Hi, has anyone heard of any profitability comparisons using technical indicators versus using chart patterns? Has there been any historical testing on this? Thanks
Don't segregate the two...use them together as confirmation signals to the other. Yet...to answer your question, I remember seeing on the web (you'll probably have to use the search engine to do research) once and I read an article about a PhD guy that did a comparison between chart patterns like Flags, Pennants, Ascending Triangles, Descending Triangles, Bow Ties (bow ties is my favorite use of something he was studying about price moving averages) versus indicators like RSI, MACD, STOCHASTICS, BOLLINGER BANDS, CCI, MONEY FLOW and so on. Basically what I got from the article was that indicators themselves had the upper hand. However...together...they complimented each other well and had a higher probability for success. He even broke it down with statistical results of each indicator versus another indicator and each chart pattern versus another chart pattern. I think his backtesting had covered about 5 years in the late 1990's and he did his study on most active on NYSE, NASDAQ and AMEX...nothing on futures or other financial instruments. Note: I do not remember his name nor the name of the article. I do remember his name was Asian. I emailed him soon after reading the article and I never got a reply (I no longer have the email address)...sorry about the lack of contact info. Nihaba Ashi
There is a TA book where the authors study a bunch of indicators and run computerised tests on each one to determine its reliabaility and probability. I read it a while ago and never bothered to buy it I think it was this one: Encyclopedia of Chart Patterns (Wiley Trading Advantage) by Thomas N. Bulkowski
It would be interesting to see how he compared chart patterns objectively, when they are so open to interpretation. A little off the topic but so often I see someone trying to illustrate a chart pattern in action, they draw in the pattern on the chart, and then they go and mark entry signals they they couldn't have taken at the time because the pattern hadn't fully formed yet. For example buying the second bounce off a rising trendline would be a great trade if you already knew there was going to be a third later on.
I heard some people dispute his statistical findings. And also I don't know to what extent the same patterns work intra-day. Any comments on this?
Hi There is a book called the Ultimate Trading Guide which provides backtesting of indicators and chart patterns. The author name is John Hill Sterling
"TRADERKAY", PATTERNS ON INDICATORS WORK IN ALL TIME FRAMES (1 MIN THRU 1 MONTH+). IF THE TIME FRAME TEXT WAS HIDDEN FROM VIEW,YOU COULDN'T GUESS IT BY LOOKING AT THE GRAPHICS ONLY.