Chart Patterns that Fail

ilia king

Well-known member
327 0
Having read through the 'Master Swing' Trader, I have come upon an interesting bit of information, sorry if this is obvious but I just want to get some confirmation from advanced traders.
But sometimes patterns don't do what the crowd expects. A powerful entry signal may flash when a setup fails to act according to its tendency. Pattern failure now goes well beyond concepts presented in recent trading books. The contemporary market crowd recognises the odds that price will move in the direction of the most accepted prediction.
The most recognisable patterns carry the greatest risk for failure. Perfection attracts attention and invites those who might stay on the sidelines in other circumstance. When setups look too good to be true, most participants enter long positions on one side of the trade and attract whipsaws.

So is he basically saying that the clearer the chart pattern, (better formed?) the higher the risk of it failing, so you have to look for chart patterns that dont appear to standout? Is that right, as I though that the clearer the pattern the better and if it does not jump out at you then dont trade it?

I would appreciate any comments

Thanks Ilia
 

ChartMan

Legendary member
5,580 46
I guess all patterns fail from time to time and I agree with the first part.
I totally disagree with the second part.I would say on the whole, the most recognisable patterns do perform. One should always be prepared for a pattern failure though, as a matter of course and good money management.
 

TheBramble

Legendary member
8,394 1,170
It's as easy to show chart patterns that fail as those that succeed.

I believe (don't trade chart patterns myself as I simply don't allow myself to see them) that the trick is to know when your chart pattern isn't working and to exit your position.

Or better yet, make sure it is working before entry.

Same as anything else which is pressed into service as a systemised trading tool.
 

saviola

Junior member
23 0
Curios, if all chart patterns worked as they should all traders would be wealthy but they dont. Depending on how you trade be it technical analysis, chart patterns, price action or whatever. I think it all boils down to your trade management ie keeping losses small, realising when a trade is against you or setting profit objectives, that will make the difference whether you make or lose money in this business.

Hope that helps (just my opinion)
 

The Beyonder

Active member
123 4
Following on from those comments and in particular Curious' post, I think one of the criteria that needs to be asked is "What is the definition of Failure".

For instance if a chart performs a H&S pattern and a 2 traders act on it, if Trader A holds for 2 days he may get a quick profit, if Trader B holds for 2 weeks the pattern could have failed by then and he'd sell for a loss. So does this pattern constitute a success or failure, obviously that depends which trader you talk to.

As Chartman says
all patterns fail from time to time
and by implication all patterns succeed from time to time.
The key, as always, is money management.
 

techtrader

Member
95 2
ilia
I have also have a copy of "Master swing trader" I have found it to be a good read. I think generaly it always holds true to plan your exit before you trade. As was mentioned earlier if all patterns worked we would all be rich.
Regards
Dave
 

Curious

Newbie
2 0
The Bramble, I deleted my posts. They were a bit off the mark. For a better on take on the issue,if one is interested, I respectfully suggest that he go to the article itself. "Don't Bet the Rent on Technical Analysis"
 

TheBramble

Legendary member
8,394 1,170
Thanks for clearing things up Curious.

On a personal note, I thought your comments more than appropriate to the thread.

Also makes a lot of the posts subsequent to your deleted one a little disjointed when what they are responding to no longer exists!

Got a URL for the article?
 

Curious

Newbie
2 0
If you search the title on Google the article will appear near the beginning of the references given. Sorry about the vanishing antecedents!
 

ilia king

Well-known member
327 0
HI everyone, I'm very sorry that I have not been able to reply to the thread that I started, however I have had a few problems.

I dont find chart patterns failing much of a problem but the point that interested me was that Farley said that the most recognisable chart patterns fail, and had a bit of doubt about that as I though that the ones that stand out at you are the ones that you should trade by. However from most of your responses and ChartMans in particular it looks like Farley's views were wrong and the patterns that do stand out are the ones that dont often fail.

Thank you very much,

Ilia
 

mokwit

Member
52 1
Seems the ones that work best are the just discernable ones. Patterns that form in the wrong place are candidates for failure. Low/diverging volume on patterns where it should be rising can also be a sign/hint. Breakouts not breaking out in an uptrend can be an early sign that things are not right with the overall market.
 

MysticalTrader

Active member
165 1
The thing about chart patterns is 2-fold:

Some people see certain patterns very readily and seem unable to quickly recognise others, whether just forming or already in place. Geometry is, to a degree, in the eye of the beholder, even though one would have thought that patterns are pretty empirical. Probably better to say that the *recognition* of geometry is in the eye of the beholder. Also, what comes either side of various patterns can vary considerably so inherently, some patterns work better for some people than others because the process of assessment and judgement (trade or not to trade) are subjective even if the data is empirical.

Inevitably patterns fail sometimes. All patterns fail sometimes. . If it were not so, then all tarrers would be rich as was pointed out by another reply. In particular, *I* would be rich and I am not. I would also have fewer grey hairs but that is another issue.

The important thing here is that It is a probability game. That means there is uncertainty, and uncertainty is mitigated by additional and information (both experience and theory), no matter what the Copenhagen Interpretation enthusiasts would maintain, but that also is another issue.

MT

ps. Gawd, I have just read what I wrote. I sound just like Socrates. I should banish myself immediately to the deepest dark corners of 'From the basement'. Or kill myself



mokwit said:
Seems the ones that work best are the just discernable ones. Patterns that form in the wrong place are candidates for failure. Low/diverging volume on patterns where it should be rising can also be a sign/hint. Breakouts not breaking out in an uptrend can be an early sign that things are not right with the overall market.
 

MysticalTrader

Active member
165 1
lol - an unintended pun, but quite a good one! I wich I had thought of it.

Yes, Copenhagen Interpretation. Relates to Heisenbergs Uncertainty Principle

MT

TheBramble said:
You and your puns MT... :cool:


Are you sure it was Copenhagen....
 
 
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