It's the Pattern, Stupid!

[schizo]

You need only use, at most, 2 patterns to trade. One for entry and one for exit. Then rinse and repeat. Well, in theory, that's all you need to become a profitable trader.

Patterns can be divided into 3 groups:
1) PA based
2) Indicator based
3) Combination of the two

I think it would be beneficial to add a bit of statistics to the mix as well. Backtesting is always a plus.


This thread is created as a community hub for sharing all possible tradable patterns currently available under the sun, be it profitable or not, in the hopes of reaching for the moon. Please feel free to share your own patterns with a line of insight to boot.

 

[learner2007]

The Mother of all PA/TA.

 

[benwm]

A head and shoulders pattern with a broken right shoulder. But how do you trade it?
If you sell at F, where is your stop?
Or wait/hope for a small retracement to sell just before S2?
Maybe the best place to sell if when the stops above E are taken out, but the buying fizzles out before ever reaching C. So you have to wait a while for this to happen. And you'll never get an entry a lot of the time.

 

[learner2007]

A head and shoulders pattern with a broken right shoulder.

Nope. While you can read into it as being such, it's more than that.

 

[benwm]

Nope. While you can read into it as being such, it's more than that.

What do you call it? Every pattern in this thread should have a name. It's your pattern, so unless there is an accepted name for it, I think you get first shot at it.

Before long, someone will be the selling a trading book containing that pattern and claiming it as their own..

On second look, depending on market context and outlook in high timeframes, you might even want to be buying at F...

 

[learner2007]

What do you call it? Every pattern in this thread should have a name. It's your pattern, so unless there is an accepted name for it, I think you get first shot at it.

Before long, someone will be the selling a trading book containing that pattern and claiming it as their own..

I wish I could claim it as my discovery. But somebody beat me to it. It's called The Dow Theory Reversal Pattern. I would call it The DNA of Price Movement, rather than a reversal pattern, even though it serves as such.

 

[wrbtrader]

ET has a list of Hall of Fame threads @ http://www.elitetrader.com/et/index.php?pages/hall-of-fame/

If you go through that list very carefully, you'll see tons of differently discussed patterns from among many other types of threads that members voted as the best. Simply, its all been already discussed before in great detail with lots of chart examples.

I truly believe you need different price actions for different types of market conditions to contrast the belief you only need an entry and exit. Simply, you can't apply a pattern to all types of different market conditions as if one size fits all because many patterns are only suitable for a certain type of market conditions. That understanding will help you to minimize drawdowns, losing streaks and blowups for those that put all their trading emphasis on patterns instead of other critical aspects of trading that's mentioned below.

Last of all, to be a profitable trader...I don't advice only using patterns as if nothing else matters because patterns are only a small piece of the puzzle to be a successful trader although there are traders that can be profitable without patterns. Simply, don't underestimate the importance of discipline, risk management, proper trading instrument, proper trading environment, position size management, stress management and many other pieces of the puzzle.

P.S. In reality, you may have a strong understanding of your pattern but your trading via that pattern will still stink if you don't know how to manage your risk, applying it to the wrong markets and the other stuff I mentioned above.

Its one of the big reasons why traders have good backtesting results or good statistics but it just doesn't work in real trading. You just can't backtest how someone really trades with real money on the line with all the above components interacting with each other.

Therefore, I highly recommend you begin your trading career via the above key components first prior to learning any patterns and especially prior to taking any trades because we all know most traders want to just jump in to the water first and then hope they can figure out later how to swim.

 

[benwm]

Simply, its all been already discussed before in great detail with lots of chart examples.

Whilst that might be true, we might as well as close down ET if everything has already been discussed and decided. One drawback of historical threads is that a lot of the posters have left. What if you have a question for one of these experts that have left ET? Or maybe a new insight? Even the present day resident ET experts will only leave tidbits of advice before remarking that you can't find the answers in books or all of the hard work needs to be done by yourself, not copying others. I personally don't see any harm in revisiting the topic.

Having said that, I do agree with a lot of your post...patterns need to be viewed in context, they are only a small piece of the puzzle, etc...

Here's a variation on learner2007's Dow Theory Reversal Pattern:-

 

[benwm]

Would you agree that the trend is down at this point?

Depending on context, looks a sell to me. But of course do your testing..

I don't know the accepted name for this pattern, so if there isn't one...I'll name it the "corkscrew".

You can flip it over too..

 

[learner2007]

Here's a variation on learner2007's Dow Theory Reversal Pattern:-

Would you agree that in your example that 1) at the current price the trend has reversed and is now down if the high on the chart was a move in the primary direction,2) or is in a correction to the primary move that peaked on your chart, 3) or is a continuation of the downtrend following a corrective move that peaked on your chart? Or, would you say that the the trend is now up?

I deleted the previous post and reworded it here.