Patterns are so crucial in determining the viability of a trade. I dont know if I could trade as effectively without a good working knowledge of price patterns. (I am speaking only on an intraday basis.)
Why do patterns fail?-makes no sense
- Thread starter neo_hr
- Start date
what patterns do you look for? are the patterns combined with a tape reading tactic to trigger trades?
thanks,
surfer
You got it, price patterns used in conjunction with tape reading usually equals some very high probability trade setups. Its too hard for me to describe exact setups without going over all of the variables that I take into account, but I love to use the chart, see certain chart patterns, and then use the price action to time my entries. For the way I trade, quick in and out scalps for 10-30 cents on avg, it works very well and on 1000 share positions, its a good way to put away $500-$2000+ days consistently. Now the next step is to be able to take more size without too much slippage. I tend to trade very volitile, crazy NYSE issues where missing one print 20 cents higher means you are getting out for breakeven or a loss so sizing up may be a problem. We'll see though...
thanks, steve.
surf
surf
Quote from neo_hr:
Howdy!
One thing ive been struggling to grasp the concept of - PATTERNS ans more specifically the psychology behind them.
Lets take slim-jim breakout or a triangle breakout doesnt matter. Its nearing its top, ADX low, volume low, narrow range... Now, internet, software, knowledge etc have become widely available and more and more people are watching that situation I described above. What I dont understand is if that many people are waiting to jump in and they DO start jumping in, how is it possible for the pattern to fail?
The more people that watch, the more people jump in. The more people that jump in, the more the stock will break out. How can it then fail?
Also one other thing Ive noticed in the last couple of months, you cant put stpops in any of the "rational" laces anymore as the stocks seem to break out just enough to trigger stops and fall back into range. Also HOW CAN THAT BE? If it triggers stops (say on the upper end) doesnt that mean BUYING and thus beginning of an UPTREND? As small as it is but still an upmove...
Its kinda hard to realize that... or is it just me ?!
THX for your replys,
Alex
why do people call when I go all in after the flop?
Quote from Cdntrader:
why do people call when I go all in after the flop?
Because they think they know something you don't, or vice versa.
In terms of price patterns - whether you believe in them or not - certain behaviors do repeat themselves consistently.
The market has moods: upbeat, moody(erratic), depressed, panicky, excited, annoyed etc. These moods are the general feelings of the masses involved in the 1,3,5,30 minute transactions (any longer it becomes a macro consensus IMO and not that useful for short term trading).
Why do people sell into a rally or buy resistance? I believe it is because of one of the aforementioned market emotions. Find the situations (or "patterns") where the masses exhibit signs of emotional/financial self-sabotage and you have a profitable strategy. The difficulty is of course the fact that you have to ignore these same emotions yourself and not be a victim of the behavior you are trying to identify. A real contradiction of terms IMO.
In all but the largest most liquid stocks large holders can only get out when the market lets them out. So what is as/more important to them as price is volume which is why 'flows' ie stock available for crossing is what salestraders call their buy side clients with. Breakouts offer that volume so big holders take the volume at that price rather than hod on and try and sell over 10 or 20 days with risk of a worse price. A previous point about funds buying 'sloppy' during bull markets explains why large cap stocks breakous work.
I have made too much money trading chart patterns to agree they don't work at all, but they work best under certain conditions, primarily when the public are in the market in a big way. Stocks with a free float small enough to be mopped up don't 'go' up they are 'put' up.
Intraday they don't work well as 'they' practice what I have heard termed 'anti technical analysis' which is where 'they' use their size whack it the opposite way to the textbook direction to make it fail and start a coountermove. Again, 'they' probably will hold back from this during a high volume trend, but seem to take advantage of hesitancy/thinness.
As for the pattern formation, seems to me that it is big players accumulating in small lots that build patterns, 'they' then paint the tape with blocks/activity to get it going if the market does not pick up on the pattern and then sell into that volume from an average built lower down. Once the breakout is being signalled by volume and size you have a finite window.
The exception is when the market is bullish enough for long campaigns with size for which 'they' need the public to be in the market in a big way and breakouts are made to work i.e a stock is ramped up as high and as fast as possible from an obvious breakout (helped by breakout buyers) so that the previously accumulated freefloat can be distributed at a much higher level. These are great moves to be in on, but you have to be gone before midnight.............
Note: I am not suggesting that all patterns form as the result of manipulation. Some can form for natural reasons and not everything that looks like manipulation actually is manipulation.
I have made too much money trading chart patterns to agree they don't work at all, but they work best under certain conditions, primarily when the public are in the market in a big way. Stocks with a free float small enough to be mopped up don't 'go' up they are 'put' up.
Intraday they don't work well as 'they' practice what I have heard termed 'anti technical analysis' which is where 'they' use their size whack it the opposite way to the textbook direction to make it fail and start a coountermove. Again, 'they' probably will hold back from this during a high volume trend, but seem to take advantage of hesitancy/thinness.
As for the pattern formation, seems to me that it is big players accumulating in small lots that build patterns, 'they' then paint the tape with blocks/activity to get it going if the market does not pick up on the pattern and then sell into that volume from an average built lower down. Once the breakout is being signalled by volume and size you have a finite window.
The exception is when the market is bullish enough for long campaigns with size for which 'they' need the public to be in the market in a big way and breakouts are made to work i.e a stock is ramped up as high and as fast as possible from an obvious breakout (helped by breakout buyers) so that the previously accumulated freefloat can be distributed at a much higher level. These are great moves to be in on, but you have to be gone before midnight.............
Note: I am not suggesting that all patterns form as the result of manipulation. Some can form for natural reasons and not everything that looks like manipulation actually is manipulation.