Learning to read Price Action with P&F Charting

Basically when you stay with the trend the horizontal target is a pretty good target.

Let's wait for the next bullish signal and check it out.
 
haha, not bad.

In my preliminary tests using PnF double,triple,quadruple top breakout signals (and exiting on bottom breakdown signals) [vice versa for short], there were lots and lots of small losses (that add up) and a few large gains that barely offset the losses.

(this was using adjust daily close for S&P 500 and Midcap stocks)

Any suggestions on how to make the backtest more reliable/accurate?

I am trying to get it so that it'll only make buy/sell decisions if RS is in an X/O column and higher than the max of the previous X/O column ... thoughts ?
 
ok we just got a bullish signal on the .5 at 2047. The horizontal price target is 2051.50. We are supposed to hit that before we hit 2044.
 
To provide more clarification, this was all done using 1X3 box/reversal, and was done more with a position trading view than day trading (plus I think it's easier/more accurate to backtest using daily data).

I think with the addition of relative strength against SPY and against the appropriate sector ETF will make the signals more reliable and have less losses.

I am still trying to figure out a good exit strategy - a PnF sell signal might make me exposed to some pretty large losses in the case of a huge run up, and subsequent retracement.

After I can get the comparison to relative strength working, I want to add bullish support/bearish resistance trendlines, which seems like it'll be the hardest part yet, for some reason.
 
Quote from dentist007:

i dont understand why you want to backtest the siganls.p/f is a method of getting information about the behaviour of the price of an instrument
you are working in an environment where the information you get will always be incomplete.so you are just trying to get as much information as possible to try and make a decision.as you will find that candles /bars will also give you more info.
whether the stock/fx gave a better result from a triple/quad top is partly irrelevant as the build up to that is more important to see what follow thru you will get.s o a correlation with market breadth must be included
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I want to backtest PnF signals to see if they can consistently provide returns higher than simply holding an index.

I don't see how your point about the information being incomplete invalidates the reason to backtest - all information we have is always incomplete.

Anyway, yes, this buildup to the pattern is something I am trying to quantify as well, with trendlines and relative strength comparisons.

Thanks for the idea, market breadth / bullish % as HolyGrail suggested will also be included after the RS and Trend lines.

Thanks for the input.
 
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