Quote from marketsurfer:
The problem is these recurring patterns do not exist for any relevant length of time. This has been shown via tests time and time again. As soon as a fund locates a repeatable pattern it gets knocked out of existence--- in other words, the patterns are constantly changing. They HAVE TO or the market couldn't exist. This is the fundamental disconnect between market reality and chart watching pattern traders.
That sounds deep until you scratch beneath the surface. It is not sufficient to apply statistical analysis because someone has a degree in math, you need a very deep grasp of the subject matter as well. The math qualification may actually be a hindrance if that is what is majored upon.
For example, you quote from a paper that shows the TA books are wrong that recommend using a stop loss because some student has "proven" that it impairs results. Dig a bit deeper and we find he is using price crossing a 50SMA - simple as that. With a whole 30second learning curve he's going to tell all the TA's with decades of experience that he is right and they are wrong because he clicked a mouse. Real life is just a bit more complex than that. When price crosses a 50SMA a TA will apply many tests to see if it is noise or a signal and then qualify the strength of that signal, but all of this is outside the comprehension of someone who has not built up years of TA understanding. Educated out of his intelligence is a phrase that comes to mind.
So let's apply the same reasoning to your belief that repeatable patterns get knocked out of existence. First of all, patterns represent crowd psychology and there is a finite number of patterns and a very small number of responses to these patterns. The history of market crashes proves one thing - we just don't change. Fear and greed remain with us and the actions of the herd don't get more sophisticated. Smart money leaves a trail and can be identified.
I agree that markets change and I look for a change with every new contract period. What worked before often won't next quarter but there is a limited number of changes they can go through and they always betray mass psychology at some point. Try drawing endless market patterns and you will find that very soon you get stuck and your patterns fall into similar groups. Repetition in the market is part of the nature of the market because we are the market.
Let's get away from suggestions of perfection and never losing because no one has ever hinted at that. Instead let's look at quantifying the probabilities and getting an edge when certain combinations occur that have have an excellent chance of giving a low risk high reward result. It must work out as planned and if not then the stop takes you out instead of letting hope turn into pain and into panic.
Here's the continuation of your YM trade. When I said go short and that this short had the potential to roll through the time fames into weeks or even months, it was because of the psychology behind a very reliable pattern that was setting up.
When my last post warned of Friday as being the bear day it was because research shows that this pattern often repeats when certain other conditions are met. Now we have had two large bear days but all of this was warned of from an intraday trade 23 days back.
It's not easy to learn because of the problems you mention. In martial arts there are only so many moves an opponent can make but learning to recognize those moves and the counters takes many years of hard practice. There is nothing new or infinite going on in the market: it's just variations of very old things that beats us up until we understand how to turn great complexity into simplicity.
Attached is a reminder of the elephant in to room that I warned of as being a key driver for a very bearish outcome. I'm not that lucky, I just work 12+ hrs a day.
PS: Wishing you all the best for your channel price drivers. Channel Break Outs were one of the first bank black box methods - it still works amazingly well.
