Thanks Nik Certainly I am a "work in progress" as I think we all are. Regarding your comment that after the third stop out one might feel as if the fourth would be the turnaround trade....Remember that each trade is an individual event. That string could go on, and on....for anyone interested I suggest googling the subject "gambler's fallacy"... steve
The topic is "Why I do not trade patterns" I certainly understand that you are not welcoming any personal trading input either. That is input which will affect your trading and beliefs about how you trade. Very cool. You put in the original post a mix of personal beliefs that include a few percentages that you feel apply to why you do not trade patterns. In trading, there are many many successful methods. This is simply fact. And it is true the trading is one of the places where a person cannot cheat and win. In the learning process, everything that a person runs across becomes part and parcel of his mind. The memory, derived, majorly, from sensory input, is always growing. With all of this comes a lot of information and experience which winds up permanently fixed in the mind. If this stuff becomes a first recourse for a person when he searches within, it can be very bad news if the stuff does not contribute to that person's efforts. I feel what I am saying is sane and rational and founded on strong principles. For any subject, it is very important to deal with reality. Patterns are a reality. So is the science of statistics and the science of probabilities. Applying statistics and probability to patterns is an excellent idea. The literature is repleat with the full range of applications. I judge that this thread is a poor example and it is important to not consider what has been proffered heretofore as something that can be added to the mind and, as a consequence, become a first recourse as a resource. This is a negative judgement on my part and I feel I am being responsible by putting my brief comment into the space as a caution to those who may not be familiar with patterns, statistics and probability. I agree that the OP's experience can only lead to the conclusion he presents. It is a very very good idea for him to hold the belief that he cannot make money or use patterns in any way, especially under circumstances where descretion is involved. The cause and effect is evident to anyone who is pragmatically knowledgable about patterns, statistics and probability. Learning failure is a tough situation. Trading is one place where anyone can learn a great deal about himself. Trading is also a place where the traader cannot get away with anything for any appreciable length of time. The mental first recourses a purposefully learning trader acquires will always serve him well. They ultimately comprise either a resourse that makes him an expert or makes him leave the playing field forever. Each purposeful learner is, at any time, heading to higher ground or heading out of the door. Any learning that is done by induction ultimately results in heading out the door. Only critical thinking leads to success. Building piles of evidence leads a person out of the door.
Agreed, it is the illusion that the next flip of the coin has to be heads if the past 50 flips have all been tails. This is why I characterized this method as one that would require absolutely iron discipline. We've all looked for the indicator that tells us when a market is trending (at least those of us who have tried to develop systems have). There are some that work all right. It seems to me that this type of method would be a candidate for automation, so that the discretionary component could be taken out of it and the system could shut down in trending markets. PTF says that his is a mix of codification and discretion. Again, that's the part that I am very interested in - the codification part.
"Not trading patterns is not an edge. " I agree, that is no edge. But that is not what I was referring to. The ability to use discretion to pass, or stand aside, on entries that look like losers would indeed be a remarkable edge .
I just started trading the YM mini dow intraday and am experimenting with this: Since you can never - or rarely - pick the top or bottom then the "trend is your friend". If the trend is up BUY with a tight trailing stop, if the trend is down SELL with a tight trailing stop. I would think this is very common and most traders have tried this method, but setting the trailing stop would be the tricky part. So far I have manually closed all positions and am thinking of maybe a 15 or 20 point trailing stop.
I think the main problem here is that most people don't know WHAT they are trading. The index's are primarily used as hedges not profit generators. Second, the index's are a collection of mass psychology and therefor far more unspecific. These 2 reasons alone are sufficient enough for chart patterns to require far more filtering to be useful on them. I always laugh when people that tell me they only trade 2-3 futs contracts rather then 4000 stocks. IF trading is about finding the best opportunity/edge then the probabilities of finding "the best" edge will naturally be with the most choice. In closing, very few widely accepted edges will work on Index futures because of WHAT they are. steve46 - it's nice to see you contributing from a positive perspective.
This is exactly what I don't do. If you look for a trend you are a follower (no disrespect here), not a leader. If you really want to fire up your trading account you have to be <b>ahead</b> of the curve, not <b>behind</b> it. I will post an example of this in a little while. You can pick a top and a bottom if you know how and you manage risk wisely. "The trend is your friend" means you follow others in the hope that even more "others" will buy after you. This is NOT a good strategy. You need to buy BEFORE others do because this almost assures there will be buyers behind you.