understanding the causes of chart patterns

Lol, everyone has their complicated opinions, I been for over four decades watching charts. Long ago I decided to try to have a name for ever bar, I have about 40% completed.

Some bars are forced by automations to make a pattern so as to make others believe price will do a time tested direction.

I have found slope of patterns to offer better trades as sharp slope is produced by frenzy by people not waiting to be left out of a trade.

Doubt most of YouTubers trade let alone study price patterns and emotions or thoughts of stat tested patterns.

Takes years to really know chart patterns and even more to discover patterns not written in books, then think about what is happening to have pattern formed.
 
Technical Analysis - stock charting. Why TA? 1. Market is a discounting mechanism, 2. Mass psychology - repeating, 3. Market will either consolidate or trend.
A good summary is Classic Indicator by Linda Raschke
Do a youtube search and it's worth listening.

Indicators seldom work. If it works then it's known as the holy grail. What is a trend ? Take a look at PM, BTI and MO. You will know once you see it. The key is to spot a trend early. Mistakes will be made. Because, most early trends die prematurely.
 
Watch the traded volume. Learn to read footprints/volume at price. All chart periods are arbitrary and therefore wrong. Pattern on a 5 min chart will not be there on 3 min; 10 range; 8 tick reversal; 30 min; 4 hour.

Price moves because of volume traded. Chart patterns reflect price. Read volume patterns and you will be much closer to the supply and demand events that result in price moving.
 
The critics of TA or chart patterns will say that big players don't trade chart patterns or that chart patterns doesn't move the markets, but I think they have the wrong perspective.

What I mean by that is that certain patterns explain how price moves. Not why.

Now, the OP clearly wanted to know why, but I'm not sure that pursuit is even worth considering.

At the end of the day the market moves higher when there's more demand than the market can meet, i.e., an abundance of market orders crossing with a limited supply (limit orders) effectively clearing the order book level by level. Opposite to the down side. When the market's are range bound there's consensus about current value and you'll not see much movement.
 
mute9003 said:
im narrowing down my gap in knowledge slowly and one of the big bottlenecks is actually understanding what is happening in the background as patterns form

alot of gurus parrot eachother on youtube videos and dont really give any info besides the basic that doesnt help past beginer traders or advanced traders looking for a very specific tricks

so for example its captain obvious that im observing retracements during a falling knife downtrend pattern. but its meaningless to me if i dont understand what is causing it.
what are the sellers doing
what are buyers doing
what about shorts longs who is stuck who is getting out who is getting in and who is crying and cancelling their lambo this weekend etc.

i dont know what to actually search for to learn these things.
i watched so many youtube videos and still cant find answers my brain is complete fn blender now

this forum so far has been the best help btw so thanks for all yallz time (with few exceptions of people who just troll and try to derail posts for no reason)
More...

If Russia drops a nuke on Ukraine and the markets drop 300 points in 5mins...

You know what the sellers are doing regardless of one trader seeing a flag pattern, another trader saw a double top, another trader saw a resistance level, another trader saw a shooting star, another trader saw a negative card in the tarot card reading and another trader saw negative market depth info in the DOM...

Other traders saw different patterns that they thought were a buying opportunity.
  • Different traders see different price patterns for the exact same price action but the same fact (the why) remains...Russia dropped a nuke on Ukraine.
The question is how did you react and you'll then realize it's you as a trader ? Therefore, the key is you (not the TA pattern) and what cognitive decision-making processes were occurring in your head will determine what pattern you saw and determine how you reacted to decide what trade to take...if any.

You then realize that the nuke attack (shocking as it may be)...didn't close the markets. What trade decisions will you make tomorrow and the trade days that follow on that nuke attack ?

Thus, at some point you'll realize the WHY that it was the Russian nuke attack that dropped the market... it's still you that will decide what to do when your next chart pattern shows up while the markets are thrown into chaos from the nuke attack...while you have answer the why...

Will you react properly if the markets continue to drop or sharply rebound and do you have historical price action info to know how the markets have reacted in the past to nuclear attacks ?

Simply, you (not the chart pattern) will always be the key. You'll then realize the importance of market psychology on our perception of a chart pattern is small in comparison to the market psychology of a nuclear bomb being dropped on a neighboring country in just one hypothetical situation.

Another point I'm making, you're going in the right direction in understanding that chart patterns don't move the markets.

wrbtrader
 
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Chart patterns form on their own. Understanding them? That is wishful thinking. I analyze stocks I have positions on daily via the StockCharts. No way in hell you know what happens next or what the future stockchart of that stock would look like. Now, at most, I would have an educated guess on how that stock would trade in the coming days. Just recently, I closed trades because the trends changed, just like that. In other instances, the trends continued as expected. Good trading is "reactive" not "predictive". That is where a lot of stock traders get it wrong. You react to a stock after it has broken out of a trading range, not before. If a trend line is broken, you will not know it ahead of time. How could you? It could just easily, continue on its trend? And if a stock suddenly, goes sideways in a consolidation, you will not know it in advance either.
 
This question is very vague! Price causes chart patterns. The chart is a delayed graph of price. Can you dig deeper into the reasons?? Of course but you are using hindsight bias and curve fitting for what makes sense.

The simple answer is price has lots of random noise very similar to sine waves and we try to make orderly actionable events out of it
 
Can I predict price?

Maybe not, but with the right tools, executed at
the right time I can damn sure prepare for high probable
price action to RETURN to a prior price LEVEL.

Every week price moves back and forth between PRICE LEVELS.

On the chart posted for E-mini Nasdaq 100 futures, on 2/14 all day long price hit 14287 (at least a dozen times)

Mhmm, that's interesting, takes a sip of Whiskey, wondering if this
14287 level might hold some inexplicable significance.

At that point I have no idea what price might do..BUT!
What are the chances price action "might" return to the 14287 level?!
Should I place an order at 14287 and WAIT FOR IT?

Dude, what type of order?
If price coming from above - SHORT IT, if from below BUY IT.

Remember, on 2/14 no one had a crystal ball to see what might happen on 2/17..BUT

To your trading success.
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This is a good market with lots of opportunities. It would be so much easier to trade if it were in standard bar chart format. This "candles" format obscures useful information. I have no idea why people think its useful. Anybody know?
 
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