Backtesting chart patterns?
- Thread starter nxt7
- Start date
It's possible if you can find a way to mathematize them
Lots, I bet. This guy has published alot:
http://thepatternsite.com/
However, it may depend on the market, time period, methodology, execution and many other factors, so should be taken with a grain of salt how applicable it will be to your trading.
How can you backtest something that is based on subjectivity ? http://www.psyfitec.com/2010/12/technical-analysis-on-display.html
You only need to go to Google search and you can find all (thousands) of research and people that does statistical analysis on chart patterns.
http://www.google.com
You'll then learn that each researcher, each statistical analysis is via the interpretation of what the pattern is by the person. In other words, there's a reason why each have different results in comparison to the next researcher for the "same pattern". It's because they each see the pattern differently and their trade strategy that's going to be tested is based upon their interpretation of the objective rules involving that pattern. Simply, objective rules as inputs but subjective on what those rules are and subjective in the application.
That's why people say patterns are subjective because each researcher is not using the same rules nor are they applying it the same. I once pointed out this flaw in academics of TA in a comparison of 10 different research papers on Japanese Candlestick Patterns on the exact same data.
They all had different results only because they trade differently and many had different interpretations for the objective rules of the candlestick patterns.
That's why if you're going to put value on someone's "research" or "statistical analysis"...at least be smart about it and contact the person and then ask for in-depth details of the trade strategy that was used in the research or statistical analysis.
That's what I did and I discover some of those strategies was downright scary and I just couldn't imagine someone using such in real money trading.
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My opinion is that you are wasting your time with this one.
Great points.....and exactly why you can't just measure the accuracy of a pattern.......
as the risk & money management rules are just so much more important than the entry/exit signal based on a pattern or indicator.
Those rules include bet sizing, stop loss, profit exit, reversal rules, etc.