Chart Patterns - tosh?

rossored

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I realised it was quite a while since I started a thread in the forums, so I thought I'd start one which may or may not encourage some debate. I know that I work for T2W and all that, but I dont see that that ought to make any difference, so here we go.

Something struck me today whilst looking at a chart of the Dow.

Part of me looks at the first part-chart (taken from bigcharts, btw) and sees the following:

Big gap down, some choppy-ish price action making a series of higher lows, but no higher highs - so "traditional TA" would have you believe - using this chart alone - that you've got a descending triangle forming here, and a big one too, as this is a 5min chart.

The other part of me looks at this second chart (taken a few minutes later) and thinks "What a load of tosh. All this about descending tris (and some other notorious TA patterns) is rubbish. What we've got here is nothing other than a series of HL's and HH's - its not a desc. tri at all."

Of course, this is backed up by the same chart of the S&P (third part-chart), which shows nothing like a triangle, descending or otherwise, at any time during this time period. It only shows HH's and HL's.

So....

a) does the S&P act as a "leading indicator" (shudders at use of 'indicator' word) in this case?
b) Are 'traditional' (tris, wedges, etc) TA patterns too complex? Should we just use (as many advocate) simple analysis - S/R lines, Volume and HH/HL etc, and forget all the other baloney? Because it strikes me that all too often, it doesnt work anyway.

(I didnt trade any of this as I was busy with something else, and I'm not asking for answers per-se to either of the above either - I just want some opinions)
 

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First of all the triangle you would have been looking at forming would have been ascending on the DOW and is still forming depending on whether you use the start point of the impulse down (ie yesterdays close) imho. As for the S&P, not sure what you mean by lead? Lead ehat
 
Thats the same triangle I'm talking about - how do you view that as an ascending triangle, rogue?

As in "leading" I mean leading the Dow.
 
Yes, ascending.

Thought I was dreaming or drunk when you said descending.

You standing on your head Rossored ?
 
Trouble is, that the DOW is all skewed at the open as various component stocks come on line. You cannot therefore take seriously any 'standard ' TA formations that you may see.The S&P reflects a 'truer' picture as there are 500 constituents. The whole truth is in the futures......
Now, that's not to say that with a bit of experience, you can't tell what's likely to happen at the open from the DOW. You just need a bit more than a price chart, especially the cash chart. It also depends on how big the open gap is as well as to how much you can read into what you think you see coming.
 
Well, OK, yes the shape of it is an ascending tri, but I thought that was only the case if such tri were in an uptrend of sorts - and its not?

Should I go back to sleep? Have I been away from the screens for too long, staring at HTML and all manner of internet geek gobbledegook?

(Do NOT answer "yes" to the above question, or I'll delete your post and then make it look like you said something else ;) )
 
Trouble is, that the DOW is all skewed at the open as various component stocks come on line. You cannot therefore take seriously any 'standard ' TA formations that you may see.

How long does it take for all 30 to come online ?
 
LOL rossored doesnt matter what the trend is just the slope of the triangle as I understand it

Dow stocks usually all trading within a few minutes
 
I suppose if you were looking from right to left, it might be said to be descending or possibly if you were looking at it in a mirror, standing on your head or any other way other than the way that normal human beings look at it.
 
I may have got this completely wrong, but I would have looked at those charts and seen a 1-2-3 candlestick set up predicting the market would rise from that point - (until you saw another signal.)

This is only a novice's viewpoint, so feel free to correct me.
 
rossored,
This is my personal perception of this:

I "see" no triangle.
I do not trade this instrument.
What I see on this chart of DIA (a proxy for the Dow) is a gap down - a consolidation at a level forming a low - a rise to a high - pullback to a higher low (not a high probability potential trade as the pullback is too great to suggest a reliable trend forming) - a further rise to just form a higher high, then another pullback to a higher low also indicating weak upwards pressure - and then another weak wave up to run out of steam once it entered the first dense resistance zone formed yesterday ( between the two blue lines). There is plenty of further overhead resistance to overcome before this could grind its way north.
Now of course it's easy to analyse in retrospect, but to my eyes I would simply not even consider trading such poor action.
To see what I personally view as a triangle have a look at the one I traded today on NVDA.
Here the price action was clear and definite and the triangle formed after a rise, suggesting strong upwards pressure. Note also the increased volume on the triangle break out c'stick.......people trading the triangle :)
The Dow is not reliably led by anything.
As far as the real triangle on NVDA is concerned, other factors come in which confirmed the entry point and exit. These do not apply to indices/futures. My exit was at the exact high of the day, (so far), at 22.50.
Rossored, if you would like out of curiosity to see the level 2 screen shot I took of the exit at the exact top of the move, I shall email you the image with a full and detailed explanation.
IMHO, TA alone rarely is sufficiently consistent.
Hope that helps,
Richard
 

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Patterns, Patterns, Patterns

Nice thread Rosso, and yes you have been a bit slack lately! :LOL:
Here's a lovely H&S which I did trade today along with a few others, on the 5min NQ chart. This was such a lovely looking pattern with the lower right shoulder, that I just couldn't stop myself. I entered at 1513.0, with a stop at 1514.5, always lower risk entering at the RS rather than the neckline.
Now being a man of very small nads, I exited at 1511.0 for a very quick 2 points.(4.5 mins) The reason for my exit was that the 1510 level had been an area of price which had shown high activity over the past three days, and as I said before...........No Nads! :rolleyes:
I'll get there one day, I just hope inflation doesn't damage my account too much. :LOL:
As we all know - these don't work all the time, but the risk was minimal. There is only one answer really - define your setups, test them, assess the probability, trade the ones that fit your risk profile, analyse the results, re-define the setup, trade them, assess them ad infinitum
Cheers
Q
 

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Mr. Charts said:
To see what I personally view as a triangle have a look at the one I traded today on NVDA.

Interesting, I would have called that a bullish penant, nicely spotted though, sweet trade.
 
roguetrader,
Fair comment, it's all a matter of semantics I suppose. What really matters are the concepts of trading sentiment being played out in price (and to a lesser extent, volume) action. Those get expressed in easily digestible and recognised "packages" for ease of observation. The mind seeks to impose "pattern" in order to easily understand and sometimes "sees" what isn't there.
It really doesn't matter if the "pattern" is there, what does matter is if the perception triggers repeatable and probable activity.
IMO, seeing that broader view and then zeroing in on to the micro level of level 2 and T&S tells you if your suspicion of the likely ensuing action is really going to pan out or not.
The actual micro image of what was happening as price hit 21.50 said it simply was not going to go any higher in the near future irrespective of the chart appearance or any indicator on the planet. And that is exactly what transpired.
So, is TA "tosh"?
It's a very useful tool, like a screwdriver in a tool kit - a time and a place for everything.
 
It seems you are all barking up the wrong tree. The question of framing this market action within a triangle does not apply because the initial transverse configuration is not condusive to such a conclusion being arrived at. To call this a triange is force fitting.

What it is, happens to be something completely different. Force fitting of triangles does not solve the problem of price action deduction. You can look in a chart and see anything you want to see as a consequence of not looking at it correctly, that is from the correct perspective.

This is a trap many fall into because it is very easy to fasten on to the first assumption that comes to mind.

I will explain what happened here :~

The first down bar is very rapid and comes to a sharp halt. This indicates, because it is presented in candle form, that there is a total unwillingness to allow the price action to deteriorate any further than the designated support level that underpins it. This is made patently obvious by the bar that follows it since it has an opening bar (bottom) at exactly the same level as the previous. The fact that this candle has a bottom shadow of some significance, recoiling smartly to create a white candle, tells volumes about the reluctance of the price to be allowed to drift downwards. This is further reinforced (and confirmed) by the next two bars.

The first of these is a double feint. It is a bearish bar with a significant toptail. This type of formation creates initial doubt as it induces the idea of possible sudden weakness, implying a further fall, but it is just a compound feint, as the next bar confirms, and from then on it ascends very steeply to be rapidly exhausted. Why ? Why is the price action suddenly capped in this way, so soon ?

The answer has got to be that this is a sharp, very effective Bear Raid. Here the objective is to grab quickly what is available of significance at the bottom price level and no lower, because the intent is strongly bullish disguised within a very brief bearish inducement.

Why is the red bar a compound feint ?

Because it has to be accumulation, it's got to be, it cannot be anything else.

And at the same time the toptail and subsequent decline induces shorts, whose tight stops are hit immediately the price begins to harden.

If this chart were to show volume, we could expect to see very heavy volume on the first bar (stopping the move) followed by lower volume on the third bar, diminishing on the first ascent and increasing at the first top (capping volume) , a device to control the progression of the price by creating artificial supply at the top, by introducing controlled selling to depress the price once more, but not very much, but just enough to permit re accumulation. This is why the second bottom is higher than the first, also there may be less supply available at that level.

The red bar is clearly accumulation also, otherwise the ascent could not and would not take place.

Once the first top is attained, the process is repeated again, in order to ensure that accumulation (for the purpose of what follows) is either complete or sufficicient to fuel the rise that subsequently develops.

Observe carefully that the rise that ensues is a sort of teetering indecive progression.

This is because the herd have been shocked by the event, and now have to gather themselves to accept the price is going up, not down. This dithering is displayed by the progession of the price not being "clean" in its path.

As you mention that this occured in an index, it is patently obvious is a "compound raid" that is, a planned raid on a cluster of securities within the same sector. If this sector is suddenly targeted, it stands to reason that other securities in similar indexes in the same domestic market are going to be affected, whether by association or by separate coordinated targeting synchronously.

You have to accept what the price action is telling you and not to wrap an unsound idea round it instead, in the hope it will fit. This is a common pitfall for many traders.
 
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As far as the real triangle on NVDA is concerned, other factors come in which confirmed the entry point and exit. These do not apply to indices/futures. My exit was at the exact high of the day, (so far), at 21.50.

Did you mean 22.50 Richard ?

Is that triangle also known as a springboard where you get lower highs and higher lows gradually squeezing the price like toothpaste out of a tube ?
 
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Well, thanks for everyone's replies.

Yes, Salty, as you so eloquently put it, I must be reading the chart right to left and standing on my head at the same time. So the person who "taught" me that particular pattern (not a member of this board) may well be getting a piece of my mind.

Nevertheless, I find it interesting that there are still several views about the correct way to trade this action, and all of you have a method that would appear to work. So there's more than one way to skin a cat.

I havent traded for some time (like you cant tell) but I'll have enough money together again by the end of February to start again in a small way (hopefully a little better this time - I was somewhat sporadically successful during my last stint), and am just in the process of getting myself "back up to speed" before then. Hopefully, with some professional tuition that I have planned, I can make more of a success of it this time.
 
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