Pattern Trading

marcus · #**391** 24th May 2007, 12:21 AM

I think if we can combine pattern recognition with moving averages we can get as close to the moly grail as possible.

Ed Sekoyta has said he uses this menthod so has Munroe Trout (new market wizards) so has Linda Bradford Rackshe

kkseal · #**392** 24th May 2007, 02:07 AM

With 1-2-3 i think one ought to look for a cup/saucer shaped volume pattern i.e. volumes declining in 1-2 leg and rising in 2-3 leg. This will lend more credence to the pattern. After all it's not the pattern per se but the demand-supply picture it depicts that matters. This is beautifully illustrated in Edward & Magee's book.

Regards,
Kalyan.

kkseal · #**393** 24th May 2007, 02:20 AM

Quote:

Originally Posted by marcus

I think if we can combine pattern recognition with moving averages we can get as close to the moly grail as possible.

Ed Sekoyta has said he uses this menthod so has Munroe Trout (new market wizards) so has Linda Bradford Rackshe

Here one has to be careful as to whether a method would work in all situations. Like if you were using a combination of 1-2-3 with MAs things are likely to work out well in a trending mkt; but the same method would be quite useless when the markets are ranging. MAs would whipsaw and 1-2-3 would catch you on the wrong foot everytime.

So one mustn't generalize too much with ones methods & strategies.

Regards,
Kalyan

uasish · #**394** 24th May 2007, 08:17 AM

kalyan,
De marks seqential ,how does it fare,have you studied.
Asish

RSI · #**395** 24th May 2007, 09:42 AM

An interesting question and an equally interesting answer given by Daryl Guppy on pattern trading.

--------------------------------------------------------------------------
Question:
“If a stock is rising and a bullish pattern has formed and I have entered at a good price and the pattern expresses itself as expected, why would I exit at the target price? Why would I not move my stop loss up and 'Let my profits run'? I ask this because I have recently successfully traded a couple of patterns and exited at the target price only to see them continue to rise.
Maybe in future I would be better raising the stop to protect some of the gained profit and treat the trade more like a trend trade from that point on? It would seem that I have managed to enter a high probability trade with a tight stop loss that is going my direction, so why fight it?”

This is the reply given by Daryl Guppy to the above question:

“Traders destroy a good system by trying to make it perfect. Pattern trading is about probability. There is a high probability of a defined outcome. Once the outcome is achieved there is no strong probability favouring any particular subsequent development. Some stocks continue up. Some fall dramatically, others drift sideways. Deciding the subsequent development is often guesswork and luck– a combination that is not recommended for long term trading success.
Pattern trading accepts that the pattern may be part of a longer term trend or development, and that you may therefore miss out on additional profits. It is a limitation of the approach. However, if you do not accept this limitation, then you are no longer pattern trading. Your trading becomes something different and you need to apply different identification and management rules.
Personally, I prefer high probability situations. I don’t aim for perfection. I am for profit.”

-------------------------------------------------------------------------
Regards
R. S. Iyer

Ajax · #**396** 24th May 2007, 10:35 PM

Dear RSI

With " pattern trading" why satisfy ur self with targets when u can ride much further with trailing Stop losses.

Just one recent example : Tata teleservice formed a triangle (hourly) ... then broke out....@ 21.8
according to triangle pattern .. targets were T1 .. 23.1 & T2 .. 25.6
Traditional way would be to book 50% @ T1 , rest 50% @ T2

Say bought 100 @ 21.8 ... Investment Rs. 2180
Booked 50% @ T1 (23.1) ... Profit of 65
Booked rest 50% @ T2 (25.6) ... Profit of 125
Total profit .... Rs. 190 on Rs 2180 invested (8% return)

Now suppose u follow ur initial investment with trailing stop loss (as shown in 3rd chart.. blue points are stop loss for the period)
You would be stopped out @ 29
..... Profit of Rs 720 on Rs 2180 invested ( 33% return)

What is ur choice !!!!!!

My choice .. identify pattern.. get in with break out, No upper target ...follow with trailing SL.
My Advantages:
1. Break out from patterns often leads to new trends. ..
Did I hear some one say .. Trend is ur friend.
2. What is the gaurantee that next pattern u discover will not fail & hit ur initial stop loss?
3. Avoids over trading, brokerages etc and definitely leads to bigger profits

Disadvantages: I wont be called a genuine Pattern Trader... (who cares?)
If any, Please let me know.

I can post here many other example where Trailing SL gave far better retruns than set targets. Ask me

Regards

Ajax

kkseal · #**397** 25th May 2007, 12:51 AM

With you Ajax.

There is absolutely no need for us to categorize ourselves as this trader or that trader, rather utilize every tool at our disposal to extract profits from the market.

And what's so sacrilegious about a pattern trader also following the trend or momentum or a trend trader also making use of patterns?

Regards,
Kalyan.

kkseal · #**398** 25th May 2007, 12:57 AM

Quote:

Originally Posted by uasish

kalyan,
De marks seqential ,how does it fare,have you studied.
Asish

Not really Asish, just browsed through a short article on the net at one time.

Actually it's a set of indicators (7 of them i think) that's meant to be used in conjunction. TD Sequential, TD Combo & TD Trend something being the most important ones.

Involves bar counting - 9 bars up for going short, 13 bars down for going long - i wonder if markets are that mechanical.

Regards,
Kalyan.

rajesh.sadhanala · #**399** 25th May 2007, 09:15 AM

Quote:

Originally Posted by Ajax

Dear RSI

With " pattern trading" why satisfy ur self with targets when u can ride much further with trailing Stop losses.

Just one recent example : Tata teleservice formed a triangle (hourly) ... then broke out....@ 21.8
according to triangle pattern .. targets were T1 .. 23.1 & T2 .. 25.6
Traditional way would be to book 50% @ T1 , rest 50% @ T2

Say bought 100 @ 21.8 ... Investment Rs. 2180
Booked 50% @ T1 (23.1) ... Profit of 65
Booked rest 50% @ T2 (25.6) ... Profit of 125
Total profit .... Rs. 190 on Rs 2180 invested (8% return)

Now suppose u follow ur initial investment with trailing stop loss (as shown in 3rd chart.. blue points are stop loss for the period)
You would be stopped out @ 29
..... Profit of Rs 720 on Rs 2180 invested ( 33% return)

What is ur choice !!!!!!

My choice .. identify pattern.. get in with break out, No upper target ...follow with trailing SL.
My Advantages:
1. Break out from patterns often leads to new trends. ..
Did I hear some one say .. Trend is ur friend.
2. What is the gaurantee that next pattern u discover will not fail & hit ur initial stop loss?
3. Avoids over trading, brokerages etc and definitely leads to bigger profits

Disadvantages: I wont be called a genuine Pattern Trader... (who cares?)
If any, Please let me know.

I can post here many other example where Trailing SL gave far better retruns than set targets. Ask me

Regards

Ajax

Gr8 way my friend. I m trying to follow the same pattern as urs with the concept of trailing SL.

IMHO, exits cannot be set up at the start of the trade except SL triggers. The set up we need to do is entry, SL, Position sizing (MM)

Regards
Raj

rajesh.sadhanala · #**400** 25th July 2007, 06:52 PM

Hi Ashish,

I can see double top on 3iinfotech @ 324. The long term trendling is still intact taken from 09th June 2006 to till date however the trendline from 15th dec is broken on Jul 20th.

How does one need to consider the trendlines with the double tops to short instead of waiting till the neckline is breached. This is just to reduce the risk of short position by using the trendlines.

If you see the volumes at the first top is very high compared to the second top.

I would like to see the fellow members comment about it.

Regards
Raj

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