I guess this is a chicken or the egg question. But are chart patterns formed intentionally or unintentionally? Do institutions buy and sell in a fashion that creates a flag for example so as to signal to other traders. Or are patterns formed unintentionally?
Flags are consolidation patterns. It's a time when buyers and sellers are roughly balanced after a move. The inclination is to resume the move in the same direction of the move into the pattern.
I know they are consolidation patterns. My question is are they deliberately created? That is is an institution deliberately buying an selling in quick succession so as to create a flag formation? If you say it is not deliberate then I am surprised that people are dumb enough to sell during a flag formation because everyone knows a flag is a consolidation and a sign of price going higher.
Best to concern yourself with what price is likely to do next. Not everything on a chart is part of a master plan.
It's important not to overthink certain aspects of markets and trading. Flags work, until they don't, and then price can violently turn the other way around, or even peter out and slowly sneak by! Think of the markets as a slow EEG-meter. The patterns are self-similar, but the reasons and dynamics behind them varies all the time. Volume is an independent variable of price. If you follow a volume-price timeseries, notice one thing: Notice how volume and price movements varies, from swing to swing. This tells you, there are varying forces at play, at each pivot low / high. The truth is simply this: Price does what it does. Whatever happened before, might happen again, until it doesn't! Instead of focusing on one pattern: flags. It is beneficial to widen the perspective also, to the background and repeating patterns over longer time. Instead of assuming something works 100% or someone is repeating the same actions again and again like a dumb machine, one need to embrace the ever-changing nature of the markets, and see if one can make sense of it somehow. Best bet is if you can test hypothesises and quantify their results. It's hard to know what is what without more information. What may work in one instrument may work differently in another. Instead of expecting to find a simple solution that solves the entire puzzle, expect to find little pieces, scattered here and there. If you manage to put them together in an intelligent and responsive way, you have a fighting chance. UPDATE: Prices where buyers and sellers meet over time Supply and demand over time "It varies" No hard "rules" The simple rules lead to complex questions (ie. like Chess or Go). If none of the above satisfy, maybe this will bring satisfaction (and ruin): The whitespace beyond pricebars is where the institutions keep their stops..
I am just curious about the "why" and the "how" of chart patterns that's all. Take traffic for example. Traffic stops at a light or stop sign due to certain rules imposed. So that is deliberate.
You could dig into parsing and analyzing order flow data (both limit and market orders), and just maybe you would find an answer! It's a Very good question, I am a believer that there is underlying orderflow data that usually leads to certain patterns on a price chart.
One of the cruelest jokes pulled on retail traders is the concept of a market driven by prior "patterns". If you had a position in the market that you wished to enter or exit, right now, would you give a rat's ass about the prior pattern? No. Now multiply that resolute need for execution by 1,000 or 10,000 or 10,000/hour-for-the-rest-of-the-day. And there you go.
Or to put it differently, price is very much dependent on volume. Traders ("Retail") routinely forget/misquote/mistake that, at their peril.
The answer: BOTH, the one's that play out are Natural. The ones that are manufactured...fail. The money making question is; do you know which is which?