Head and Shoulders -> brain seeing what it wants to see?

[HarryHindsight]

Thanks basher, good find. I tend to agree that something as crude as H&S could ever yield +ve expectancy. Nevertheless I am fascinated to do the research myself. One thing I'm interested to see is how the H&S identified by these researchers' written code actually appear on the charts themselves.

On the matter of bringing a bow to a modern war; what would you describe as a modern day weapon in trading terms (not on an intra-day, algo-dominated basis either)? Fundamental analysis? I'm sceptical of that too because of all the buy recommendations during various crashes...

wrb: I've just not had time yet...

 

[wrbtrader]

HarryHindsight

Your recent charts do not qualify as H&S price actions although the right shoulder hasn't formed. The problem is the the left shoulder in your recent charts is not appropriate (doesn't qualify) as a H&S left shoulder price action. Therefore, I highly recommend you find some reliable reading sources via amazon, local library that explains in great detail the price action of the left shoulder, head and right shoulder.

Further, if you're serious about using this price action in your trading beyond just academic purposes...I highly recommend you find some good reading sources on defining the H&S price action because your charts represents a very "subjective analysis" of what you thought it should look like when in reality you already said gather up hundreds or thousands of qualifying instances of H&S.

Simply, compare your price action definitions of the left shoulder, head, right shoulder, reaction high/lows between the left/head area and the reaction highs/lows between the head/right area that's posted by some of the academia folks out there that have written about it.

H&S price action is an analysis. Its your trade signals that will determine if/when there's a trade in the H&S price action. Thus, there will be times when you have a valid H&S price action but it has no trade opportunities via whatever trade signals you're using.

Analysis -----> Trade Signal

 

[oraclewizard77]

Believe it or not, TA only works on instruments that respond to TA. Why many people discount TA is that there are many situations where it is meaningless. For example, a TA pattern in stock can be broken by an earnings report so you would need to be careful not to be in a trade or trade during that time period.

Certain stocks with certain volatility can be traded, but then the AI's are going to f with u.

So for those to reasons I don't trade stocks. However, that being said there are certain days or times futures should not be traded either. For example FED day for ES or Wed supply report for CL.

To protect oneself you can either use a calendar or a stop loss. However, when ES or CL shoots up or down strongly I am not able for the most part to trade it, and it causes me to lose money. So I need to limit the number of trades I do in a day to prevent being caught in a bad day. It's better for example to lose $ 200 in a day rather than $ 1,000 by over trading or revenge trading. It's better to pick you spots to enter with a limit order than guess which is the best direction and get in where your stop has to be too wide to give the trade room to move.

Remember one can either trade breakouts or pullbacks, but not both at the same time. In a strongly trending instrument breakouts are fine to trade. In an instrument where RTM happens range trades are good depending where you get into the trade. I don't normally use standard horizontal S and R lines since it's easy to see multiple lines, however, certain averages are sometimes respected by the market, and when you are able to use 2 confirmations to get into a trade its better.

Also, it's better to not chase for the most part. Obviously, a couple of ticks is not bad, but if your stop is going to be greater than your target, you have a problem.

Finally, it's better to combine multiple TA signals to increase your win% per trade when getting in at the correct location. For example, one day I did not take a trade with the current trend since my indicator showed that is was getting oversold even though we had a small bounce. This turned out to be the right move. However, you also, don't want to trade based off just oversold conditions since for example, that is bottom picking. Instead PA has to indicate that the trade wants to move in your direction before getting long or short.

So while I don't use head and shoulder patterns to trade if you like them look to combine them with another TA signal to increase their usefulness since at this point they don't have more than 50% chance of being right or wrong by themselves. Even that win% is fine if you are able to combine that with order management to increase you winners a little more than your losers otherwise you lose out on paying commission and slippage.

 

[easymon1]