cheers

Share this post


Link to post
Share on other sites
Can one rely on strictly chart patterns to trade the markets? For example: triangle, wedges, flags, pennants, etc...

 

Do you think one can make money in the markets in the long run relying only on chart patterns? Thanks

 

Robert,

 

Practical answer: Yes.

You can trade ‘classic’ chart patterns successfully

> by placing a pattern in context / background. Others have described this well here and other threads.

> by being ok with sloppiness in their formation. Btw often on the right side of patterns, the obvious, ‘prettier’, more symmetrical patterns don’t seem to fair as well as the misshapen, ugly, unattractive ones. They get faded more?

> by implementing active position management, knowing where your pattern failure point is and ruthlessly stopping out there.

> by not expecting them to work. (rephrasing the preceding one in terms of attitude)

> by being patient, precise, and demanding with your entry placement.

> by developing skills at sizing proper scaling out– some before target, some at target, and some (as many as possible) left on for runners…

> by sizing correctly – this one might should be first!

 

 

Can one rely on strictly chart patterns to trade the markets? For example: triangle, wedges, flags, pennants, etc...

 

Do you think one can make money in the markets in the long run relying only on chart patterns? Thanks

 

BS (but better?) answer:

This is why the Zen master, when asked the nature of the Buddha, beats the student's head with a stick. Our words cannot convey participation or the realization to which participation can lead.

Here’s one for you – can you trade (except randomly) for an hour, a day, a week, or in any instance(s) - completely without the use of pattern?

The real question is - which patterns are YOURS? !!!!!!!!!!!!!!!

 

PS In addition to Suri’s book, see Trading Commodity Futures with Classical Chart Patterns by Peter Brandt

Trading Commodity Futures with Classical Chart Patterns by Peter Brandt, ISBN: at the Global Investor Bookshop

Share this post


Link to post
Share on other sites

This is a very wise anecdot from an Israeli Tech trader(Ob1..) freind of mine :

 

" A guy goes to a psychiatrist,

The doc says what's wrong?

The guy says I am seeing "body-parts" on charts.

The doc says what do you mean body parts?

The guy says I am seeing head and shoulders and some Bottoms on charts.

The doc says , that is bad, and gives him some Meds.

 

After two weeks the guy comes back to the doc.

 

The doc says, well do you still see body parts on charts?

The guys says, no, no more body parts.

The Doc says, do you see anything else?

The guy says, well I do see some butterflies and flags but not that often.

The doc says, its bad and gives him some more meds.

 

After two weeks the guy returns to the doc and says, Finally I don't see

anything on my charts, just charts.

The doc says' thats great, and gives him the Rorschach test, and tells him

well what do you see in the inkbolts?

The guy says I see complex scientifically derived algorithms..

The doc says thats great, maybe you should write a book on that.

 

A year later the guy publishes a book entitled" Body parts on charts", alas

nobody buys it, because they think the guy is a lunatic. So, the guy

changes the title to "Patterns on charts". Now, everybody buys the book,

and everybody is seeing butterflies, heads, shoulders, double bottoms,

tripe heads, even some claim that after reading the book they could swear

they saw the Monica/Clinton's Stain on the ES chart, which proved to be

an amazing reversal pattern.

 

Anyway, the book becomes a best seller along with titles like:

 

A GUIDE TO DATING ETIQUETTE , by Mike Tyson

 

FRENCH WAR HEROES. by Jacques Chirac

 

MY BEAUTY SECRETS, by Janet Reno

 

MY LITTLE BOOK OF PERSONAL HYGIENE,by Osama Bin Laden

 

AMELIA EARHART'S GUIDE TO THE PACIFIC

 

and THE AMISH PHONE DIRECTORY

 

 

Anyway the joke is on me because I bought the book...

Share this post


Link to post
Share on other sites
Chart patterns are reliable-- Mastering them is another subject....so too is Trading them profitably .

 

The problem that many have with patterns or their claim that chart patterns are not reliable is usually linked inexperience of understanding Price action or other variables like not enough time to master a pattern...to truely know it like the back of your hand and that takes time.

 

Part of the mastery is realizing that many variables influence any particular chart pattern that is trying to form. Because of this fact Programmatic back testing via a code usually will miss the value and the true reliability of chart patterns--In contrast a trader that has mastered his favorit chart patterns knows exactly when to trade them and when to let them go by. He has learned to be aware of the influencing variables and understands their impact on what he is trading , thus he can make appropriate adjustments on the fly.

Asking a Code to do the same thing is near impractical, unless you have a team of top notch programmers at your disposal and even then I dont think you would get the same results....some things just cant be communicated through code.

Bulkowski has been successfully trading patterns for years. I came across his article after another trader I respect made a similar comment as something he had observed in trading. Its not that they don't work, but their reliability is tailing off. the other trader also mentioned that he had found increasing cases of patterns apparently failing but of you monitored them they would resume later than expected.

 

Chart patterns are essentially representations of people's beliefs about the market, these beliefs can be manipulated by the smart money operators.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date: 4th April 2025.   USDJPY Falls to 25-Week Low as Safe Havens Surge and Markets Eye NFP Data.   Safe haven currencies and the traditional alternative to the US Dollar continue to increase in value while the Dollar declines. Investors traditionally opt to invest in the Japanese Yen and Swiss Franc at times of uncertainty and when they wish to avoid the Dollar. The Japanese Yen continues to be the best-performing currency of the week and of the day. Will this continue to be the case after today’s US employment figures?   USDJPY - NFP Data And Trade Negotiations The USDJPY is currently trading at a 25-week low and is witnessing one of its strongest declines this week. The exchange rate is no longer obtaining indications from the RSI that the price is oversold. The current bullish swing is obtaining indications of divergence as the price fails to form a higher high. Therefore, short-term momentum is in favour of the US Dollar, but there are still signs the Japanese Yen can regain momentum quickly.       USDJPY 1-Hour Chart     The price movement of the exchange rate in both the short and long term will depend on 3 factors. Today’s US employment data, next week’s inflation rate and most importantly the progress of negotiations between the US and trade partners. If today’s Unemployment Rate increases above 4.1%, the reading will be the highest seen so far in 2025. Currently, the market expects the Unemployment Rate to remain at 4.1% and the Non-Farm Payroll Change to add 137,000 jobs. The average NFP reading this year so far has been 194,000.   If data does not meet expectations, US investors may continue to increase exposure away from the Dollar and to other safe-haven assets. Previously investors were expecting only 2 rate cuts this year from the Federal Reserve, however, most investors now expect up to 4. If today’s employment data deteriorates, economists advise the Federal Reserve may opt to cut interest rates sooner.   Therefore, it is important to note that today’s NFP will influence the USDJPY to a large extent. Whereas in the longer-term, trade negotiations will steal the spotlight. If trade partners are able to negotiate the US Dollar can correct back upwards. Whereas, if other countries retaliate and do not negotiate the US Dollar will remain weak.   USDJPY - The Yen and the Bank of Japan The Japanese Yen is the best-performing currency in 2025 increasing by 6.70% so far. Risk indicators such as the VIX and High-Low Indexes continue to worsen which is positive for the JPY as a safe haven currency.   Yesterday Japan released March business activity data that came in weaker than expected: the Services PMI dropped from 53.7 to 50.0, while the Composite PMI fell from 52.0 to 48.9. The data is the lowest in two years. These figures could hinder further interest rate hikes by the Bank of Japan. However, most economists still expect the Bank Of Japan to hike at least once more. It's also important to note, that even if the BOJ opts for a prolonged pause, a cut is not likely.   Additionally, a 24% tariff was imposed on Japanese exports to the US yesterday. Prime Minister Mr Ishiba expressed disappointment over Japan's failure to secure a tariff exemption and pledged support measures to help domestic industries manage the impact.   Key Takeaway Points: US Dollar Weakens, Safe Havens Rise: The Japanese Yen and Swiss Franc continue to gain as investors shift away from the US Dollar. USDJPY Under Pressure: USDJPY trades at a 25-week low, with short-term momentum favouring the Dollar but long-term trends pointing to potential Yen strength. NFP and Unemployment Crucial: Today’s Non-Farm Payrolls and unemployment figures will heavily influence short-term USDJPY. On the other hand, trade negotiations will dictate longer-term trends. Japan Faces Mixed Signals: Despite weak PMI data and new US tariffs, the Japanese Yen remains strong. Economists expect at least one more rate hike from the Bank of Japan, but no cuts are in sight. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • YUM Yum Brands stock, nice breakout with volume +34.5%, from Stocks to Watch at https://stockconsultant.com/?YUM
    • Date: 3rd April 2025.   Gold Prices Pull Back After Record High as Traders Eye Trump’s Tariffs.   Key Takeaways:   Gold prices retreated after hitting a record high of $3,167.57 per ounce due to profit-taking. President Trump announced a 10% baseline tariff on all US imports, escalating trade tensions. Gold remains exempt from reciprocal tariffs, reinforcing its safe-haven appeal. Investors await US non-farm payroll data for further market direction. Fed rate cut bets and weaker US Treasury yields underpin gold’s bullish outlook. Gold Prices Retreat from Record Highs Amid Profit-Taking Gold prices saw a pullback on Thursday as traders opted to take profits following a historic surge. Spot gold declined 0.4% to $3,122.10 per ounce as of 0710 GMT, retreating from its fresh all-time high of $3,167.57. Meanwhile, US gold futures slipped 0.7% to $3,145.00 per ounce, reflecting broader market uncertainty over economic and geopolitical developments.   The recent rally was largely fueled by concerns over escalating trade tensions after President Donald Trump unveiled sweeping new import tariffs. The 10% baseline tariff on all goods entering the US further deepened the global trade conflict, intensifying investor demand for safe-haven assets like gold. However, as traders locked in gains from the surge, prices saw a modest retracement.   Trump’s Tariffs and Their Market Implications On Wednesday, Trump introduced a sweeping tariff policy imposing a 10% baseline duty on all imports, with significantly higher tariffs on select nations. While this move was aimed at bolstering domestic manufacturing, it sent shockwaves across global markets, fueling inflation concerns and heightening trade war fears.   Gold’s Role Amid Trade War Escalations Despite the widespread tariff measures, the White House clarified that reciprocal tariffs do not apply to gold, energy, and ‘certain minerals that are not available in the US’. This exemption suggests that central banks and institutional investors may continue favouring gold as a hedge against economic instability. One of the key factors supporting gold is the slowdown that these tariffs could cause in the US economy, which raises the likelihood of future Federal Reserve rate cuts. Gold is currently in a pure momentum trade. Market participants are on the sidelines and until we see a significant shakeout, this momentum could persist.   Impact on the US Dollar and Bond Yields Gold prices typically move inversely to the US dollar, and the latest developments have pushed the dollar to its weakest level since October 2024. Market participants are increasingly pricing in the possibility of a Fed rate cut, as the tariffs could weigh on economic growth.   Additionally, US Treasury yields have plummeted, reflecting growing recession fears. Lower bond yields reduce the opportunity cost of holding non-yielding assets like gold, making it a more attractive investment.         Technical Analysis: Key Levels to Watch Gold’s recent rally has pushed it into overbought territory, with the Relative Strength Index (RSI) above 70. This indicates a potential short-term pullback before the uptrend resumes. The immediate support level lies at $3,115, aligning with the Asian session low. A further decline could bring gold towards the $3,100 psychological level, which has previously acted as a strong support zone. Below this, the $3,076–$3,057 region represents a critical weekly support range where buyers may re-enter the market. In the event of a more significant correction, $3,000 stands as a major psychological floor.   On the upside, gold faces immediate resistance at $3,149. A break above this level could signal renewed bullish momentum, potentially leading to a retest of the record high at $3,167. If bullish momentum persists, the next target is the $3,200 psychological barrier, which could pave the way for further gains. Despite the recent pullback, the broader trend remains bullish, with dips likely to be viewed as buying opportunities.   Looking Ahead: Non-Farm Payrolls and Fed Policy Traders are closely monitoring Friday’s US non-farm payrolls (NFP) report, which could provide critical insights into the Federal Reserve’s next policy moves. A weaker-than-expected jobs report may strengthen expectations for an interest rate cut, further boosting gold prices.   Other key economic data releases, such as jobless claims and the ISM Services PMI, may also impact market sentiment in the short term. However, with rising geopolitical uncertainties, trade tensions, and a weakening US dollar, gold’s safe-haven appeal remains strong.   Conclusion: While short-term profit-taking may trigger minor corrections, gold’s long-term outlook remains bullish. As global trade tensions mount and the Federal Reserve leans toward a more accommodative stance, gold could see further gains in the months ahead.   Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Andria Pichidi HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • AMZN Amazon stock, nice buying at the 187.26 triple+ support area at https://stockconsultant.com/?AMZN
    • DELL Dell Technologies stock, good day moving higher off the 90.99 double support area, from Stocks to Watch at https://stockconsultant.com/?DELL
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.