Why do patterns fail?-makes no sense

This game, like any other, is defined by its rules. The difference between this game and most others is that the rules of this game are player defined. But by allowing the players the option of changing their rules at any moment, for any reason, the game becomes undefined.


The game is undefined because a unanimous consensus to the rules and how the game should be played is never reached. Since no one can agree on the rules for any fixed length of time, the patterns which reflect the rules will only be in effect as long as the players rules that support those patterns do not change. Change the rules, change the pattern The result: A game that remains in constant motion with no beginning or end.
 
Alex,

Your points about stops are fair. I agree the stops are often the catalyst for whipsaw executions. This is why I use mental stops as opposed to software driven stops. While the technology is fascinating, I still am reluctant to use it in this capacity. I have a mental sop based on both technical levels and price levels that I set in my mind. I then use he Level II and tape to decide if I want to send the order if the stop is met from the technical viewpoint. many times, the technical stop is met, but the market firms up on Level II and I decide to stretch my risk tolerance a little more because of it. A mechanical stop can't have a visceral view of the market and only knows to execute the order based on pure price action and therefore often puts you into a trade that sells a bottom or buys a top. Mental are simply better because your brain is still the best computer; capable of visceral interpretation versus purely literal.

Your point on patterns and indicators. They are two separate disciplines and studies. Triangles, and other chart patterns are one discipline (chartist based), while ADX is another (technician based). Make no mistake, a chartist is not necessarily a technician. Therefore, utilize both disciplines to confirm or refute what you think you may see in the charts. For example, if a chart pattern reveals a breakout, the technical indication such as ADX may conflict with what you think you see in the charts. I rely more on the technical since technical are data based and not interpretive whereas charts are. This can cause conflicting signals and make for a confusing trading style. I therefore, suggest you take a more patient view of the market and trade issues when the charts and technical agree with little disparity. While these set-ups are less frequent, they are statistically high percentage winners, and therefore worth the wait.

I hope this helps! Trade Wise.

David Nassar
MarketWise Trading School
:)
 
I like that the rules are broken every once in awhile. If they became consistent, everyone would home in on them and the entry/exit points would become so crowded that it would eventually become unprofitable. The way it is now, you can continue to make money (at a small price), and keep the wiley, psychologically challenged mainstream of traders from figuring things out. There definately is a lanquage to the market, it's just that it mumbles sometimes.
 
There definately is a lanquage to the market, it's just that it mumbles sometimes.

LOL :) Great line Dave, love it.
 
Originally posted by larrybf
Unfortuneately we traders, (myself included) fail to realize that there is a segment of traders who "fade" all these commonly recognized signals.i.e.- they fade the crowd. Alan Farley commonly talks about using this technique
More...

Yep...and whoever has the most money (or can cause the most panic) wins.
 
personally I´m not interested in why patterns fail, the question is intriguing but I doubt that answering it would lead to profits

what I´ve learned from experience is that going with a failed pattern is a high probability trade. For a great recent example of a failed head and shoulder top see the daily graph of PNRA. Note the turbo charged romp it has had since the pattern!
 
Mental are simply better because your brain is still the best computer; capable of visceral interpretation versus purely literal.

But the software is not created equal.

If you can gain an advantage with tape reading/LII then mental stops are an advantage, but if you cannot gain an advantage with it, then mental stops are a disadvantage.

Regarding patterns, patterns fail b/c not all patterns work. In addition most patterns are subjective resulting in multiple interpretations by varying participants with different time-frames, risk levels, trading styles, and trading size.
 
I like to look at charts and patterns, but to the point that I am looking for any given trend simply because I need something to trade. This is where traders get hammered. Too many traders learn a new technique or pattern and then try to find a set-up that looks like the pattern they recently learned. This is similar to my son who after receiving his first hammer to play with thought everything in our house was a NAIL!

Trader can not look for the events they want to trade through charts, the trades come to them by continually trading the market. Patterns form over days and weeks, and don't reveal much if you aren’t trading them. I learn much more from the market by the way an issue closes and opens. Here is a quick example. I traded AMGN into the close today and although it was weak for much of the day, it firmed up into the close. I bought 2k shares into the last few minutes and then blew out the long in the post market to exuberant buyers who paid up for the stock. This was a fast $750 based on how the stock went out for the day. This is what I mean about seeing patterns through trading versus only studying charts that so many do. These participants often seek the most and have least to find. Paralysis by analysis. I choose to trade the idea with technicals and crucify loses. Discipline over conviction someone said in an earlier reply. I agree 100%. Trading is not learned in books (mine included). It is learned through experience that only trading can provide. Like Andrew Carnegie said..."If you want to learn about something, put some money into it and you'll learn plenty".
 
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