well. wouldnt be a good day if there wasnt me to annoy some people in yet another thread again.
the issue with chartpaterns is the same issue as with overtrading.
easy q/a
do they work?: yes
can you base your trading on them?: partially yes mostly no
do they work in all time frames equally effectife/innefective?: no they dont
the issue with trading is not to find one methode and use it. the holly grail is to know all the methodes that are out there and use the correct one that works on the exact security in the exact MOMEMT.
every market faze/situation/setup has its own strategy onto how to trade it. your job is to find out in which situation the market is at the very moment right now.
so boiling down most people fail on the very first lession of trading: identify in which condition the security is. or in other words: identify the TREND.
people see the trend lession as the first one in the book and naturally think its the least important and easiest to learn. but no… failure… its the hardest and most important to learn. thats why its in the very first page of every good book. it comes first for a very good reason.
everything else builds up on that chapter. if you got the trend wrong it doesnt matter what you use. pa. mva. patterns. emtpy charts. oscilators whatever… you will fail.
now back to overtrading i mentioned in the 2nd sentence. yes chart patterns have the same problem as overtrading. people learn briefly about them and then think they see a chart pattern in every situation and everywhere. they “overpattern” so to say. seeing things that are not there. thats only logic simply because our brains are object oriented and patterns help us make logic to something we dont fully understand. your brain is prone to see patterns where there are none. people follow this immagination and make decitions on wrong judgements and then conclude it doesnt work.
it works. you just need to know when and why and when its real and no immagination.
chart patterns are rare. veryyyy rare. you can see maybe 1 or 2 tradable patterns in 5 years or even in 10 years in one security. but when they occur they are the most profitable thing you can trade.
here are 2 examples. its the only 2 good paterns gold and dow jones gave in the last 5 years. everything else was no pattern at all. they were both tradable with huge gains and tiny risks.
gold. reversal triangle - 16.000 pips
dow. simple double bottom - 8000 points
patterns are psychology based. they are not based on math or statistics or market condition. they are the mirror of the psychology and opinions of all market participants. they are the only methode that can actually forecast the future. the only oscilator/indicator that is future based and not lagging.
as you can see- the ones with good and experienced eyes: after a strong pattern you can throw everything else away. oscilators give false signals. indicators are useless. price action doesnt help you to find a turnpoint/peak. supply and demand is beeing beaten up like a kitten vs mike tyson. only thing that matters is the pattern.
why? because the pattern was a months long or even years long building up of opinions and piling up of big money. huge money. that opinionated mountain of money has found its route and it will walk its line, no matter what anything else (pa. mva. osc. ind. s/d. etc etc) says about it.
its psycholigy in its finest picture shape.