No one system is perfect. TA is just a vague description for a vast number of statistical approaches. but as always I'm preaching to the choir.
No you are not. the choir is sleeping. The sound you hear is the birds churping and the crickets in the background.
OK - so maybe I was a microtad hyperbolic; yes, the simplest patterns (including those you mentioned) do work more often than not, but they tend to occur at the termini of trends - during the accumulation and blow-off phases. When stocks/markets are fully trending they form more complicated - and less reliable - patterns. Triangles evolve into rectangles, rectangles into wedges, and so on. I trade all day, every day, refreshing my quotes every five or six seconds. I know what the true hi/lo's of the stocks I'm following are and have observed that daily ranges as reported by brokers and chart-providing websites are misrepresentative. Recently, a stock I have been following gapped $1+ and carried on upward. The many technical traders (institutional as well as individual) who follow this stock would have been more confident going long if the gap were covered and the stock then resumed its uptrend. Mysteriously, a few days later, while orders were being balanced in preparation for the opening, a single 300-share trade covered the gap - which at that time was 2$+ below the actual NYSE opening price, and poof - the gap had been covered! Magic! The 52-week hi was established a short time thereafter in the same manner. Coincidentally with these shenanigans, the CEO was exercising his options and blowing off millions of shares. Management of listed companies generally have shares options and devote as much time to manipulating their companies' stock prices as they do to running their companies. In such an environment, how can we have faith in anything but the most obvious and rudimentary trading patterns? An anthropological note: human beings have an innate drive to find meaning in all things - including stock movements; the last thing your average sophisticated technical analyst wants to hear is that the "patterns" they see in charts are often no more real than the gods and animals the ancients saw outlined in the stars.
This was on Lew's website, its by Bruton Blumert. http://www.lewrockwell.com/blumert/blumert81.html "How come they didn't predict this?" ~ Overheard from an anonymous fellow as he plunged off the Flat Iron Building, NYC, Oct. 1929 I've always tried to be civil in the presence of Chartists. I am also polite in the company of snake charmers and bungee jumpers, but if my daughter announced one day, "Daddy, I'm in love with Lancelot. He's a ----------"(fill in the blank), I would immediately retain a top-notch team of de-programmers to bring the poor girl back to her senses. Come to think of it, bungee jumpers don't inflict pain on others, and the world's no worse because of them. They are a spirited group and good for an occasional laugh, especially when their cord breaks. As for snake charmers, what if we found ourselves overrun by venomous serpents as happened in Ireland once upon a time? The "charmers" could act as non-combatants until a St. Patrick came on the scene to wipe the critters out. (Unfortunately, the charmer's magic is useless against the most deadly of all snakes, The Political Viper.) There's a certain unworldly aura that surrounds anyone who devotes his life to out-staring a snake. These worthies must have a tough time earning a living, yet they too, do little harm while practicing their craft. The fact that snakes seem to tolerate them should be regarded as a plus. Note, how I've already come to terms with having a bungee jumping fellow, or a snake charmer as a son-in-law, but my tolerance ends when it comes to Chartists. Let me be clear. I am not talking about Chart Makers, diligent folks who map the crust and waterways of the planet. Nor am I degrading the Chartists, those English political reformers, active between 1838â48. (I think they were bad guys, but knowing our LRC readers, I'll find out soon enough.) I'm talking about those arrogant snobs who promote the belief that the future performance of markets can be predicted from analyzing yesterday's lines and dots on a page. This group is deadly dangerous: They leave empty bank accounts and broken spirits in their wake. Look, if there are customers willing to pay the Gypsy lady to read tea leaves, that's OK with me. After all, she entertains her clients â but never presents herself as possessed with a body of scientific knowledge. Even the Voodoo Priest who predicts the future by reading animal entrails, never confuses the source of his dark knowledge with human reason. Of all the mystics, only the Chartist pretends a rational basis for his gobbledygook. The Chartist further elevates his status by including himself in a larger, even more virulent group that label themselves as "market-technicians." Surely, one would think that the devastating losses suffered recently in the equity markets would have exposed these charlatans and their false religion. But, no, their followers are like zombies. Never questioning, and in constant search for that blip on the chart that pierces the shrouded future. "You're just looking for trouble, Blumert," said my wife as she burned the toast. "You have friends who make their living as technicians. Worse yet, you must have dozens of customers who believe in that stuff. They'll be offended." "If that's the price I must pay in the pursuit of Truth, so be it," I proclaimed. "Pursuit of Truth? You've been annoyed ever since that fellow told you he didn't like the looks of the gold chart," she said while scraping the blackened toast. "Is that so?" I muttered sardonically. "If he spent more time understanding the fundamentals, he would know that his gold chart was nonsense. He'd be better off predicting that you'll burn the toast again tomorrow." November 18, 2003
I find your signature offensive. Mechanical systems is where most really big $ is made, in case you don't know. I know of at least one firm that employs only about 60 people and is accountable for 3% of the US trading volume on all exchanges. The only thing they do is program trading. FYI, almost all of the employees make more than a mil a year. Discretionary is the approach that appeals the most to small time dabblers who can't do math well enough to comprehend the quantitative techniques involved in mechanical systems.
Nevertheless: <font color="green">"To doubt of everything or to believe everything, are both two convenient solutions, one and the other prevent us from thinking."</font><br>-- Henri Poincaré, Mathematician & Physician, in "Science and Hypothesis"
http://www.chartpattern.com/chart_patterns.html 11 MOST COMMON STOCK CHART PATTERNS Cup & Handle Flat Base Ascending Triangle Parabolic Curve Wedges Formation Channel Formation Symmetrical Triangle Descending Triangle Flags & Pennants Head & Shoulders Inverted Head & Shoulders