"All you need is one pattern to make a living.” – Linda Raschke
Can trading really be so simple?
5 Likes
Yes it can. You need to master that one single pattern though, learn all the nuances and subtle shifts in how it’s to be applied, and the ability to recognize times and markets where the pattern works and doesn’t work.
7 Likes
“Simple” is definitely not a word I’d use to describe trading. 
Haha. But I’ve heard stories of people who have made it happen. So, I guess it’s not COMPLETELY impossible. 
4 Likes
trading not simple , its always a complicated issue if there is no all inevitable part of trading.
1 Like
I do agree that trading is not simple, but I also believe that we as traders tend to over complicate trading as well.
13 Likes
Forget patterns they are all BS - if you’re just gonna sit there looking for that one single pattern to form you’re wasting your time, and time is money.
Nobody gives a hoot about patterns.
If you are clingy about patterns, then focus on candlestick patterns, on the bigger time frame, I’m talking weekly and monthly.
Those will bear a lot more weight and you’ll be able to anticipate where the market is heading. You can easily shift down to a lower time frame and pick off easy profits.
7 Likes
Unless they using AI to identify this ONE pattern and then making the trade for them, I agree with you.
I know what she means but this is the wrong lesson. Focusing on one pattern is not an effective use of your resources - capital, intelligence and time.
It draws traders in to trading on shorter and shorter time-frames, as the aim becomes to trade the pattern rather than trade well. In fact, very short time-frame chart patterns are not patterns at all, they’re random noise. All chart patterns with a name and all data about their effectiveness is drawn from daily charts, normally from stock charts which have a defined closed session per day, unlike forex.
Pattern over-focus also drives traders towards greater emphasis on entry patterns, so they ignore stop-loss positions, TP levels, risk management, money management, position sizing and longer-term macro-trends.
7 Likes
So if pattern has to be neglected, what then should I look for in order to make a good entry and exit
1 Like
Actually, the clear winner when it comes to ranking useful patterns would be - trend.
If you can identify and commit to obeying trend it will keep you out of high-risk low-probability trades. It will also give you a better win rate with more winners per year. It will stop you getting whipsawed in choppy or ranging markets. It will extend your winners so that you can improve your r:r and have the chance to pyramid the best trades. When you apply a long-term trend to your trades, this will also take account of prevailing underlying fundamental characteristics, sharpening the outcome of your FA analysis.
Importantly, its not just an entry pattern. What other pattern would have kept you on the right side of EUR/CHF 2015?
7 Likes
Pattern over-focus also drives traders towards greater emphasis on entry patterns, so they ignore stop-loss positions, TP levels, risk management, money management, position sizing and longer-term macro-trends.
Don’t mind my chiming in here but this something that I never see mentioned or factored in when it comes to FOREX charts and patterns:
There are as many different patterns on a daily chart as there are brokers in different time zones around the world and which, in my humble opinion, render them worthless. You could see a particular pattern on a daily chart of broker X which may be located in the USA and another different pattern on a daily chart of broker Y which may be located in Australia for instance. It all just depends on whether the daily close between these brokers happens at the same time i.e. when they close their daily charts. Compare this to trading something like the Dow or S&P i.e. all traders are watching the exact same chart. it makes a difference I can assure you.
If you’re trading 1 hour or shorter well then no problem i.e. an hour is an hour anywhere and ideally all patterns should appear across the board and between trading platforms. But then as mentioned: there’s this problem of NOISE which inevitably results in stops being taken out for no good reason and on an ongoing basis which helps nobody of course.
7 Likes
A great insight. I couldn’t have put it better myself.
Please post up the source as there might be some other really useful information I could find there.
3 Likes
Great points Dale. Too much focus on a fine-detail pattern can lead to dangerous assumptions.
In fact, the chart data problem is worse for some traders than even your summary sets out. I use two chart sources - my spreadbetting broker and a proprietary TA programme. Wider perspective, both say the same thing - if price is in a downtrend on the daily charts, they both agree but that’s pretty obvious. But often one will show a doji or a shooting star and the other just shows a long-bodied candle. If I traded off stuff like pin-bars that would really screw my plans up.
Even worse than this, because the TA programme only goes down to the daily time-frame, it is not continuously updating, charts are updated at set download times. So the programme refreshes at about 1815hrs UK time to reflect the scenario at the London close - 1630. It then doesn’t refresh until about 2215 to reflect the US close - 2130. It next refreshes about 0715 the next morning to reflect the Asian close.
Occasionally, this means what I thought was one pattern finalises as another. Just this morning I cancelled an entry order for next week because of this.
How many online charts work the same way but their providers don’t fully disclose this?
6 Likes
Yeah I agree. I focus only on Consolidations on the Daily & 4 Hour Charts. Specifically 3 types of Consolidation setups…
- Early Patterns That Start Consolidations
There are certain Bearish & Bullish Waves that tell us when the Pair is forming Consolidation. Once we spot them early…we can trade them instead of having to wait until the Consolidation is completed and then trade. Because sometimes by the time they are formed, we might not get setups with the Pip Targets/ Stop Loss combination we prefer.
For example…based on the waves formed on GBP CAD Daily Chart a few weeks ago…it appesred to be forming a large Consolidation. I then trqded the Bearish trend on the 4H as the pair headed to Support…
Entry took place on the 4 Hour Chart when it broke a Small Pennant Setup…
After a few days…103 Pips were captured
Similar ttade on the USDJPY the week before
.
…exiting just before it rallied
- Trading Within Consolidations
Of course once the Consol. is formed…we can trade between Resistance and Support until the Breakout takes place…
- False Consolidation Breakout Reversals
And if we see a Reversal taking us back inside following a failed breakout attempt…
can also trade them like these 2 trades this week on the USD CAD…
…and on the EUR CAD a few weeks ago…
So I trade anything involving moves within Consolidation Boundaries which I have found to be very rewarding …as long as the Signals are clear and offer Strong Stip Loss placement on these time frames.
I no longer trade Breakouts because these have become more risky in the last few years.
Duane
DRFXTRADING
12 Likes
It has been interesting to read all of the responses. Some have very good points. It is probably my own fault for using the word pattern as I never would have thought of dropping to lower and lower time frames to see a pattern more often as even an option. Lower time frames are just filled with too much noise for me to consider that.
It was good to read about the potential for patterns to be different depending on the location and hours of brokers. Although most traders I personally have spoken with tend to agree on using 5 o’clock new york close charts for price action trading but it remains a valid point nonetheless.
I think the big players tend to look at new york close charts on the whole and those are the dynamic traders who actually move the market. We as retail traders even 100% united make very little impact.
For me my “Pattern” if you will has been identifying Important levels that price has reacted to in the past and then looking to see how it reacts once it returns.
There can be many successful strategies if you have the psychology to back it up and manage your risk. I mean we can be “right” less than 50% of the time and still make some money in trading. The only thing that matters is how much we lose when we are wrong and how much we make when we are right.
if you consistently lost $1,000 a month for 11 months and then made $30,000 the 12th month you would be profitable, but how many would have the pyschology to take all those losses? I feel a large majority would just quit. (Yes that is an exaggerated example I know.)
7 Likes
Nice post.
And very true about the less than 50% “right”. I’ve been banging on around these parts about the fact that you can be 80% “right” and still be losing money. All fallen on deaf ears but it’s borne out by mathematics and happens because of incorrect position sizing and adjustment.
But again: very good post.
4 Likes
Thank you.
I appreciated your input on the different time zones with brokers. It was something I never really thought of as far as stocks and other markets all having an agreed upon open and close.
I am still very new to trading but so far have managed to be profitable. I have had some draw downs that I overcame by sticking to my strategy and not changing up! I’m somewhere around 40 to 45% win rate but my account is small as I don’t want to risk big money yet!
3 Likes
Well use candlestick patterns like pinbars, engulfing bars, morning stars and inside bars appearing at support and resistance levels. Take note of high impact news releases happening around the same time you intend to trade. It can really make a mess of and candlestick or chart pattern.
e.g. The daily bearish pinbar of EURUSD on 5th JUNE 2019 was annihilated following a news release the next day. Check it out.
There is only one indicator t I use that trumps all the others in my opinion. That indicator is price. i am a scalper who trades in small Windows with great success. Sure I pay attention to trends,support and resistance but most importantly is current price. I don’t care what happened yesterday,or last week. I only consider the 10 minute candlesticks looking for the right pattern to form. I’,m proud to say using my method has yielded me a 94% win ratio during May and June. However the price must meet my criteria before I enter. So Price works well for me as a scalper. I don’t buy into day trade or swing trades. I only pay attention to the next 10 minutes. May not work for everyone,but that’s my strategy. Thanks for reading ( if you did).
9 Likes