So, four patterns that look similar, but price only moves on this occassion once the session begins. Once the session begins the price moves up, so I'm assuming these are buying type patterns?? Is this right? I'm not really seeing anything else at this moment in time, and I've only been looking at this particular market for a few weeks, so you'll have to excuse my inexperience. Here's a thought though, the market as a whole (contract volume) must be moving price in the favourable direction, but I'm not understanding the how's and why's just yet.
My favorite: A chart is a visual representation of transactions. The results of these transactions are depicted by either a line which will look like a map of the Pacific Coast Highway, or by a bar which represents the opening price (the little notch on the left side of the bar), the low for the day (the bottom of the bar), the high for the day (the top of the bar) and the closing price (the little notch on the right of the bar). At the bottom of the graph you'll usually also find volume bars which will tell you how many shares/contracts/etc were traded that day. But beyond all this, a chart is a visual representation of buying and selling behavior on the part of investors, not just a tally, and this behavior creates patterns, like ranges, or "boxes". Thus if you approach this from the viewpoint of psychology and sociology rather than cut-and-dried mathematical models, you'll have a leg up. These patterns do not exist in nature. They are created by the buying and selling dynamic. Much nonsense has been circulated about trading over the past seventy years or so, the bulk of it since the internet made possible discount brokers, affordable charting software, real-time streaming data, chat rooms, trading rooms, trading websites, blogs, and so forth, all of which offered fertile ground to a literally endless assortment of books, DVDs, courses, seminars, "alert" services, mentors, counselors, trading software, indicators and so on, all designed to separate the beginner or struggling trader or otherwise low-hanging fruit from his money. There is, however, only one essential, one lynchpin, one fundament when it comes to understanding the auction market: supply and demand and the Law thereof. Everything else – support, resistance, trend, price movement, volume – stems from the balances and imbalances between supply and demand, selling pressure and buying pressure, sellers and buyers, yet struggling traders are generally incapable of accurately assessing the state of these imbalances, i.e., determining who's in charge at any given moment or interval (some are capable but can't implement what they know, but that's another subject). Trading price hinges on the ability to assess the state of these imbalances not only in the abstract but in every moment of the trading session. If one does not thoroughly understand just what it is that he's looking at, he will be lost. When trading price, the trader knows at all times who's in charge, who's dominant, who's holding the good cards. If he doesn't know this, he's just guessing, and that's not the route to consistent profits, no matter what you read on message boards. Why bother? Because once you learn how to trade price, your edge* will never fail. You will understand trend and how to play it under all circumstances, including its endings and reversals. You will also learn how to distinguish between trending and ranging, the latter including "chop" which is a collection of micro-trends which generate tons of commissions and very little if any profit. *the knowledge you gain through your research and testing that a particular market behavior offers a level of predictability that provides a consistently profitable outcome over time (from Douglas) more . . . You can talk all you want about what a stock should be doing or why it isn't doing what it should be doing. You can talk about inflation, interest rates, earnings, and investor expectations. Ultimately, however, it comes down to the picture. Is the stock going up or down? Knowing the reasons behind a stock's movement is interesting, but not critical. If your stock goes up on a given day, they won't take the money away from you if you don't know why it went up. And if you can explain why it went down, they won't give you back your lost money. All that really matters is a picture, a simple line on a chart. The trick to visual investing is learning to tell the difference between what is going up and what is going down. –John Murphy
Hi lcranston. I don't know if you've touched on the point above, but something has crossed my mind concerning the charts. Suppose we printed a diagnostic chart of a car engine ticking over, would we see similar patterns when compared to a financial market chart? Obviously, I don't want to waste my time and effort studying financial charts for any length of time, only to find that I'm actually looking at nothing that makes any sense. I've been doing some browsing and I came across an article on the cyclical nature of the markets, which seemed to make sense of the charts. Basically the article touched upon four actions which created the whole cycle - accumulation, mark-up, distribution, mark-down. Have you heard of this? At a glance, it appears to make sense occasionally, but not continually. It seemed as though the theory worked better within the session rather than out of hours, but not every session. Anyway, as a brief synopsis of historical price movement, I quite like it. Any thoughts? Thankyou.
Below is free reading on the site and he produces good material as well. http://thepatternsite.com/ And Xela's list is excellent. Think most long timers or investors heard of 4 cycles, but honesty, as a beginner, it is tough to figure out when cycles are do. If you going to do stock trading, use weekly charts, less trading and look for a stock that has come down and been going sideways for 3-4 months and pays dividends, you can buy low on support, like on a trendline and risk little as price either holds support and goes through for small loss. Good luck.
No matter what chart pattern I use, sometimes I make and sometimes I lose. The outcomes seem random but I don't buy stocks randomly. I look at PE, EPS, chart trend, support and resistance. If my bet is wrong, I get out.
Hi Handle123. Thanks for the link, it's fascinating the amount patterns and shapes that are formed by the market charts, incredible. As you can imagine I've not had time to view them all just yet, but it's definitely food for thought and I've saved the site as a favourite. One thing that did come to mind was this, rather than trying to see various patterns and shapes which could start to become confusing, simplify the visual/thought process? On the chart above I've numbered six areas of interest, which could possibly contain various patterns and shapes. I'll put forward a rhetorical question: what is the actual market doing in those squiggly areas? All I know at the moment is that the squiggles and volume seem more prominent within the session, though it's a bit of a mystery as to the how's and why's just yet. Thanks for the input, much appreciated!
There are patterns of market behavior, and there are visual chart patterns. Focus on the former, and not the latter, imho. The reason I say this is that I have never seen anyone become adept at identifying the latter without first grasping the former. And if one does come to recognize the patterns of market behavior, one might then find very little if any need for "chart patterns."
Sperandeo. It's the only one you need to learn to read charts correctly. Probably out of print but there must be used copies available. Besides Sperandeo, which is what your specifically asking for, you should read everything that Soros wrote, even the stuff not about trading will make you smarter and a better person.. Particularly the Alchemy of Finance and the Soros Lectures at the Central European University. Soros is not particularly easy for a novice trader. He is not a terrible writer like Brookes, but he is not E.B. White either. There's a jillion books on trading, mostly trash. It isn't easy making money from writing books, but it's a lot easier than trading.