What is your most profitable pattern?

[ZEN archer]

Here's my final-final holy grail for trading you can have for free. Both rules are of equal priority:

A profit doesn't come easily, you must guard it.
A winner doesn't come easily, you must run it.

Not the best advice BJ:whistling (IMO)

This 'holy grail' of yours may be more to do with what may be pleasing for you to imagine (running profits for a long time) instead of reality (the market taking all that was offered and more)

 

[Purple Brain]

BTW I can see that 5 members use some other patterns (from the poll), but they wouldn't reveal the specifics:whistling

That which I provided may not have been of great quantity, but it was certainly the specifics of my method, simple as it is. For the fine detail I use a 50 period exponential moving average and a 10 period linear weighted moving average. While it could be argued that the shorter moving average is unnecessary and I could use the price instead, I prefer the clean lines of an average which help me ignore the highs, lows etc and just focus on the aggregated movement rather than the individual bars.

 

[Purple Brain]

Aye, well if you're running in the 100 metres a good start is pretty important, less so over the longer distances.

I used to wonder if changing to longer timeframes would offer an advantage, but realised you're offered the same opportunities and issues in all timeframes. I screwed up just as much and in exactly the same way when trading on the daily chart as I did the hourly. It then struck me that it was nothing to do with the timeframes themselves, but the number of bars I was comfortable being in a trade for. It's as tough to stick to 50 bars in a 5 min chart as it is 50 bars in a daily. Those that have the stamina for the longer haul (as defined by number of bars rather than duration in time) are likely to do better. This may just be idiosyncratic and in no way applicable to anyone else, but training myself to grit my teeth and stay the course has helped me enormously. I suspect most traders can spot a pattern, especially the simplest, the trend, and trade bits of it. The trick it seems is to trade most of it in just one trade. Something I'm still struggling with.

 

[barjon]

I used to wonder if changing to longer timeframes would offer an advantage, but realised you're offered the same opportunities and issues in all timeframes. I screwed up just as much and in exactly the same way when trading on the daily chart as I did the hourly. It then struck me that it was nothing to do with the timeframes themselves, but the number of bars I was comfortable being in a trade for. It's as tough to stick to 50 bars in a 5 min chart as it is 50 bars in a daily. Those that have the stamina for the longer haul (as defined by number of bars rather than duration in time) are likely to do better. This may just be idiosyncratic and in no way applicable to anyone else, but training myself to grit my teeth and stay the course has helped me enormously. I suspect most traders can spot a pattern, especially the simplest, the trend, and trade bits of it. The trick it seems is to trade most of it in just one trade. Something I'm still struggling with.

I can see the sense in that.

I was less thinking about time frame than about profit target. If you are gunning for a few points with a tight stop you don't want price lurching about like a drunken sailor - you're after Usain Bolt as he accelerates away.

 

[Liquid validity]

Humans see patterns where there are none.
Ask yourself a question, how many institutional algo's
do you think are based on chart patterns?
No I don't use chart patterns, maybe time patterns...

 

[ZEN archer]

Humans see patterns where there are none.
Ask yourself a question, how many institutional algo's
do you think are based on chart patterns?
No I don't use chart patterns, maybe time patterns...

I'm pragmatic LV - if the patterns work, I would definitely use them without thinking too much about institutional algos' design

 

[Liquid validity]

I'm pragmatic LV - if the patterns work, I would definitely use them without thinking too much about institutional algos' design

If it works and turns a profit, fair enough.
Personally I think its just a coin flip variation.
When it 'works', how much is due to how you managed it?
Point I was making is chart patterns do not drive markets.

 

[Shakone]

If it works and turns a profit, fair enough.
Personally I think its just a coin flip variation.
When it 'works', how much is due to how you managed it?
Point I was making is chart patterns do not drive markets.

Perhaps it depends on what you mean by a pattern.

 

[bbmac]

The essential underlying basis of tech analysis is that, simply put - what happened in the past can be a guide what may happen in the future. If you accept this then it follows that certain ' patterns ' be they for eg PA, indicator, classic geometric chart patterns etc must exist and that some repeat.... To some extent Ta is self fulfilling and self perpetuating (to what extent no one really knows) and this will therefore apply to 'patterns' in the generic sense of the word, but whatever the reason -they do repeat..... I know from my edge that the set-ups I use as part of it (patterns by any other name) do repeat and I know in what circumstances they are historically highest in probability...applying sound money and risk management to these and constantly monitoring their on going performance metrics ensure that I trade only the highest probability 'patterns' - any profitably - over any given sample. It is clear to me that most traders do not have sufficient info about the ' pattern (s) ' they trade in this respect and therefore do not really know from the outset whether an edge exists for them - let alone give the time to learn to bring any profit gap that many encounter (as mark Douglas describes - the difference between having a proven/theoretical edge and actually trading it such that it results in a consistent profit over any designated sample for you. This difference if it exists - is generally mainly psychological.)

Re the poll - interesting as another poster above pointed out - that 7 now have voted ' something ' else without specifying. Why should they ?

G/L

 

[counter_violent]

The essential underlying basis of tech analysis is that, simply put - what happened in the past can be a guide what may happen in the future. If you accept this then it follows that certain ' patterns ' be they for eg PA, indicator, classic geometric chart patterns etc must exist and that some repeat.... To some extent Ta is self fulfilling and self perpetuating (to what extent no one really knows) and this will therefore apply to 'patterns' in the generic sense of the word, but whatever the reason -they do repeat..... I know from my edge that the set-ups I use as part of it (patterns by any other name) do repeat and I know in what circumstances they are historically highest in probability...applying sound money and risk management to these and constantly monitoring their on going performance metrics ensure that I trade only the highest probability 'patterns' - any profitably - over any given sample. It is clear to me that most traders do not have sufficient info about the ' pattern (s) ' they trade in this respect and therefore do not really know from the outset whether an edge exists for them - let alone give the time to learn to bring any profit gap that many encounter (as mark Douglas describes - the difference between having a proven/theoretical edge and actually trading it such that it results in a consistent profit over any designated sample for you. This difference if it exists - is generally mainly psychological.)

Great post.

Re the poll - interesting as another poster above pointed out - that 7 now have voted ' something ' else without specifying. Why should they ?

Cos everybody is looking for a shortcut / free lunch
Even if you did give them something of value, the majority would not see it.
I'm in the camp that says you have to experience it over and over and it's all part of the trading journey. Doing those reps over and over brings understanding.

G/L

But here's one for free.
Draw a line on a chart...if price goes above the line...buy...if it goes below...sell. Leave meaningful wiggle room for trade management.
No patterns required.

 

[bbmac]

What if price is already above/below the line - ie it hasn't crossed it since you drew it - what then ?

G/L

But here's one for free.
Draw a line on a chart...if price goes above the line...buy...if it goes below...sell. Leave meaningful wiggle room for trade management.
No patterns required.

 

[counter_violent]

What if price is already above/below the line - ie it hasn't crossed it since you drew it - what then ?

G/L

Sorry wasn't clear.

Assume price is below the line and crosses it up...then buy.
Opposite for a sell.

It can be death by a thousand cuts of course...but when the right one delivers, should be compensated.

 

[Liquid validity]

Perhaps it depends on what you mean by a pattern.

Exactly, for the purposes of this thread, I take it to mean pin bars, H&S etc.
I think those kinds of patterns are largely BS as they are a product
of the time series they show up on.
A pin bar on a 1 hr chart is not a pinbar on a 4hr or 1500 tick chart for example.

Gann angles is another one - product of the time series chosen.
Basically anything that is dependent on a specific time frame for its
existence is vacuous.

If anyone using them does have success, I'd say its more to do with
trade management, and experience of price action as a filter.
As stand alone methods in isolation they have little to no worth.

In terms of overall patterns, yes they quite clearly exist.
Tick volume footprints.
Time of day - open and close are the obvious ones,
about as rigid a pattern as you will find, same with other static time events.

Correlation patterns, arb in other words, those patterns aren't necessarily
chart based.
Say an ES/YM/NQ/ER2 stat arb basket, AAPL, GOOG could be used as pointers
to the NQ element using VWAP.
So yes its entirely dependent on the types of pattern you use.

 

[BeginnerJoe]

Cos everybody is looking for ... free lunch

Not everyone. Personally I am more interested to see if people actually have the lunches they say they have. On the internet, it's easy for people to say they have this lunch or they have that lunch. Also I find it especially unconvincing when people say they are too embarrassed to show the receipts for their lunches because those are simply too lavish. Yet they are not the slightest embarrassed to go round to tell all and sundry they are having lavish lunches.

 

[Purple Brain]

But here's one for free.
Draw a line on a chart...if price goes above the line...buy...if it goes below...sell. Leave meaningful wiggle room for trade management.
No patterns required.

This is similar to an approach recommended by a Russian mathematician whose name completely escapes me. He used two horizontal lines chosen I think at random. I’ll try and dig the piece on it out as I remember being interested. Obviously not enough to remember the details or his name.

 

[tar]

Sorry wasn't clear.

Assume price is below the line and crosses it up...then buy.
Opposite for a sell.

It can be death by a thousand cuts of course...but when the right one delivers, should be compensated.

That shouldn't be a problem if you diversify and trade different markets , and you may like to put a limit for your losses/day/market , eg. if you lose 50 pips in Cable/day you stop .
You stole that idea from me :|

 

[Purple Brain]

This is similar to an approach recommended by a Russian mathematician whose name completely escapes me. He used two horizontal lines chosen I think at random. I’ll try and dig the piece on it out as I remember being interested. Obviously not enough to remember the details or his name.

Igor Toshchakov - The Igrok Method. I now remember why I forgot.

 

[Purple Brain]

The concept of the coin toss entry or randomly throwing yourself in at the deep end and managing your way out of a trade being more important than finding a good entry point seems a popular one with the more experienced traders. I’ll be delighted to eventually arrive at that same conclusion, but right now, I can’t see the point of letting go of the other edge we potentially possess, that of finding an entry point that more likely than not supports our intended trade for both value of entry level and potential momentum to carry us to target, or at least profit.

 

[tar]

The concept of the coin toss entry or randomly throwing yourself in at the deep end and managing your way out of a trade being more important than finding a good entry point seems a popular one with the more experienced traders. I’ll be delighted to eventually arrive at that same conclusion, but right now, I can’t see the point of letting go of the other edge we potentially possess, that of finding an entry point that more likely than not supports our intended trade for both value of entry level and potential momentum to carry us to target, or at least profit.

It is all in your imagination , all these patterns can be found in random prices charts as well , that must tell you something , the random line is different than a coin toss , it is based on the idea that a certain level wont be a turning point , so basically you are trading with momentum .

 

[Liquid validity]

The concept of the coin toss entry or randomly throwing yourself in at the deep end and managing your way out of a trade being more important than finding a good entry point seems a popular one with the more experienced traders. I’ll be delighted to eventually arrive at that same conclusion, but right now, I can’t see the point of letting go of the other edge we potentially possess, that of finding an entry point that more likely than not supports our intended trade for both value of entry level and potential momentum to carry us to target, or at least profit.

For discretionary trading, your conclusion is a sound one.
The benefit of a 'coin toss' really lies in its value as a learning tool,
or as the basis for automation.

finding an entry point that more likely than not supports our intended trade for both value of entry level and potential momentum to carry us to target, or at least profit.

The reason for that is highlighted by what you said above.
That is far easier to evaluate on a discretionary basis than it is to
program.
Simply because it relies on subjective elements that are largely
absent in an automated environment.
All you have is hard data leading to a simple yes / no conclusion with automation.
Once you are in, you have a much more basic tool to gauge price action - unrealised PnL.

Also random does not have to mean every element of the entry is random.
Personally I don't see much point in entering randomly just before rollover
for instance.
So entry time is not an element I allow to be random, amongst other things.