How to spot failed chart patterns?

[normandysr2]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

 

[dbphoenix]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

Charts would be helpful.

Db

 

[kalott]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

just put the buy/sell order at the same place as the stop
(the stop on the first position)

 

[forker]

You can't. Nobody knows what the market is going to do.

 

[metrader]

You can spot it once it fails

 

[kalott]

http://www.trade2win.com/boards/indices/205264-head-shoulders-s-p-2.html#post2532138

 

[tomorton]

Some useful statistical research into how often patterns fail and what happens when they do by Thomas Bulkowski. See Encyclopedia of Candlestick Charts, Encyclopedia of Chart Patterns, also http://thepatternsite.com/index.html.

 

[NVP]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

You've just answered your own question.......I would also add time windows to the equation ......remember it's not just about what a price does over time ....it's also what it doesn't do

N

 

[Fugazsy]

You cannot, what you can do is to be nimble....All patterns fail, and the failures often fail, but a failed failure is a second entry in the original direction and has a high probability of success.AB

 

[Solas0077]

Some useful statistical research into how often patterns fail and what happens when they do by Thomas Bulkowski. See Encyclopedia of Candlestick Charts, Encyclopedia of Chart Patterns, also http://thepatternsite.com/index.html.

When was the last time this was updated and how subjective was it? I have tried to trade H&S in last few years but no success. I know, it's my fault

 

[Solas0077]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

This book is a big hit. It explains why these patterns do not work well. At least for me they haven't.

 

[Splitlink]

I was looking at this stock the other day (can't remember which one) and i saw plenty of times where double bottoms, double tops, and head and shoulder patterns completely failed and took off in the opposite direction even though it looked as if it had reached the support/resistance breakout. So my question is what techniques can one use to identify these failed breakouts?

When it does not do what you expected, your trade has lost meaning. Every minute that you wait is because you are hoping that it will come right.

 

[dbphoenix]

When was the last time this was updated and how subjective was it? I have tried to trade H&S in last few years but no success. I know, it's my fault

Not necessarily. Whether a "pattern" succeeds or fails depends on how it's defined. One can avoid all that by not trading patterns at all.

Db

 

[tomorton]

When was the last time this was updated and how subjective was it? I have tried to trade H&S in last few years but no success. I know, it's my fault

Bulkowski's open (and disciplined) about his pattern recognition rules but his research was I think on US stocks, so extra caution needed if you're in a different game. And, like anything else, it starts to go out of date as soon as its published.

 

[AllDayHolds]

This is the difference between generic technical analysis and actual trading... what's the catalyst for the stock to actually continue after these patterns? WHY should they continue? So many traders fail due to lack of context... context being the reason WHY a stock should continue or reverse. When a stock SHOULD be continuing due to the overall context, you should expect setups against the main move to fail. When a stock SHOULD be reversing due to the overall context, you should expect continuation setups to fail.