Should we look at recent price action behavior to forecast direction?

[sjain100]

Seems like a lot of traders emphasize and search for patterns unfolding like a breakout, ascending triangle, wedge, etc. Do professional traders search for similar price action that may have unfolded recently and look for the outcome?

For example, if I'm trading e-mini dow futures, I happen to notice a downward trend on the 15 min(4 consecutive bear bars + steep downward trend angle), should I look out for something similar/close as possible to what is unfolding now and see how the price action behaved in the past, which could potentially forecast my current price movement?

Basically, In addition to simply identifying a pattern and knowing the probable outcome, I'm assuming we should also check against recent price behavior (past few hours/days) on a similar or "close enough" move?

Any insight would be helpful:

 

[guest_trader_1]

I was recently looking at something similar and after running multiple backtests I couldn't really tell that there is a correlation between past prices and the current tape. I saw a correlation between multiple markets where you could run arbitrage systems but it is lost case to look at past prices in order to predict future moves within the same market, imho

 

[spooz]

It's all I've ever done for the past 35 years. A casual look at any actively traded market should illustrate the point. It's impossible to back test in my opinion. "Just" learn to read the market and then forward test it. I should say that I find no value in the vast majority of patterns in books such as Edwards and Magee. Its not a science its a skill and the market changes. I miss stuff all the time. You will see new behavior emerge and vanish only to re-appear a few days latter. Good Luck!

 

[Concinnity]

Seems like a lot of traders emphasize and search for patterns unfolding like a breakout, ascending triangle, wedge, etc. Do professional traders search for similar price action that may have unfolded recently and look for the outcome?

For example, if I'm trading e-mini dow futures, I happen to notice a downward trend on the 15 min(4 consecutive bear bars + steep downward trend angle), should I look out for something similar/close as possible to what is unfolding now and see how the price action behaved in the past, which could potentially forecast my current price movement?

Basically, In addition to simply identifying a pattern and knowing the probable outcome, I'm assuming we should also check against recent price behavior (past few hours/days) on a similar or "close enough" move?

Any insight would be helpful:

I mean for me personally I find patterns to be extremely helpful. Both in the sense of repeatable patterns via backtesting and also intra-day sub patterns that emerge.

For example on 03/09/22 none of the patterns or the way the market moves really changed for me, however a sub pattern I noticed was how difficult they were making it for shorts to cover(they were locking up all the supply). I started to take advantage of that by waiting for dips and going into a smaller time frame to find a setup / pattern I know and than take it to the long side.

When looking back through 20 years of data I do not see the patterns really changing at all... I think one thing people overlook is context. For example:

Let's say you identify a long strategy in the 1 minute chart and it works for 2 months. Than all the sudden the next 2 months it fails. A lot of people will say or think "oh well guess I lost that edge or that edge disappeared". While that may be true in some cases, I imagine in a lot of the cases they just failed to identify proper context. Like during that time let's say the Daily chart was in a nice range with an up trend for 2 months. But on the third month the Daily chart put in a sell pattern. While now the Daily chart is in control and with a brand new sell signal, it's going to likely steam roll a lot of 1 minute long strategies and make them lose integrity. The edge is still likely there to trade, however if you don't have great context on larger charts, you may simply think that edges just disappeared forever, which isn't necessarily the case.

Sorry if this isn't very well typed out or difficult to understand... just my two cents and experience.

 

[murray t turtle]

Seems like a lot of traders emphasize and search for patterns unfolding like a breakout, ascending triangle, wedge, etc. Do professional traders search for similar price action that may have unfolded recently and look for the outcome?

For example, if I'm trading e-mini dow futures, I happen to notice a downward trend on the 15 min(4 consecutive bear bars + steep downward trend angle), should I look out for something similar/close as possible to what is unfolding now and see how the price action behaved in the past, which could potentially forecast my current price movement?

Basically, In addition to simply identifying a pattern and knowing the probable outcome, I'm assuming we should also check against recent price behavior (past few hours/days) on a similar or "close enough" move?

Any insight would be helpful:

%%
YES sja,+ SDOW[short\bear profit dow] is going up, same thing in your pattern....................................
I like also to note SDOW/YTD =30.4%/sdow is also above 50dma+ 200day moving average
SO note\ most of the trends are down on SPY+DOW\2022.............................
Many profitable traders investors would weight day/week charts more than intraday; even though short term trades only could make better use of hourly charts+ such

 

[sjain100]

%%
YES sja,+ SDOW[short\bear profit dow] is going up, same thing in your pattern....................................
I like also to note SDOW/YTD =30.4%/sdow is also above 50dma+ 200day moving average
SO note\ most of the trends are down on SPY+DOW\2022.............................
Many profitable traders investors would weight day/week charts more than intraday; even though short term trades only could make better use of hourly charts+ such

--

I mean for me personally I find patterns to be extremely helpful. Both in the sense of repeatable patterns via backtesting and also intra-day sub patterns that emerge.

For example on 03/09/22 none of the patterns or the way the market moves really changed for me, however a sub pattern I noticed was how difficult they were making it for shorts to cover(they were locking up all the supply). I started to take advantage of that by waiting for dips and going into a smaller time frame to find a setup / pattern I know and than take it to the long side.

When looking back through 20 years of data I do not see the patterns really changing at all... I think one thing people overlook is context. For example:

Let's say you identify a long strategy in the 1 minute chart and it works for 2 months. Than all the sudden the next 2 months it fails. A lot of people will say or think "oh well guess I lost that edge or that edge disappeared". While that may be true in some cases, I imagine in a lot of the cases they just failed to identify proper context. Like during that time let's say the Daily chart was in a nice range with an up trend for 2 months. But on the third month the Daily chart put in a sell pattern. While now the Daily chart is in control and with a brand new sell signal, it's going to likely steam roll a lot of 1 minute long strategies and make them lose integrity. The edge is still likely there to trade, however if you don't have great context on larger charts, you may simply think that edges just disappeared forever, which isn't necessarily the case.

Sorry if this isn't very well typed out or difficult to understand... just my two cents and experience.

-- yes I guess your trying to emphasize NOT to miss out or overlook the larger time frames to get better context I agree! Even if i'm trading intra day I look into the daily, not so much the weekly tho.

 

[sjain100]

%%
YES sja,+ SDOW[short\bear profit dow] is going up, same thing in your pattern....................................
I like also to note SDOW/YTD =30.4%/sdow is also above 50dma+ 200day moving average
SO note\ most of the trends are down on SPY+DOW\2022.............................
Many profitable traders investors would weight day/week charts more than intraday; even though short term trades only could make better use of hourly charts+ such

--

Yeah for sure, the daily and larger time frames are quite important to look into for profitable traders...not to be missed!

 

[Concinnity]

--

Yeah for sure, the daily and larger time frames are quite important to look into for profitable traders...not to be missed!

It's also important not to lean too heavily on the larger time frame bias(unless you have both a strategy and the account size to properly do it). Maybe obvious to you and it is kind of obvious to me too, still I sometimes fall into that trap. I trade pretty small account sizes right now, but if I see higher time frame like 90% probability it's going to drop I have a tendency to take maybe a sub par short setup, but with smaller account size that can be dangerous, since you're adding likely more risk to your trade, plus you don't have the account size to get a net weighted average position comfortably, like you would if you had a larger account. So important to stay patient and still wait for a solid setup. I've gotten way better at this now though, not so much an issue anymore.

 

[wrbtrader]

Seems like a lot of traders emphasize and search for patterns unfolding like a breakout, ascending triangle, wedge, etc. Do professional traders search for similar price action that may have unfolded recently and look for the outcome?

For example, if I'm trading e-mini dow futures, I happen to notice a downward trend on the 15 min(4 consecutive bear bars + steep downward trend angle), should I look out for something similar/close as possible to what is unfolding now and see how the price action behaved in the past, which could potentially forecast my current price movement?

Basically, In addition to simply identifying a pattern and knowing the probable outcome, I'm assuming we should also check against recent price behavior (past few hours/days) on a similar or "close enough" move?

Any insight would be helpful:

Backtest whatever price pattern you're interested in getting answers about the price pattern. If you don't have any coding skills...then manually backtest the price pattern going back as far as you can on historical charts.

wrbtrader

 

[sjain100]

It's also important not to lean too heavily on the larger time frame bias(unless you have both a strategy and the account size to properly do it). Maybe obvious to you and it is kind of obvious to me too, still I sometimes fall into that trap. I trade pretty small account sizes right now, but if I see higher time frame like 90% probability it's going to drop I have a tendency to take maybe a sub par short setup, but with smaller account size that can be dangerous, since you're adding likely more risk to your trade, plus you don't have the account size to get a net weighted average position comfortably, like you would if you had a larger account. So important to stay patient and still wait for a solid setup. I've gotten way better at this now though, not so much an issue anymore.

--
I totally agree "So important to stay patient and still wait for a solid setup. "...patience for the high probability setup is key!