Can trading only from one simple price action pattern be viable, if it‘s one that repeats often enough?
I ask because it looks sensible and viable to me, and it seems to work ok, so far, on a demo account. I plan soon to try one of those prop firm offers, so I hardly risk any of my own money, and I’m thinking of doing the same thing on fairly fast intraday charts, to try to get funded.
It seems a whole lot easier than learning indicators, trying to do trades when lines cross over, and all the rest of the more complicated price action stuff with all those fancy names?
But maybe I’m being naïve and when you get going it turns out to be much more difficult than it looks on demo?
Yes, trading one pattern can lead to well-timed entries in the right direction. The pattern needs to be strictly defined so that the entry decision is totally objective. Such price action patterns are not hard to find and learn.
The difficulty pops up with the decisions to be made after the entry, the final and most critical of which is obviously when to exit.
I was thinking of maybe adding one easy indicator as a kind of bias for the direction, and then taking only entries in that direction.
Kind of hard to explain. But my “single price action pattern” crops up very often, maybe too often, so I thought I might just add (say) something like a 30-bar or 35-bar moving average line, and look for long entries only when the price is above a rising line and for short entries only when the price is below below a declining one, or something like that?
I’d still have enough trades, doing that.
It may be hard to answer in abstract, without seeing anything, but does that sound in principle a reasonable thing to be looking at, or is it probably a silly idea, would you say?
Of course, a simple price action pattern is great for trading. That is one version of keeping it simple. The markets will not always serve you that pattern on a silver dish but that will help you develop discipline as a by-product of your trading system.
The need to always click the buy/sell button drives many traders to employ more trading patterns. The greater the number of entry patterns the worse they perform hence analysis paralysis. They can hardly track their growth, consistency, and mastery owing to their use of multiple entry patterns adopted from different trading strategies. You are on the right track.
It’s a rational tactic - after all, if a chart is showing a consistent recent tendency to rise, it would be high risk to be going short. So if the bias of your TA on this chart is bullish, just take the buy signals and ignore the sell signals. A moving average or two plus marking up the swing highs and swing lows on the chart should be sufficienrt to reliably paint the bias as bullish or bearish.
In forex the major issue against trend-following is that forex doesn’t generate reliable consistent trends - put the Nasdaq100 chart for 12mths with a 50MA against USD/JPY for 12 months and note the big difference. The Nas spent over 80% of its time above the 50EMA: with the USD/JPY it’s mopre like 50:50 so lots of trend changes. Trend / bias changes cause serious damage when you’re following the trend so the fewer the better.
Thanks very much for the fast and hepful replies, guys.
I need to keep thinking, here. But am wondering whether trading in index might be better, and need to look at that possibility. I can see that’s a big and complex question and will depend on many things. A pause for thought is in order!
Trade entry is the least important metric of trading profitability. Choosing a sample set based on historical pricing, be it a pattern of price or pattern of a derivative of price will yield the same results over time.
I can’t see how to reconcile that idea (which I’ve seen elsewhere, too) with the claims of people that they can reliably trade a specific price action pattern for ever, on fast charts, with a 1:1 risk/reward and win 57% of the time and lose 43% of the time, regularly and steadily, over the long term.
I’m guessing that in order to hold the view you offered above, you must disbelieve all of them?
I’m not trying to say you’re wrong, of course. Just wanting to clarify whether that’s really your position?
I’m not sure that a static pattern would be able to give consistent returns like that. If the trader is profitable and grows the account bigger, liquidity will eventually be the issue and the edge would dissipate to it’s true expected value.
Large traders that provide liquidity put a lot of computing power in to back testing and will not take the other side of the trade if there is a proven negative expectancy.
A 57% win rate on 1:1 would be amazing. It’s likely they are using a dynamic sample set though as over the career, there is no set price pattern that will consistently give one trader a positive edge and the counterparty a negative edge.
This can help weed out early entries, depending on the pattern.
For example, if your pattern is a double top, you’re essentially trading reversals. If you look back at previous swing H/L’s you’ll see that price will most likely have crossed over your chosen MA. That is all hindsight, of course, but being forced to wait for that crossover can help cut down on fake-outs.
It’s viable, however, do note that markets are always dynamic in a nature, so leverage on the repeated pattern as much as you can, and whenever there is a breakout in pattern, be prepared to adapt as accordingly. Keep in mind that each loss is simply a reminder to start being adaptive and switch accordingly. Let the changing tides be a lesson and not an emotional burden.
When on a prop firm evaluation account, even though initially it might be a demo account, as long as you treat it seriously and practice solid risk management, you’re good to go. Just remember that whether you pass or fail, the most important thing is the lesson takeaway from the experience.
Keeping it simple reduces unnecessary clutter and mind fog when actively trading. Keep the complicated stuff one side until you’re comfortable enough with price action executions, that will always be your bread and butter.
You are not being naive, but it’s going to be a different experience, kind of like casually trying out a mock examination paper at home, and actually taking an exam in school. Both are the same sort of obstacles, however, with different levels of self-imposed mental pressure.
It’s worth trying, as long as you are not risking money that is necessary for your daily life (rent, food, utility bills, etc.).
Good luck and all the best with your prop firm evaluation!