Hello, I've been lucky enough to meet and pick the brain of a CMT (chartered market technician) for a few short hours. He manages a rather large sum of wealth for private investors as well as offer research to some of the top firms. He has been a practicing technician for last 11 years. While he showed me some of his charts, I was amazed at how quickly he was annotating random charts and finding patterns and previous support/resistance levels across multiple time frames and confirming them so quickly while offering a logical sound thesis for the future direction based on candles/western patterns/volume/ moving averages/etc. So in terms of charting patterns, I own and have been skimming Bulkowski's encyclopedia of chart patterns, specifically the most common patterns. --- Head and Shoulders (inverse H&S) Cup With Handles (inverted cup) Rounded Bottoms (top) Double or Triple Bottoms (top) Triangles (Flat Top/bottom/symmetrical) W formations Flags Pennants Wedges Diamonds. So when I mentioned the Bulkowski book to him, Encyclopedia of Chart Patterns, which is a book known for its specificity in defining these western patterns. He was familiar with it, as it was required reading for him at one point, however, it did not match up to his trading methodology so he was not a huge advocate of learning by strict definitions of what constitutes a pattern. Take note I am speculating, and please offer your opinion, if you have one, but there seems to be two different methodologies to recognizing patterns, 1) memorizing patterns exactly and matching it with a pattern that resembles what you memorized 2) reading chart more freely without being confined to strict definitions. For example, "there are higher lows coming off a downtrend, how come buyers willing bid higher despite negative picture?" ....i.e. inverted H+S pattern). The last method having a much lower emphasis on the name of the pattern, and more focused on the markets movement. While doing some different example exercises, I noticed I struggle to notice some chart patterns despite them being obvious right in front of my eyes and having read about them beforehand extensively. Surely, someone who has seen thousands (if not millions) of more charts more than me will be able to see more stuff than someone with much less experience. However, as mentioned before elsewhere, reading charts seems to be much more of an art form than an exact science. However, I wonder what is the fastest, most efficient, method to hone this skill. So my questions to any of you who feel qualified to answer, how do you speed up the learning curve in pattern recognition? Is there any literature or different methods, that you can advise? Feel free to pm me or post here -- open to talk about anything else you may find interesting. Thanks!
Draw each pattern on a piece of paper, with the name above, and shows the likely outcome. (Bearish rising wedge = breakdown etc). Tape them to the wall next to your trading computer, for easy reference. This is what I have done. Classic TA patterns are part of our trading vocabulary, and you have to know them.
Tell you the truth it just takes time/exp.. After staring at charts everyday for however many hours a day you will see overtime the changes in your trading (and your P/L).. It almost becomes instinctual after a while kinda weird.. And you can pick up on trends/etc so incredibly quick that you dont think about it. So yeah like I said "practice makes perfect"... Or whatever.
Exactly. Traders need to remember that they need to study and its "constant studying". Just pretend its a class in high school, college or whatever and you're preparing for a big exam...we need to study the same way via writing again and again the key concepts of the pattern, printing out study charts that have the answers on the back of the paper and any of study habits you can remember from school that helped you get good grades. I also recommend reviewing a few charts from your review pile that were randomly selected...doing such every trading day before you begin your trading session. Do this consistently even after you've mastered your favorite patterns. Make sure you include new charts from current market conditions especially charts that shows the price action exactly what it looked like when the pattern was confirmed in comparison to charts that show the entire trading day (less realistic and can cause poor identification skills). For example, if your pattern is confirmed at 1000am in the morning...at the end of the day...scroll backwards to 1000am est so that there's no data after 1000am and then print your chart instead of printing a chart that shows all the data "after" 1000am est... Its a common mistake many traders make when studying hindsight charts and such can cause you to have poor (slow) reactions to patterns in real trading conditions or cause difficulties in recognizing the patterns in real trading conditions especially when under normal trading stress.
That's because your buddy likely knows that ALL patterns boil down to just two things: Horizontal lines (support/resistance) and/or Diagonal lines (trendlines). That's all they are, period. If you know your S/R and Trendlines well, you can safely throw away Bulkowski's book into trash for good.
First, you don't need to learn all patterns, what is most important is to understand the logic behind. Basically, patterns show a battle between buyers and sellers, they reflect attack / defense / counterattack from both sides. For example, a flag is a classic continuation pattern because you can easily see that counter is weak compared to the initial trend. If you want to learn more : Diary of a commodity trader (Peter Brandt), You can train with : http://chartgame.com/ CM
Trade_Smart In the beginning it's about screen time, you will start to understand where to draw your S and R levels. You will in time know your patterns and which have a higher probability (HP). Some will have HP in different context according to the left. It's all about the time spent in gaining the experience. But I would keep in touch with your TA guy, if he chooses to help you, you will shave years off the learning curve
Exactly. Another issue is that he needs to keep all of his study material because what he learns today or does not understand...he'll learn it next year after more screen time especially involving recognizing it in real time as it is occurring in comparison to recognizing it via hindsight chart analysis.
The patterns on the OPs list can be defined or traded via trendlines and/or s&r. In contrast, not all patterns conform as such. I recommend he keeps the book because it doesn't contain all patterns and the patterns in the book he'll never be able to master them all nor will he use them all. At best he'll use "some" and master those and then maybe years down the road he'll master a few more unless he automates it all. My point is that its very common for someone to think they master a pattern and then years later a light bulb goes off and they then see that pattern a little bit different that results in them applying it differently although its the same pattern. Therefore, keep the book...keep the study notes...put it away on a book shelf just in case he has that light bulb moment years down the road. Anyways, I'm particular about trading books and none trading books considering most of my books are signed autographed by the author (e.g. photography, philosophy, president, retired professional athlete, horror story or whatever). I don't just toss them in the trash after reading them nor would I advice someone else to do such unless its a stolen book and there's fear someone will discover the book is in his possession...sarcasm about a store once robbed of 10k worth of antique (collectors) books and later resold at various auction houses across the U.S.