Pattern Trading

aca_trader · #**121** 30th January 2007, 11:35 AM

Quote:

Originally Posted by bvpraveen

Hello Ashish,

Just my two cents:

Aren't your risk:reward ratio which you've quoted in the charts are too high. I mean in most of the cases, the risk% is around 10%. Also the reward% too is almost equal to the risk% in most cases. Are you trading with such risk:reward ratios? If so can you please explain your rationale behind trading stocks with such high ratios?
(I hope you have posted them for learning purpose.)

Meanwhile, from your charts which you've posted, I can see that you are using pivot high/low as your stop loss. Isn't it using pivots as stop loss in case of pattern trading will lead to higher risk%? One of my view is to place the stoploss below the trendline where the price brokeout, and once the prices closes at/below stoploss, we sell it. What's your opinion? Of course each one has their own strategy of placing stop loss.

Thanks and regards,
Praveen.

Hi Praveen!

Thanks for highlighting this point. About 10% risk, I would like to say that risk or return has no absolute sense. It has to be relative only and hence I avoid such trades where R:R is less than 1.

Further, The previous pivotal low is the catastrophic stop-loss point after which the trend in itself is supposed to have been reversed and we should reverse our direction of trade. I would like to emphasize that the probability of such a SL being hit is very low if the breakout is genuine and that is a factor in our favour.

A trendline can be taken as SL but in that scenario, we would have to take into account the quality of the TL like no of touches, length, previous reactions, etc. which are usually abscent in pattern trendlines. If pattern breakout trendlines are used as SL, the chances of whip-saw are high and that is why I avoid them. IMHO, break of the lower TL (like in case of Flag,Triangle,Rectangle, etc.) should be the stop to be followed in following the trade.

The recent example of LT is attached for the perusal.

Best Regards,
http://tradingtalks.blogspot.com

P.S. :All the charts are for trading purpose. Even if the charts were for educational purpose, I would not put anything which is not practical on a public platform.

bvpraveen · #**122** 30th January 2007, 11:43 AM

Hello Ashish,

Quote:

....
Keeping in mind these factors, the breakout was assumed to be genuine
....

Thanks a lot for taking pain to explain the concepts. I understood it well and learnt some key points from you and Joy.

Quote:

hence the second day action was taken as follow-up action which IMHO is more necessary than the breakout action itself. Absence of follow-up action usually smacks of the stop-running adventures of the biggies.

Speaking generally, should the volume of the following day after breakout should also be high enough? ie. How should be the volume behavior on the following day after breakout?

Thanks once again,
Praveen.

kkseal · #**123** 30th January 2007, 11:50 AM

'collateral evidence' - like that phrase

Generally speaking, if one is not convinced by the 'summary' on the daily, go down and see the 'minutes' on lower timeframes.

Regards,
Kalyan.

aca_trader · #**124** 30th January 2007, 11:51 AM

Quote:

Originally Posted by bvpraveen

Hello Ashish,

Why? Isn't three days enough for a flag formation. Actually speaking, sharp rise followed by a consolidation, leads to the formation of flag. I don't think there is any min. days to be met for the flag to be considered valid.
Can you please explain?

Thanks a lot,
Praveen.

Dear Praveen!

Edwards & Magee mention that minium time-frame of a flag is 4-5 days and max. it should extend to 3 weeks. That was the reason behind the comment. The underlying logic is that there should be sufficient time for a proper consolidation and also this time frame should not be too much stretched. However, if we find enough empirical evidence of even 3-day flags working, we can trade them.

Best Regards,
--Ashish
http://tradingtalks.blogspot.com

aca_trader · #**125** 30th January 2007, 11:59 AM

Quote:

Originally Posted by bvpraveen

Hello Ashish,

Thanks a lot for taking pain to explain the concepts. I understood it well and learnt some key points from you and Joy.

Speaking generally, should the volume of the following day after breakout should also be high enough? ie. How should be the volume behavior on the following day after breakout?

Thanks once again,
Praveen.

Yup, it is better to have high followup volume but need not be higher than the volume on previous bar. Upward move coupled with volume higher than the consolidation volume should most probably take the stock forward. However, if the next day is a red bar or inside bar, the volume may be lower. We need to see it in the light of other things and a generalized statement is not possible.

It's always a pleasure to interact. You have helped to keep the thread, interest and discussion alive alongwith stretching me to reserach much more. Looking forward to more gems coming from you.

Best Regards,
--Ashish
http://tradingtalks.blogspot.com

aca_trader · #**126** 30th January 2007, 11:59 AM

Quote:

Originally Posted by kkseal

'collateral evidence' - like that phrase

Generally speaking, if one is not convinced by the 'summary' on the daily, go down and see the 'minutes' on lower timeframes.

Regards,
Kalyan.

An apt summary.

Best Regards,
--Ashish

aca_trader · #**127** 30th January 2007, 12:03 PM

Quote:

Originally Posted by kedarvb

Thanks,

Best site on Breakouts trading and pattern trading.

Strong Recommendation Must see the Blog Before Trading

Regards.

Kedar

Dear Kedar!

Thanks a lot for your words of appreciation but I beleive that there are better sites and better persons out there in the web of networks. I hope this blog continues to serve the interest of the traders.

Best Regards,
--Ashish
http://tradingtalks.blogspot.com

bvpraveen · #**128** 30th January 2007, 12:22 PM

Hello Ashish,

My views:

Quote:

If pattern breakout trendlines are used as SL, the chances of whip-saw are high and that is why I avoid them.

I will examine how this SL works: Close below a SL placed below the trendline, by not considering the intraday whip-saws.

Quote:

IMHO, break of the lower TL (like in case of Flag,Triangle,Rectangle, etc.) should be the stop to be followed in following the trade.

Don't get angry! In such a case, I wonder whether such a pattern should be considered as valid first of all. Again its just my view. Leave it.

Quote:

All the charts are for trading purpose. Even if the charts were for educational purpose, I would not put anything which is not practical on a public platform.

Ok man, thats great!

Quote:

Edwards & Magee mention that minium time-frame of a flag is 4-5 days and max. it should extend to 3 weeks........However, if we find enough empirical evidence of even 3-day flags working, we can trade them.

I agree with the last point.

Quote:

...it is better to have high followup volume but need not be higher than the volume on previous bar......We need to see it in the light of other things and a generalized statement is not possible.

Yes, I agree that.

Thanks,
Praveen.

kkseal · #**129** 30th January 2007, 12:22 PM

Quote:

Originally Posted by aca_trader

Hi Praveen!

IMHO, break of the lower TL (like in case of Flag,Triangle,Rectangle, etc.) should be the stop to be followed in following the trade.

Agree with you fully. Sometimes this lower border is retested before the upmove resumes. In case of triangles, the region around the apex acts as a strong support.

Regards,
Kalyan.

bvpraveen · #**130** 30th January 2007, 12:24 PM

Quote:

Originally Posted by kkseal

...In case of triangles, the region around the apex acts as a strong support.

One more point, learnt!

Thanks,
Praveen.

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