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PATTERNS -- So These REALLY Work???

Discussion in 'Technical Analysis' started by al c., Mar 16, 2003.

Maverick1
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Quote from al c.:

Mav and opm,

Really appreciate your contributions here. It shows that we can really have an intelligent thread on a meaningful subject.

This is what is so wonderful about these patterns. When fully understood they really are predictive and tell the whole story.

Let me clarify a few things first then we will look at the chart I posted with this.

First we cannot get hung up on the pattern "names". It seems that the REAL originator of the pattern names has had some or all of his work "lifted" by some of those who have read his books and taken his courses. That someone is Larry Pesavento, who has the utmost respect of the trading professional community. He gave the patterns the names. In order to profit on his work others have followed (some who were his students) and in order to impress or avoid copyright problems they played with the names and added some "improvements". I could prove to you that these are not improvements and that it actually hinders learning about these patterns and method of trading them. Why learn from the "knock-off" when the true Master is still amongst us? He is alive and well in Tucson, Arizona. He manages and supervises the trading of two large hedge funds. He has 40 years experience in all the facets of this business. He teaches, but unlike many teachers he trades daily for others and his own account. I sat next to him and watched him trade -- it was awesome. He is relaxed and makes amazing trades -- all pattern based. Now I have not mentioned him before in this thread by name because I did not want it to sound like I was pushing his books or courses. And I won't do that now. I mention it strictly to clarify some previous posts made by others.

Yes, the names do help -- because they help to "label" the patterns for communication purposes. All the patterns have definite rules or conditions of price, time and ratios to make them valid patterns. This is necessary for we are trading money with them and we want patterns that WORK -- that produce profit 70% of the time!

Now lets look at the chart posted with this. The blue lines are "connecting the dots" -- the "significant" highs and lows and show the retracements form previous swings or "legs". Now in the green pattern (Butterfly Bottom) you can see confluence of ratios (blue lines) and the smaller pattern combined with the larger one (Bull Gartley - gray lines). This is beautiful and you can see it produced Substantial Profits! Which again proves that the patterns WORK. This is real stuff here. Not something I chose to use by way of a demonstration -- it was you guys that made the first reference to the timeframe and date.

Now what I am trying to show here is that you both were on the right track and I shall be happy to continue the learning process. By the way if you did go to Larry Pesavento's site which is http://www.tradingtutor.com you would see that he has been kind enough to give me a link on his site. I was honored that he thought I was worthy of such a mention (BTW -- not paid for by me and no benefit to Larry). My link is the one called "Realtime Trading Calls". Now don't get me wrong here, and start thinking evil thoughts -- I am not soliciting any business for me or Larry. I really am posting here to be honestly helpful. No other motives. Trading and Larry have literally "changed my life" and any little thing that I may do to repay my "good fortune" is what I am trying to do. If you need more help -- just ask. Post here or PM me and I will answer.

Thanks again for your posts,

Al

Al,

Thanks for your insights. I could not agree more with what you wrote. I was actually in the process of writing something up, but since you wrapped it up so well, I just let it go.

Indeed, I was struck by the 'fractal' nature of the setup in the S&P when the mini butterfly formed over the last couple of weeks. Thanks for posting the chart, it's well illustrated. I could feel that rally forming in my bones and when it did come, what a feeling! As you said, a beautiful setup.

I brought up the S&P precisely because the pattern seemed to be begging to be traded a couple of days ago but no one mentioned that on ET.

There's another one forming right now as Zbear pointed out. In my previous post I mentioned that I wouldn't be surprised if the market stalls here, but never advocated taking a short position. Saying that the market is likely (not absolutely with 100% bet the farm and go tapioca certainty) to stall does not translate to "I'm shorting here". As Zbear put it, I'm just looking forward to the pullback. Then the next leg and then we might have somethings that's tradable. If you're really aggressive you could trade the expected pullback with a tight stop. I'm on the sidelines for now, however. If it doesn't come, no worries, that'll setup the market with an even higher probability entry down the road.

Longer term I just can't wait for this rally to fizzle out.

Thanks Al,
Looking forward to more insights,
Mav.

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#61 Mar 21, 2003

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Maverick1
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Al,

Thanks for your insights. I could not agree more with what you wrote. I was actually in the process of writing something up, but since you wrapped it up so well, I just let it go.

Indeed, I was struck by the 'fractal' nature of the setup in the S&P when the mini butterfly formed over the last couple of weeks. Thanks for posting the chart, it's well illustrated. I could feel that rally forming in my bones and when it did come, what a feeling! As you said, a beautiful setup.

I brought up the S&P precisely because the pattern seemed to be begging to be traded a couple of days ago but no one mentioned that on ET.

There's another one forming right now as Zbear pointed out. In my previous post I mentioned that I wouldn't be surprised if the market stalls here, but never advocated taking a short position. Saying that the market is likely (not absolutely with 100% bet the farm and go tapioca certainty) to stall does not translate to "I'm shorting here". As Zbear put it, I'm just looking forward to the pullback. Then the next leg and then we might have somethings that's tradable. If you're really aggressive you could trade the expected pullback with a tight stop. I'm on the sidelines for now, however. If it doesn't come, no worries, that'll setup the market with an even higher probability entry down the road.

Longer term I just can't wait for this rally to fizzle out.

Thanks Al,
Looking forward to more insights,
Mav.

#62 Mar 21, 2003

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opm8
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Quote from al c.:

ZBEAR,

Thanks. Please note that in my post I did not mean to impute Mr. Carney's reputation. I did not use his name in my post. I was referring to the general use of years of work by originator's of quality ideas without the providing of proper deference to the originator. I apologize to you and Mr. Carney if I in any way offended either of you. I shall forthwith obtain Mr. Carney's book and review his website. Then I shall be in a position to comment without any malice. I too have read many books on trading and found some to be an actual misuse of the original works. Often any alterations or additions to a carefully planned system can actually ruin the system's effectiveness. I know you would agree with that, Zbear, and am sure you have seen that happen. Enough said for now.

And again I apologize -- no offense to you or Mr. Carney.

Thanks,

Al

More...

okok, my apologies to anyone (and Scott Carney included) offended by my previous post. I was taking issue with the "bat" and "crab" patterns because they are seemingly modified Pesavento butterflies with odd (ie, non-standard 1.618, 1.27) extensions and retracements.

I very much respect the work of Pesavento and didn't like the idea of someone stealing his work. And no, I haven't read Carney's book but based on zbear's review it might be worth while.

Anyway, I'm glad there are other calm, intelligent members here discussing my favourite setups: Gartleys and butterflies. Everyone, please keep posting.

--opm8

#63 Mar 21, 2003

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ZBEAR
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No Prob opm.......no offense taken..

Just tryin' ta keep that mind open.....

...........................................................................................
!st MARINES........1st Casualties of this War........Semper Fi

#64 Mar 21, 2003

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Maverick1
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Quote from opm8:

okok, my apologies to anyone (and Scott Carney included) offended by my previous post. I was taking issue with the "bat" and "crab" patterns because they are seemingly modified Pesavento butterflies with odd (ie, non-standard 1.618, 1.27) extensions and retracements.

I very much respect the work of Pesavento and didn't like the idea of someone stealing his work. And no, I haven't read Carney's book but based on zbear's review it might be worth while.

Anyway, I'm glad there are other calm, intelligent members here discussing my favourite setups: Gartleys and butterflies. Everyone, please keep posting.

--opm8
More...

Opm,

I wish all ET members could have the positive spirit you displayed above!

I agree with you that the other patterns seem to be molded out of the original Pesaventos but I haven't read Carney's book either and accordingly cannot draw any conclusions yet. Not to mention that you have to trade a good sample size of them to even remotely approach a decent estimate of the real win/loss ratio. But as you said, the book might be worth it and I'll order it when I can.

Larry's 'Trading Diary' book is on its way and I'm looking forward to that!

Thanks,
Maverick.

#65 Mar 21, 2003

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dottom
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Backtest everything, even techniques with degrees of subjectivity can benefit from backtesting.

Some momentum was started over at Wealth-Lab on gartley setups: http://www.wealth-lab.com/cgi-bin/WealthLab.DLL/topic?id=5067

#66 Mar 21, 2003

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traderkay
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*bump*

#67 Mar 24, 2003

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al c.
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Maverick, opm8, ZBEAR, Trader Kay, MACD

My apologies for not having done a better job in keeping up with this thread. I have been working a project which has taken up far more time than I had anticipated.

I am still very new at using Elite Trader and have never used anything like it before. So, it has yet to become a habit for me. I will work on doing a better job of keeping up in the future.

Thanks to all of you for your posts. Hopefully, for those of you which the subject of patterns strikes an interest, we can continue to share ideas and commentary.

The attached chart is a perfect example of why it can help for a trader to focus on 1 time frame. This 2 min. pattern showed up at a key support area on 30 and 60 min. charts. In this case the longer term support failed in a big way. This means that this small gartley not only nailed the high of day but, was followed by a 24 point drop.

al c.
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#68 Mar 24, 2003

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ZBEAR
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Hi al c.

Nice chart.
Am sending you a PM.

#69 Mar 24, 2003

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opm8
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Quote from al c.:

The attached chart is a perfect example of why it can help for a trader to focus on 1 time frame. This 2 min. pattern showed up at a key support area on 30 and 60 min. charts. In this case the longer term support failed in a big way. This means that this small gartley not only nailed the high of day but, was followed by a 24 point drop.

al c.
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al c.,

I'm not sure I understand what the 2 min pattern is that you're refering to. Can you please explain the "key support areas?"

--opm8

#70 Mar 24, 2003

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