Pattern recognition / Trading without indicators

[iota]

Two questions and I'll probably get cu++ed for this but no pain, no gain.

I keep noticing (and compiling a mental list of) specific patterns on charts. Most are recurring with varying frequency and various degrees of reliability. These aren't classic candlestick patterns (as far as I know) but at least one seems very reliable.
Does anyone else do this or am I being fooled by what amounts to random movements?

Also I've never traded with any indicators outside of basic S&R lines. Indicators just seem a distraction. Does anybody else trade without any indicators?

 

[tomorton]

Good observation is key to success in the game. There's no monopoly or limit of the patterns that might be useful pointers for traders, just be critical and as scientific as you can be, to make sure you're not fooled by your own optimism and randomness of the market's price action.

If you can get a copy, Encyclopedia of Chart Patterns by Thomas N Bulkowski (2000) lists the best known patterns and gives statistics for their frequency, failure rate, probable distance of travel etc. Importantly, you might copy his very objective approach to test your own theories.

I agree, too many indicators would definitely be a distraction but a few key indicators, selected according to your trade style, can give useful secondary or confirmative information.

 

[brettus]

Two questions and I'll probably get cu++ed for this but no pain, no gain.

I keep noticing (and compiling a mental list of) specific patterns on charts. Most are recurring with varying frequency and various degrees of reliability. These aren't classic candlestick patterns (as far as I know) but at least one seems very reliable.
Does anyone else do this or am I being fooled by what amounts to random movements?

Also I've never traded with any indicators outside of basic S&R lines. Indicators just seem a distraction. Does anybody else trade without any indicators?

The best thing about buying at support levels and selling at resistence is you know where your stop is. It's below the zone of support or above the zone of resistence. Selling or buying through these levels is hard because it's difficult to know where to put your stop. If you pick a good level it usually bounces, but even then with no exit strategy its useless. Exit strategy should be as dynamic as your entry.

 

[Rossini]

No I don't like the whole S&R thing; I use indicators. But if you think you have found a pattern, you must have a way of defining it. This being the case I would code it up and test it.

 

[SpiritBeing]

Two questions and I'll probably get cu++ed for this but no pain, no gain.

I keep noticing (and compiling a mental list of) specific patterns on charts. Most are recurring with varying frequency and various degrees of reliability. These aren't classic candlestick patterns (as far as I know) but at least one seems very reliable.
Does anyone else do this or am I being fooled by what amounts to random movements?

Also I've never traded with any indicators outside of basic S&R lines. Indicators just seem a distraction. Does anybody else trade without any indicators?

I do trade a version of the same idea.....:cheesy:

NO INDICATORS ....except MAs

Check out the blog link below with some live trading ideas in real time.

http://www.trade2win.com/boards/general-trading-chat/116880-current-charts-you-find-interesting.html

Is your style similar?

ps....a motto i like to use is......the more complicated the formular for the indicator....the less reliable it is!

 

[brettus]

No I don't like the whole S&R thing; I use indicators. If you think you have found a pattern, you must have a way of defining it. This being the case I would code it up and test it.

I'm sure there's a way, but it's hard to code up s&r to start. But I also trade fundamentals. There's alot of factors involved in trading PA effectively. Surrounding yourself with a bunch of guys/girls who can trade PA effectively aswell always helps.

 

[SpiritBeing]

No I don't like the whole S&R thing; I use indicators. If you think you have found a pattern, you must have a way of defining it. This being the case I would code it up and test it.

i agree up to a point......some patterns are not easy to code...despite being easy to see...

The problem coding patterns is well explained in the book Market Wizards 2......the issue is scaling charts...If you zoom in and scale a chart enough...any trend can seem real....trying to code scaling is a tricky job:smart:

 

[Black Swan]

No I don't like the whole S&R thing; I use indicators. But if you think you have found a pattern, you must have a way of defining it. This being the case I would code it up and test it.

Hi Ross, do you not (also) keep a weather eye on the 3 levels of S&R, particularly with an eye of the exit, when day trading specifically?

 

[montmorencyt2w]

Two questions and I'll probably get cu++ed for this but no pain, no gain.

I keep noticing (and compiling a mental list of) specific patterns on charts. Most are recurring with varying frequency and various degrees of reliability. These aren't classic candlestick patterns (as far as I know) but at least one seems very reliable.
Does anyone else do this or am I being fooled by what amounts to random movements?

Also I've never traded with any indicators outside of basic S&R lines. Indicators just seem a distraction. Does anybody else trade without any indicators?

I am slightly sceptical of patterns, but who knows, you may have spotted something that no one else has noticed, or not many people have noticed, or perhaps that was once known and has been forgotten. (There are many examples of "lost and forgotten" knowledge being rediscovered in the wider world outside trading).

As TD used to say on his epic thread, it's less the pattern and more where it occurs that matters (thinking in terms of S&R mostly, but there may be other considerations).

If you look at the even more epic charts thread by James16 on FF, you will see a lot of patterns being used, and on the face of it, they seem to work like a charm. But ...


Because of our in-built tendency to see patterns where none may exist, or which do not have any particular significance in reality, we can easily allow bias to creep in, even when we are trying to be objective. We focus on the times that it worked and ignore (simply do not see) when it didn't. So, be careful.

Nevertheless, if you think you are on to something, keep it close to your chest (it's your edge!), and follow it through as far as it will go. Even if it proves unsuccessful in the long run, I suspect you will have learned a lot in the process.

 

[iota]

The best thing about buying at support levels and selling at resistence is you know where your stop is. It's below the zone of support or above the zone of resistence. Selling or buying through these levels is hard because it's difficult to know where to put your stop. If you pick a good level it usually bounces, but even then with no exit strategy its useless. Exit strategy should be as dynamic as your entry.

Exits are definitely something I need to work on.

No I don't like the whole S&R thing; I use indicators. But if you think you have found a pattern, you must have a way of defining it. This being the case I would code it up and test it.

Unfortunately I have no idea how to code anything. As per the original post though there is one specific pattern that works as a lay up perhaps 80% or more of the time I would love to be able to code it in to an automated alert at least.

Is your style similar?

Not really, I don't use MAs, and I tend to trade higher TFs.

Hi Ross, do you not (also) keep a weather eye on the 3 levels of S&R, particularly with an eye of the exit, when day trading specifically?

Sorry to barge in. When you say three levels is that like, say: weak / moderate /strong as a gauge of probability?

If you look at the even more epic charts thread by James16 on FF, you will see a lot of patterns being used, and on the face of it, they seem to work like a charm. But ...

Nevertheless, if you think you are on to something, keep it close to your chest (it's your edge!), and follow it through as far as it will go. Even if it proves unsuccessful in the long run, I suspect you will have learned a lot in the process.

Any James16 threads seem to involve far too much noise and the unfiltered versions cost. All said I might have another peek though.

So that's an edge!
Wow... I have an edge, I must be getting better. *checks account*
Yeah, maybe not.

 

[Black Swan]

Because of our in-built tendency to see patterns where none may exist, or which do not have any particular significance in reality, we can easily allow bias to creep in, even when we are trying to be objective. We focus on the times that it worked and ignore (simply do not see) when it didn't. So, be careful.

apophenia

 

[jetski]

i USE THE amazing kreskin! Since then im up more money than Jehovah god.or what ever name their using these days.. lol

 

[Rossini]

Hi Ross, do you not (also) keep a weather eye on the 3 levels of S&R, particularly with an eye of the exit, when day trading specifically?

No. The reason why I personally don't like S&R, trend-lines etc, is that they tend to be static, straight lines, and I just don't view the market in that way.

When I am day trading, I do have the OHLC of yesterday on my chart as well as pivot points. But I don't trade off, from them, or end a trade because of them.

The reason why they are there (in day trading only) is that they help to give me an idea of how overextended (or not) the current price is. This helps give me an idea of the direction in which I could trade if I got a set-up.

R

 

[jetski]

" Albert Einstein: ... "I have not failed. I've just found 10,000 ways that don't work."

 

[leopardtrader-com]

"I absolutely believe that price movement patterns are being repeated. They are recurring
patterns that appear over and over, with slight variations. This is because markets are driven
by humans -- and human nature never changes."

"The game of speculation is the most uniformly fascinating game in the world. But it is not a
game for the stupid, the mentally lazy, the person of inferior emotional balance, or the getrich-quick adventurer. They will die poor."

Jesse Livermore on patterns

 

[leopardtrader-com]

The best thing about buying at support levels and selling at resistence is you know where your stop is. It's below the zone of support or above the zone of resistence. Selling or buying through these levels is hard because it's difficult to know where to put your stop. If you pick a good level it usually bounces, but even then with no exit strategy its useless. Exit strategy should be as dynamic as your entry.

Stop loss should be very far from the S/R zone. It is the biggest predator of non-professionals. When an S/R zone fails a good trader should know and manual close. Even at that, there is more than 70% chance that when a level is finally brroken, it could be tested again.

 

[meanreversion]

Spirit, what do you think about MACD.. very popular indicator yet not exactly 'simple'.

I use a moving average crossover for my trend filter, but MACD sort of goes a little further with the signal line, and is sometimes used for trade entry itself.. thoughts?

 

[SpiritBeing]

Spirit, what do you think about MACD.. very popular indicator yet not exactly 'simple'.

I use a moving average crossover for my trend filter, but MACD sort of goes a little further with the signal line, and is sometimes used for trade entry itself.. thoughts?

Well the MACD is actually a nice indicator that i believe can be used effectively. Some indicators aren't worth the paper the equations are printed on IMO. I have created strategies in the past that have incorporated MACD for trend following, however i would never use it now, or any other indicator. But thats just me, i know other out there using them very effectively.

Your MA crossover as a filter is good logic i believe. However I'm not too sure about using the MACD as an entry for a trade....I believe price action alone should ultimately determine that..but thats just me.

In order to give you a more relevant response we would have to start delving into money management, which is ultimately the key most important factor what ever strategy or style you trade......Point being.....ignor my other point about price action alone being the ultimate defining factor for trade entry. :!:

Care for any words on the moneymanagement side of things meanreversion?

 

[meanreversion]

I've not been able to devise an effective mechanical system which uses only indicators for entry and exit, but I can see that MACD has value as part of a confirmation process.

Money management - I used a fixed percentage of equity per trade, initial risk is n ATR away, so position size is %/n. A friend of mine is starting to get into the Kelly Criterion, which tells you the 'optimal' amount to bet, but you can also go to zero as well. So another theory would be to allocate a certain percentage of trading pot to a certain strategy, then apply Kelly to that. There's some stuff about this on the net.

 

[intradaybill]

http://www.trade2win.com/boards/tra...es-based-custom-risk-reward-risk-capital.html

Price patterns do work if analyzed and used properly. I find it amazing that some futures patterns in the appendix of a book by Michael Harris published 12 year ago still work well and make money. It appears that not only some formations work well but that they resist fading away or reverting to mean.